How Obamacare impacts hospital construction

August 11, 2010

It took longer than expected to wriggle its way through Congress, but the most far-reaching healthcare reform since the passage of Medicare, in 1965, is now the law of the land. What will be its effect on hospital construction?

The near-term answer: nothing. There's not a dime for new construction in Obamacare. There is, however, an important upside to the new law: It reduces some of the uncertainty for hospitals and lenders. As its various provisions go into effect, healthcare systems will gain a much greater understanding of its impact on patient loads, reimbursement levels, and cash flow. They might not be overjoyed with the numbers, but at least they'll know where they stand financially. They'll be able to plan, and that could help loosen the noose on new construction.

Don't expect to see manna to drop from the heavens, however. The capital markets are still being stingy, and many hospital systems are holding off on major projects; in fact, 62% of the 186 AEC firms that responded to a recent Modern Healthcare survey said they had had projects put on hold last year.

So what's getting built? Smaller projects, largely renovation work, the bulk of which are being financed out of hospitals' current cash flow. Renovations and expansions are expected to be this year's meal ticket for AEC firms that do healthcare, according to 72% of the AEC firms in the Modern Healthcare survey.

There's also lots of dough for federal healthcare facilities, especially for the VA and the military. Unfortunately for smaller AEC firms, most of that money has already been snatched up by the big healthcare AEC firms.

That's not stopping the little guys from trying, though. As Modern Healthcare reported, three-fourths of the AEC firms surveyed said they experienced new competition from companies not traditionally in healthcare design and construction in the last year or so.

Look, too, for Obamacare to propel hospital system consolidation, especially acquisitions of smaller hospitals and rural facilities by big healthcare companies. Some experts even predict that, not too far down the road, 100 hospital mega-systems will provide 90% of the inpatient care in this country. They will demand cost savings in hospital construction via greater efficiency, throughput, and productivity.

Meanwhile, clever hospital execs will get creative in finding dollars for major capital projects. That's what Western Maryland Health System did, turning to HUD's Section 242 program to finance a 275-bed, $350 million replacement hospital. Others may look to PPPs—public-private partnerships—which have been used to fairly good effect in the U.K., Canada, and Australia.

The new rules of Obamacare are in place. Let the games begin!

—Robert Cassidy, Editor-in-Chief

Thanks to Reed Construction Data's Jim Haughey, KLMK Group's John Kemper, and SmithGroup's Phil Tobey.


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