In speaking recently with healthcare executives about their capital spending plans for 2013, I have heard a lot about construction and renovation projects, which rank second only to IT initiatives for where hospitals and health systems plan to invest over the next 18 months, according to HealthLeaders' recent Buzz Survey on capital funding priorities and drivers.
Nearly half (47%) of the 125 respondents say they plan upgrades to existing facilities, while 26% say new facilities are in their future.
There are a few core reasons for the focus on brick and mortar assets, one of which is the conservative approach many organizations took toward their capital budgets during the recession. Although the economy continues to be dicey, hospital administrators know that buildings must be cared for—and sometimes replaced—in order for their business to remain operational.
"A lot of places are holding off as long as they can, but you get to a place where you just have to move forward," says Susan Doliner, vice president for development at Maine Medical Center, a 600-bed hospital in Portland. "Capital projects are very important, particularly on the East Coast where facilities are much older. At Maine Medical Center, we have buildings that are as old as the 1900s. … Eventually, you wear those buildings out and you need to build new buildings."
Doliner says that new construction offers a chance to redesign the hospital with all private rooms—a move that satisfies stricter infection control regulations and the demands of the average patient who does not want to share a room with a stranger.
Private hospital rooms generally make for more satisfied "customers." However, there is also a legitimate health advantage for patients who have their own room, and a significant financial benefit for hospitals that provide them.
Patients who have a private room "tend to heal faster and go home faster," Doliner says—an important factor in light of the shift toward value-based purchasing. "As you look to the future to the way hospitals will be reimbursed, it will depend on how healthy their community is."
Another compelling argument for capital investments in buildings is the need to be ready for a natural disaster.
Depending on geographic location, hospitals may have to spend money to be sure their buildings can endure certain natural events. For example, California hospitals have until 2030 to meet the state's seismic safety standards, established in 1994 by a state law intended to make sure hospitals are earthquake-safe.
"Hospitals need to be able to withstand a major earthquake and stay intact," says Alison Fleury, senior vice president of business development at Sharp HealthCare, an integrated health system based in San Diego.
California hospitals that do not meet certain compliance standards by 2030 will face serious consequences, Fleury says. "If a hospital doesn't meet that level of requirement, it has to close down. It can't be used for inpatient care."
Severe weather also affects hospital capital needs.
Terry Bader, vice president of design and construction at Mercy, an integrated health system that spans six states, mostly in the Midwest, knows about natural disasters. Mercy's St. John's Regional Medical Center—now known as Mercy Hospital Joplin—was destroyed by a tornado that ripped through Joplin, MO, on May 22, 2011.
I remember clearly the images of the demolished hospital on the nightly news and the harrowing stories from those who lived through the experience. And, of course, not everyone survived—six people lost their lives inside the medical center that day.
I asked Bader about the cost to replace the hospital and the safety lessons learned. All told, he estimates the new construction represents a capital investment "somewhere in the area of $300 million," with $7 million to $8 million extra being spent on materials intended to fortify the hospital in case of another tornado.
The new safety precautions include shatterproof, laminate windows and frames that can hold them in place in high winds, and wide, windowless corridors on the bottom levels of the hospital where people can ride out the worst of any storm
"We are using more hardened products on the exterior skin of the building. The types of materials we are using will add more stability, but it does drive up costs, too. We're trying to secure all the infrastructure—the heating, cooling, electrical systems—to protect them the best we can," Bader adds.
Despite investing millions in additional safety features, Bader knows there is no guarantee that the new building will be able to withstand the next tornado.
"The whole situation in Joplin was an eye opener for everyone. … Mother Nature has the upper hand. We can only do what we think is right. But … you might have three minutes to prepare for 300 mile-an-hour winds. How do you prepare for that?"
It's a question that clearly haunts Bader, who—like hospital administrators around the country—knows he is walking a tight rope between spending enough money to keep patients and staff safe during a weather event and not overspending on materials that won't provide any extra safety in the most extreme situations.
"When we are making decisions on what we are doing in our facility moving forward, there is only so much you can do," he says. "It's trying to find that sweet spot where you are not spending inappropriately, and that is difficult when you are looking at tornado impact."
To learn more about healthcare leaders' priorities for capital investments over the next 18 months, along with the drivers behind their decisions, download the Capital Funding Buzz Survey.