Crisis causes some malignant growth.

• Position: Health Care

Everyone knows the head bone is connected to the neck bone--and so on. What's harder to comprehend is how trends within the healthcare industry are connected. Last year, as hospital administrators and physicians moaned about rising malpractice-insurance rates, stingy managed-care and Medicare reimbursements and increasing numbers of uninsured patients, they announced a whopping $570 million of construction projects and new equipment.

All those things are linked, even if they seem as unconnected as head bones and toe bones. Health-care providers are adding floor space and expensive equipment, hard times or not, partly because items such as the $3.3 million magnetic resonance imaging scanner bound for Kings Mountain Hospital in Shelby are needed for expensive tests that help fend off malpractice lawsuits. Defensive medicine drives up medical costs and insurance, which drives away people who can't afford coverage.

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Often those uninsured end up using emergency rooms for primary care. And often they don't pay--an estimated $1.5 billion in lost revenue statewide. Also, insurers want hospitals and doctors to conduct surgery in cheaper outpatient clinics. The two trends have helped spawn projects such as Presbyterian Hospital's $5.3 million emergency-room expansion in Matthews and the $5.2 million outpatient Surgery Center of Pinehurst.

Hospitals and doctors also push up costs in the state's burgeoning $45 billion healthcare economy by trotting on technology's treadmill. MRI and PET--positron emission tomography--scanners have become the standard of diagnostic care for most physicians, says Ronald Loftin, an analyst with the Certificate of Need Section of the N.C. Department of Facility Services. More than 50 hospitals and clinics have applications pending for the devices--which cost $2 million to $4 million.

One development that didn't fit the trend came in December when Charlotte-based Carolinas HealthCare System announced it would ask the state for permission to build an $85 million children's hospital near Carolinas Medical Center. Officials say they expect an additional 95,000 children in the hospital's referral region in the next 10 years.

A shortage of personnel also is forcing up costs. "We're still facing a significant shortage of not only nurses, but pharmacists, radiologists and laboratory technicians," says Don Dalton, vice president of the North Carolina Hospital Association in Raleigh. The average starting salary...