Two stories about hospital construction caught my eye this week. The Birmingham Business Journal reported on the impact sky-high hospital construction costs will have on the price of healthcare and another report details HCA's plan to move forward with several hospital construction projects despite the fact the hospital chain is in the midst of a $33 billion buyout.
To get a better handle on this trend, I spoke with Niklaus Fincher, Senior Director of Capital Asset Services for the Voluntary Hospital Association (VHA). He said that--at least on the non-profit side of the industry--the recent construction boom is a trend borne of necessity. In the late 1980s and early 1990s, not-for-profit hospitals tightened their budgets, leaving little room for new technology and updated facilities. But healthcare has changed significantly in the last 20 year and in order to keep up with an aging population and competition from for-profit hospitals, voluntary hospitals have to sink some serious money into new construction.
There are several factors that have influenced the current building trend. First, Fincher notes that there's been an overall shift to patient-centric care in recent years, meaning that the age of the semi-private room has come to the end. Hospitals are treating patients more like guests, giving them private rooms and providing bedside care. This has as a significant impact on the structural design--and the budget--of hospitals. For example, technology that improves and simplifies how providers care for patients now accounts for roughly 3 percent of any given not-for-profit construction budget. Additionally, patients are larger now than they have been in the past, creating design issues that hospitals must address in their building plans. Finally, there has been a shift to greater outpatient care in recent years. Many hospitals have constructed entirely new facilities that serve outpatients only, while providing acute care in inpatient facilities.
All of these upgrades come at a steep price--roughly $275 per square foot of construction, up from just $100 in 1995. With costs like these, even the slightest delay or snafu can cost a hospital big bucks. The VHA recommends that hospitals planning construction projects take several measures to avoid unexpected budget overruns. Assembling a project team and divvying up duties early on is a key factor for success in the building process. The team must examine how the project fits into the hospital's long term plan, agree on a level of outsourcing, line up financing and communicate effectively throughout the entire process. Check out the VHA's Web site for more of the VHA's recommendations and to read the full report.
The hospital boom--and the costs it brings with it--isn't ending any time soon. With an aging population in need of more care in updated facilities, hospitals are projected to spend $20 billion on construction this year alone, and that number could jump to $27 billion by 2010.
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FierceHealthcare will not be published this coming Monday, September 4th, in observance of the Labor Day holiday. Our regular publishing schedule will resume on Tuesday, September 5th. Have a safe and happy Labor Day! - Maureen