Healthcare providers may not be investing as much capital in design and construction as they used to, but there's still plenty of activity in the facility management department. Projects, including new construction, are smaller, and tight budgets are prompting facilities to spend less on more projects, according to MODERN HEALTHCARE's 17th annual Design & Construction Survey.
"Changes in the healthcare environment have refocused providers' resources from larg e brick-and-mortar solutions at the `hub' of the system to an emphasis on physician recruitment and development of primary-care `spoke' sites throughout the community," said Michael Sherbel, vice president at Plunkett Raysich Architects, Milwaukee. Although healthcare construction spending in 1995 did not vary greatly from 1994, more projects were completed, broke ground and designed last year. Some 3,385 projects were completed, 1,734 broke ground, and 3,188 were designed.
The 199 firms that responded to the survey included 138 in architecture, 16 in construction management, 19 design/build companies, 18 general contractors and nine in program management (one firm responded in two categories). That compares with 201 responding firms in 1994. Some 154 firms that responded in 1995 also did so in 1994.
Tough decisions. For organizations involved in mergers or network formations, some pressing questions emerge:
Can they deliver the services needed in existing facilities?
Should they renovate existing space to meet the demands of integrated healthcare delivery?
If current buildings are not up to snuff, where will they get the funds to purchase new land assets?
"Providers look to design and construction plans for three reasons: to increase their competitive edge, attract payer groups and enhance their image," said Alan Wilson, a principal at Perkins & Will, a Chicago-based architectural firm.
With profit margins squeezed, most of the available capital is earmarked for merger and acquisition activity, information technology and strategic marketing for managed-care contracting. In the past, providers used internal capital or tax-free bond financing to support building and renovation plans. Now they look to outside sources for additional capital.
Investor groups and development firms are responding to the demand to build new facilities or ad apt older buildings for physician groups and outpatient centers.These off-balance-sheet financing mechanisms allow providers flexibility and the opportunity to lease facilities, an attractive option because many providers own land and buildings that have depreciated.
"If a market share shifts, providers can always get out of the lease. And if they continue to find opportunities in a certain geographical area, they may choose to purchase later," said Jean Mah, a principal at Perkins & Will. Because owning depreciable assets can increase a provider's debt-equity ratio and decrease reportable earnings, providers should evaluate land assets before making decisions about buying or leasing new spaces, architects said.
"More systems are in the business of real estate today," said Rad Delaney, project manager and principal at Ewing Cole Cherry Brott, a Philadelphia-based architectural firm. For providers that have excess capital or can access avenues of financing, some building plans are coming to fruition. "Due to changes in reimbursement and an increase in managed care, we are seeing continued growth in ambulatory care, mostly in the form of s atellite clinics, group practice medical office buildings and subacute care," said Michael Keweshan, vice president of operations at TRO/The Ritchie Organization, a Newton, Mass.-based architec tural firm.As the shift toward ambulatory care continues, designers are challenged to explore unique methods of using excess inpatient space.Because healthcare clinicians work more flex time, time-share office spaces (called "hote ling" in the corporate arena) are replacing inpatient areas, according to designers.A time-share agreement is important to physicians and other clinicians because it connects them to the facility, but the capital investment is minimal compared with owning a medical office building, architects said.Among systems and networks there is a continuing trend toward outpatient facilities and medical office buildings that serve as satellite "feeders" to the parent hospital and other inpatient facilities. Primary-care centers, outreach facilities and wellness centers are representing the majority of new construction in ambulatory care.For example, some 50 wellness centers completed construct ion in 1995, 36 broke ground, and 69 were designed, according to the survey.In response to demand for such alternative sites, more new construction, expansions and renovations were completed in 1995 than in 1994. Freestanding outpa tient facilities increased 24% to 521. Completed outpatient expansions and renovations increased 31% to 595.Beth Israel Medical Center in New York, located on a constricted urban campus, recently consolidated clinic and faculty pra ctices into a new two-story commercial building several blocks away from the medical center.The $40 million project, completed in January, also will allow the hospital to modernize inpatient facilities at the main campus and expand the critical-care environment.New facilities like these are making healthcare delivery more convenient for patients and easier for staff flow, even though some facilities may be far away from the hospital.For example, centrally located nursing stations at the new renal dialysis facility at Shands Hospital in Gainesville, Fla., allow staff members to serve 24 patients, doubling patient capacity from the former facility.The $2.4 million clinic incorporates computer terminals at each nurse's station, monitoring 12 dialysis machines. The hospital's information system allows immediate access to the dialysis data."Since the clinic is closely affiliated with its parent hospital through com puters, it is no different than having our clinic right in the hospital," said Robert Kelly, the clinic's charge nurse.When hospitals choose to build a new facility instead of launching an extensive renovation program, they usuall y do so to expand outpatient capabilities and improve staffing efficiencies throughout the entire organization.
The new Cullman (Ala.) Regional Medical Center replaced an older facility deemed incapable of handling the demand for ou tpatient and emergency services. The 115-bed, $26 million facility also was designed to improve delivery by consolidating similar functions.Similarly, Health Central in Orlando, Fla., blends 141-bed, six-level West Orange Hospital with 50,000 square feet of physician office space where inpatient and outpatient services are on the same floor. The $34.8 million facility was designed as a "one-stop-shopping center" that includes a 9,000-square-foot atrium lined with retail shops. Architects agree that one of the first things on the agenda of a system considering a building program is an inventory analysis of equipment and supplies, including depreciation and replacement value. "We spend a lot of time discussing issues like equipment maintenance, asset management and inventory analysis," said Delaney of Ewing Cole Cherry Brott.
Many architectural firms are performing strategic assessments to determine how new techn ologies will change the way healthcare is delivered, thereby changing a provider's business focus. "A threshold has been crossed," said Bob Gesing, vice president of the healthcare group at URS Consultants, a Columbus, Ohio-based architectural firm.Gesing believes managed care, "the dark cloud on the horizon that was never going to get here," has arrived.
Now executives are reorganizing the delivery of services and trying to decide what buildings will be appropriate for these services, he said. In many of those underutilized buildings is a large supply of depreciated medical equipment that will have to be sold or perhaps replaced. "A majority of owners and providers do not know how much equipment they own and what it's worth," said Wilson of Perkins & Will.
Gesing's firm offers what it calls "scenario building," or analyzing socioeconomic trends in managed care when planning construction for the future. For example, inpatient beds are decreasing everywhere, but there may be some metropolitan areas that, because of growth and the closure of other facilities, actually need more inpatient space, he said."Being sensitive to local economi c aspects of the marketplace is crucial to every client," Gesing said.
For inpatient uses, designers are developing more departmental space per bed, private rooms and technology intensive environments.The trend of a "hospital with in a hospital" will continue as architects face the challenge of redesigning spaces for inpatients.
Intensive-care, subacute-care and step-down units will be the major bedded components of tomorrow's hospital. But providing these n ew services and new modalities is not easy. "What is often overlooked is the cost of maintenance and energy use when putting a new function in a building for which it wasn't designed, thus driving the costs of care upward," said Bob Iverson, senior associate and principal at Loebl Schlossman & Hackl, a Chicago-based architectural firm.
As a result of these cost pressures, providers are exploring new ways to bid on projects. Design/build firms enjoyed a 12.3% increase, to 7,628, in square footage of completed projects and a 4.1% growth in dollar volume to $784.6 million." Design/build eliminates finger pointing, with the hospital having a single point of contact and responsibility. The healthcare executive has one firm to communicate with, depend upon and hold accountable for complete project development," said John Wodoslawsky, executive vice president at Hospital Building & Equipment Co., a St. Louis-based de sign/build firm.
A new or modified approach of the design/build format combines the traditional multicontract project with the sole design/build program. This approach allows the provider's arch itectural team to develop an initial set of schematic designs that the design/build team bids on, said Ken Lee, a principal at Lee Burkhart Liu, a Santa Monica, Calif.-based architectural firm.
The University of California, Irvine, instituted the modified design/build approach to convert an existing commercial office building into UC-Irvine Family Health Center. The owner's objective was to complete the project on an accelerated schedule in order to contract with a large managed-care program. The modified 12-month design/build schedule was six months shorter than the traditional estimate for a design/bid/construct project.
"With this approach, we have been able to achieve the delivery of our projects without the burden of cost uncertainty and traditional exposure of an owner during the construction process," said Ned Reynolds, director of the university's planning office. The cost of the project, which was completed in November 1995, was $5.8 million.