FEBRUARY 1976
Do not remove. This document
should be retained in the EPA
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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.
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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.
-------
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.
-------
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.
-------
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
($1000/yr) (% of Total Expenses)
8.1
13.4
20.2
25.5
30.9
53.3
0.50
0.33
0.25
0.20
0.19
0.23
Notes: 1) BATEA annual cost is incremental to BPCTCA annual cost.
2) All costs are adjusted to March 1974 level - (ENR Construction Cost Index = 1994).
3) "Actually Incurred" BPCTCA annual cost = 25% of total BPCTCA annual cost.
4) "Actually Incurred" BATEA annual cost is identical to total BATEA cost.
Source: Arthur D. Little, Inc., estimates.
-------
TABLE 4.1 C
HOSPITALS INDUSTRY SUMMARY TABLE
Industry Data
1. Annual Production* (units/yr)
2. Production Value** ($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.
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