Hospital projects not immune to the economic plague

August 11, 2010

You know things are bad when even healthcare construction is hurting. Some AEC firms are projecting that healthcare work, the jewel in the nonresidential construction crown, could be off by as much as 50% over the next three years.

Donations to hospitals are down, their endowments have been ravaged, and they can't borrow a dime. As a result, hospitals are tightening their belts on capital spending.

The more frightening prospect is what might happen to hospitals under Obama's healthcare reform initiative. Hospitals have no idea how much they're going to be paid under any new reimbursement system that might evolve. Until the debate reaches the point where hospital systems have a reasonable sense of how they're going to be compensated, hospital CEOs and boards will be tight on construction budgets.

The more persistent problem, though, is the ever-rising cost of care itself. The U.S. currently spends about $2.4 trillion, or 17% of GDP, on healthcare, a figure that could reach 20% of GDP in a decade. The amount of waste is incredible. For example, in El Paso, Texas, Medicare spends about $7,500 a year per patient, while in McAllen, another Texas town with comparable patient demographics, Medicare spends $15,000 a year per patient. Why? Because (as surgeon Atul Gawande has reported in a brilliant article in the June 1 issue of The New Yorker), physicians in McAllen routinely order more tests and procedures than their counterparts in El Paso, with no significant improvement in clinic outcome.

That's why performance is going to be the next big watchword in healthcare. Medicare has already instituted a policy of not paying hospitals if they make certain kinds of medical errors. It is also looking at reimbursing healthcare providers based on clinical outcomes. Medicare has also set up a website ( where the public can obtain some comparative information on hospitals.

Despite the current downturn, the future holds great opportunity for smart AEC firms in the healthcare field, thanks to the aging of the U.S. population. Take California. By 2050, there will be more Californians of Medicare age than children under age 18; the fastest growth will be among those aged 85 or more. Since the bulk of spending for medical care occurs late in life, healthcare costs—unchecked—will continue to rise almost exponentially.

To help control spending, hospital pencil-pushers will be putting even greater pressure on AEC firms to prove that the facilities they are designing and constructing are cost-effective, both initially and long-term, and that any dramatic features (e.g., multistory daylit lobbies) or design innovations—healing gardens, single-patient rooms, standardized headboards, same-handed rooms, ever-larger ORs, etc.—really pay off in terms of clinical efficacy and patient safety.


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