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Contractors specializing in health care construction were hit with a double whammy in 2009: the economic recession and the passage of the Patient Protection and Affordable Care Act (ACA). The 2016 Dodge Construction Outlook reports health care construction starts dropped 38 percent in square footage and 32 percent in dollar terms in 2009. After the initial plummet, construction began to increase only to fall again in 2012 during the Supreme Court’s hearing of the ACA. Such uncertainty eroded business owners’ already low confidence in industry forecasts, leading to challenges when making hiring decisions and investment plans.

Fast forward to 2016 and contractors are regaining confidence in the market. This year’s Dodge Construction Outlook forecasts 1 percent growth in square footage and a 4 percent increase in the dollar value of activity, while Associated Builders and Contractors predicts an 8 percent increase in spending compared to 2015. Health care construction may be picking back up, but—like many other markets—the industry operates a little bit differently than it did before.

“The number one reason the change is occurring is because it’s important that facilities are driven by strategy. We don’t have the luxury of building without being strategic about construction,” says Lora Schwartz, principal of the Healthcare Program Solutions team at CBRE Healthcare. “We weren’t really frivolous before, but we’re very pointed about what we spend money on today.”

According to CBRE Healthcare—a division of commercial real estate services and investment firm CBRE that focuses on capital programming with hospitals and health care systems—medical facilities are required to do more with less. They need construction teams to help them create more efficient buildings on tighter budgets, make better use of space on smaller buildings, provide better care with less funding and even get more work done with less staff. To accomplish these goals, owners, contractors and designers must carefully plan ways to optimize efficiency.

“It’s not like before the economic downturn at the end of the last decade when owners were just building,” says Curtis Skolnick, managing director of CBRE Healthcare’s Healthcare Program Solutions team. “Now, owners a have to scrutinize every square foot or dollar allocated.”

High Expectations

Improving the patient experience is a major factor affecting the changes in health care construction. “Hospitals are much more focused on the patient experience; they are rated on it through online surveys,” Schwartz says. “With the prevalence of the Internet, anyone can go on and look at rating sites and see how hospitals compare.”Schwartz says the top factors that matter to patients when rating a hospital are cleanliness and the look and feel of the facility. Hospitals are struggling to upgrade facilities to provide excellent health care as well as top-notch patient experiences.

“We work with a lot of clients that deliver great care and have advanced technology, but their facilities need to match the care they’re delivering,’” Skolnick says.

In response, many hospitals are beginning to offer private patient rooms. “Privacy is a big deal for patients,” Skolnick says. “For instance, in our inpatient spaces, why do we expect patients to accept or want roommates during a very vulnerable time of their lives?

Hospitals also are adding amenities to make facilities feel more comfortable.

“There are not as many patient towers or new, large health care facilities being built these days. More often, we see things like 40- to 60-bed inpatient rehabilitation facilities. They are private rooms with higher finishes that feel less institutional,” says Ed Smith, vice president of health care for Doster Construction, Birmingham, Ala. “They are much more comfortable and aesthetically pleasing than what I was building earlier in my career.”

Hospitals also are offering amenities such as small flat-screen televisions, room service, Wi-Fi, art on the walls, and homier furnishings and fixtures. “If someone wants to spend the night, give them more than the standard chair. Perhaps provide a couch that converts to a laydown bed space,” Skolnick says. “Offer an environment that allows someone who is in the hospital for multiple days to stay connected to work and the world. Hospitals are reaching out from an amenity standpoint to make sure people have a home-like environment.”

These amenities mean homier building designs as well, such as including lots of windows and views of nature, better lighting levels and air flow exchanges in operating rooms. “We need to make sure the supply air in a patient’s room isn’t too loud and is diffused across the room so it maximizes patient comfort,” Skolnick says. Consider placing a window at the end of the hallway, instead of a door or hard wall, to connect people to the outside as they navigate a space.”

Do More With Less

Providing a better patient experience extends to the construction of buildings, as owners are rethinking how to provide more value for their budget.

“Ten years ago, dollars in capital investment markets were being driven into building inpatient hospital services, such as patient towers and hospital wings. Hospitals were increasing capacity to serve the inpatient population in a community,” says Matthew Latuchie, director of the Center for Strategic Planning at Sg2, a health care intelligence, analytics and consulting firm.

According to Sg2’s 10-Year Inpatient Forecast, the demand for inpatient services is projected to decline 4 percent during the next 10 years. But that doesn’t mean the amount of people needing care will decline. Instead, most patients are beginning to be treated in smaller, community-based outpatient facilities.

“Let’s imagine I’m a patient with a heart problem. Ten years ago, I would be treated by being admitted to the hospital and being observed for a two- to three-day period in which they would do a series of tests,” Latuchie says. “Now, there’s a better chance I would be treated in an outpatient setting.”

Outpatient facilities offer high-quality care in more convenient buildings. “From a consumer standpoint, you can avoid the hassle of a hospital and get treated for select services in a far more convenient care setting,” Latuchie says. “You can park out front, walk in and be home 45 minutes later.”

In addition to providing more convenient patient experiences, Smith says smaller health care facilities allow owners to save costs. “A lot of our medical projects are outside of the hospital proper. In terms of square footage, it’s cheaper to do a project somewhere other than inside the hospital. Projects in the hospital require institutional design and construction, as well as more expensive systems, and they often require you to shut down revenue-producing space during construction, which makes it expensive to get anything done.”

Location Analyses

Finding the most convenient locations is key for hospital systems that want to remain competitive. Sg2 helps owners determine which locations will provide the most bang for their buck—very similar to retail stores. For example, it will analyze the locations of key businesses in the community, such as Starbucks and Walgreens, to help hospitals place their services in the most convenient locations.

Facility location is more important than just providing easy access. Owners must think about the best location to remain a player in the highly competitive health care construction market. In some states, the government has stepped in to make sure an appropriate number of medical facilities are constructed in each region.

Certificate of Need (CON) regulations require contractors in many states to acquire government approval before beginning hospital projects or when requesting new (and expensive) technologies. States with CON laws that work effectively allow contractors to know about other companies working in their market and projects in the pipeline.

“With CON laws, people have to declare projects, so the risk is gone,” says Emil Slavik, director of health care advisory services for ADAMS Management Services Corporation. “But CON laws can add a year to 16 months to a schedule and can change when the project happens and the scale of it. You may only be able to build a certain size, or you may only have one piece of equipment you requested.”

CON regulations historically have been a controversial topic. In the 1960s, many states began enacting CON laws to slow the rapid growth of medical facilities. In the 1970s, a federal mandate was put in place requiring CON regulations in all 50 states. By the late 1980s, the federal mandate was repealed and some states followed suit, no longer requiring government approval for construction projects. As of 2015, 36 states have some sort of CON law on the books, according to the National Conference of State Legislatures.

Prior to instituting CON regulations, hospital construction was extremely high and unregulated. With the elimination of CON laws, some of those risks reappear. For example, Indiana eliminated CON regulations and three brand new heart hospitals were built in the same city simultaneously. Just a few years later, two of those facilities closed or had to be alternatively used, according to Slavik.

“CON regulations were made to limit the rapid expansion of construction projects,” Slavik says. “Whenever you build a new project, it has to be capitalized and added to everyone’s bill. Medicaid was objecting to how many bills they were getting.”

Slavik says Medicaid, a state-based program, is about 20 percent of the payment in national health care. “For a state, it’s a huge budget item. When they can delay a cost, even if it’s just $2, it adds up when you’re talking about 100,000 people every year.”

But the regulations are controversial because people quickly learned to work around them. “There are MD and OD doctors. OD doctors practice in osteopathic hospitals, which are very small and only in certain parts of the country,” Slavik says. “Say a big system wants new technology it can’t get under CON laws, like an MRI. It can buy an OD hospital and the state would have to give that hospital the MRI. Sometimes they might do that just to prevent a competitor from getting the MRI.”

Smarter Layouts

Less inpatient care and more community facilities means traditional hospital campuses will need to be creative about using the resulting extra space. “Certain markets around the country will have serious capacity issues,” Latuchie says. “From a hospital perspective, it will take resourceful and creative management to keep these excess capacity issues from hitting their top-line revenue.”

In response, many traditional hospital owners are rethinking their use of space by renovating and reconfiguring buildings, which Slavik expects will lead to more complicated construction projects.

“Instead of doing expansions out of hospitals or building next to major hospital centers, contractors need to renovate the guts and hearts of hospitals to put in flexible and intensive infrastructure,” Slavik says.

“We start with hospitals built in the 1920s to 1930s and build around them so they are the hole of the doughnut. Then we fill the hole, figure out a new plan and determine the evolution of the space in the future. It’s much harder and there are more phases, but it results in a cleaner and more efficient operating system for staff and patients.”

This change in the type of health care buildings is leading to owners being more forward-thinking about their facilities’ design and footprint. “People are going back to simplicity: boxy, linear and more efficient buildings,” Skolnick says. “We’re seeing owners, designers and builders standardize footprints so they are flexible over time.

Standardization allows health care systems to more easily move personnel to alternate floors, departments or even facilities. With consistent room designs, equipment locations and floorplans, staff can acclimate and continue providing quality care at a much faster rate.

High Performance Prefab

Demands for standardized layouts and footprints have created a market for prefabricated units and modular building in the health care industry. “Prefabrication helps lower costs and enables you to expand the footprint quicker,” Latuchie says. “I see it being a way to lower the costs of expansion or modernization.”

Chris Giattina founded BLOX, which develops designs that can be constructed in a manufacturing environment, after seeing a drastic need to serve patients better at a lower cost. “There was so much wrong with the way we built health care. It was less commodified than other industries,” Giattina says. “Health care had not been rethought in decades.”

BLOX creates a number of prefabricated building components in health care facilities, including headwalls, footwalls, exterior walls, ceiling components, exam rooms and bathrooms, just to name a few.

BLOX also creates more complicated components, such as complete surgery modules. “Surgery modules provide a complete surgery ceiling that has everything you can think of: electrical, low voltage, data ports, TVs and more,” Giattina says.

Moving the creation of components off the jobsite and into manufacturing facilities allows owners to increase efficiency. “If you look at a typical jobsite, there is an arc of when the highest number of people occur on a project. The first week is just three to four people digging,” Giattina says. “Then concrete comes with a dozen people, and then the number of people starts moving up as the super structure emerges and the building is dried in. At the peak time, you can have anywhere from 50 people to 500 people on a jobsite, and that’s when problems occur. Supervision is hard to get in all of those places.”

Completing much of the work in a manufacturing facility removes some complexity from the jobsite, allowing for better quality products and more efficient employees. “Before, all those people were running around with their hair on fire,” Giattina says. “By removing complexity, management can go further on the jobsite. It frees up the jobsite superintendent to focus on less, but be far better at it.”

It also allows superintendents to better monitor employees on the jobsite to improve safety. “The jobsite is not where complexity is best managed. A young, inexperienced workforce cannot be the safest onsite,” Giattina says. “From a safety, quality and speed perspective, the industry should move offsite at a rapid rate.

Prefabrication also speeds up the traditional construction process. On a recent project, a contractor using BLOX components saved two critical path days per patient room on a 30-bed expansion project for a total of 60 critical path days saved. That allowed the hospital to fill those 30 beds 60 days earlier and get back to earning revenue and providing care more quickly.

Tough Transitions

The change in expectations, design and construction has been challenging for many in the industry. “It has been a big shift in thinking for hospitals, and a lot have struggled with it,” Latuchie says. “We as an industry have adjusted over the years to being strong hospital operators. We’re being forced to manage a health care system that is not just one hospital; now health systems are geographically dispersed.”

But as owners regain confidence in the economy and health care construction picks back up, contractors will need to embrace these changes to remain competitive in the industry.

Geographic Factors

The transition to smaller, community-based facilities hasn’t affected the country at the same rate. States in the Northeast and Northwest are seeing the shift more than the Gulf States, according to Matt Latuchie, director of the Center for Strategic Planning at Sg2, a health care intelligence, analytics and consulting firm. The Southeast also is slow to shift, except in a few pockets, such as Charlotte, N.C.

“A lot of factors are at play that affect the areas in which the shift is occurring,” Latuchie says. “Health plans or insurance companies in some markets will push health systems to care for patients in lower cost settings. It’s happening more in the North than the South.”

Latuchie adds that in more progressive markets, some health systems are entering risk-sharing agreements with insurance companies. “If the provider manages its patient population more efficiently—for example, with fewer admissions and lower costs—it will receive financial incentives. Alternatively, if it ineffectively manages the community’s health needs, it will have to write a check to the payers.”

BIM Improves Accuracy and Efficiency

Few markets reap the benefits of BIM more than health care due to the frequent maintenance required, the inclusion of complicated medical systems and the high stakes involved in systems malfunctioning.

Doster Construction, Birmingham, Ala., uses laser scanners to create a point cloud that can be inserted into BIM software to create highly accurate 3-D models that incorporate as-built conditions as well as proposed construction. Instead of requiring the architect to design plans using drawings that could be decades old, the 3-D model allows Doster Construction to provide exact dimensions and layouts of entire buildings.

Allowing the owner to view the model prior to construction also significantly decreases the project stakeholders’ exposure to costly changes. “The change orders that are eliminated using BIM offset the cost it takes to go through the coordination process,” says Ed Smith, vice president of health care for Doster Construction.

The model also allows Doster Construction to prefabricate, because it can be assured prefabricated materials will fit in the actual building.

In addition, BIM allows Doster Construction to give owners digital closeout documents. “The days of handing over a three-ring binder at the end of a project with information about the facility are long gone. We now have the capability to provide owner specific, model-integrated closeout documents,” Smith says. “It allows owners to have better control of their physical assets. For example, they now know the last time they changed air conditioning filters or the product information for each thermostat on the wall.”


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