Meeting the Financial Challenge Of the 21st-Century Hospital
Its pretty hard to travel anywhere in the United States without passing a hospital campus that doesnt have a crane sitting on the property. We are experiencing a surge in hospital construction that is unprecedented with numbers approaching $16 billion annually.
On average, it takes four to five years to plan and construct a new hospital. To be competitive, hospitals need to be built by 21stcentury standards and be integrated digital hospitals. Major tailwinds are creating a once-in-a-lifetime opportunity to redefine our healthcare delivery system and how we develop the buildings that house them. Those tailwinds include:
- Obsolescence. Many if not most of the existing medical campuses were built in the 1950s. Although many additions and renovations have been done, one fact that cant be denied is that the core structure is over a half-century old. No other industry is attempting to use 21st century technology in a 20th-century building.
- Demand. Weve all read about how the 83 million baby boomer generation will be affecting Social Security and Medicare when they retire. Most of these boomers are in their 50s right now and are already beginning to influence hospital usage. It has been indicated that if we build one 100-bed hospital per week for the next 10 years (50,000 beds), it would only just begin to address the upcoming demand some think as many as 500,000 beds are needed.
- Technology. New generation equipment is creating utility (such as fiber optic) and space demands as most systems in the hospital are now digital as well as more versatile. Current space configurations, as well as inflexibility, are causing renovations to be costly, time-consuming and patient-unfriendly.
- Demographic shift. As the baby boomers have aged, their geographic preference for housing has shifted to the suburbs. Hospital campuses are still located in urban centers or suburban areas that are no longer areas of population growth. As a result, as hospital consolidation has taken place, instead of additions and renovations on existing campuses, hospitals have opted to build a new replacement hospital in new areas of population growth.
- Favorable financing and reimbursement. Notwithstanding the constant pressures of reimbursement, the overall climate for capital markets is greatly enhanced by the relative low level of interest rates.
As we begin the major overhauling of our healthcare system, many trends in the development of the 21st-century hospital become apparent: trends such as built-in flexibility (universal patient and exam rooms, modular bay sizes, universal utilities), an environment conducive to healing (larger patient and operating rooms, positive distractions such as water features and aromatherapy, natural light such as skylights, interventional rooms, digital way finding, decentralized nursing stations) and, perhaps the most important trend of all, the integration of the digital systems.
The integrated digital hospital takes in much content, such as Web-based medicine, pharmacology, patient registration, invoicing and payments, after-hours medical information, supply chain management, telecommunications and health records. Just on the telecommunications side, we are integrating CATV/MATV/Education TV distribution systems, structured cabling (voice, data, video) systems, telemedicine and teleconferencing; intercom, nurse call/code blue systems, infant abduction systems, public address systems, security/CCTV systems, telephone and voice mail systems, LAN/WAN, network transmission facilities, data center facility design, emergency power (UPS, generator), physiological monitoring and audio/video presentation systems.
When you take a step back, however, all of these trends put upward pressure both on the size of the building as well as the cost of construction. For example, patient rooms that used to be 250 square feet 10 years ago are now 300 to 350 square feet to allow for added space to accommodate parental and spousal rooming, computer workstations both for patients and visitors, and inboard toilet rooms to better facilitate proximity to the bedside. Operating rooms are approaching 50 percent space premiums to allow for the added integration of interventional medicine (imaging and surgery occupying the same space). Single-patient rooms versus a ratio of 75 percent single/25 percent semi-private can increase costs by over 10 percent.
Additionally, the added cost per square foot to develop natural light such as skylights, healing gardens, universal patient and exam rooms, universal utilities (which allow for just-in-time delivery of medical equipment), redundant mechanical systems as well as dual utility sources all increase the cost per square foot. And lastly, hospitals, as massive users of energy and water, are trying to be good corporate citizens by addressing Green Buildings with all of the opportunities that go with LEED certification.
LEED certification provides a framework for assessing building performance and meeting sustainability goals and promotes expertise in Green Building through a comprehensive system offering project certification, professional accreditation, training and practical resources. By addressing the major LEED categories, which are sustainable sites, water efficiency, energy and atmosphere, material and resources and indoor environmental quality during design and construction, a hospital can significantly improve its environmental impact, but not without some degree of added initial cost.
This added challenge of cost can and must be overcome in order to take advantage of this current opportunity to make a difference. And the principal way to do this is by combining the analysis of the capital budget with the operating budget. Notwithstanding that these funds come from different sources, it will be virtually impossible to fund these projects without taking into account the savings downstream during the operation of these new facilities. If, in fact, the built environment can affect patient outcomes, then we must include in the financial analysis the fact that single-patient rooms, although costly up front, will decrease patient length of stay, increase infection control, minimize staff turnover by increasing nursing efficiencies and ultimately improve patient outcomes.
There are two dramatic areas where these two interrelated budgets can come together; one is clinical and one is mechanical. The work of the Center for Health Design, a nonprofit advocacy group headquartered in Northern California, includes an emerging science called evidence-based design, which is the tracking of information through their Pebble Projects. The idea behind the Pebble Projects is to quantify the clinical and financial advantages of designing a building that addresses the concept that a building that embraces an environment of healing will improve patient outcomes, reduce staff turnover, improve community relations and therefore increase contributions. Thus a business case can be made for designing and building better buildings. The Center for Health Design has presented in their regional conferences the following three examples:
- Bronson Methodist Hospital, Kalamazoo, Mich. The design features included access to nature (indoor garden, natural light, landscape views); control (intuitive way finding, private rooms, information access); positive distractions (artwork,music, nature); and environmental features (daylight, water sounds).
Using these design features, the areas of measurement were employee turnover, patient outcomes, length of stay, cost per unit of service, waiting times, patient satisfaction levels, organizational behavior and staff productivity.
The following selected results occurred: 11 percent decrease in nosocomial infections; savings due to fewer patient transfers; market share increase; nurse turnover rates decreased to 6.5 percent; increased employee satisfaction; and patient satisfaction increased to 95.7 percent. Overall, there was a positive correlation between the design and key measures of higher quality of care.
- Methodist Hospital, Indianapolis. The design features were similar to those for Bronson Methodist Hospital and included natural light, single rooms, healing gardens, digital services and access to nature.
The areas of measurement were clinical outcomes, satisfaction, education and personal growth, and cost and efficiency.
The following selected results occurred: 75 percent fewer patient falls; 90 percent reduction in unit-to-unit transfers; patient dissatisfaction dropped from 6.7 percent to 2 percent; improved medication error index; and reduced caregiver workload index.
- Karmanos Cancer Institute, Detroit. The design features were social support (rooming in, computers outside every room); and performance efficiency (enclosed area for unit clerk, clutter-free hallways).
The areas of measurement were employee turnover, length of stay, patient satisfaction levels and pain control.
The following selected results occurred: 16.8 percent increase in patient satisfaction; 3.8 percent nurse attrition rate; 30 percent reduction in medical errors; 6 percent reduction in patient falls; 16.4 percent decrease in patient use of narcotics; and average variable costs decreased $1,000 per patient.
All of these Pebble Projects entailed increased costs and put added pressure on the capital budget. By including in the analysis what the operating savings would be downstream, the combined analysis created a win for those hospitals.
In addition to the clinical advantages, another major area of opportunity to combine first cost and operating cost is in the mechanical systems. On average, almost 50 percent of the cost of new construction can be attributed to the mechanical, electrical, plumbing and fire protection systems. Mostly these systems are designed with the first costs in mind. Occasionally, a life cycle analysis will be performed to determine which system will use the least amount of energy. Also important, and through what is called commissioning, an analysis of which system will benefit the operational efficiencies over the lifetime of the building can be developed. Interestingly, by concentrating on first costs only, we are looking at only the first two years of a 40-year life cycle. By looking at the 40-year life cycle, we can gain the following benefits:
- Increased system efficiency means reduced energy consumption;
- Smoother building turnover;
- Reduced warranty callbacks;
- Reduced occupant interruptions;
- Reduced troubleshooting efforts;
- Improved air quality;
- Focus on proactive and preventive maintenance;
- Increased operation and management of the systems; and
- Improved building documentation.
According to Siemens, Lakeside Hospital in Omaha, Neb., decreased its plant management personnel from four to one using Siemens digital tracking system for maintenance and operation after its new hospital opened.
The proper way to combine the analysis of these two interrelated financial resources is by putting together an integrated team up front comprised of planners, financial consultants, architects, engineers and construction managers all working in concert to assure that downstream savings (operational budget) can accrue from good upstream planning (capital budget). These team members all bring their own specific expertise of development, and having them on board together from the very early stages allows for the conceptual analysis of activities, something that cant be done if they are brought on board one by one as the project moves downstream.
