The slowdown in healthcare spending experienced in 2009 was due, in part, to a reduction in healthcare construction. But, even though construction spending fell by almost 4.4% in 2009, the year still saw the second-highest healthcare construction totals that the CMS has ever recorded.
On the up and up
Construction spending down, but still high
According to the CMS, capital investment in “structures” dropped to almost $49 billion in 2009 from the record-high total of $51.2 billion in 2008.
The CMS said that, in 2009, private companies spent $41.3 billion on construction, while state and local government contributed $5.9 billion, and the federal government kicked in $1.7 billion—its highest contribution ever.
In comparison, the 2008 split was $44.2 billion, private; $6 billion, state and local; and $943 million in federal spending. In 2007, the $46.5 billion spent on healthcare construction was split $39.8 billion, $5.7 billion and $1 billion between the three sources of funding.
One institution in particular may illustrate how the fluctuations in these numbers affected their healthcare construction projections.
In 2009, the University of Kentucky, Lexington, was in the midst of an ambitious $2.5 billion construction plan that included most of its clinical pieces being paid for by its health system and the academic portions receiving substantial state funding.
The plan was anchored by the new 700 million UK Albert B. Chandler Hospital which broke ground on May 30, 2007. Construction crews and hospital officials celebrated during a “topping off” ceremony when the new building’s highest beam was put in place on Sept. 30, 2009.
Since then, the exterior has been completed and the first-floor, “football-field sized” emergency department opened for patients last July 14. Plans call for opening two floors containing 64 patient rooms (including 24 intensive-care room) in May.
A representative was not available to give an update, but—in a 2009 interview—Michael Karpf, UK executive vice president for health affairs, said the recession did affect construction plans. First, he said, about $250 million had been borrowed to build the hospital and investments were expected to cover the rest. But, after the Wall Street meltdown, Karpf said, the UK investment portfolio lost roughly $100 million in value, which had to be offset by another $100 million of borrowing. He added that $200 million in cash had to be kept on hand to maintain an AA2 bond rating. Karpf said plans had called for completing projects by 2015, but that was pushed back to 2018.
Construction was completed on the UK College of Medicine’ new $134 million pharmacy building which opened for classes in January 2010. Karpf said a planned 255,000-square-foot building, costing $180 million to $190 million—with the state paying between $130 million to $110 million—had been put on hold. The project is still on hold because of lack of state funding, and it won’t be known until 2012 if the funding will be appropriated.
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