Healthcare work pulls out of stall

September 01, 2004 |

Healthcare construction spending jumped to a $34 billion annual pace during the spring after being stalled in the $29–31 billion range for nearly two years. While about half of the recent rise was materials cost inflation rather than additional square feet, there has clearly been an increase in construction volume. This follows from the pickup in healthcare spending in the past year after the brief recession-related dip in late 2002/early 2003 when both profits and public tax receipts declined sharply. Health insurance premiums rose an estimated 12% in 2004 to $9,100 for family coverage and combined Medicare/Medicaid expenditures will increase 10%. As a result healthcare construction spending is expected to increase 10.9% this year and 10.0% in 2005.

Rising healthcare spending will provide enough funds to keep healthcare construction increasing strongly through 2005, probably into 2006. Then a sharp slowdown, even a period of decline, appears increasingly likely. This would be similar to the early 1990s when anger over high healthcare costs prompted the rapid expansion of HMO's that quickly cut healthcare spending growth and, as a result, hospital construction funds.

The first signs of a new rebellion against high healthcare costs have already appeared. Deductibles or co-pays are increasing again, multiple tiers of service levels are being reinstated to prompt consumers to choose less expensive options and health plan administrators are again requiring pre-authorization for expensive treatments and are limiting the use of expensive but unproven treatments.

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