SpaceMed.com

Healthcare Facility Planning Tools and Guidelines

In the News

SpaceMed Home

SpaceMed Newsletter                                                                               

Fall 2008

Volume 1, Number 4

Healthcare Construction Is a High Stakes Game

OVERVIEW

Healthcare facilities across the U.S. are finding themselves in the midst of a high stakes game. Aging facilities, rapidly advancing technology, intense competition, and increased consumer demand are among the factors that are driving up the ante for new hospital construction or major renovation. Keeping up involves high risk and cost.

Healthcare facility construction costs are rising at a record pace ― doubling since 2004 ― and some experts estimate the boom will exceed $60 billion annually by 2010. Moreover, the risk is substantial. When healthcare leaders decide to build or renovate their facilities today, they may not admit the first patient for six, seven, or even eight years. The technology to be used to treat patients at that time may not even exist today ― or at least not in the same form. The newly constructed facilities will need to meet the needs of patients for at least another 20 or 30 years. During that time, it is not clear whether there will be many more inpatients due the aging U.S. population or fewer inpatients as patient care continues to shift to the ambulatory care sector requiring many more new outpatient facilities. At the same time, physicians and for-profit companies are trying to beat hospitals to the punch.

ABOUT THE REPORT

Discoveries about healthcare construction trends and capital implications are revealed in the fourth report of the Financing the Future III series led by the Healthcare Financial Management Association (HFMA) in partnership with GE Healthcare Financial Services. Researchers surveyed key industry leaders to identify the trends and issues that are affecting future healthcare construction.

The third Financing the Future series is in many ways the most ambitious. HFMA and GE Healthcare Financial Services have set out to identify key industry trends that affect hospitals’ capital position and their ability to fund important future initiatives. The trends are payment trends, technology spending, unfunded liabilities, and approaches to building new hospitals. For each trend, a report identifies the current state and implications for the future.

SUMMARY OF KEY FINDINGS

The findings in Report 4 show a combination of factors are driving renovation and construction costs for the hospitals of the future including:

• Both the number and size of healthcare construction projects is growing and they are getting more expensive due to the rising cost of oil, growing global demand for materials, and potential labor shortages. In response, hospitals will decrease the design/
  construction execution time and design new facilities that reduce operational costs. Services will continue to be delivered in non-traditional buildings that are less expensive to build.

• Although many healthcare facilities undergo an average of seven or more changes or remodels over their lifetime, many hospitals built before WWII cannot be further retrofitted to meet the needs of increasingly sophisticated technology.

• Larger, single-bed patient rooms are being built to accommodate technology, changing levels of acuity, and to facilitate infection control. Hospitals are finding themselves at a very significant competitive disadvantage if they have a limited number of single-bed rooms while a competitor offers all private rooms.

• However, hospitals too often think only about the cost of construction and not the long-term operational costs and potential revenue. As volumes grow, hospitals need more square feet but they should be looking at the square footage per unit of service. In other service industries, the cost per unit of just about anything where technology plays a role has gone down. But in healthcare, the cost per unit of care keeps going up.

• Before hospitals start building, they should make sure that a new building is the optimal way to solve their capacity problems. A thorough review of the current facilities may uncover additional "virtual capacity." Moreover, the most compelling reason to renovate in lieu of starting over, is that you get beds much sooner ― years before you would get them with new construction.

• Ambulatory facilities are also getting bigger ― 100,000 to 200,000 square feet ― double the typical size five or ten years ago. As a result, ambulatory facilities are being increasingly moved off-campus because of lack of land. Standalone facilities are following retail's lead in providing easy accessibility, convenient wayfinding, and parking near the front door ― features which are hard to provide on a typical hospital campus.

COMPLETE REPORT

The complete Report 4 of the Financing the Future III series is titled "Report 4: Healthcare Construction Trends and Capital Implications" and can be downloaded at HFMA's website.

back to top

News 1308.4.1