Providers wary as building firms see more outpatient growth potential

Combine uncertainty and pent-up demand and you get a sense of the current uneasy state of the healthcare construction industry.

Healthcare providers have been cautious with their construction dollars, but demand continues to climb and some projects—such as switching from semi-private to all private rooms—cannot wait.

The weak economic recovery continues to dampen healthcare construction projects. Out of the 151 companies participating in this year’s Modern Healthcare Construction & Design Survey, 47% reported working on a project that stopped or was stalled for at least three months in 2013. Of those, 58% said the stalled project restarted again last year.

Reasons cited for these work stoppages included loss of market demand, health--

care reform and lack of confidence because of the weak economic recovery.

“Healthcare reform caused clients to pause,” said Richard Galling, president and chief operating officer of Brookfield, Wis.-based developer Hammes Co. Still, there was significant construction volume with large legacy projects.

Projects now go through more extensive pre-construction planning from the architecture, marketing and financial sides. All that planning has highlighted the need for more outpatient facilities.

“The real high level of growth is going to be on the ambulatory side, with more physicians joining group practices and more group practices joining hospitals,” Galling said.

Others agreed that more upfront planning is here to stay. “Projects are more business-driven and metrics-driven,” said Jim Eaton, vice president and healthcare division leader at Jacksonville, Fla.-based Haskell. “The days of ‘build it and they will come’ are over.”

Another healthcare system trend is to build a free-standing emergency department in a new market and see if it will grow into a hospital. That was the origin of the new St. Vincent Fishers (Ind.) Hospital. The inpatient facility opened last April; it started as a freestanding ED and medical office building opened by St. Vincent Health, part of the St. Louis-based Catholic system Ascension Health, in 2008. “They waited until there was a demand for inpatient services and it worked,” said Deeni Taylor, an executive vice president with Indianapolis-based Duke Realty.

The American Hospital Association reports that there were 303 free-standing EDs affiliated with community hospitals in 2012, up more than 60% from 2006.

While many clients have been cautious, some firms reported a strong 2013. “We had a terrific year,” said Andrew Quirk, senior vice president of Skanska USA and national director of its Healthcare Center of Excellence.

For Skanska, work continued on the $1.2 billion University Medical Center in New Orleans, with construction costs budgeted at $696 million. It also continued work on a $450 million renovation of Stamford Hospital in Connecticut.

Quirk said one of his company’s innovations is prefabricating more building components off site. Someday, he predicted, buildings will be delivered to sites completely furnished.

Meanwhile, U.S. companies continued to take on healthcare construction projects in other countries. Forty companies, or 26% of this year’s survey participants, worked internationally, compared with 25% last year. Eleven companies reported working on projects in China, eight did work in Canada, eight in the United Arab Emirates, and five in Saudi Arabia.

There is no question, however, that the trend toward cautious development is likely to continue. “Clients are clearly anticipating that their margins are going to be squeezed by (healthcare) reform,” Galling said.