Trepidation about reduced reimbursement rates has put a big chill on hospital construction plans, according to the annual construction survey by H&HN's sister publication Health Facilities Management and the American Society for Healthcare Engineering.
Organizations are building fewer new or replacement hospitals, unwilling to proceed with projects in a slow economy and facing a year of uncertainty as they await decisions that will affect key aspects of health reform and even their constitutionality.
"The impact of reform is going to be huge," says Greg Weigle, director of construction and design at the Medical University of South Carolina. His academic medical center is among those responding to the coming changes by renovating patient units instead of replacing them as had been planned originally. "Our margins define what we can afford to do and, from what I hear, they are going to shrink. That can't help but have an effect on construction."
Accompanying the financial restraint is a shift in strategy prompted largely by the Patient Protection and Affordable Care Act — for the surge in patients it is expected to bring after coverage expands in 2014 and its increased emphasis on patient safety and quality of care.
"There's a dynamic tension right now about what we need to do and what we can afford to do," says Dale Woodin, ASHE's executive director.
Hospitals and health networks appear to be scaling back on the patient-pleasing but costly "hospital-as-hotel" approach and focusing more on how to maximize value and improve medical outcomes, facing the prospect of having future Medicare reimbursements tied to performance.
Respondents also say they are less inclined to borrow money to pay for construction projects. Just 17 percent are using debt compared with 42 percent drawing on cash reserves. Use of tax-exempt bonds also is at its lowest in at least six years, accounting for just 21 percent of construction financing among those responding to the survey.
"With the unknowns of reform and reimbursement, health care organizations are attempting to remain as debt-free as possible," says Ken Cates, principal of Northstar Management Co. in St. Louis. "The cost-conscious C-suite and boards of directors are taking the stance that many Americans have taken lately: Don't spend it unless you have it."
The survey shows that the shift in priorities from traditional hospitals to smaller, neighborhood or satellite facilities is accelerating.
Future projects most frequently cited by survey participants in response to reforms are emergency departments, outpatient facilities in neighborhood settings, medical office building expansions, and primary care clinics and urgent care centers in neighborhoods.
The thinking is that the demand will increase for all of them in the decade ahead. Expanding and modernizing emergency departments will strengthen the first point of access to health care for many of the 32 million additional Americans who will gain coverage in coming years. Improving and adding neighborhood outpatient facilities also will facilitate access. [For more details on how hospitals are containing construction costs see our Fiscal Fitness series on the inside back cover of this magazine.]