Pelham: Rep. Kitty Toll, why not start here?

There’s a bit of a kerfuffle about the $28 million development cost and the estimated $20 million annual operating cost for the new 25-bed psychiatric hospital in Berlin, as there should be. Per-bed development costs of over $1.1 million and annual operating costs of $800,000 per bed are pricey, but by how much is the question. Recently Rep. Kitty Toll, a member of the House Appropriations Committee, expressed interest in Results Based Accountability (RBA). 

If the House and Senate Appropriations Committees are serious about this renewed interest in RBA, the Berlin hospital might be a good place to start.

This issue first crossed my screen during the waning days of my stint as deputy secretary of administration. I was tasked with reviewing a draft of Gov. Douglas’ press release in support of the Vermont State Futures Master Plan. This plan called for the development of 60 acute care psychiatric beds at three locations at a cost of $61.2 million.

Subsequent to the press release but curious about the $1 million development cost per bed, I called the folks at Building and General Services to see what was available for backup and was given a free-standing preliminary cost estimate. The estimate was not nested in the context of costs for other recently developed, publicly funded Level 1 acute care facilities. As the Futures Master Plan was at its inception, this seemed reasonable at the time as most of the development process still remained to unfold. However, from time to time I searched for cost profiles of other acute care psychiatric hospitals and though few, their costs ranged between $250,000 and $425,000 per bed. These facilities though were bigger than Vermont’s proposal and while some did, other estimates did not include all relevant cost factors such as land or design fees, among others.

Subsequent to my departure as deputy secretary, I received a press release from an investment entity announcing a 60-unit acute care facility comprised of 33 psychiatric and 27 physical rehabilitation beds.

Given the small size of this facility, I was curious as to whether this investment covered the total costs of the project and tracked down the CEO of the hospital’s developer who assured me it did at the per-bed cost of $358,000. However, though well below Vermont’s estimated costs, some of the units in this facility were double bunked and the client focus seemed less severe than those at the state hospital. I forwarded the developer’s information to the budget folks at the Department of Finance and Management as a possible source for helpful information.

Subsequently the announcement came that a 25-bed, $28 million acute care psychiatric facility was proposed for Berlin near the Central Vermont Hospital given the closure of the Waterbury facility due to Hurricane Irene. Pat McDonald, a former colleague in state government, state representative, Berlin resident and former chair of the Berlin Board of Selectmen contacted me in this regard. Pat was a strong supporter of the Berlin project, as was I, but given the fast track speed at with which the proposal was moving she wanted to better understand the relationships between the facility’s size and its budget.

To receive any available information in a timely manner, Pat filed a Freedom of Information request asking: “to review all documents and analysis created or used by BGS (Buildings and General Services) to determine the estimated $28,307,194 construction cost as well as all documents and analysis crafted by Black River Design and Lomonaco & Pitts, Architects for the State that resulted in the $28,307,194 construction estimate. Also, I would like to review any documents or analysis used by the State to compare the estimated construction cost of the Berlin facility to construction costs of other recently constructed acute care psychiatric hospitals. Additionally, I would like to review all documents reviewed by the State that profiles the other acute care psychiatric hospitals designed by Black River Design or Lomonaco & Pitts, Architects over the past 5 years, inclusive of the total construction cost and per bed construction cost of such facilities.”

In response, Pat initially received an email containing the same material she received at the certificate of need hearing in Berlin profiling the freestanding $28 million cost estimate. Shortly thereafter, she received one other email noting the attached document was: “provided from our consultant with some other State’s facilities. Note the construction cost for apples to apples comparison should be compared with our construction cost using the new construction figure ($14,683,475) plus Site Work ($1,750,000) plus CM Fee ($657,320) for a construction cost estimated at $17,090,795. This number will more accurately reflect the construction cost indicated in the above attachment. Thus our cost per bed is $683,632/Bed. Understand that there is an economy of scale when constructing a facility with a larger number of beds.” Thus, the remainder of the $28 million Berlin cost was deemed by BGS not to be “construction costs.”

The second document was hardly useable as a platform to benchmark the reasonableness of the Berlin facility’s projected costs. I wrote Pat that it “seems to be a profile of built or facilities in design or under construction, but appears to have been developed for another project (Commonwealth of Massachusetts/DCAM and a Commission are referenced and some of the information appears dated and data about projects recently built is not included.)” Further, it contained no definition of “construction cost” so one could not ascertain what was included and what was not in the amounts given.

However, if one accepts the data as presented that it was used to benchmark the Berlin project, I noted “the data sent to you indicates the Berlin project is expensive and possibly over designed. The average cost per square foot, cost per bed and square feet per bed for the Berlin project as profiled in (BGS’S) e-mail are $683,632 per bed, $356 p.s.f., and 1,920 sq. ft. per bed respectively. The respective averages from the ‘apples to apples’ and usable data attached to the second e-mail to you are $317,500 per bed, $245 p.s.f. and 1,322 sq. ft. per bed.”

Pat and I shared our review with a member of the Senate Institutions Committee and asked if the Joint Fiscal Committee had any additional research. The senator asked and received a copy of the same Commonwealth of Massachusetts profile Pat already received in response to the FOI request and a copy of the April, 2008 Vermont Futures Survey of States, which contains general information on operating costs but no data on construction costs. The operating cost information, though general in nature and dated, enforces the concern that the estimated per-bed operating cost of $800,000 would be extraordinary among the states surveyed.

A more recent data point for comparison is a 2013 analysis of the options and cost of adding Centers for Medicare and Medicaid Services (CMS) certified psychiatric beds in North Carolina. There, the estimated per-bed total development costs are for a new 200-bed hospital at $686,000 vs. Vermont’s $1.1 million and operating costs at $390,000 vs. Vermont’s $800,000, though a factor reflecting economies of scale appropriately should be considered given the smaller scale of Vermont’s project.

The spread between Vermont’s construction and operating costs and North Carolina’s are vast. If North Carolina’s analysis is appropriately reasoned, it might be informative to find out why Vermont’s project is costing millions more to both construct and operate. At even $900,000 per bed for construction for the Berlin facility, for example, the savings would more than cover the $3.5 million in capital cost overruns of the new heating plant in Montpelier. At operating costs budgeted at $600,000 per bed (still $210,000 per bed higher than North Carolina’s), the savings would more than cover the current General Assistance shortfall for emergency housing.

It’s clear that no thorough comparative cost analysis has yet been done to inform and guide legislators toward a well-considered understanding of the reasonable costs for the Berlin project even though the project is under construction and operating budgets are under consideration. Statements like “This is just the beginning of the surprises that happen in these types of projects” is a clear indication that Mental Health Commissioner Dupre is flying blind at taxpayer expense.

Possibly the members of the House and Senate Appropriations Committees can prevail upon their staff and the administration to provide some real world benchmarks for Berlin’s project costs and then exercise and enforce some “Results Based Accountability.”