The most significant expansion and replacement of U.S. hospitals since the building spree after World War II continues to fuel a red-hot construction market that’s reshaping the face of health care delivery. With hundreds of additional projects in the planning stages, it’s a trend that’s expected to last through the rest of the decade.
New hospitals and clinics valued at $22 billion were under construction as of late 2005, according to the consulting firm Reed Construction Data/RSMeans Business Solutions—more than double the amount in 2000. “Everything is holding very strong,” says Robert Gair, a principal for RSMeans Business Solutions in Washington, D.C.
It’s not all just more of the same, either. The hospital building boom that first took shape five years ago is heading in different directions as it matures.
For starters, the deep-pocketed organizations that were the first to set construction cranes in motion to build state-of-the-art facilities have been joined by a wide range of others building replacements or renovations.
And the Sun Belt no longer dominates the action—the second wave of construction activity has spread into every region of the country. Illinois outpaced all other states with more than $3.7 billion in construction of new hospitals and clinics under way in 2005 while Ohio was No. 1 in hospital renovations, according to the data compiled by Reed Construction Data/RSMeans. States from the East and the Pacific Northwest, too, appear on lists of construction hot spots.
Renovations are becoming a more popular option for hospital upgrades, comprising an approximately $6 billion market in 2005. But that doesn’t mean organizations are thinking small. The number of giant hospital construction projects—those costing $100 million or more—jumped from 67 in 2003 to 100 in 2005, according to RSMeans.
Evidence-based design, long favored by architects but viewed more skeptically by hospital boards, is increasingly a factor in hospital projects even if many await more bottom-line proof. Not only are shared rooms becoming a thing of the past, new rooms are incorporating more choices and control for patients, family accommodations, reduced noise, improved lighting and other healing design elements to improve care and cut long-term costs.
Project designers and industry experts also report a higher priority than ever on building facilities and rooms that are flexible enough to accommodate changes in technology and patient demographics, particularly as the population gets older and sicker.
“Things like flexibility are absolutely on the tip of every (hospital) executive’s tongue,” says Kirk Hamilton, associate professor of architecture at Texas A&M University, who has been designing hospitals for 35 years. “They’re sick and tired of building things and … having to spend enormous amounts of money making changes.”
All the 21st century technology, added square footage and design improvements are expensive, of course, and concerns about affordability are increasing in the industry at a time when construction costs and interest rates are rising and future reimbursement is in question. Stephen Dailey, vice president for hospital consulting at St. Louis-based HBE Corp., which designs and builds health care facilities, says hospital administrators have become more cautious about projects’ price tags lately and are applying more cost discipline to the design and construction process.
Those bottom-line concerns haven’t yet cooled off the bull market for hospital construction. But Robert Levine, vice president for health care construction at Turner Construction in Brentwood, Tenn., senses it could be about to level off. His firm works on about 125 hospitals a year, and lately organizations are not pushing their projects ahead as quickly or requesting presentations as often.
“What we’re finding is you can’t afford all these neat ideas,” Levine says. “So I think that what we’ll be seeing is not a slowdown, but a lack of acceleration as people deal with all these costs.”
A letup in the current hectic pace would still leave hospital construction activity at a high level. The potent combination of factors behind the boom—the baby-boom generation’s increasing reliance on hospitals, new technology that makes older buildings obsolete and competition among hospitals—ensures its staying power.
Bill Morgan, SASHE, CHFM, president of the American Society for Healthcare Engineering (ASHE), thinks the heavy construction activity is here to stay, citing competition and population growth as factors that won’t go away any time soon.
“For market share, you have to bring in new equipment, bring in more patient-focused care,” says Morgan, who also is engineering manager of St. Alphonsus Regional Medical Center in Boise, Idaho. “You just can’t sit back on your laurels—you have to offer services that are needed … I think you’re going to see major health care growth for years to come.”
Hot, hot, hot
There’s certainly no hint of a slowdown in states as geographically diverse as Illinois, South Carolina, Colorado, California, Ohio, Texas and Oregon. All seven had more than $1 billion of construction under way on new hospitals and clinics during the first nine months of 2005, according to RSMeans.
States from all regions appear in other hot-spot categories, too. Ohio, California, Georgia, New York and North Carolina were the busiest states for hospital renovations or expansions in 2005. In an indicator of future building activity hubs, the top states for construction now in the planning stage were California, Colorado, Illinois, Maryland, Ohio and Pennsylvania, RSMeans says, based on data from public projects nationwide.
Illinois’ surge of hospital building is centered on the Chicago area, where hospitals are building or planning new projects with a combined cost of at least $3 billion. Loyola University Health System broke ground on a $103 million expansion and facelift in December, following the lead of Northwestern Memorial Health Care and Stroger Hospital, and the University of Chicago Hospitals are up next with a $500 million new hospital building on the books.
The thriving market for hospital renovations—now one-third of all construction in acute-care hospitals, according to RSMeans—may be nowhere more evident than Ohio, which narrowly outpaced California in renovations and far outdistanced all other states in that category in 2005. Mary Yost, a spokeswoman for the Ohio Hospital Association, says there have been many emergency department renovations and expansions in particular.
She suggests lower interest rates as a reason for the activity. “It’s been the last couple of years, especially when you’re in a situation where the economy has been somewhat down (and) construction crews are more readily available,” she says. “It’s more economical for hospitals to build during a down economy.”
The spike in use of emergency departments is a key factor in the growth of the renovations market, which saw 1,000 projects under way at U.S. hospitals in late 2005. Another is the ongoing conversion from semiprivate to private rooms. “Almost every facility we touch now has a (room) conversion under way ... and almost every project has some kind of an ED expansion going on,” says Jim Eaton, vice president of health care program development for St. Louis-based McCarthy Building Companies Inc.
The boomers are coming!
No one disputes it: The core infrastructure of health care is outdated. Hospitals built in the 1950s and 1960s with Hill-Burton Act funding are not only old, they have the floor heights, layouts, smaller rooms and disjointed campuses of a bygone era.
Obsolescence remains hospitals’ No. 1 reason for building now, according to a fall survey by Health Facilities Management in cooperation with ASHE. More than two-thirds of the 323 hospitals responding cited an aging facility as the top factor—just as in the previous HFM survey in 2003—ahead of operational efficiency/patient flow, competition and population-based need.
Dan Doughty, director of facilities development at Maine Medical Center, says his 136-year-old hospital has only a third of the space it should have for 600 beds and doesn’t even have air conditioning for its post-partum rooms in a bed tower that was built in 1967. Thus, the Portland facility is undertaking a nearly $100 million expansion that includes a new women and infants’ center.
“Our facilities continue to age and we look at opportunities to decompress and bring them up to a different level,” Doughty says. Amid the aging, a cross-town hospital has taken market share in the past 10 years, he says, so “it’s something that we felt from a market point of view we needed to do.”
Technology is also prompting hospitals to seek new physical makeups as they improve their medical procedures. Operating rooms are being built larger—going from just 450 square feet a decade ago to much bigger today to accommodate the imaging equipment that helps guide surgeons. Staying current with new imaging techniques and other technology is critical financially as well as medically because radiology and surgery are huge revenue generators, says Alan Wilson, vice president of the RTKL Associates architectural firm in Chicago.
Underpinning it all is increased consumer demand, especially with the first of the 77 million baby boomers turning 60 this year and increasing numbers getting ailments and having knee replacement, bypass, prostate or other surgeries. Hospitals literally and figuratively can’t wait for them to retire. They need beefed-up facilities now.
Flexibility a top priority
Hospitals have struggled to keep from falling behind in recent years amid all the technological advancements and changes in medical care that, while good for patients and operational efficiencies, have left infrastructures in a constant state of flux. Buildings under construction or in design are aimed at better accommodating future uncertainties, such as being able to adapt rooms or even whole sections of hospitals to different needs.
“Some of what we’re talking about today is wrong,” says Dan Noble, director of design for the Dallas architectural firm HKS Inc. “In truth, we just don’t know what the situation and demand will be in five or six years, so we’ve got to incorporate flexibility.”
More hospitals are being built with rooms that either are acuity-adaptable—they can be changed into intensive-care unit rooms when the population gets older and sicker—or instantly adaptable so a patient can stay in the same room without a transfer to ICU, according to Houston architect Mark Vaughan. Reducing the number of transfers has been shown to decrease the risk of medical error as well as eliminate costs and staff time.
At Memorial Herman Sugarland Hospital, a replacement facility being built in Houston, the ICU is being incorporated within the nursing unit. All eight rooms can be used for either standard or intensive care. “That’s one way to not only deal with the constraints of available capital … but also in terms of flexibility allows them to swing back and forth as needed in terms of the ICU patient census,” says Vaughan, principal and senior medical planner/project designer for WHR Architects.
The HFM/ASHE survey found that the feature most commonly being installed for the purpose of flexibility is wireless infrastructure, cited by three-quarters of respondents, followed by extra cabling and conduit, power plant expansion capacity, decentralized nurses’ stations and shell space for future expansion.
Flexibility was an important factor in the design of a $36.6 million new wing opening in March at Tahoe Forest Hospital in Truckee, Calif. Every department was asked to research the major future trends for its category, with the final design taking possible variants into account. “We really needed to look at how we could adapt our facilities to future opportunities, because it is such a difficult business to be in with the reimbursement situation being the way it is,” says Ann Delforge, who works in clinical program development at the hospital.
Similar thinking about changing technology, shifting demographics and the potential for future expansion went into Lake Hospital System’s decision to build a digitally integrated facility to replace
LakeEast Hospital in Painesville, Ohio. “The current site did not provide enough flexibility for accommodating renovations and construction necessary to adjust to advancing health care technologies now or in the future,” says Cynthia Moore-Hardy, the system’s president and CEO.
Growing evidence?
Use of evidence-based design is growing gradually as more research shows the positive impact of design on patient health, financial operations, and staff satisfaction and turnover. While 21 percent of those surveyed by HFM/ASHE didn’t know what it was and nearly a third weren’t using it, 48 percent said they were using it to some extent in new facility construction or renovations.
“Yes, it’s still a minority who are using it, but the word is getting out,” says Hamilton, citing the increased number of institutions both using and considering it, as indicated by 5,000 downloads of a study on evidence-based design posted on the Center for Health Design’s Web site (www.healthdesign.org). “I think we’re right at the point where that will explode.”
For instance, St. Joseph’s Hospital in West Bend, Wis., is one of a growing number of facilities to adopt identical or like-designed rooms. Such rooms can entail more construction costs but attempt to improve patient safety on the theory, yet unproven, that the clinician will be under less stress and make fewer errors dealing with just a single, familiar environment.
Industry experts say hospitals are still pushing for hard reasons why they should spend extra for things like added space, in-room sinks, improved patient sight lines, lighting and noise control. While preliminary results of the Center’s Pebble Project research initiative show evidence-based design can reduce the number of patient falls, infections, transfers and staff turnover, money remains an obstacle to its wider acceptance.
Most hospital administrators who start out telling Turner Construction they want to incorporate it in their facility change their minds, according to Levine. “It takes a lot for a hospital [executive] to say ‘I want it at all costs’ because it’s not scientific” even if it increasingly appears to work, he says.
The design team for a new 35-bed surgical unit due to open this spring at Silver Cross Hospital in Joliet, Ill., tried to give patients control of as much as possible from their beds—shades, curtains, temperature, television and lighting. It also worked to contain noise from nurses’ stations with specially designed windows. The rooms will be large and equipped with a computer for nursing staff. The goal: to reduce patient stress.
Gary Vance, director of facility consulting at BSA LifeStructures, an Indianapolis-based architectural and engineering firm, contends that hospitals can’t afford not to be using evidence-based design. “It’s clearly improving medical outcomes, saving health care dollars and creating healing environments,” he says.
Rising costs, concerns
Construction costs, particularly for energy, and volatile material prices, such as those for steel, wood and concrete, are on the rise, according to RSMeans. Square-foot costs are forecast to jump
8 percent nationwide in 2006 for two- to three-story hospitals (to $228.85 per square foot) and 8.6 percent for four- to eight-story hospitals (to $209.45 per square foot). RSMeans monitors square-foot costs nationwide for different building types excluding sitework, land, development and specialty finishes.
Hurricanes Katrina, Rita and Wilma could add to the cost burden because they have brought to light new emergency operating needs that require additional space, setups and equipment, according to Jose Estevez, a principal with Florida-based MGE Architects.
Architect Rick Kobus of the Boston firm Tsoi Kobus & Associates sees much anxiety among his clients, whose surpluses are threatened by all the pressure on insurers and the government, and impending changes in Medicare and Medicaid funding. “A lot of people are looking to fund projects out of surplus, and if those funds evaporate it’s going to be tough to do the projects,” he says.
Steps that organizations are taking to cut costs, industry observers say, include getting projects to market faster and evaluating the design process competitively rather than selecting an architect based on a series of interviews. They also are more closely analyzing all financial aspects of project proposals and assessing the costs of construction versus renovation.
With renovation approaching a third of construction value in hospitals, health care executives are looking to control cost at the planning stages. “What’s emerging are quantitative tools such as cost modeling and cost estimating/project management software for renovation, as well as new contract methods,” says Jayne Talmage, principal for RSMeans Business Solutions. “Job order contracting (JOC) is one of these new methods,” she adds.
JOC was developed by the military in the 1980s and is migrating into health care, Talmage says. Renovation projects are awarded under fixed-price bids to get work started more quickly. Experienced JOC facility managers report 25 percent savings in project costs and months saved on renovation project schedules.
When it comes to the fast-growing hospital construction market, such savings represent no small change.
Dave Carpenter is a Chicago-based freelance writer and a frequent contributor to HFM’s sister publication, Hospitals & Health Networks.
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About this report
Health Facilities Management assembled this report from a survey conducted in cooperation with Hospitals & Health Networks and the American Society for Healthcare Engineering, data supplied by Reed Construction Data/RSMeans, and extensive interviews with leaders in the hospital planning, design and construction fields.
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