Last year the American Hospital Assn. (AHA) reported that there are currently 900 fewer hospitals in the United States than there were in 1980, so it's no surprise that demand for new or improved facilities is hot. "I've been involved in the healthcare market for 40 years, and I've never seen such a strong market in my life," says Robert Levine, a vice president with Turner Health Care, Nashvil...
Last year the American Hospital Assn. (AHA) reported that there are currently 900 fewer hospitals in the United States than there were in 1980, so it's no surprise that demand for new or improved facilities is hot. "I've been involved in the healthcare market for 40 years, and I've never seen such a strong market in my life," says Robert Levine, a vice president with Turner Health Care, Nashville, Tenn., a division of New York-based Turner Construction.
"Healthcare is clearly doing better than most other market sectors today," concurs Paul M. McGurl, a project manager with Bala Consulting Engineers, Wynnewood, Pa.
And it's really just getting going, according to Levine. "Today, we have a $15-billion market, and I think it will double by the end of the decade," he predicts.
One reason for this phenomenon is the fact that healthcare tends to be counter-cyclical to the economy. "Our experience is that the healthcare market—both new construction and renovation—does not experience the extreme peaks and valleys that we experience in some commercial markets," notes Michael Crowley, a vice president with the RJA Group, Houston. "As a result, our business in these markets is consistent even during slowdowns in the overall economy."
According to Tim Schmida, AIA, a principal with Burt Hill Kosar Rittelmann, Butler, Pa., healthcare is also relatively recession-resistant, because it is based on pure need and tends not to be speculative like the office market.
Baby Boom Part Two
Beyond these more obvious factors, architects, engineers and contractors currently have a healthy backlog of healthcare projects for a number of other reasons: aging of the baby boomers, deteriorating hospital infrastructures, advances in medical technology and consolidation.
Where previously, many hospitals were cutting back on beds, Schmida points out the opposite condition is now in full force. "We've reached the end of that road because we only have two years until the first baby boomers hit 60, and now everyone's beginning to realize, 'You know what? We're running out of beds.'"
The average length-of-stay at hospitals has also increased from four to four-and-a-half days, notes Deb Sheehan, a Chicago-based principal heading up OWP&P's healthcare group. "This is probably due to the additional complexity of cases that comes with an aging population. Obviously, this trend will only accelerate," she says.
Thus, the industry has much hustling to do.
"If we built one 100-bed hospital every week for the next 10 years, it wouldn't be enough to meet the needs of the 83 million baby boomers coming on line," claims Levine.
In addition, this population group can have more sophisticated preferences. Consequently, some hospitals have identified the need to build more private rooms. "Competition for prime patients is creating a demand for increased perks for patients such as more homelike settings that are family zones with Internet connections, etc.," says David McMullin, P.E., principal of healthcare engineering for Gresham, Smith and Partners, Nashville, Tenn.
Throwing further weight to the patient side of the supply-and-demand scales are recent recommendations stemming from the Health Insurance Portability and Accountablity Act (HIPAA) that push for more patient privacy, notes Charles Geiger, P.E., director of healthcare for Arnold & O'Sheridan, Madison, Wis. "This has resulted in the need for larger patient rooms, where the patient and family members can discuss options with the physician with a greater degree of confidentiality," he says.
And empowered boomers are not just affecting the quantity and quality of beds. "The market will require more operating room space and constant upgrades with related advances in technologies to maintain competency and competitiveness," says Warren Wertz, P.E., a vice president with Hayes, Seay, Mattern & Mattern, Roanoke, Va.
Wertz notes hospitals will also experience a need for ancillaries such as increased parking to accommodate staff expansions and a higher number of in- and outpatient clients—and their families and friends—visiting these facilities.
New Hill-Burton Plan?
An aging population is not the only aging factor in healthcare facilities; there's also an aging issue with the buildings themselves. Many of the nation's core hospitals are now a half century old. "You can only renovate these facilities so many times," notes Levine.
Similarly, a significant number of facilities that went up in the 1960s and 1970s through Hill-Burton funding—the post-WW II congressional act to generate financing to build a number of new hospitals—are now nearing the end of their useful lives, adds McMullin.
A major reason why these older facilities can no longer adequately serve the public is because their infrastructures are incapable of supporting the substantial mechanical and electrical requirements demanded by most medical equipment today. Even newer hospitals must constantly upgrade their M/E infrastructures as the average turnover for equipment, such as MRIs and CAT scan machines, is four to seven years, explains Schmida.
"[Medical] technology continues to drive much of the market as renovation or even new construction is required to support the increased demands for environment, power and access to systems," says McMullin.
Finally, hospital consolidation, prevalent the past five to seven years, almost always results in major construction, according to Turner's Levine.
Surprisingly, there are yet other factors fueling this boom. Emergency rooms across the country have been largely overwhelmed, another indication, says Schmida, that it's time to expand or build new hospitals.
"When physicians can't do direct admits because all the beds are full [in the main hospital], they end up putting beds in the hallways of the ER," he explains.
In fact, according to a recent survey conducted by the AHA, 62% of ERs say they are operating at or over capacity. In urban areas, that number was even higher at 79%. But contrary to what might seem obvious from the survey results, healthcare construction is not limited to urban areas. "Near as I can tell, it tends to be fairly robust throughout the country," notes Schmida.
Paul Strohm and Don Lemonds, executives with St. Louis-based A/E HOK, concur, noting their healthcare group is experiencing strong opportunities across all regions.
But Dan Johnson, a senior vice president with Minneapolis-based contractor M.A. Mortenson Co., offers a different opinion. "Healthcare is primarily driven by population growth, so different regions of the country are experiencing different growth in healthcare construction."
State certification certainly affects activity, says Clark Brenner, P.E., a healthcare project manager with Arnold & O'Sheridan. Some states—27, in fact—have a certificate-of-need process requiring developers to seek approval from a state-run agency any time a hospital-related capital improvement expense exceeds $500,000.
"So in states that don't have a certificate-of-need process you may find a stronger [healthcare] construction market," Brenner says.
RJA's Crowley certainly agrees that different regions are experiencing more work than others, but for reasons other than certification. For example, hospital construction is particularly strong in California, in part, he says, because of seismic requirements mandating structural upgrades for hospitals.
Yet another reason why some states may have slightly more active markets, adds Bala's McGurl, is because they offer funding and reimbursements encouraging new methods of healthcare delivery.
While the healthcare outlook seems overwhelmingly positive, there are a few negatives.
"The market seems like it will continue at a steady pace," says Brenner. "However, there are some changes that could affect this, such as the result of malpractice lawsuit limitations, changes in technology and changes in Medicaid funding."
HOK's Johnson raises a more important issue. "The demand for healthcare construction will continue due to population growth. The question is who will pay for it?"
And because of current budget deficits, he adds that many healthcare providers are concerned about these reimbursements. This is a real issue, according to HSMM's Wertz, because whenever a hospital fails to turn a profit or break even, the first thing to go is capital expenditures.
These concerns are being partially addressed today in project delivery itself, notably in the form of design-build. Take Carilion Roanoke Memorial Hospital in Roanoke, Va. Already the largest medical facility in southwestern Virginia, this major design-build expansion is being led by Skanska USA, Inc., along with HOK and HSM&M on the design side. The project involves the addition of 143,000 sq. ft. of space, 126 new private beds, a new ICU and PCU, medical/surgical suites, three general surgery operating rooms, three vascular operating rooms, four angiography rooms and related support facilities.
"We expect to see design-build become more popular because it is an effective delivery method for reducing the time and cost of construction when it is properly implemented," says Mortenson's Johnson. A number of the contractor's clients are starting to experiment with the delivery method, but clearly, he admits it is in the emerging stage.
And if design-build is an emerging trend, it seems to be growing slowly.
"We are seeing more design-build, but it is still a very small part of the market," notes Levine—5% of its healthcare projects to be exact—a number, Levine points out, that is still up from the 2% figure from a couple years ago.
On the other side of the coin, Schmida argues healthcare isn't conducive to design-build because the majority of hospital work involves retrofits.
Regardless of project financing or method of delivery, most in the industry feel the market should still yield plenty of work for years to come. Sheehan, for one, argues that healthcare is currently experiencing a stable political environment with no expectations of major changes in reimbursement policies.
And even if insurance and government reimbursement concerns become an issue, McMullin believes it will force hospitals to spend more time in planning stages prior to construction, which again, ultimately means continued work for the design community.
Project Round Up
Around the country, hospital construction is clearly visible, including in Chicago, which is opening the replacement for venerable Cook County Hospital—the template for the popular television program ER .
Named the John H. Stroger Jr. Hospital, the 1.185 million-sq.-ft. project was directed by CCH Design Group, which is headed by local architect Loebl, Schlossman & Hackl in conjunction with M/E consultant Globetrotters Engineering, structural engineer McDonough Associates and associate architect HDR Inc., Omaha, Neb. The massive project's cost is estimated at just over $600 million, including new medical equipment.
The new facilities are being developed to house 464 inpatient beds, 22 operating rooms, 13 birthing rooms, 120 exam rooms, 24 treatment rooms, 80 ER/trauma rooms and additional rooms designated for a number of specialized services including dialysis, endoscopy, speech and hearing, pulmonary, radiology and orthopedics.
Besides the sheer scope of the job, expectations were high, as the existing hospital housed the largest burn center in the Midwest, one of the best staffed emergency/trauma care centers in the nation and one of the largest neonatal ICUs in the country.
Furthermore, the team not only had to fit all the required areas into a limited amount of space, but make that space adaptable to future changes in medical science, technology and patient care.
Turner Construction, the builder of Stroger, is in the midst of an equally massive job on the West Coast—rebuilding UCLA's Westwood campus, at a price tag estimated at $400 million. The contractor has equally large projects in New York and Cleveland.
Another large hospital contractor—Minneapolis-based M.A. Mortenson—is working on a 590,000-sq.-ft. project for a hospital in Lafayette, Colo., and a new 411,235-sq.-ft. cardiovascular center in its home town.
'e-ICU': Telecom's Latest Trend
With advances in M/E equipment have come improvements in patient care. For example, now that hospitals are merging new, wireless PBX/voice systems with nurse call systems, nurses are starting to walk around with handsets capable of text messaging and voice communication with patients.
According to Chris Archer, a senior telecommunications manager with Brinjac Engineering, Harrisburg, Pa., such a system makes it very easy to locate a nurse.
Another emerging trend, know as "e-ICU," enables the remote monitoring of patients. "Studies have indicated that by having highly trained critical care intensivists monitor patients, the health of patients improved, and it actually reduced mortalities," says Archer.
According to Archer, this particular system is made up of 4-pair cable and typically category-5E cable supporting a T1 signal connected to equipment, such as a camera and microphone, to enable remote monitoring.