June 24, 2010

In wake of reform, hospitals try doing more with less

Frum

Health care has long been a stable market for design and construction. However, recent changes in the regulatory and economic outlook signal significant new ways in which design and construction will be handled in the future.

The recent passage of health care reform by Congress put in place wide-ranging changes to health care practices. The expansion of insurance coverage will dramatically increase the demand for services while at the same time reduce the payments per patient. In addition, payments by insurers will now be based on outcomes, with incentives for high-quality care and penalties for preventable errors.

Health care reform has also greatly emphasized the implementation of electronic medical records (EMRs). The implementation of EMRs is both complex and costly for providers who have not already made this adaptation.

In the past, health care systems used various computer systems to service a range of departments. Merging all the systems into one is a difficult, technical challenge. In addition, implementation of the new systems at the patient care level is quite costly, involving the purchase of hardware and software, as well as training.

EMRs have already encouraged the migration of individual physician practices into larger systems. Currently, 47 percent of U.S. physicians are in solo or small group practices. In recent years, health care practices have experienced a significant increase in regulation and, as a result, an increased need for administrative staff.

Small practices find it difficult to take on the cost of additional staffing, in addition to the expense of setting up an EMR system. This is leading to small practices merging with large systems.

Outdated infrastructure

A realignment is occurring at the hospital level as well: Small, independent hospitals are merging with larger systems. This provides the smaller hospitals with access to a broader range and higher level of specialties. And it allows the now-larger hospital to better compete in the market.

Many of the hospitals operating today in the U.S. were built as a result of the Hill-Burton Act of 1946. Much of the infrastructure of these hospitals is, accordingly, outdated. Low floor-to-floor heights, for example, make for challenging and costly remodels.

Needless to say, older, worn facilities are unattractive to current patients, who are image- and comfort-conscious. In addition, the anticipated increase in patient volumes — due to health care reform as well as the graying of America — also increases the demand for built space.

Reducing costs

All these challenges — acquisition of physicians’ practices, EMRs and replacement of outdated facilities — call for greater capital investments. At the same time, hospitals are caught in a credit crunch. Even the most stable and best-run hospitals are competing for scarce dollars. Their leadership teams face difficult choices of parceling out limited funds to satisfy urgent demands.

Hospitals, in response, are moving to counter these challenges, looking for ways to reduce costs while improving efficiency and quality of care. They cut costs by closing down underperforming departments and facilities. Logistic managers order less-expensive supplies and make efforts to reduce inventory.

The largest portion of a hospital’s budget, and the most challenging to trim, is staffing costs. In the past decade, hospitals have increasingly turned to methods such as lean management to help identify efficiencies and rein in staffing costs.

Health care organizations are eager for help from design and construction professionals to assist in reducing the costs associated with new and remodeled facilities. This can be addressed through appropriate programming of facilities and in taking steps at the design and construction stages.

It is imperative that the design professional become well versed in the organization’s strategic plan. This allows the architect to confirm or question the need for a specific project.

As an example, locating outpatient services on a complex inpatient campus seems logical due to proximity, but it is more expensive to build and more costly to operate. This broader perspective allows for longer-range planning, creating a plan that is sufficiently adaptable to allow for expansion, contraction and less-costly remodeling.

Architects should question every proposed function and process that requires space. Elimination or reduction of a process can potentially reduce both staffing needs and construction costs. It’s important to design bricks and mortar around valid, nimble operational processes that will turn the space into a tool in the service of, rather than a hindrance to, the process.

The sizing of spaces has become a hotly debated topic in recent years. On one hand, patient spaces have increased in size to allow for more effective infection control, greater patient comfort, and to allow family involvement in the care. On the other hand, the cost of hospital construction has risen to stratospheric levels ($700 to $1,000 per square foot!).

Appropriate sizing of spaces calls for a balance between the functions and the plan: Innovative design can demonstrate the use of less space and a simplified form while maintaining a spacious feel.

Changing delivery methods

The design and construction process provides other opportunities to reduce costs. The traditional design-bid-build contracting method is proving to be too slow and too costly. Much work is being contracted under the general contractor/construction manager concept, accelerating the process with early interaction between the construction and design teams.

More design-build projects are being contracted in health care, most often in outpatient facilities. These moves are driven by the clients’ needs for shorter schedules, which enable them to start generating revenue earlier.

The advent of building-information modeling has driven design and constructing teams even closer together: The same building model serves both teams.

To this end, we have just seen the first three-way owner/design/construction contract in health care in Washington — Seattle Children’s Bellevue clinic. This contracting form has built-in incentives to help keep costs down and quality up, a winning strategy for all involved.

The consolidation of health care client organizations signals a change in project production as well. Large organizations tend to adopt broad standards in design and construction.

The standards may involve uniform room sizes, standard layouts, specific furnishings and equipment, or specific construction methods. Often such client organizations would limit the number of firms they work with, either in design or construction, only to those who are familiar with their standards. This would make for tougher competition for fewer contracts, potentially driving fees and profits down.

Justifying every design decision becomes essential when construction dollars are scarce. Every design decision is vulnerable to being scrutinized.

The designer needs to anchor the design tightly into the work processes and buttress it with proven evidence-based concepts. Strong logical justification is essential to maintain the integrity of the design when every expense is being questioned.

Many professionals who specialize in health care, both on the design side as well as on the construction side, find themselves with few or no projects. However, it is clear from health care clients that the need for more space and for improved use of space has only increased and will continue to do so.

All the while, the availability of capital funding is very tight and, even when this situation eases, it is not likely to satisfy all the demands. We are called to rethink how we approach projects, from programming through construction, to allow more to be accomplished with less.

While it comes across as a cliche, it is actually an opportunity: We need to respond to this challenge to survive professionally!

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