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Capital Fueling Hospital Expansion Boom

By Jeff Elliott for HealthLeaders Media  
   September 20, 2010

Is the industry turning the financial corner, is it "do or die" situation for healthcare providers?

If you're seeing cranes hoisting steel girders and cement trucks delivering their nine yards of aggregate and water, there's a good chance a hospital's going up in your neighborhood. From Dallas to Detroit, San Francisco to Sarasota, a building and renovation boom is underway.

The Denver metro area alone is gearing up for more than $2 billion in new construction and expansion projects, according to a report in The Denver Post. Even providers in Detroit, an area whose dire economic straits have been well chronicled, will spend $1.3 billion on capital improvements in coming years, according to the Center for Studying Health System Change (HSC) and the National Institute for Health Care Reform (NIHCR).

This certainly is an indicator that capital spending is on the rebound as of 2010, spurred on by a number of factors including pent-up demand for additional beds, stronger institutions' growing cash reserves and certain favorable bond conditions outlined in the stimulus package.

But does it mean that wholesale financial security has returned in healthcare? Not necessarily. Experts estimate that up to 1,500 healthcare facilities could shut down in the next few years because of their precarious financial situation.

So to what do we owe the building boom? Largely, we can attribute it to the pre-recession healthcare environment. During that period, providers started to make their facilities conform to new consumer-centric healthcare models and federal regulations that tie reimbursements with outcomes, according to according to Niklaus Fincher, vice president of purchased services sales and capital, VHA Inc.

"Just prior to the economic downturn, healthcare organizations, anticipating rules that would reward and even penalize those institutions that weren't operating efficiently and at the highest standards of care, were focusing on projects that would get their facilities into a more efficient system based on new healthcare delivery needs," Fincher says.

When capital quickly evaporated during the recession, most healthcare organizations chose to put their new construction and renovations on hold. And while hospitals may yet find it hard to afford these projects, no longer can they afford to wait. "In addition to federal regulations designed to impact reimbursements such as with hospital-acquired infections or injuries, healthcare reform will mandate that providers become more efficient."

With an additional 20 million to 40 million lives entering the system, it will not only be incumbent on hospitals to add more beds, but also to focus on getting patients through the system more quickly, without sacrificing quality.

It's in this manner that the physical structure of the hospital is becoming ever-more critical, according to Fincher. "Can patients and clinicians move efficiently through the building? Does the design accurately reflect the services you provide?" he asks.

Hospitals must be on top of their game clinically by understanding their role in the community and sticking to their mission. Operationally, they must offer quality care as efficiently as possible, meaning that nothing is off the table, including reduction or reallocation of staff.

"Whether constructing a new facility or renovating an existing structure, your building can go a long way to helping you achieve these goals," Fincher says.

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