To build or not to build? That is the question for hospitals and health systems

How are hospitals' capital investments evolving in a time when the industry wants to avoid hospitalizations?

As the healthcare industry places greater emphasis on lowering costs and treating patients on a more preventive basis, many hospitals have been forced to reevaluate their capital investments and reconsider renovation or expansion plans.

That is not to say that hospitals have completely ceased building; in fact, a report by Reed Construction Data, now known as CMD, predicts the medical construction market in the United States will see quite a bit of activity in the near future due to the country's aging population. Roughly 37 relatively "firm" planned hospital construction projects in the works are estimated to cost $50 million or more, according to the CMD report.

However, for some of these hospitals the nature of the construction has shifted. A survey conducted by Health Facilities Management and the American Society for Healthcare Engineering of nearly 500 hospital and health system executives found leaders considering future facility development plans for outpatient center, primary care clinics or ambulatory surgery centers has increased anywhere from 5 percent to 7 percent in 2013 from the previous year.

Population health impacts expansion plans

Toledo, Ohio-based ProMedica is just one health system that elected to build out rather than scale in. That said, its latest project is hardly of the acute-care variety. ProMedica recently broke ground on a 230,000 square-foot health and wellness center in Sylvania, Ohio, located almost halfway between two of the system's acute-care hospitals.

The health and wellness center — slated to open in early 2016 — will include physician offices, an endoscopy center, a walk-in clinic, an urgent care center, a pharmacy, optical services, behavioral health services, community meeting and conference rooms, and a food pantry for patients, among other features.

According to Lee W. Hammerling, MD, ProMedica's chief physician executive and CMO, the center will be designed differently than your typical hospital or wellness center.

"The whole premise behind this is to create a different atmosphere of health and wellness in a high-tech environment," said Dr. Hammerling.

Although the facility construction is just getting underway, plans to create a center have been in the works for roughly five years, according to Dr. Hammerling. In addition to providing high-quality and convenient care for community residents, the wellness center will also create more efficiencies for ProMedica's physician groups.

"What we wanted to look at was getting more efficient with our practices. If you're involved in a practice with three, four or five physicians, you'll typically have a check-in clerk, a check-in receptionist and a waiting room," said Dr. Hammerling. "When one of your physicians goes on vacation, what happens to the exam rooms that he or she leaves behind? What does the staff do?"

By bringing all the family physicians together in the wellness center, exam rooms are shared between the healthcare professionals so they don't go unutilized.

On a broader scale, Dr. Hammerling sees the new facility as an addition that will have a very synergistic relationship with ProMedica's nearby hospitals, which will see fewer urgent and walk-in patients and focus more on more critically ill and acute patients.

Nature of hospital construction evolves

ProMedica is by no means alone in its recent undertaking to grow outpatient services. Increasingly, hospitals and health systems are expressing interest in outpatient facilities and health and wellness centers, according to Deb Sheehan, executive director of the health practice for CannonDesign, an integrated design firm specializing in healthcare, among other areas.

In fact, Ms. Sheehan estimates more than half of CannonDesign's healthcare architectural portfolio last year was dominated by such facilities.

The shift in the type of facilities hospitals and health systems are building is telling, but even more interesting is the fact that many healthcare organizations are shying away from building at all. Instead, they are refocusing investments in technology platforms, physician alignment, ambulatory care diversification and care model cost savings. Increasingly, CannonDesign's role has shifted from architect to advisor and from building on real estate to repositioning it through clinical optimization.

"We're there to support our clients, not just when they have a capital project to build but also when they're trying to reposition their services and look at the impact of operations and how real estate plays a role in that," said Ms. Sheehan.

For CannonDesign, advising starts by understanding how physicians, clinicians, patients and staff operate in the hospital's existing space. The firm goes through lean workflow analysis by making flow maps of the current state, process and behaviors, and then taking them through an optimized state with regards to performance improvement in workflows for care delivery.

"At the end of that first endeavor, I'll be frank, there are times when our client came to us thinking they needed to expand or add more square footage, and the report we end up giving back says expansion isn't going to help," said Ms. Sheehan. "Oftentimes, if the processes are in need of help and support, just adding on more real estate, more construction and more square footage only exasperates an operation or process problem and makes it worse."

Be that as it may, hospitals and health systems need to do some legwork before figuring out how best to invest capital, whether it is building an outpatient center, avoiding construction altogether and focusing on optimizing workflow, or pursuing other investments entirely.

One area of acute-care platform investments Ms. Sheehan has seen grow comes in the form of intensive care and higher acuity spaces. Reason being, the profile of patients in the hospital is becoming increasingly critical.

External forces impact capital projects

In addition to internal forces, hospitals and health systems need to look outside of themselves to determine if building is a business-savvy option, according to Alan Sager, Ph.D., Professor of Health Policy & Management and Director of the Health Reform Program at Boston University School of Public Health.

Some factors hospitals should consider include population growth (especially of specific populations like the elderly), financial payer mix and adequacy of different payers, location in relation to other hospitals, unused capacity at nearby hospitals, and proximity to public transportation routes or highways to ease access for patients, according to Dr. Sager.  

Ensuring a competitive edge is another reason why hospitals may consider renovating existing facilities or building new facilities altogether, which holds true even for small or safety-net hospitals serving low-income communities.

For instance, St. Bernard Hospital in Chicago is a 210-bed safety-net hospital that, in October 2014, broke ground on a three-story, 70,000-square-foot ambulatory care center costing in the ballpark of $33 million.

Robert Kaestner, PhD, professor of econometrics, community health policy, and healthcare policy and regulation at the University of Illinois and the University of Illinois at Chicago, believes St. Bernard's expansion is an attempt to attract better-paying customers — or just more customers in general.

"[St. Bernard's] has to compete. People want to go to quality facilities with new equipment," said Dr. Kaestner. "They think building is a way to generate more revenue, better profits and stabilize the hospital's finances."

As healthcare reform increases the number of people with health insurance and shifts the industry toward outpatient care, even safety-net hospitals may need to consider renovating or upgrading to attract patients, low-income or otherwise.

Considering the sizable cost of capital projects, hospitals and health systems have many factors to consider, both internally and externally, before investing in more square footage, be it for acute- or outpatient care.

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