Healthcare designers and builders, beware: the ‘Obamacare’ clock is ticking down to midnight [2013 Giants 300 Report]

Hard to believe, but we’re only six months away from when the Affordable Care Act will usher in a radical transformation of the American healthcare system.

The new Bill Holmes Tower at CHOC Children’s Hospital in Orange, Calif., provide
The new Bill Holmes Tower at CHOC Children’s Hospital in Orange, Calif., provides inpatient care in a building that consolidates previously scattered services. The 426,000-sf facility signifies CHOC’s intention to become a nationally recognized children’s hospital, and includes Orange County’s only ER, imaging, and cardiac facilities dedicated to pediatric patients. On the Building Team: FKP Architects, Jacobs (CM), and McCarthy Building Companies (GC). Photo: Craig Dugan Photography
July 30, 2013

Hard to believe, but we’re only six months away from the day—January 1, 2014, to be precise—when the Affordable Care Act will usher in a radical transformation of the American healthcare system. Healthcare operators are scrambling to decipher what the new law will mean to their bottom lines and capital facility budgets.

For advice on how AEC firms can succeed under Obamacare, we turned to Patrick E. Duke, Senior Vice President at KLMK Group (www.klmkgroup.com), which advises healthcare operators on the planning and construction of capital facilities.

Duke, a BD+C “40 Under 40” honoree (Class of 2010), says firms must home in on three trends: 1) the shift by healthcare providers toward “population-based management”; 2) the push toward a fast-paced “retail environment” in healthcare; and 3) heightened interest in energy and operational cost savings among healthcare operators.

1. POPULATION-BASED MODEL HELPS SPREAD THE RISK
Today’s version of “fee-for-service,” whereby healthcare operators are reimbursed more on volume than on patient outcome, is on the way out, says Duke. It is being replaced by a system in which healthcare operators will be given a set amount of money to manage the care of a defined population of patients.

TOP HEALTHCARE ARCHITECTURE FIRMS

 
2012 Healthcare Revenue ($)
1 HDR Architecture $185,763,000
2 HKS $134,000,000
3 Cannon Design $109,000,000
4 Perkins+Will $100,962,255
5 Stantec $98,471,457
6 NBBJ $96,169,000
7 HOK $84,300,000
8 SmithGroupJJR $66,700,000
9 Perkins Eastman $63,800,000
10 RTKL Associates $60,746,000

TOP HEALTHCARE ENGINEERING FIRMS

 
2012 Healthcare Revenue ($)
1 AECOM Technology Corp. $180,210,000
2 Jacobs Engineering Group $77,100,000
3 URS Corp. $43,327,332
4 Smith Seckman Reid $40,105,600
5 KPFF Consulting Engineers $30,000,000
6 Affiliated Engineers $28,217,000
7 TTG $24,719,905
8 Parsons Brinckerhoff $22,700,000
9 Dewberry $21,226,702
10 Allen & Shariff $20,300,000

TOP HEALTHCARE CONSTRUCTION FIRMS

 
2012 Healthcare Revenue ($)
1 Turner Corporation, The $1,856,850,000
2 McCarthy Holdings $1,750,000,000
3 Clark Group $1,055,387,870
4 Skanska USA $833,093,700
5 Brasfield & Gorrie $780,723,247
6 JE Dunn Construction $759,053,631
7 DPR Construction $749,013,611
8 PCL Construction Enterprises $729,454,514
9 Whiting-Turner Contracting Co., The $551,510,967
10 Robins & Morton $545,100,000

Giants 300 coverage of Healthcare brought to you by DuPont www.fluidapplied.tyvek.com.

To be profitable under such a regimen, says Duke, healthcare operators will have to control costs by, ironically, keeping people out of the hospital. They will do so through various means: limiting the use of expensive emergency room visits, treating patients in lower-cost outpatient facilities, keeping people healthy through wellness programs, and cutting down on readmissions.

“The common response among providers thus far has been to cast as wide a net as possible to spread the risk over a broader population, just like life insurance,” says Duke. Some healthcare systems are growing their patient bases by buying up or merging with other providers. A more common practice is to build specialty facilities to provide more profitable services outside the hospital setting.

For example, the University of Maryland Medical System will open a 68,000-sf cancer center at its Upper Chesapeake Health affiliate in Bel Air, Md., in September. The new center will save local residents the 30-mile trip to UMMS’s Baltimore campus, while solidifying its position in the suburban market northeast of the city.

“Healthcare providers are looking at the services they can offer that are more specialized, with better outcomes in a lower-cost setting,” says Duke. AEC firms must be prepared to respond to this shift in direction.

2. ‘RETAIL HEALTHCARE’ PUTS EMPHASIS ON SPEED TO MARKET
As healthcare moves into more of a retail mode, getting specialty outpatient and primary-care outreach units to market as quickly as possible will be top-of-mind for hospital execs. Duke believes that will make them more open to modular construction. “If modular can get the facilities up faster to capture a growing market and get the cash registers ringing sooner, they’ll go with it,” he says.

Repurposing existing spaces is another route that healthcare systems are using to widen their patient bases quickly. In the Atlanta area, for example, Kaiser Permanente continues to explore repurposing vacant Blockbuster stores into neighborhood clinics, which then feeds patients into the Kaiser system.  Vanderbilt University Medical Center has done the same at 100 Oaks Mall in Nashville, with great success.

 “Healthcare operators want designers and contractors who can evaluate a building and come back quickly with solutions,” says Duke. Firms that can offer systems solutions for new facilities—designing standard units, bundling them, and rolling them out fast—will also be in demand, he says.

3. SAVING EVERY NICKEL ON ENERGY AND OPERATIONS
Healthcare providers are finally getting serious about saving on energy and operational costs. “Before Obamacare, they focused on supply chain and wouldn’t get serious about energy or facility operations because they didn’t need to,” says Duke. “As systems consolidate, they have the scale explore options like energy monitoring and retrocommissing, to identify sustainable cost-saving solutions.”

Another route to controlling costs is to develop new facilities under Performance Guaranteed Facilities arrangements. Under a PGF, the hospital contracts with a service provider to finance, plan, design, build, and maintain facilities over a 20- to 30-year period, at a fixed total cost.

“The hospital owns the building and the land, but the service provider takes the risk of developing the facility and maintaining it, including replacing equipment on an ongoing basis,” says Duke. This sheds a lot of risk for the hospital. If, for example, the OR goes down due to a maintenance error, the PGF provider takes the hit.

Duke says that, in Canada, value-for-money studies showed that life cycle cost savings averaged 15-20% on a net present value basis through the use of PGFs to build and operate new healthcare facilities versus traditional project delivery options.

The witching hour for Obamacare is fast approaching. Will your firm be ready to compete in the new American healthcare landscape?

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