Keys to Capital Project Financing: Planning and a Variety of Funding

Christopher Cheney, November 1, 2016

The shift to value-based care adds new investments, including outpatient facilities.

This article first appeared in the November 2016 issue of HealthLeaders magazine.

David Smith
David Smith

The shift to value-based delivery of medical services has boosted investment in outpatient capabilities, which has added a new element to the capital-project mix at health systems and hospitals.

"The ways of paying for capital projects are not changing all that much, but what we are buying is changing. There's a movement toward a different model, so we are investing in new capabilities, like patient-centered medical homes," says David Smith, senior vice president and CFO at Hollywood, Florida–based Memorial Healthcare System.

Two of the biggest capital projects underway at MHS are construction of outpatient facilities, Smith says. "We are expanding our geographic footprint. Our board has approved the building of two urgent care centers, on the east side and the west side of our district."

Operating in a state-chartered district, MHS features six acute-care safety-net hospitals. The health system posted patient service revenue at $1.8 billion for the fiscal year ending April 30, 2016.

MHS will wholly own the new urgent care centers, which will both be located in new buildings. However, the health system is only constructing one of the new structures. "The one we're building from the ground up is about 5,000 square feet, and the cost is $2.5 million, which includes equipping it," Smith says. "What drives up costs a lot in South Florida is we are in Hurricane Alley, and we have different codes here. You have to construct the buildings to be hurricane-resistant, which makes them a much more expensive proposition."

In addition to growing its market footprint, MHS recognizes the need to invest in outpatient facilities, he says. "There's already retail clinics. Urgent care centers are popping up all over the place in this market, and there are ambulatory care facilities, so the future of healthcare will include these shorter-stay patients who are no longer going to be in the hospital. That means hospitals will become at least somewhat more capital-intensive because they will be the place where the high-tech care is rendered. What we're seeing is not necessarily a lessening of the hospital side of capital projects, but more of an overall growth in capital investment because we need to account for the outpatient world as well."

Consumerism in value-based healthcare puts a premium on convenience, Smith says. "The whole idea is to make it easier on the patient. One of our affiliates has a partial ownership in a couple of ambulatory surgical facilities, and we see in the future where those will also become recovery care centers, where patients we need to have stay one night or even two nights can come in and not have to receive care in a hospital."

Christopher Cheney

Christopher Cheney is the senior finance editor at HealthLeaders Media.

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