FEBRUARY  1976
Do not remove. This document
should be retained in the EPA
Region 5 Library Collection.
            ECONOMIC ANALYSIS OF
    INTERIM FINAL EFFLUENT GUIDELINES
                      FOR THE
                                                >*
      HOSPITALS  INDUSTRY	GROUP H
                        QUANTITY
      U.S. ENVIRONMENTAL PROTECTION AGENCY
           Office of Water Planning and Standards
                 Washington, B.C. 20460

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  This document is available in limited quantities through the
U.S. Environmental Protection Agency, Economic  Analysis
Section (WH-553), 401 M Street, S.W., Washington, D.C. 20460.

  Ill is document will  subsequently be available  through the
National Technical Information Service, Springfield, VA 22151.

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EPA-230/1-76-065b
           ECONOMIC ANALYSIS OF INTERIM FINAL EFFLUENT
          GUIDELINES FOR THE HOSPITALS INDUSTRY - GROUP II
                        Contract No. 68-01-1541

                           Task Order No. 39
              OFFICE OF WATER PLANNING AND STANDARDS
                 ENVIRONMENTAL PROTECTION AGENCY

                        Washington, D.C. 20460
                            February 1976
                                     U.S. Environmental Protection  Agency
                                     Region  V, Library
                                     230 South Dearborn  Street ,--
                                     Chicago, Illinois  60604

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This report has been reviewed by the Office of Water Planning and Standards,
EPA, and approved for publication.  Approval does not signify that the contents
necessarily reflect the views and policies of the Environmental Protection Agency,
nor does mention of trade names or commercial products constitute endorsement
or recommendation for use.

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                                PREFACE

     The attached document is a contractor's study prepared  for the Office of
Water Planning and Standards of the  Environmental Protection Agency (EPA).
The  purpose  of the study is to analyze the economic impact which could result
from the application of alternative effluent limitation guidelines and standards of
performance  to be established under Sections 304(b) and 306 of the Federal
Water Pollution Control Act, as amended.

     The study supplements the technical study, "EPA Development Document,"
supporting  the issuance of proposed regulations under sections 304(b) and 306.
The  Development Document  surveys  existing and  potential  waste treatment
control methods and technology within particular industrial source categories and
supports  proposal of  certain  effluent limitation guidelines and standards of
performance  based upon  an analysis  of  the feasibility of these guidelines and
standards in accordance with the requirements of sections 304(b) and 306 of the
Act.  Presented in the Development Document are the investment and operating
costs associated with various alternative control and  treatment technologies. The
attached document supplements this analysis by estimating the broader economic
effects which might  result from the  required application  of various control
methods  and technologies. This study  investigates the effect of alternative ap-
proaches  in terms of product price increases, effects upon employment and the
continued  viability of affected  plants, effects  upon foreign  trade  and other
competitive effects.

     The study has been prepared with the supervision and review of the Office of
Water Planning and Standards of EPA. This report was submitted in fulfillment of
Contract  No.  68-01-1541, Task Order No.  39 by Arthur D. Little, Inc. Work was
completed as  of February 1976.

     This report is being  released and circulated at approximately the same time
as publication in  the Federal Register of a  notice  of interim final rule making
under Sections 304(b) and 306 of the Act for the subject  point source category.
The  study is not an official EPA publication. It will be considered along with the
information contained in the Development Document and any comments received
by EPA on either document before or during proposed rule making proceedings
necessary to establish final regulations. Prior to final  promulgation of regulations,
the  accompanying study  shall have standing in any EPA proceeding or court
proceeding only to the extent  that it represents the  views of the contractor who
studied the subject industry. It cannot be cited, referenced, or represented in any
respect in any such proceeding as a statement of EPA's views regarding the subject
industry.
                                    111

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                    TABLE OF CONTENTS

                                                     Page

List of Tables                                             vii

1.0   EXECUTIVE SUMMARY                                1

     1.1    INTRODUCTION                                1

     1.2    PURPOSE AND SCOPE                            1

     1.3    CHARACTERIZATION OF THE HOSPITALS
           INDUSTRY                                    2

     1.4    HOSPITALS SUBJECT TO INTERIM FINAL
           EFFLUENT GUIDELINES                          2

     1.5    EXISTING WASTEWATER REGULATORY
           REQUIREMENTS AFFECTING HOSPITALS             2

     1.6    WASTEWATER CAPITAL INVESTMENT AND
           ANNUAL COSTS INCURRED BY "DIRECT
           DISCHARGER" HOSPITALS                        3

     1.7    ECONOMIC IMPACT ANALYSIS                     3

     1.8    ECONOMIC IMPACT OF THE INTERIM FINAL
           EFFLUENT GUIDELINES ON THE HOSPITAL
           INDUSTRY                                    5

2.0   CHARACTERIZATION OF THE HOSPITALS INDUSTRY         7

     2.1    GENERAL CHARACTERIZATION                    7

     2.2    HOSPITALS SUBJECT TO INTERIM FINAL
           EFFLUENT GUIDELINES                          9

3.0   DISCUSSION OF WASTEWATER TREATMENT COSTS
     FOR HOSPITALS                                    11

     3.1    COSTS OF MUNICIPAL TREATMENT OF
           HOSPITAL WASTEWATER                        11

     3.2    WASTEWATER TREATMENT COSTS                 13

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                TABLE OF CONTENTS (Continued)

                                                     Page

3.0   DISCUSSION OF WASTEWATER TREATMENT COSTS
     FOR HOSPITALS (Continued)

     3.3    EXISTING WASTEWATER REGULATORY
           REQUIREMENTS AFFECTING HOSPITALS            16

     3.4    ESTIMATION OF THE ACTUAL COST INCURRED
           BY SOME HOSPITALS AS THE RESULT OF
           IMPLEMENTATION OF THE INTERIM FINAL
           EFFLUENT GUIDELINES                        19
 I

           3.4.1  BPCTCA Treatment Level                    19
           3.4.2  BATEA Treatment Level                     21
           3.4.3  Total Treatment Cost                       21

4.0   ECONOMIC IMPACT ANALYSIS OF THE INTERIM FINAL
     EFFLUENT GUIDELINES ON THE HOSPITALS INDUSTRY     25

     4.1    PRESCREENING METHODOLOGY                  25

5.0   CONCLUSIONS AS TO THE ECONOMIC IMPACT OF THE
     INTERIM FINAL EFFLUENT GUIDELINES ON THE
     HOSPITAL INDUSTRY                                33
                            VI

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                            LIST OF TABLES

Table No.                                                            Page

  1.7       Cost of Pollution Abatement for the Hospitals Industry          4

  2.1       1974 Statistical Profile of the Nation's Hospitals                8

  2.2       "Direct Discharger" Hospitals                                 9

  3.1       Annual Cost of Municipal Discharge Compared to
           Total Yearly Hospital Expenses                              12

  3.2A     Wastewater Treatment Costs for BPCTCA, BADCT and
           BATEA Effluent Limitations                                14

  3.2B     Size-Adjusted Hospital Total Wastewater Treatment Costs
           Per Hospital                                               15

  3.4.3A    "Actually Incurred" Wastewater Treatment Capital
           Investment and Annual  Cost                                 22

  3.4.3B    Estimated Nationwide "Actually Incurred" Treatment Costs     23

  4.1 A     "Actually Incurred" Wastewater Treatment Capital
           Investment Compared to Total "Direct Discharger"
           Hospital Assets                                            28

  4.1 B     "Actually Incurred" Annual Wastewater Treatment Costs
           Compared to Total Yearly "Direct Discharger" Hospital
           Expenses                                                  29

  4.1C     Hospitals Industry Summary Table                           30
                                   vn

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                       1.0 EXECUTIVE SUMMARY

1.1 INTRODUCTION

     This report is one of a series of reports to be prepared by Arthur D. Little,
Inc.  (ADL) for the Environmental Protection Agency  (EPA) under Contract
No. 68-01-1541, Task No. 39. The overall objective of this task is the determina-
tion of the economic impact that EPA interim final effluent limitations will have
on eight point source categories. The primary source of treatment cost informa-
tion  for the Hospitals Industry is the  Draft Development  Document,  dated
February  1975, by  Roy F. Weston.  The  EPA  plans  to name the following
industries as point source categories:

         Pharmaceuticals (SIC 2831, 2833, and 2834);
         Gum and Wood Chemicals (SIC 2861);
         Pesticides and Agricultural Chemicals (SIC 2879 and those estab-
         lishments  engaged  in  manufacturing  agricultural  pest-control
         chemicals covered under SIC 281 and 286);
         Adhesives (SIC 2891);
         Explosives (SIC 2892);
         Carbon Black (SIC 2895);
         Photographic Processing (SIC 7221, 7333, 7395, 7819); and
         Hospitals (SIC 8062, 8063, and 8069).

1.2 PURPOSE AND SCOPE

     The purpose of this report is to assess the economic impact on the U.S.
hospitals industry  (SIC 8062,  8063, and 8069) of the  cost of meeting  EPA
standards for pollution abatement applicable to the discharge  of water effluents
from point sources directly to navigable waterways.

     Compliance with the water pollution abatement standards may require the
industry to  install new physical  facilities in its  present operations, modify its
current  technical operations, or incorporate specialized facilities in new installa-
tions. Furthermore, the industry may  have to install equipment and facilities
capable of three levels of effluent water treatment  such that:

    •   Level I —  by 1977,  for current  industry installations,  the best
         practicable control technology  currently available (BPCTCA) is
         being used to control the pollutant content in the effluent streams
         discharged by the industry;

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     •   Level II  - by  1983,  for current  industry installations, the best
         available  technology that is economically achievable (BATEA) is
         being similarly used; and

     •   Level III  - new source performance standards (NSPS) for new
         industry installations discharging directly in navigable waters to be
         constructed  after the  promulgation of applicable guidelines for
         water pollution abatement, the incorporation of facilities that will
         be capable of meeting these guidelines.

     This report presents the results of  technical and economic analyses applied
to the Hospitals point source category to determine the economic impact of the
interim final effluent limitations.

1.3 CHARACTERIZATION OF  THE HOSPITALS INDUSTRY

     The American  Hospital Association's data for 1974 indicate 7174 hospitals
in the United  States with total  assets of approximately  $52 billion. Their total
yearly expenses were approximately $41 billion.  Because hospitals are typically
non-profit institutions, the annual expenses are usually equal to income or yearly
"sales."

     Average yearly expenses per hospital ranged  from $1,680,000 for hospitals
in the 50 to 99 bed classification to $23,078,000 for hospitals with 500 or more
beds.

1.4 HOSPITALS SUBJECT TO INTERIM FINAL  EFFLUENT GUIDELINES

     We estimate that 90% of the nation's hospitals are connected to  municipal
sewage systems and, hence, are not subject to the interim final effluent guidelines.
Some small hospitals are using septic tanks and are not covered, but some large,
non-urban hospitals are "direct dischargers" covered by the regulations.

1.5 EXISTING WASTEWATER  REGULATORY  REQUIREMENTS
    AFFECTING HOSPITALS

     The hospitals not connected to municipal sewage systems or septic tanks —
"direct discharger" hospitals — have not had the option of discharging raw sewage be-
cause of many state and local regulations that predate the 1972 amendments to the
Water Pollution Control  Act. Therefore the "direct discharger" hospitals have
been required to have some type of treatment facility that is usually equivalent to
secondary sewage treatment.

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1.6 WASTEWATER CAPITAL INVESTMENT AND ANNUAL COSTS
    INCURRED BY "DIRECT DISCHARGER" HOSPITALS

     Estimates  were  made of the  additional  capital  required by  "direct dis-
charger" hospitals of different bed sizes to meet the guidelines. Similar estimates
were made of the  annual  treatment costs to be incurred. The additional invest-
ment  for  the  BPCTCA level  is  $54 million and the BATE A level requires an
additional investment of  $44 million. The cost of both BPCTCA and BATE A
levels is $98 million. The corresponding annual cost is  $16 million for the
BPCTCA level and $11 million for the BATEA level. The total annual cost for
both BPCTCA and BATEA levels is $27 million.

1.7 ECONOMIC IMPACT  ANALYSIS

     As a  result of the interim final  effluent guidelines for  the hospital industry,
wastewater treatment costs will be incurred by an estimated 8% of the hospitals
in the United States. For the hospitals that do incur these  costs, treatment costs
will range from  0.6% to 1.3% of total expenses, depending on hospital size (see
Table 1.7).

     Costs of this  kind will  not  affect  the volume  of services hospitals are
prepared to supply.  The  market environment for  hospital services is generally
characterized  by inelastic demand  -  i.e., there is  little change  in quantity
demanded in response to change in price. This is due to the essential nature of the
services provided by hospitals and to the fact that an increasingly large proportion
of hospital costs is not being borne directly by consumers, but rather by third
parties such as government or private insurance companies. Hence,  the price of
hospital care is cost-determined and cost increases are passed  on to third parties.
Because of the price  inelasticity of demand, there is a long-term tendency to add
these costs  to hospital rates resulting in no impact on the volume of hospital
services supplied or on hospital employment.

     For some hospitals treatment costs may be insignificant and too small to be
reflected in rate increases.

     For the  8% of the hospitals that will incur treatment costs, capital invest-
ment for  treatment facilities range  from 1.39% to 3.3% of total hospital assets
(depreciated). (See Table  1.7.) There is  no evidence that hospitals - which can
finance capital expenditures  from private borrowing or bond issues or  philan-
thropic sources - will have difficulty in raising capital for  construction of treat-
ment facilities.

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  Total
Notes:
                                                          TABLE 1.7
                               COST OF POLLUTION ABATEMENT FOR THE HOSPITALS INDUSTRY
                            Treatment Cost as a Percent    Capital Investment as a

Bed Size
Category

50-99
100-199
200-299
300-399
400-499
500 or more
Estimated
Number of
Dischargers
of Operating Expense
BPCTCA
BPCTCA
& BATEA
Percent of Total Assets
BPCTCA
BPCTCA
& BATEA
Annual Cost
BPCTCA
BPCTCA
& BATEA
Total Investment
BPCTCA
BPCTCA
& BATEA
(%) (%) (%) (%) (in million of dollars)
175
153
77
44
29
63
0.8
0.5
0.4
0.3
0.3
0.4
1.3
0.8
0.7
0.5
0.5
0.6
1.8
1.3
1.0
0.84
0.79
1.1
3.3
2.2
1.8
1.54
1.39
1.9
2
3
2
2
1
3
4
5
4
3
2
9
7
11
8
4
5
18
13
19
15
11
8
32
541
16
27
54
98
Treatment cost was obtained from the "Development Document," adjusted to 1974 values by use of the Engineering News Record Construction Index
(1972 = 1780, 1974= 1994), and scaled to the appropriate flow rates for each bed size category, and reduced by the value of treatment equipment
currently in place.

In 1972 dollars the total annual cost is $15 million for BPCTCA and $24 million for both BPCTCA and BATEA.

In 1972 dollars the total investment is $48 million for BPCTCA and $87 million for both BPCTCA and BATEA.

Source: Arthur D. Little, Inc., tabulation of data from Table 2.2 and Table 3.4.3A.

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1.8 ECONOMIC IMPACT OF THE INTERIM FINAL EFFLUENT
    GUIDELINES ON THE HOSPITAL INDUSTRY

     Based on  our  economic impact  analysis, we reached the following con-
clusions:

     1)   The  majority  (estimated  at  over 90%) of U.S. hospitals are not
         subject  to the interim  final  effluent guidelines, because they are
         discharging to municipal sewage systems; hence there will be no
         concomitant economic impact on this group of hospitals.

     2)   For  "direct discharger" hospitals subject to  the interim  final
         effluent guidelines  (8%   of total U.S. hospitals), the cost of
         achieving the 1977 BPCTCA level ranges from 0.39% to 0.75% of
         the respective  total annual expenses. Achieving the 1983 BATEA
         level will result in an additional cost that ranges  from 0.25% to
         0.5% of total annual expenses.

     3)   The  financial burden caused  by these increases will not change the
         quantity of services offered by hospitals.

     4)   Whatever cost increases these hospitals will incur will be passed on
         to consumers, private and non-profit insurers, and the Government
         in the form  of  higher rates with no significant  impact on the
         volume of hospital services demanded.

     5)   There will be  neither any significant community  impact nor any
         change  in hospital employment as a direct result of  the interim
         final effluent guidelines.

     6)   There is no evidence that hospitals will have difficulty  in financing
         the  investments necessary to meet  the BPCTCA and  BATEA
         levels.

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        2.0 CHARACTERIZATION OF THE HOSPITALS INDUSTRY

2.1 GENERAL CHARACTERIZATION

     Hospitals do not produce a simple physical "product" in the same sense as a
manufacturing or chemical process industry.  Rather, hospitals provide a service,
the value of which can be quantified in  various manners. It is important that the
basis used to quantify water pollution control costs is compatible with the basis
used to quantify hospital output.

     The Development Document provides wastewater treatment cost estimates
for the BPCTCA* and BATEA** treatment levels. The cost estimates are put on
the basis  of "dollars  per 1000 occupied  beds  per year." The  Development
Document  does not define the term "occupied bed," and this leads to some
difficulties  in using occupied beds as the basis of comparison. There are many
interpretations  of a hospital  "bed," e.g., "inpatient  days," "available beds,"
"inpatient day equivalents," etc. We do not believe that the "occupied bed" is the
most useful basis of comparison for the analysis of economic impact.

     The most  current and complete source of hospital data is "Hospital Statis-
tics, 1975 Edition," which consists  of  1974 data compiled from  the American
Hospital Association annual survey.  After reviewing the data contained therein,
we concluded that the most appropriate basis of comparison was the total annual
wastewater treatment cost  for a given size hospital compared to the total yearly
hospital expenses for that size hospital. A comparison on  a total rather than a unit
(per bed)  basis  eliminates  the confusion as to what constitutes an appropriate
"bed."

     The vast majority of hospitals are non-profit institutions in which expenses
are recovered by the charges for hospital services. If temporary funds held aside
for special projects, unpaid bills, certain loans, etc., are excluded, total expenses
very nearly equal total revenue for  any given year. For the purpose of this
analysis, we used revenue and expenses interchangeably.

     "Hospital  Statistics" provides data on hospitals according to  bed size cate-
gories. We  took these data and performed calculations  to determine  an average
value of total assets and total yearly expenses for an average size hospital within
each size category.  The pertinent data  for six different bed size categories are
presented in Table 2.1. "Bed size" in this case refers to capacity  which, of course,
is  different from average daily occupancy. In Table 2.1,  we calculated an average
bed size for each of the  hospital size categories, as shown in column C.  The
 'BPCTCA - Best Practicable Control Technology Current Available
 *BATEA - Best Available Technology Economically Achievable

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                                                                                  TABLE 2.1
                                                          1974 STATISTICAL PROFILE OF THE NATION'S HOSPITALS
oo



Bed Size
Category

50-99
100-199
200-299
300-399
400-499
500 or more
U.S. Total
A



Hospitals

1,748
1,533
766
444
291
634
7,174
B



Beds

1 25,61 3
21 7,087
1 85,772
151,131
1 30,21 3
645,792
1,512,684
C

Calculated
Average
Bed Size
(B+A)
72
142
242
340
447
1,023
—
D


Inpatient
Days1

30,1 32,333
57,1 75,530
52,252,078
43,888,417
38,443,051
192,298,132
425,877,798
E

Average
Daily
Census

82,676
166,861
143,181
120,375
105,328
526,850
1,167,353
F
Calculated
Average
Daily Occupancy
Per Hospital
(E^-A)
47
102
187
271
362
835
—
G


Percent
Occupancy

65.8
72.3
77.1
79.6
80.9
81.6
77.2
H


Total Yearly
Expenses
($1000)
2,938,081
6,31 3,862
6,227,095
5,447,650
4,708,414
14,562,150
41 ,406,1 09
1

Calculated Total
Yearly Expenses
Per Hospital
(H^-A) ($1000)
1,680
4,119
8,129
1 2,269
16,180
23,078
—
J


Total
Assets3
($1000)
3,981,180
8,461,876
8,260,222
7,014,790
5,959,657
16,490,392
51 ,705,91 7
K

Calculated
Total Assets
Per Hospital
(.HA) ($1000)
2,278
5,520
10,784
1 5,799
20,480
26,1 33
—
           Source: "Hospital Statistics, 1975 Edition" (1974 Data from the American Hospital Association Annual Survey) American Hospital Association, Chicago, Illinois, 1975.

           Notes:   1.  "Inpatient Days" is defined as the number of adult and pediatric days of care rendered during the entire reporting period;
                       excludes newborn days of care.
                    2.  "Average Daily Census" is defined as the average number of inpatients receiving care each day during the 12-month period;
                       excludes newborns.
                    3.  "Total Assets"  includes land, buildings, equipment, and reserves for construction, improvement and replacement — less depreciation —
                       plus all other assets including endowment fund principal and general and temporary fund balances.
                    4.  Table excludes  hospitals in the less-than-50-bed size category.
                    5.  Calculated average values are not given for the United States total due to the skewing effect of the large number of smaller hospitals.

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average daily  occupancy is presented in column  F,  the  average  total yearly
expenses per hospital in column I,  and the average total assets per hospital  in
column K. It is the average total yearly expenses per hospital and the average total
assets against which the treatment costs will be compared.

2.2 HOSPITALS SUBJECT TO INTERIM  FINAL EFFLUENT GUIDELINES

     Hospitals connected to municipal sewage systems are  not subject to the
interim final effluent guidelines. The  Development  Document states that "Most
hospitals are located in  densely populated areas and  discharge their waste  to
municipal sewer systems." It is obvious, by the very nature of the hospitals and
the services  they  provide, that  the geographic distribution of hospital capacity (in
terms of available beds) must  very closely follow the geographic distribution  of
the Nation's population. As such, a very high percentage of hospital capacity is
located either within or in close proximity  to large cities. All large cities in the
United  States have  extensive sanitary sewage systems. This fact, coupled with the
compositional similarity  between hospital wastewater  and sanitary sewage, has
facilitated the widespread use  of municipal sewage systems for the disposal  of
hospital wastewater. To our knowledge, there  are no  readily available statistics
giving the percentage of hospital capacity on municipal discharge and the percent-
age providing their own treatment.  Nevertheless, we are in agreement with the
Development Document that most  hospital capacity is on municipal discharge,
and believe  that  an estimate on the order of 90% municipal discharge would  be
realistic.

     Table 2.2 presents the results of  our  computations using this 90% estimate.
Only  those  hospitals using their  own treatment facilities are affected by the
interim final effluent guidelines.

                                   TABLE 2.2*

                        "DIRECT DISCHARGER" HOSPITALS

       Bed Size               Total Number        Estimated Number of Hospitals
      Category               of Hospitals         with Own Treatment Facilities

        50-99                   1,748                        175
      100-199                  1,533                        153
      200-299                   766                         77
      300-399                   444                         44
      400-499                   291                         29
      500 or more                634                         63

      •Assumption:  Only 10% of all hospitals in each size category will have its own
                  wastewater treatment facilities.

      Source: "Hospital Statistics; 1975 Edition."

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3.0 DISCUSSION OF WASTEWATER TREATMENT COSTS FOR HOSPITALS

3.1 COSTS OF MUNICIPAL TREATMENT OF HOSPITAL WASTEWATER

     For hospitals, municipal discharge offers the following major advantages over
individual on-site treatment.

     •    Essentially no capital investment,

     •    Generally  much lower overall wastewater disposal cost, and

     •    Transfer of water pollution control responsibility from  the hospi-
          tal to the municipality.

In light of these advantages, it is reasonable to assume that where  a hospital has a
choice, it will almost invariably select municipal discharge.

     As  discussed in  the Development  Document,  hospitals generate  certain
aqueous wastes, such as spent photographic solutions, that are incompatible with
the proper operation of municipal sewage treatment plants. While  the presence of
high concentrations  of such waste could preclude municipal discharge, the Devel-
opment  Document  indicates that many  hospitals  currently practice in-house
control procedures that prevent such wastes from entering the general wastewater
stream.  It appears that such in-house  controls are feasible and within the  capa-
bility of most hospitals.

     While the Development  Document  makes recommendations regarding in-
house controls, it does not specify  actual contaminant concentration levels for
pretreatment  prior  to  municipal  discharge.  In reality, therefore, pretreatment
restrictions will tend to be at the discretion of the individual municipal sewage
authorities. We have no reason to believe that the proposed effluent guidelines
will, in any way, limit the already widespread use  of municipal discharge for the
disposal of hospital wastewater.

     A municipal  sewage  system consists of a collection system and a treatment
plant. Typically, the total  annual cost of the sewage system is allocated among the
population served by means of taxes and/or various sewer charges.  Whatever form
of cost allocation is used, the basic intent of the  municipality is to  recover the
cost of both the investment and the operation of the sewage system.
                                    11

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     The  cost of  municipal sewage  collection and treatment  (including both
amortization   and  operating  costs)  to  the  consumer  is approximately
$1.00/1000 gallons (calculated at 1974 levels).* We can assume that hospitals on
municipal discharge will have to pay  approximately $1.00/1000 gallons. Due to
the similarity of hospital wastewater  to  domestic sewage, it is doubtful whether
hospitals ever have to pay  a surcharge, as  do  many industries  discharging waste-
waters  of  high  BODS concentration. The charge  of $1.00/1000 gallons can,
therefore, be considered a high estimate. As previously stated, hospitals connected
to municipal  sewage  systems are not subject  to the interim final effluent guide-
lines, but for comparison  purposes we calculated  the  annual  cost  of municipal
discharge  for the various  hospital  size  categories, and have tabulated these in
Table 3.1. We based our calculations on  the wastewater generation rate specified
in the Development Document,  the calculated  average bed size for the various  size
categories, and the $1.00/1000 gallon charge.

     As shown in Table 3.1, the cost of wastewater  disposal varies between 0.26%
and  0.42%  of  total hospital expenses.  The  table also indicates that there is
essentially no economy of scale involved  in municipal discharge, a feature particu-
larly important to small hospitals.
                                  TABLE 3.1

             ANNUAL COST OF MUNICIPAL DISCHARGE COMPARED TO
                     TOTAL YEARLY HOSPITAL EXPENSES

 Bed Size       Calculated Total Yearly
 Category        Expense per Hospital      Yearly Cost of Municipal Discharge per Hospital
                    ($1000/yr)          ($1000/yr)             (% of Total Expenses)

  50-99                 1,680               5.5                       0.33
 100-199                4,119              11.9                       0.29
 200-299                8,129              21.8                       0.27
 300-399               12,269              31.7                       0.26
 400-499               10,180              42.3                       0.26
 500 or more            23,078              97.5                       0.42

 Notes:  1. Cost is based on March 1974 Dollars (ENR Construction Cost Index - 1994)
        2. Hospital wastewater generation rate = 319 gpd per occupied bed
        3. Cost of municipal treatment - $1.00/1000 gal
        4. Total wastewater flow rates are based on calculated average bed size (Table 2.1)

 Source:  "Cost to the Consumer for Collection and Treatment of Wastewater," and the
        Development Document.
 *"Cost to the Consumer for Collection and Treatment of Wastewater," Water Pollution Control
  Research Series, 17090-70/70, U.S. Environmental Protection Agency, pp. 63-66.
                                       12

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3.2 WASTEWATER TREATMENT COSTS

     The  BPCTCA  and BATEA wastewater treatment costs presented in the
Development Document are based on a single "model" hospital of 636 occupied
beds. This cost model  is presented in Table 3.2A. As can be seen from the data
which were presented in Table 2.1, a hospital with 636 occupied beds is a rather
large hospital. It is misleading to use the costs based on this size directly, because
it would not take into account  the economies of scale that exist between large
and  small  wastewater treatment  facilities.  To  acknowledge the  effect  of
economies of scale, the original cost model must be adjusted to fit the different
bed-size categories.

     The capital cost of the type of wastewater treatment facility presented in the
Development Document will largely be dependent on  the  wastewater flow rate
(gallons per  day) that it is designed to treat. Capital cost is therefore a function of
flow rate. Since  there are economies  of scale in both the equipment  and the
construction labor that comprise the total capital cost of a wastewater treatment
facility, the capital cost does not vary linearly, but rather varies according to
approximately the 0.65 power of the flow rate. Thus, a 3 million gpd treatment
plant will not cost 3 times as  much as a 1 million gpd plant, but will cost only
approximately twice as  much.

     The total  annual  treatment  cost  presented in the Development Document
consists of approximately  54% capital recovery, 42% operating and maintenance,
and  4%  energy and power. Operating and maintenance also are affected  by
economies of scale. Thus,  it is reasonable also to apply the 0.65 power rule to the
total annual  cost.

     Using the  wastewater generation rate of 319 gpd per occupied bed specified
in the Development Document, we calculated the wastewater flow rate for each
of the average  size hospitals within the various size categories. Using these flow
rates, we  then  adjusted the Development Document costs to account  for size in
accordance  with  the previously discussed  0.65 power rule.  This  was done  by
means of a "size adjustment factor" based on the ratio  of flow rates raised to the
0.65 power.  The results are shown in Table 3.2B.

     It is important to recognize that the treatment costs presented in Table 3.2B,
are for those hospitals that must treat their  own wastewaters. Hospitals  dis-
charging their wastewaters to municipal sewage systems will incur different costs,
but these costs are not attributable to the interim final effluent guidelines because
the guidelines do not apply to discharges into municipal systems. Hospitals that
already have portions of the required treatment in place will incur only a portion
of the total  costs as a direct result of the promulgation of the proposed effluent
guidelines. There are  existing  regulatory  restrictions  currently  in effect that
require hospitals  to have a major portion or the entire recommended treatment
already in place.
                                     13

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                                               TABLE 3.2A
                                  WASTEWATER TREATMENT COSTS FOR
                           BPCTCA, BADCT AND BATEA EFFLUENT LIMITATIONS
                                     (ENR 1780 - August 1972 Costs)
Average Number of Occupied Beds — 600

Wastewater Flow -  kL/day
                  (gpd)
                  kL/1000 beds)3
                  (gal/1000 beds)3

BOD Effluent Limitation4 -  kg/1000 beds3
     (Design Basis)          (lb/1000 beds)3
                          mg/L
TSS Effluent Limitation4 -  kg/1000 beds3
     (Design Basis)          (lb/1000 beds)3
                          mg/L
   Total Capital Costs
Annual Costs
   Capital  Recovery plus return at 10% at 10 years
   Operating + Maintenance
   Energy + Power
   Total Annual  Cost
   Cost/1000 Occupied Beds/Year1
                                                                       Technology Level
RWL
723
(191,000)
1,210
(319,000)
267
(587)
221
174
(382)
146






BPCTCA
723
(191,000)
1,210
(319,000)
18.7
(41.1)
15
24.2
(53.2)
20
$830,000
$135,000
105,000
10,000
$250,000
$393,000
BADCT2
723
(191,000)
1,200
(319,000)
12.1
(26.6)
10
12.1
(26.6)
10
$169,000
$ 27,000
10,000
3,000
$ 40,000
$ 63,000
BATEA2
723
(191,000)
1,210
(319,000)
12.1
(26.6)
10
12.1
(26.6)
10
$169,000
$ 27,000
10,000
3,000
$ 40,000
$ 63,000
1. Cost based on total annual cost
2. Incremental cost over BPCTCA cost
3.  Based on occupied beds
4.  Long-term average daily effluent

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                                                                    TABLE 3.2B

                                SIZE-ADJUSTED HOSPITAL TOTAL WASTEWATER TREATMENT COSTS PER HOSPITAL
                                                                       Total Capital Investment per Hospital
Total Annual Treatment Cost per Hospital

Bed Size
Category

50-99
100-199
200-299
300-399
400-499
500 or more
Devel. Doc.
Cost Model
Calculated
Average Daily
Occupancy

47
102
187
271
362
835

636

Wastewater
Flow Rate
(gpd)
1 5,000
32,500
59,700
86,400
1 1 5,000
266,000

203,000
Size-Treatment
Cost Adjustment
Factor

0.18
0.30
0.45
0.57
0.69
1.19

1.00
Size-Adjusted
BPCTCA Capital
Investment
($1000)
167
279
419
530
642
1,107

903
Size-Adjusted
BATE A Capital
Investment
($1000)
34
' 57
85
108
130
225

189
Size-Adjusted
BPCTCA Annual
Treatment Cost
($1000/yr)
50.4
84
126
160
193
333

280
Size-Adjusted
BATEA Annual
Treatment Cost
($1000/yr)
8.1
13.4
20.2
25.5
30.9
53.3

44.8
Notes'    1.  BATEA costs are incremental to BPCTCA.
         2.  All costs adjusted to March 1974 levels - (ENR Construction Cost Index = 1994).
         3.  Wastewater flow rates were based on a unit wastewater generation rate of 319 gpd per occupied bed, as stipulated in the Development Document.
         4.  "Size-Treatment Cost Adjustment Factor" is designed to account for the economies of scale that exist between large and small wastewater treatment
            systems and is based on flow rate ratios raised to the 0.65 power.

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3.3 EXISTING WASTEWATER REGULATORY REQUIREMENTS
    AFFECTING HOSPITALS

     As a step in properly determining the  economic impact of  the proposed
effluent guidelines on the hospital industry, we examined the existing wastewater
regulatory requirements with which hospitals currently must comply. We com-
pared the existing regulations with the guidelines and calculated the incremental
treatment  costs directly attributable to  the guidelines themselves. In this way, a
basis for a realistic assessment of the economic impact of the specific proposed
effluent guidelines was provided.

     As  stated  in  the Development Document,  hospital  wastewater  has
characteristics comparable to normal  domestic sewage. The reason that  hospital
wastewater is similar to domestic sewage is simply that a very large component of
hospital wastewater is domestic sewage, i.e.,  human excrement and kitchen and
laundry wastewater. The fact that hospital wastewater contains human excrement
is of significance with respect to the type of regulatory requirements with which
hospitals must comply.

     Historically,  one of the main purposes of the early water pollution control
efforts in  this country was  to prevent  the spread  of waterborne communicable
diseases such as typhoid. Such diseases can be readily transmitted by the discharge
of untreated human excrement into waterways  that also serve as potable water
supplies. For this reason, many states had regulations limiting the discharge of raw
sewage long before the Federal Water  Pollution Control Act. The type of regula-
tions governing the discharge of sewage has varied greatly from State to State, and
even within different  sections  of a particular State. The enforcement  of local
water pollution regulations, especially in earlier  years, has also suffered from a
lack of uniformity.  Nevertheless, there are regulations currently  in effect govern-
ing the discharge of sewage; and  hospitals, as sewage dischargers, are currently
being forced to comply with these regulations.

     We have examined a number of State water pollution regulations and spoke
to pollution control officials in those  States to determine the regulatory require-
ments  already affecting hospitals.  The study  of State regulations confirmed our
impression that, even in the absence  of the guidelines regulations, hospitals did
not  have  the  option  of discharging untreated  sewage onto the  land  or into
waterways. Therefore, total treatment costs are not chargeable to the guidelines,
and  incremental  costs can  only be charged  if the guidelines require treatment
beyond those required by previous regulations. The following are  summaries of
some State regulations and of our contacts with State regulatory agencies.
                                     16

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NEW YORK

     Water pollution control  in New York is under the jurisdiction of the New
York State Department of Environmental Conservation. The specific State law
pertaining to  sewage is Section 17-0509 of the New York Environmental Conser-
vation Law (effective 1972) which reads as follows:

     Section I 7-0509 — Minimum Treatment Required

     1.    As  used in this section,  the term "effective secondary treatment"
          shall mean the removal  of substantially all floating and settleable
          solids and the removal of at least 85% of suspended solids and at
          least 85% of BODS, or such other standards  as may  be adopted
          pursuant to the Act.

     2.    The minimum  degree of treatment required for the discharge of
          sanitary  sewage  into the surface water of the State shall  be
          effective secondary  treatment, provided,  however, that additional
          treatment may be  required consistent with the standards  estab-
          lished for specific waters by the department. . .

     Our  discussion with  the Department  of  Environmental Conservation in-
dicates that  the requirement for  "effective secondary  treatment" is being en-
forced throughout the State  and  that wastewater  discharge from hospitals defi-
nitely comes under the jurisdiction of this regulation.

PENNSYLVANIA

     Water pollution  control in  Pennsylvania is under  the jurisdiction of  the
Department of Environmental Resources, Bureau of Water Quality Management.
The specific State law pertaining to sewage is:

                   Title 25.         Rules and Regulations
                   Part I.           Department of Environmental Resources
                   Subpart C.       Protection of Natural Resources
                   Article  II.        Water Resources

     95.2 Treatment for Biodegradable Wastes

     a.    All biodegradable wastes shall  be given  a minimum of secondary
          treatment, or its  equivalent, for industrial wastes except as other-
          wise specified in this Chapter.
                                    17

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    b.   Secondary treatment is that treatment which shall accomplish the
         following:

         (1)   Reduce  the  organic  wasteload as measured by the bio-
              chemical  oxygen demand test  by  at  least 85% during the
              period May 1 to October 31 and by at least 75%  during the
              remainder of the  year,  based on  a  five  consecutive  day
              average of values.

         (2)   Remove practically all of the suspended solids.

         (3)   Provide  effective  disinfection to control disease-producing
              organisms.

         (4)   Provide satisfactory disposal of sludge.

         (5)   Reduce the quantities of oils, greases,  acids,  alkalis, toxic,
              taste and odor-producing substances, color and  other sub-
              stances inimical to the public interest to levels which shall
              not pollute the receiving stream.

    95.5  Effective Disinfection

         Effective disinfection to control disease-producing organisms shall
    be the production of an effluent which will contain a concentration not
    greater than  200/100 ml of fecal coliform organisms as a geometric
    average value, nor greater than  1000/100 ml of these organisms in more
    than  10% of the samples tested.

    From our  discussion with Department  of Environmental Resources  per-
sonnel,  it  appears that most hospitals (not discharging to municipal  sewage
systems)  in the State  of Pennsylvania already have,  or  shortly will have, the
equivalent of secondary  treatment.

NEW JERSEY

    Water pollution control in New Jersey is under  the jurisdiction of the New
Jersey Department of  Environmental Protection,  Division of Water Resources.
Discussions with personnel at the  Division  of Water Resources indicated  that
hospitals will have to have secondary treatment, and  that in most  cases, State
water  quality  standards would require  between  85%  and  95%   removal of
BODS. It  also appears that direct discharge of wastewater from hospitals is rather
rare in New Jersey, as the vast majority of hospitals are connected  to municipal
sewerage systems.
                                     18

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ILLINOIS

     Water pollution control  in Illinois is under the jurisdiction of the Illinois
Environmental Protection Agency, Water Pollution Control Division. A discussion
with Illinois  EPA  personnel  revealed that, for sewage discharges  of less than
10,000 population  equivalents (approximately 1 million gpd), a BOD5 restriction
of 30 mg/1 and a suspended solids restriction of 30 mg/1 are being enforced. In
certain situations, such as discharge to intermittent streams, it is likely that even
tighter restrictions  will be applied. Since, according to the Development Docu-
ment, hospital wastewater typically has a BOD5  concentration of over 200 mg/1, a
30 mg/1 effluent restriction will require at least  85% BODS removal, which would
automatically require the use of secondary treatment.

MICHIGAN

     Water pollution control in Michigan is under the jurisdiction of the Michigan
Department of Natural Resources, Water Resources Commission and Bureau of
Water Management. Surface water discharges are controlled under a permit system
which closely  corresponds to  the NPDES permit system. Personnel at the Water
Resources Commission felt that  secondary treatment would be applied to hospi-
tals in most cases.  In addition,  there is an interagency agreement between the
Water Resources Commission and the  Michigan State Health Department in which
discharge permits for hospitals and nursing homes are subjected to a joint review.

3.4 ESTIMATION  OF THE ACTUAL COST INCURRED BY SOME
    HOSPITALS AS THE RESULT OF IMPLEMENTATION OF  THE
    INTERIM FINAL EFFLUENT GUIDELINES

     We estimate that  90% of the larger  U.S. hospitals are on municipal sewage
systems and, hence, are not affected by the interim final effluent guidelines. Like-
wise, many small rural hospitals connected to septic tanks are not affected. How-
ever, there are some large hospitals outside of urban areas that have point source
discharges that would be covered by the guidelines. For  convenience, we have
designated the hospitals which are not discharging to municipal sewage plants or
septic tanks as "direct discharger" hospitals.

3.4.1  BPCTCA Treatment Level

     As previously  discussed,  there are many State and local regulations already
promulgated which restrict wastewater discharged from these "direct discharger"
hospitals  to  a level that  generally  requires  the use  of secondary  treatment.
("Secondary treatment," as applied to sewage,  almost always refers to the use of
biological  treatment processes such  as the trickling filter,  the activated  sludge
process, or the aerated lagoon.) The BPCTCA treatment cost model presented in
                                    19

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the Development Document is based on the activated  sludge process, which is
considered secondary treatment.

     Thus, if secondary treatment is already either in use or in the process of
being adopted  by most "direct  discharger" hospitals,  and if such secondary
treatment is essentially equivalent to theBPCTCA treatment level of the proposed
effluent guidelines, then it follows that the BPCTCA treatment costs set forth in
the Development Document are either fully or partially being incurred. It would,
therefore, be unrealistic to attribute the total cost of secondary treatment  (as
specified  in  the  Development  Document  BPCTCA  cost  model) to  the
implementation of the BPCTCA treatment level.

     It is important  to recognize the  fact that all hospitals that already have
secondary treatment  may not  meet the proposed effluent guidelines  (or certain
State or local  regulations). Some  hospitals may have  undersized,  improperly
designed and/or  operated treatment facilities that will need upgrading to meet the
BPCTCA effluent guidelines. The cost of upgrading an existing plant to meet the
BPCTCA treatment level can, of course, be directly attributable to the proposed
BPCTCA effluent guidelines.

     The upgrading  of a  sewage  treatment plant  that already has secondary
treatment will  typically entail adding a second stage  to the existing biological
treatment system, changing the process configuration, or adding additional capa-
city  to certain treatment units. Such measures usually  add very little  to existing
direct operating costs, and require a capital investment that is far less than that of
the original treatment facility.

     The Development  Document  cost model presents treatment  costs for a
secondary biological waste treatment system that is designed to achieve the stated
BPCTCA effluent limitations. Since the vast majority of "direct  discharger"
hospitals already have the suggested  BPCTCA treatment  in place,  the  full
BPCTCA treatment cost stated in the Development Document cost model will not
actually  be  incurred. To acknowledge the fact that certain hospital treatment
systems may need upgrading to meet the BPCTCA level, we estimated that 75% of
the total cost is already being incurred, and that 25% will be incurred as the direct
result of the BPCTCA effluent guidelines. To upgrade a biological treatment plant
from the 85% removal efficiency already required by many States  to the 93%
removal  suggested by  the  effluent levels cited  in the Development Document,
typically, one or more of the following measures would be implemented:

     •   Adding an additional biological treatment stage onto the  end of
         the existing treatment plant;
                                    20

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     •   Modifying the  individual treatment units within the system so as
         to improve their efficiency;

     •   Adding additional capacity to the existing units so as to reduce the
         loadings and thereby improve removal efficiency.

     Such modifications  would normally be minor and the resultant increase in
total treatment cost ought not exceed 25% of the existing cost.

3.4.2 BATEA Treatment Level

     The BATEA treatment level of the proposed effluent guidelines recommends
multimedia  filtration.  Such filtration  installed downstream of secondary bio-
logical treatment is generally referred to as tertiary treatment. There are few, if
any, hospitals currently employing multimedia filtration.  The full  BATEA  treat-
ment cost will, therefore, be incurred by most hospitals that are not on municipal
systems.

3.4.3 Total Treatment Cost

     Table 3.4.3A shows the "actually incurred" BPCTCA treatment cost; i.e.,
25% of the full BPCTCA cost, along with the original  full  BATEA cost. The costs
shown in this table  are those that we believe will actually be incurred by "direct
discharger"  hospitals  as  a direct  result or promulgation of the interim final
effluent guidelines.

     Table 3.4.3B presents the "actually incurred" BPCTCA treatment cost,  along
with the original BATEA cost, on a nationwide basis rather than on an individual
hospital basis.
                                     21

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to
to
                                                                TABLE 3.4.3A

                                  "ACTUALLY INCURRED" WASTEWATER TREATMENT CAPITAL INVESTMENT
                                                            AND ANNUAL COST

                                          Per Hospital "Actually
                  Bed Size             Incurred" Size-Adjusted BPCTCA           BPCTCA               BATEA                 BATEA
                  Category             	Capital Investment	         Annual Cost          Capital Investment          Annual Cost
                                                ($1000)                    ($1000/yr)              ($1000)               ($1000/yr)
                   50-99                           41.8                         12.6                     34                    8.1
                  100-199                         69.8                         21.0                     57                   13.4
                  200-299                        105                          31.5                     85                   20.2
                  300-399                        133                          40.0                    108                   25.5
                  400-499                        161                          48.3                    130                   30.9
                  500 or more                     277                          83.3                    225                   53.3
                  Notes:  1. BATEA capital investment is incremental to BPCTCA capital investment.
                         2. All costs are adjusted to March 1974 level - (ENR Construction Cost Index = 1994).
                         3. "Actually Incurred" BPCTCA capital investment = 25% of total BPCTCA capital investment.
                         4. "Actually Incurred" BATEA capital investment is identical to total BATEA capital investment.

                  Source: Arthur D. Little, Inc., estimates.

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                                                         TABLE 3.4.3B




                             ESTIMATED NATIONWIDE "ACTUALLY INCURRED" TREATMENT COSTS
Bed Size
Category

50- 99
100- 199
200 - 299
300 - 399
400 - 499
500 or more
National
Totals
Nationwide
BPCTCA
Capital Investment
($1000)
7,315
10,679
8,085
3,832
4,669
17,451
54,051
Nationwide
BPCTCA
Annual Cost
($1000)
2,205
3,213
2,426
1,760
1,401
3,246
16,253
Nationwide
BATEA
Capital Investment
($1000)
5,950
8,721
6,545
4,752
3,770
14,175
43,913
Nationwide
BATEA
Annual Cost
($1000)
1,418
2,050
1,355
1,122
896
3,358
10,399
Nationwide
(BPCTCA & BATEA)
Capital Investment
($1000)
13,265
19,400
14,630
10,604
8,439
31,626
97,964
Nationwide
(BPCTCA & BATEA)
Annual Cost
($1000)
3,623
5,263
3,981
2,882
2,297
8,606
26,652
Source: Arthur D. Little, Inc., estimates based on data provided in "1974 Hospital Statistics" and EPA Development Document.

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       4.0 ECONOMIC IMPACT ANALYSIS OF THE INTERIM FINAL
         EFFLUENT GUIDELINES ON THE HOSPITALS INDUSTRY

     We  estimate that 92% of the U.S. hospitals are not subject to the interim
final effluent guidelines, because they are discharging to municipal sewage sys-
tems or septic tanks; hence there will be no concomitant economic impact on this
group of hospitals.

     Those hospitals that are not connected to municipal systems and have point
source discharges of wastewater will be covered by the  guidelines. We designated
the latter group of hospitals as "direct discharger" hospitals. It  is this group of
hospitals that are considered in the  economic  analysis. The first  step of the
economic impact analysis  is the prescreening  process, which was performed for
each of the eight separate industry categories selected for study by the EPA.

4.1 PRESCREENING METHODOLOGY

     The objective of the prescreen was to provide EPA with sufficient informa-
tion to permit it to choose which  industry subcategories it could eliminate from
further study by ADL.  Of course, eliminating some of the subcategories would
permit a more cost-effective utilization of the available resources for studying the
economic impact of the proposed effluent guidelines.

     For any prescreen process to be effective, it must:

     •   Exclude only  those  subcategories for which  there is strong evi-
         dence readily  available that the economic impact would be insig-
         nificant; and

     •   Not consume a large amount of the available resources.

     Initiating the study,  ADL interviewed its  own experts for each industry
category to develop information which characterized the industry, its markets, its
pollution control practices, and any consideration the industry expert felt EPA
should know  about respective industry subcategories. To guide the experts on the
kind of information they should provide, we developed an outline in tabular form
of the information needed.

     The experts were instructed  to prepare their comments utilizing only per-
sonal knowledge or  information  that was immediately available  to them in
completing the information table  for their respective industry subcategories. In
many instances, there were areas in the information table on which no comment
was  possible, either because the expert did not have the requisite information
immediately  available to  him,  or because the  answer was too complex for
answering at the prescreen level.

                                     25

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     The information contained in the experts' comments and on the information
table  not only  provided  the basis  for  our recommendations concerning  the
categories EPA should consider eliminating, but also generalized the condition of
the industry with respect to the proposed regulations.

     In  developing our recommendations, we wanted to have a high degree of
certainty  that any category we  recommended  for  elimination could not, on
further  study, be  shown  to be seriously impacted. Thus, we developed  four
criteria, any one of which, if met by an industry subcategory, would be enough to
give a tentative classification as a subcategory for elimination. Before we recom-
mended that EPA consider elimination of a  subcategory from further study, we
made an overall assessment involving other  data  known to the industry expert.
The criteria are as follows:

     (1)   The industry subcategory is generating no wastewater.

     (2)   The ratio of BPCTCA plus BATEA to selling price is less than 2%
          and/or the ratio of  BPCTCA plus BATEA to profits is less than
          15%.

     (3)   Most of the plants  in the subcategory are currently discharging
          into municipal sewage systems and may continue to do so with
          little or no pretreatment costs incurred.

     (4)   Most of the recommended  treatment facilities have already been
          installed in most of the plants in the subcategory.

     Criterion (1) obviously represents the  strongest reason  for  eliminating an
industry from further study. If the industry does not discharge wastewater, water
pollution regulations will have no impact upon the industry.

     Criterion (2)  is based on discussions  with ADL  economic experts. We
decided that, if  this criterion were met, the proposed standards would likely not
result in a significant economic impact. Often, our experts had no profit margin
information available.  In  those instances, when  the ratio of treatment cost to
selling price was less than 2%, we still recommended that EPA consider removing
the subcategory from further study. However, this recommendation is  not so
strong as the recommendations made using profit information.

     In considering treatment  cost/selling price and treatment cost/profit margin
ratios, it is important to  realize  that  the treatment costs presented  in the
Development Document are for a total treatment system and represent the costs
incurred  by a  plant having  no  wastewater treatment already in  place. Most
facilities within  the eight industries studied under this contract have some form of
wastewater treatment already installed.

                                     26

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     Criterion (3) also represents a very  strong reason  for eliminating a sub-
category from further study.  If the waste water  treatment practice within  a
subcategory consists mainly of discharging to municipal sewage systems, the cost
of that treatment is already being incurred via sewer charges. If the subcategory
can continue this practice, be consistent with the pretreatment standards set forth
in the  Development Document, and yet incur little or no pretreatment cost, then
the incremental economic  impact to that subcategory  will be nil. Since  the
Development Document does not provide pretreatment costs, Criterion (3) was
used to eliminate a category only when it was very clear that pretreatment would
be either unnecessary or minimal.

     Criterion (4)  represents a reason  for  eliminating  an industry  from  further
study on the basis that, should the industry meet Criterion (4), it will not have to
expend as  much money as the Development Document indicates to meet  the
proposed standards.

     The wastewater treatment already installed to meet other Federal or State
regulations may be adequate to meet the requirements of the proposed guidelines.
Therefore,  the incremental treatment costs attributable to the guidelines may be
zero for many facilities.

     Tables 4.1 A and  4.IB present our estimate of the actually incurred waste-
water  treatment  costs for  the Hospitals Industry. The smallest  hospital size
category, because  of economy-of-scale penalties, will  have proportionately  the
highest treatment costs. Using the unit  treatment  costs for the  smallest size
category, the Hospitals Industry  was  subjected  to the previously described pre-
screening process. The  various factors that went into the prescreening process are
summarized in Table 4.1C.

     As can be seen from Table 4.1C, the Hospitals Industry satisfies many of the
necessary conditions for prescreening, and therefore will not have to be subjected
to detailed economic impact analysis to determine that the economic impact will
not be significant.

     We considered the following additional factors in  performing this prescreen:

     •   The nature  of  the  demand  for hospital services  is such  that
         treatment costs would be "passed on" to  consumers in the form
         of higher hospital rates with  no impact on the supply of hospital
         services.

     •   The market  environment for hospital  services is generally charac-
         terized by an inelastic demand. This is due to the essential nature
                                     27

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K)
oo
                                                                 TABLE 4.1 A

                              "ACTUALLY INCURRED" WASTEWATER TREATMENT CAPITAL INVESTMENT COMPARED
                                              TO TOTAL "DIRECT DISCHARGER" HOSPITAL ASSETS
                                                                     Per Hospital
                                                                  "Actually Incurred"
Calculated Total Assets
Bed Size Per Hospital
Category ($1000)
50-
100-
200-
300-
400-
500 or
99
199
299
399
499
more
2,278
5,520
10,784
15,799
20,480
26,133
Size- Ad justed
BPCTCA Capital Investment
($1 000) (% of Total Assets)
41.8
69.8
105
133
161
277
1.8
1.3
1.0
0.84
0.79
1.1
       Per Hospital
    "Actually Incurred"
       Size-Adjusted
 BATEA Capital Investment
($1000)  (%of Total Assets)

  34            1.5

  57            1.0

  85            0.8

 108            0.7

 130            0.6

 225            0.8
                       Notes: 1) BATEA capital investment is incremental to BPCTCA capital investment.
                             2) All costs are adjusted to March 1974 level - (ENR Construction Cost Index = 1994).
                             3) "Actually Incurred" BPCTCA capital investment = 25% of total BPCTCA capital investment.
                             4) "Actually Incurred" BATEA capital investment is identical to total BATEA capital investment.
                       Source: Arthur D. Little, Inc., estimates.

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                                                               TABLE 4.1 B

                               "ACTUALLY INCURRED" ANNUAL WASTEWATER TREATIVIENT COSTS COMPARED
                                      TO TOTAL YEARLY "DIRECT DISCHARGER" HOSPITAL EXPENSES
                                                              Per Hospital
Per Hospital
K)
Bed Size
Category
50-
100-
200-
300-
400-
500 or
99
199
299
399
499
more
Calculated Total
Yearly Expenses
Per Hospital
($1000/yr)
1,680
4,199
8,129
12,269
16,180
23,078
"Actually Incurred"
Size-Adjusted
BPCTCA Annual Treatment Cost
($1000/yr) (% of Total Expenses)
12.6
21.0
31.5
40.0
48.3
83.3
0.75
0.50
0.4
0.33
0.30
0.36
"Actually Incurred"
Size-Adjusted
BATEA Annual Treatment Cost
($1000/yr) (% of Total Expenses)
8.1
13.4
20.2
25.5
30.9
53.3
0.50
0.33
0.25
0.20
0.19
0.23
                   Notes:  1) BATEA annual cost is incremental to BPCTCA annual cost.
                          2) All costs are adjusted to March 1974 level - (ENR Construction Cost Index = 1994).
                          3) "Actually  Incurred" BPCTCA annual cost = 25% of total BPCTCA annual cost.
                          4) "Actually  Incurred" BATEA annual cost is identical to total BATEA cost.

                   Source: Arthur D. Little, Inc., estimates.

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                                       TABLE 4.1 C

                         HOSPITALS INDUSTRY SUMMARY TABLE
                      Industry Data

 1. Annual Production* (units/yr)
 2. Production Value** ($MM sales)
 3. Representative Range of Unit Selling Price, ($/bed-day)
 4. Estimated Profit Margin (% of selling price)
 5. BPCTCA (1977) Treatment Cost* ($/unit of product)
 6. BATEA (1983) Treatment Cost"1" ($/unit of product)
        Subcategories
       Single Category

248,097,000 bed-days per year
     28,372 $MM/yr
$101-$140
Mostly non-profit
$1.69 per day per bed
$0.27 per day per bed
Technical and Economic Factors Pertinent to Economic Impact Analysis

Technical Factors

 7. Possibility of drastically reducing or totally eliminating            Nil
    wastewater flow rate.
 8. Possibility of substantially reducing cost of end-of-pipe            High
    treatment via in-plant changes and/or process modifica-
    tions
 9. Fraction of plants with substantial wastewater treatment          High
    facilities in-place.
10. Fraction of plants presently discharging into municipal            Very high
    wastewater treatment facilities.
11. Frequency or likelihood of plants sharing waste treatment         Nil
    facilities with other manufacturing operations
12. Degree to which proposed treatment departs from currently       Low
    employed treatment.
13. Seriousness of other pending environmental control prob-         Low
    lems (including OSHA).

Economic Factors

14. BPCTCA plus  BATEA unit treatment cost actually incurred       0.6%-1.3%
    as percent of unit selling price.
15. BPCTCA plus  BATEA unit treatment cost as percent of           Not applicable
    unit profit margin.
16. Would the demand for the industry's product be significantly      No
    affected by an increase in price?
  'Annual "production" is for community hospitals only. Production is based on an average daily in-
   patient "census" of 679,718 beds per day extended over a 365-day period.
 **Based on an average "selling price" of $114.49 for 1973.
  t Adjusted to a 200-bed hospital and to  1973 dollars.
  +Treatment costs are for hospitals having their own treatment facilities. ADL estimates that the cost
   for municipal treatment to be no more than $0.32 per bed-day.

 Source:  "Hospital Statistics, 1975 Edition" (1974 Data from the American Hospital Association
         Annual Survey) American Hospital Association, Chicago, Illinois, 1975.
                                              30

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of the services provided by hospitals and the fact that an increas-
ingly  large proportion  of hospital costs is not being borne directly
by consumers,  but rather by  third parties such as government or
private insurance companies.  Hence,  the price of hospital care is
cost-determined,  so that cost increases  are passed  on to  third
parties. The  wastewater treatment costs would therefore be re-
flected in higher rates  with no economic impact on the supply of
hospital services or on hospital employment.

For the  8% of the hospitals  that may incur increased treatment
costs, capital investment for treatment facilities range from 1.39%
to 3.3%  of total  hospital assets (depreciated) (see  Table 4.0A).
There is no evidence that hospitals — which  can finance capital
expenditures from  private borrowing,  bond  issues, or philan-
thropic sources — will have difficulty in raising capital for con-
struction of treatment facilities.
                            31

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       5.0 CONCLUSIONS AS TO THE ECONOMIC IMPACT OF THE
            INTERIM FINAL EFFLUENT GUIDELINES ON THE
                          HOSPITAL INDUSTRY

     Based on our economic impact analysis, we have reached the following conclu-
sions:

     1)   The majority (estimated at  over  90%) of U.S.  hospitals are not
         subject to the  interim final  effluent guidelines, because they are
         discharging to  municipal sewage systems; hence there will be no
         concomitant economic impact on this group of hospitals.

     2)   For "direct discharger" hospitals  subject  to  the interim final
         effluent guidelines  (8%  of total  U.S.  hospitals), the cost of
         achieving the 1977 BPCTCA level ranges  from 0.39% to 0.75% of
         the  respective total annual expenses. Achieving the 1983 BATEA
         level will result in an additional cost that ranges from 0.25% to
         0.5% of total annual expenses.

     3)   The financial burden caused by these increases will not change the
         quantity of services offered by hospitals.

     4)   Whatever cost increases these hospitals will incur will be passed on
         to consumers,  private and non-private insurers, and the Govern-
         ment in the form  of higher rates with no significant impact on the
         volume of hospital services demanded.

     5)   There will be neither any significant community impact nor any
         change in hospital employment as a direct result of the interim
         final effluent guidelines.

     6)   There is no evidence that hospitals will have difficulty in financing
         the  investments  necessary  to meet the BPCTCA and  BATEA
         levels.
                                   33

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