A Modest Approach

Carrie Vaughan, for HealthLeaders Media, April 23, 2008

I hear plenty about the roadblocks that small community hospitals face when it comes to replacing or upgrading facilities. A dwindling population base due to an aging community or scarcity of jobs, proximity to another hospital, a lack of staff physicians to increase volumes, a lack of community support—all of these factors can hinder a hospital's ability to secure financing. And as if finding access to capital wasn't already difficult enough, now these facilities are dealing with fallout from the sub-prime mortgage crisis and changes to the way nonprofits are able to borrow money in the bond markets.

When money is tight, consumers are forced to make painful choices. Should you buy baby diapers or a new pair of shoes? On the surface, that decision seems obvious. Baby diapers are a necessity; a new pair shoes may be more comfortable or stylish than what you're wearing now, but you can survive without them. They're a luxury. But the thing is, sometimes it becomes difficult to distinguish the things you truly need from the things you merely want. With the slowdown in the economy, small community hospitals will have to take a long, hard look at what products and services their communities need versus what they would like to have.

Many community hospitals will need to take a more modest approach to their construction or expansion projects. Some decisions will be easier: "Do we really need a glass atrium, waterfall wall, or healing garden at our new hospital?" Others will be more challenging: "Do we really need a 50-bed replacement facility, or will a 40-bed facility be sufficient?"

Even though the majority of community hospitals won't be able to borrow as much money as they could have a year ago and will likely have to curtail some of their plans, postponing construction projects until the economy rebounds is not in their best interest, according to industry experts. Many of these hospitals are operating in antiquated facilities that are unable to meet the needs of their community. What's more, construction has slowed up a little bit, says Arlan Dohrmann, managing director of the Stern Brothers & Co., a national healthcare finance group, so "the cost of construction is not going up at the inflationary rates that we were seeing."

Dohrmann offers these tips to community hospital executives whose facilities are in the middle of a construction project—or about to begin one:

  • Get a credit assessment done to determine your hospital's debt capacity.
  • Decide what services are really important to your community.
  • Analyze your current operations, demographics of your region, the size of the project, and your vision.

I would love to hear about your hospital's construction project. Please drop me a line at the below e-mail address.

Carrie Vaughan is editor of HealthLeaders Media Community and Rural Hospital Weekly. She can be reached at cvaughan@healthleadersmedia.com.


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