Despite projected building costs that have risen 10% to 15% for many of its 80 total facility upgrades now in the works-including four replacement hospitals-Sutter Health has no plans to scrap amenities that its administrators say make for inviting, more patient-friendly healthcare facilities. Meditation and healing gardens-along with bigger emergency departments and enhanced care spaces-are all making it to the final blueprints.
Many design extras, such as more efficient mechanical systems or private rooms, can improve operations and show more concern for a patient's experience, builders and architects say. But such add-ons also add costs. As construction expenses grow, aesthetic touches and expensive equipment upgrades are often the first to go. And even designs that call for all private rooms, often considered a marketing necessity in a customer-service oriented era, are falling by the wayside at some organizations.
Sacramento, Calif.-based Sutter says it's moving forward with plans to rebuild and expand many of its healthcare facilities at a total cost of about $5.7 billion over 10 years. California Pacific Medical Center in San Francisco, one of Sutter's 25 Northern California hospitals, expects to spend an estimated $1 billion in capital improvements.
With these projects, "You've predicted your course for the next four years," says Patrick Fry, Sutter's chief operating officer who has been tapped to succeed Van Johnson as chief executive officer in June. "If you don't put in the attention to details at the outset, you put it in at a later time." You might find it would have been better "if you just bit the bullet" and paid the higher initial construction expenses, he says.
Helping to fuel the price increases are worldwide pressures on commodities, such as oil, steel and other essential construction materials, along with a preference for larger patient and surgery rooms to accommodate continually changing technology demands-and the desire to fill hospitals with the best and latest of everything.
Continuing to build
Rising costs weren't enough to dampen the ongoing nationwide building boom last year, especially in California, where seismic mandates continued to force the strongest healthcare construction market in the country, according to respondents in Modern Healthcare's 26th annual Construction & Design Survey.
Aging baby boomers, shifting demographics and the general need to replace outdated facilities all continue to boost healthcare construction across the country, a trend that's expected to last for several more years.
According to the survey, completed healthcare construction projects climbed to $22.6 billion in 2004, compared with about $18 billion in the previous year's survey. Of those, acute-care construction continued to lead the field with about $13 billion in completed construction, including 121 new or replacement projects worth $5.2 billion. Projects worth additional billions of dollars are in the pipeline-with groundbreakings on $6.4 billion in acute-care hospitals and $16.8 billion in hospitals designed.
Modern Healthcare received 190 responses from about 450 questionnaires sent to archi-tects and builders for this year's survey, up from 187 the previous year. This year's participants totaled 116 architecture firms, nine design/build firms, 16 general contractors, 29 construction management companies and 20 development firms. To participate, firms were required to have 100,000 square feet or more of healthcare construction in at least one phase of construction-completed, ground broken or designed. The survey is unscientific and intended only to provide a snapshot of national healthcare construction activity.
Robert Levine, vice president of Turner Corp., one of the country's largest healthcare construction companies, says hospital administrators initially sign on to the idea that enhancing the healthcare environment through renovation or replacement of some facilities can improve patient care. For example, increased use of private rooms is believed to bolster clinical outcomes by improving infection control and limiting sleep deprivation, among other things. "It's good business to do it," Levine says, "but it's an added expense."
However, Levine says, "Many hospitals are not getting as many (single rooms) as they'd like because of two reasons. One, it's more expensive to go all singles, because it's obviously more square footage for the building. And it's occurring at a time when there's added pressure from the commodity side where costs are escalating anyway." He says hospitals that convert to 75% private and 25% semi-private vs. all private rooms can see substantial savings. He cited one unnamed hospital in Pennsylvania that saved 8% to 9% of the projected cost, or more than
$4 million on a $52 million hospital, by eliminating some the planned private rooms.
At Metropolitan Hospital in Grand Rapids, Mich., meeting its $98 million construction budget called for removing plans for courtyards and roof gardens, along with other material upgrades. And at Indiana University Cancer Center in Indianapolis, expendable upgrades included skylights, water features and roof gardens, according to Levine.
"I see a lot of the good stuff coming out," Levine says.
In the beginning, he says, executives are all for a full slate of amenities, but in eight out of 10 jobs, these items won't be found in the final documents. He says that sometimes projects exceed their budgets because they aren't planned properly, suggesting that more attention needs to be paid to getting all the construction players together earlier in the process-especially in today's volatile market with rising interest rates and increasing costs for building materials and land in certain high-price markets.
One-third of Sutter's construction budget is set aside for building and expanding outpatient-care facilities to fill the gaps between acute-care hospitals. Fry says outpatient services-it had 46 ambulatory-care facilities in 2003-has been Sutter's fastest-growing sector and has been a large component of the integrated healthcare network for the past 15-plus years. Although the California market may be unique, as Fry says, it somewhat mirrors the growth of outpatient facilities nationwide. According to survey respondents, about $1.9 billion worth of free-standing outpatient-care facilities were completed in 2004, with another $1.5 billion worth breaking ground and $2.9 billion worth in design. That compares with about $1.4 billion worth of outpatient centers completed in 2003, along with $2.1 billion that broke ground and $3 billion in design.
"We used to judge a hospital by the number of beds it has," Turner's Levine says. "It's totally irrelevant now."
Plenty of hospitals are going ahead with projects despite cost estimates that have risen by millions since the facilities were first announced.
Sutter's construction budget-$5.7 billion over 10 years-is up 63% from the $3.5 billion figure the system announced for 15-year capital improvement projects in April 2002. But Fry says he doesn't anticipate scaling back. "The programs are designed for 10, 15 years down the road," he says.
Meanwhile, in Los Angeles, the Ronald Reagan UCLA Medical Center, a replacement project, was first budgeted at $657.7 million 10 years ago. It's now estimated to cost $678 million by the time it opens this summer, or about 3% higher. But the hospital also is setting aside $30 million, or almost 5% of the original budget, in "additional contingency" funds for unexpected construction costs.
At Johns Hopkins Hospital in Baltimore, what spokesman Gary Stephenson refers to as its "most ambitious redevelopment since the hospital was established more than 100 years ago" has risen to $1.2 billion from the approximate $800 million reported in the media just last fall. Two new towers-a critical-care tower and a women's and children's tower-will replace much of the older hospital, Stephenson says. A second cancer research building is also part of the plan.
"If we want to keep Hopkins at the forefront of biomedical research, patient care and medical education, we have no choice but to bring our buildings and infrastructure up to a high level of quality commensurate with our faculty and staff," says Edward Miller, chief executive officer and dean of Johns Hopkins Medicine.
Survey results show hospitals completed about 111 research facilities last year at a total cost of $1.4 billion. Another $1.8 billion worth of projects broke ground and $2.3 billion were in the design phase.
As for the overall building boom, Levine says the industry is still in the first quarter of an eight- to 10-year rebuilding cycle. However, he says new healthcare construction could start tapering off in the next few years if hospitals face a squeeze in reimbursement rates as federal and state governments deal with rising healthcare expenses and growing deficits.
"I believe pressure's going to be put on hospitals when they can least afford it," Levine says. "Something's going to have to give and it's going to be construction. It's not a perfect storm, but I see some head winds."
Starting from scratch
Levine says the strong market overall is a continuation from previous years. "It's occurring all over the country. There are no soft spots."
"There are more replacement facilities than we've ever seen," he says. "We do about 125 hospitals per year. It used to be about five or six of those were replacements. Now it's about 25% replacement."
According to survey results, acute-care expansions and renovations also remained strong, with $5 billion and $2.8 billion in completed cost value, respectively. Last year, acute-care expansions represented $4.6 billion in completed projects and acute-care renovations were worth $2.4 billion.
In California, spurred by seismic-safety mandates, many hospitals are facing costly capital-improvement decisions. Do they patch up their buildings now to meet basic safety regulations and deal with their outdated facilities later, or do they join the hundreds of healthcare organizations nationwide that are tapping historically cheap financing today and start from scratch?
By 2008, the state's hospital buildings must be able to remain standing after a major earthquake. Hospitals have until 2013 if they file for an extension by 2007. By 2030, hospitals must be able to remain operational after a major quake. The cost to California hospitals is expected to be a minimum of $24 billion, according to estimates by the state's hospital association. Another estimate, by Rand Corp., has projected hospitals could spend as much as $41 billion.
About 150 hospitals have already won extensions until 2013, and some two to three dozen hospitals are on the verge of completing construction, says Kurt Schaefer, deputy director at the state's Office of Statewide Health Planning and Development. He puts the costs of seismic retrofitting much lower, at about $5 billion. The rest of the construction cost estimate, he says, is for rebuilding an aging infrastructure.
"These are buildings at the end of their normal life cycle anyway," Schaefer says. He says of the 1994 Northridge earthquake that shuttered hospital wings and prompted new seismic standards: "Ten years later, and we're still feeling an economic impact of it. The cost of doing nothing is huge."