The business case for better buildings

Healthcare Financial Management, Nov, 2004 by Leonard L. Berry, Derek Parker, Russell C. Coile, Jr., D. Kirk Hamilton, David D. O'Neill, Blair L. Sadler

Increased Revenue: $2,108,100

Calculations

* Fable increased its market share by 1.5%, an increase consistent with that of Bronson Methodist Hospital, which increased its market share by more than 2% in 2001 and 2002, its first two postoccupancy years.

* Fable's market share gain boosted net patient days by 1,314; its net patient revenue per diem is $2,200, a figure that is consistent with Bronson's performance in its new facility. To be conservative, Fable attributes 75% of its market share gain to the new facility.

Net Revenue

1,314 additional patient days x $2,200 = $2,890,800 x 75% = $2,168,100

Increased Philanthropy

Increased Revenue: $1,500,000

Calculations

* Fable's new facility played an important role in increasing philanthropic contributions from about $5 million a year before construction of the new building to $6.5 million during the first year of occupancy. Naming opportunities in the new facility encouraged increased giving, as did the building's tangible representation of Fable's vision for health care in the community.

* Fable's increased contributions are consistent with the experience of Pebble partner Children's Hospital and Health Center in San Diego. Children's Hospital's management believes the impact of its innovatively designed Rose Pavilion Building was instrumental in raising $5 million during and immediately following the construction.

TOTAL

$11,475,406 (b)

(a.) This example assumes all of Fable's acute care patient fails to be unlitigated; in actuality, because some of these falls would be litigated, Fable's costs would be significantly higher.

(b.) This figure, representing the estimated total reduced costs and increased revenues for Fable Hospital's first year of operation in its new facility, is on the low side. First, we sought to be conservative in our estimates to strengthen the credibility of our message. Given that Fable Hospital is built from the experiences of multiple hospitals and research streams, we wished to err on the side of underpromising rather than overpromising. Second, Fable is benefiting in ways not reflected at all in this exhibit because of insufficient data available to credibly present hard numbers that can be attributed to facility design innovation. Reduced medication errors aided by design features such as better lighting and less noise (in addition to the process improvements of bar coding and computerized order entry) is an example.

Leonard L Berry, PhD, is distinguished professor of marketing and professor of humanities and medicine, Texas A&M University, College Station, Tex.

Derek Perker is director of Anshen Allen Architects, San Francisco.

Russell C. Coile, Jr., prior to his passing in 2003, was editor of Russ Coile's Health Trends, Washington, Tax.

D. Kirk Hamilton is founding principal of Watkins Hamilton Ross Architects, Inc., Houston, and associate professor of architecture at Texas A&M University.

David D. O'Neill, JD, is GEe of Alameda Hospital, Alameda, Calif.

Blair L. Sadler, JD, is president and CEO of Children's Hospital and Health Center, San Diego.