Renovations to office spaces to create pharmacies, retail clinics and other facilities are also growth opportunities and a more cost-effective option than new construction, Wilkerson said. Providers are taking advantage of opportunities to convert vacant retail spaces, given that the buildings are typically in highly accessible areas and can be a good fit for healthcare purposes.
"Retail spaces tend to be in good, convenient locations," Wilkerson said. "To get [strong] market share, facilities need to be convenient for the customer. ... The retail industry has figured out where people want to go [and] parking is decent."
UC Davis Health is building a new outpatient center and medical office building along with a 14-story 334-bed inpatient tower projected to open in 2030, all part of an ongoing $7.5 billion construction project. The system plans to spend $1.5 billion more on construction outside of that project between now and 2030, according to Lubarsky.
He said the health system has made many design choices and investments to reflect an inpatient population that is projected to shrink in the long term. They include creating rooms that can easily be converted into intensive care units, and installing a remote patient monitoring system that tracks 11,000 vital sign data points per patient.
Some survey respondents said demand for behavioral health slightly outpaces that for outpatient facilities. Many health systems have created whole-health facilities that offer both behavioral and general medical care at the same locations, often through joint ventures.
For example, WakeMed recently embarked on a project with nonprofit mental health provider Sheppard Pratt, with plans to open two patient towers by 2027, one for behavioral health and the other for general healthcare service. Survey participant DPR construction is working with these organizations on the project.
A boost from the rise of digital health
Growth in digital health is another trend that's driving growth in construction, according to some survey respondents. With more virtual health services and increased use of technology, including artificial intelligence, remote monitoring and others, more hospitals, health systems and other providers are finding it necessary to finance renovations at existing facilities to make accommodations.
As more providers offer digital health options, renovations such as converting patient rooms, creating new spaces for support staff, and housing the essential hardware are becoming more common.
"The key is prioritizing what's really needed," Lubarsky said. "We are expecting that [providers] are going to prioritize ambulatory facilities, because that's where the growth is. It's really about making sure the facilities that are being built and the digital capabilities that are being created can take advantage of expected advances [in technology]."
Regional challenges add to construction costs
Across the board, the cost of construction, including materials and labor, continues to be the largest obstacle for all industries seeking to expand or renovate. Inflation is largely driving the jump in prices.
"In the last four years, we have seen construction cost increase by approximately 20%," Wilkerson said.
Government regulations can be a higher hurdle in some states than others. In California, for example, health systems pay, on average, 2 to 3 times more on construction projects than other regions because of the state's earthquake safety requirements, said Hamilton Espinosa, healthcare core market leader for DPR Construction. Likewise, in Florida and other coastal states, hospitals will spend more on facilities to meet hurricane safety requirements.
Lower reimbursement rates from private and government insurers have made it more difficult for health systems across the board to start and complete new projects, Espinosa said.
Rural healthcare facilities have a more difficult time committing to new construction or renovations due to limited resources, compared with larger health systems with more cash flow, Lubarsky said.
Rural hospitals continue to struggle with a self-perpetuating problem: inadequate revenue leading to inadequate margins, Lubarsky said. Many rural facilities cannot afford to offer updated care services such as robotic surgery or implement artificial intelligence capabilities and digital health services like larger, more profitable systems can. Patients are then forced to travel or postpone care altogether, leading to more lost revenue.
Policies and programs have been enacted to help mitigate these challenges, with government agencies offering loans at little or no interest to help to keep rural healthcare facilities updated. One of the largest programs is through the U.S. Agriculture Department, which offers more than $3 billion in loans, loan guarantees and grants annually through its Community Facilities Program to help support rural facilities and keep them open.
But Lubarsky contends additional policy intervention is needed, or more rural healthcare providers could be forced to close, expanding care gaps nationwide.
"We're creating deserts of maternal care and pediatric care," he said. "And unless the government steps in, there are going to be large issues in rural areas across the U.S."
