Facing reimbursement cuts and changing market dynamics, hospitals lean toward upgrades rather than new buildings Hospital construction projects will likely continue to operate at reduced speed in 2013, according to the latest survey by H&HN's sister publication, Health Facilities Management, and the American Society for Healthcare Engineering.

Health care organizations are investing less in megaprojects involving traditional hospitals and more in upgrades or additions designed to help them thrive under the Affordable Care Act, with its emphasis on accountability, affordability and patient access. That means a greater focus on infrastructure and technology, hospital-physician integration and outpatient facilities.

A still-sketchy economic outlook continues to hold many back, too. Industry activity in 2012 was flat or slightly down overall. As a result, 2013 shapes up to be similar to last year, says Dan Cates, director of business development for health care at St. Louis-based McCarthy Building Cos.

"I think it's going to be a slow comeback this year and probably in 2014, too," he says. "Larger projects are fewer and farther between. Hospitals are still trying to figure out how everything's going to work with the demographics and reimbursements changing so, outside of the occasional large project, we see health care organizations primarily focusing on smaller infrastructure and outpatient facility projects."

In the face of so many competing needs and new requirements, though, observers say a major or protracted hold-down in building activity is unlikely.

"What's going on now is maybe a leveling, a pause," says Steve Higgs, senior vice president with health care facility advisory firm KLMK Group in Peachtree City, Ga. "But there's lots of pent-up demand, and we have more certainty now. We will soon know how the effects of Obamacare play into volume."

Most organizations contemplating building new hospitals were either re-evaluating plans or said they would not proceed at the time of the survey. Asked to assess the impact of reduced reimbursement rates under the ACA, only 17 percent said they definitely would proceed as planned. Twenty-nine percent said they would not go ahead, 20 percent were less likely to proceed, while 25 percent were re-evaluating.

That hesitancy to commit to new facilities almost certainly was greater before the November elections, when the future of health care coverage and reimbursement still hung in the balance. The online poll involving 612 hospitals was conducted in October and November.

Total construction starts were on pace to plunge 16 percent for the year to 63 million square feet, down from 109 million square feet in 2008. The dollar value of starts was on track to fall 12 percent to $20 billion. In 2012, only 15 projects valued at $100 million or more had broken ground by fall, Murray wrote in McGraw-Hill's Outlook 2013.

Hospital renovation and expansion projects have not been shelved as much as new facilities. Only about a third of respondents either said they would not proceed with those combined projects or were less likely to. And for hospital renovations without expansion as well as for infrastructure upgrades, respondents were more positive. A slight majority said they will proceed either as planned or with modifications.