Healthcare facilities: Current trends and future forecasts

CNY Business Journal (1996+), Nov 12, 1999 by McKahan, Donald

The staid and predictable healthcare industry of the past is no more. Hospitals are going through a transformation of form and purpose.

Over the last 10 years, the hospital fraction of total insurance premium dollars has dropped by 33 percent. Over the same period, almost 500 acute-care hospitals have closed. Average inpatient census has declined by 23 percent, leaving most of our nation's hospital beds empty half the time. These grim statistics would indicate that interest in design and construction of healthcare facilities is plummeting-but this is not the case.

While new hospital construction has declined over the last five years, hospital renovations have increased 10 percent and the total square footage of all healthcare-facility construction has remained steady at 70 to 75 million square feet. The U.S. Department of Commerce is forecasting fourpercent annual growth for healthcare construction through 1999. How can this be? To paraphrase Arthur C. Clarke, the future of healthcare is not what it used to be.

Medical-care organizations are no longer investing in the traditional patientcare facilities of the past. Despite the decline in the number of inpatients, new and renovated healthcare facilities are being created for the following types of clients:

* Hospitals attempting to reduce operating costs, position themselves for managed-care contracts, and expand patient access into new medical-care markets

* Investors in new types of buildings and healthcare services, including subacute-care facilities, freestanding ambulatory-care centers, hospice and home-care centers, medical hotels, and primary- and preventive-care centers

* Hospitals that are rebuilding to accommodate the increasing number of outpatient services (hospital-based outpatient services are predicted to increase another 30 percent over the next five years)

* Existing healthcare facilities that wish to accommodate new, more cost-effective medical technologies

* Clients seeking to create therapeutic healthcare environments to improve medical outcomes for a variety of patient populations

* Clinics in hospitals seeking to use their facilities as "quality-improvement tools" to increase patient satisfaction levels, support medical staff, and upgrade their public image.

Responding to managed care

The healthcare industries of the- 1970s and 1980s grew and prospered in a virtual "field of dreams." New medical enterprises flourished, the supply of patients was abundant, and it was common knowledge that "if you build it, they will come." The arrival of managed care and capitated reimbursement has radically altered the medical marketplace of the '90s. Managed-care and integratedhealth systems have little interest in creating health facilities as profit centers. Their world is focused on patient outcomes, exploring new clinical pathways, and reducing costs without sacrificing quality.

Over the last 25 years, the hospital component of all healthcare expenses has dropped from 60 to 40 percent of the total premium dollar. As discounting of hospital services continues, healthcare facilities will have to become extremely efficient, providing better patient care for less cost.

Reimbursement affects design

The move to managed care and capitated reimbursement has resulted in a paradigm shift that changes most strategies for healthfacility planning and design. The most fundamental shift is a major reduction in the use of hospital beds. In mature managed-care markets

such as California, inpatient hospitalizations over the past five years have dropped 60 percent. Almost every major city in the United States has 30 to 50 percent more beds than the market requires.

A recent study on inpatient nursing facilities predicts that 42 million square feet of hospital inpatient space will be abandoned by the year 2000. Rather than walk away from these valuable buildings, hospitals are learning to "recycle," converting space to new and more productive uses. For example, existing inpatient nursing towers may be successfully converted to any of the following:

* Skilled nursing and hospital-based subacute units

* Co-op care nursing units (i.e., units in which subacute patients are assisted by friends or family members during hospitalization)

* 23-hour observation units

* Chemical dependency and rehabilitation units

* Inpatient hospice care

* Long-term-care or assisted-living units

* Medical hotels

* Health-education and wellness centers

* Comprehensive outpatient rehabilitation facilities (CORFs)

* Physician/clinical offices.

Creating the "lite" hospital

To survive in today's managed-care marketplace, hospitals will continue to reshape themselves, dropping a great deal of excess baggage along the way. Hospitals can be expected to sell off surplus medical technologies (equipment acquired during the medical "arms race" of the 1980s) to healthcare providers outside the United States. Health plans will replace many hospital departments with regionally-based administrative centers.

Other cost reductions have been found in offsite warehousing; use of central reference labs; outsourcing of laundry services, security, food services, transcription and billing, housekeeping, and building maintenance; reduction of operational costs with automated transport systems; and streamlining maintenance procedures and implementation of new energy-management programs.