The hospital building boom is in full swing.
Within a 48-hour period last week, six hospital systems announced major facility expansion projects with an aggregate value of nearly $1 billion, citing population growth and increased demand for services, particularly emergency and intensive care. Industry observers said hospitals have put needed capital projects on hold for several years while determining the impact of the Balanced Budget Act of 1997, which limited growth in Medicare spending.
That figure doesn't include the millions in expansion and renovation projects announced by hospitals earlier this month (See stories, p. 28). Modern Healthcare first reported in late 1999 on the largely unnoticed hospital building boom that was starting up, despite industry rhetoric that it was in financial trouble (Dec. 6, 1999, p. 48).
But with some relief from the budget law taking effect and with private insurers paying more, hospital executives have become more optimistic about the future and more likely to consider projects.
"For a lot of hospitals, it's `we'd better do this now,' " said Richard Wade, senior vice president of communications at the American Hospital Association. "Bond ratings have been increased in some places, the capital market is a little brighter, and we don't know what the future may hold."
Dennis Brandon, a principal in the Columbus, Ohio, office of NBBJ, one of the top five busiest architecture firms in healthcare, was reluctant to confirm a building boom. "But because of that return to optimism . . . I expect there will be an increase in activity over the next two years as compared with the previous two years," he said.
In the latest example, Sun Health Corp., Sun City, Ariz., said it plans to begin construction later this year on a new medical campus in the fast-growing Phoenix suburb of Litchfield Park.
The campus is expected to cost at least $200 million and eventually would include a hospital with at least 100 beds, a nursing home, a retirement home and a medical-office building. Construction on the first part of the project, the 75,000-square-foot medical-office facility, should be completed in 2002.
A timetable hasn't been set for building the other facilities. Further construction will depend on population growth and other factors, Sun Health Chief Executive Officer Leland Peterson said. The system owns 313-bed Walter O. Boswell Memorial Hospital, Sun City, and 188-bed Del E. Webb Memorial Hospital, Sun City West.
In California, Sutter Health, Sacramento, will finance construction of 300,000 square feet of medical-office space in either Sunnyvale or Mountain View for its affiliate, 165-physician Camino Medical Group, according to a report in the San Jose Business Journal. The project is expected to cost $120 million and be completed within five years.
Demand for capacity is there
The need for increased capacity, particularly in emergency departments, is a driving force behind expansions in areas with increasing populations or areas that have seen hospital consolidation. For example, Alegent Health, Omaha, Neb., will break ground in June on a $9.1 million construction project, including an emergency department expansion, at its 151-bed Alegent Health Midlands Community Hospital, Papillion, Neb. The population of the hospital's main service area grew 18.6% from 1990 to 2000.
And all on one day last week, April 24, three systems, all citing increased demand, announced projects with a total value of more than $667 million.
Memorial Hermann Healthcare System, Houston, will account for the largest portion of that spending-$420 million-in a five-year project to expand its nine hospitals.
Ken Wine, executive vice president of Memorial Hermann, said the system's volume has been growing 4% to 5% annually. "(The hospital industry has) taken a lot of beds out of service over the past 10 years, and it may be that the demand has caught up with capacity," Wine said, speculating on the reason for construction. "Certainly I know that's the situation in Houston. We're just jam-packed full and overflowing."
Memorial isn't the only provider to assert a need for more capacity in the Houston area. Citing overcrowded facilities, several local doctors have undertaken an effort to build a new $57 million, 100-bed hospital in Pearland, Texas (April 23, p. 6). Unlike many states, Texas doesn't have a certificate-of-need law regulating healthcare construction.
Mergers and an emphasis on outpatient care are driving factors, but demand for specialty facilities, such as children's hospitals or cancer centers, also has accelerated, Pine said. For example, Sacred Heart Medical Center, Spokane, Wash., announced last week that it plans a $100 million expansion, including construction of a new three-story children's hospital. And a $250 million replacement hospital is part of the merger agreement between Children's Hospital of Pittsburgh and UPMC Health System.
Also on April 24, HealthOne, Denver, a six-hospital system half-owned by HCA-The Healthcare Co., Nashville, announced plans to build a $147 million, 106-bed hospital in Lone Tree, Colo., a south suburb of Denver. Work is slated to begin next month and end in 2003.
-With Modern Healthcare staff