Capital Project Solutions – December 2011
A Year in Review John E. Kemper, Chief Executive Officer Susan Wadsworth, Chief Marketing Officer It is hard to believe that 2011 is coming to an end. It seems as though we were just writing the article to open the year. And what a year it has been. The January edition of Capital Project Solutions discussed the possible impact that Healthcare Reform could have on hospitals and the AEC industry. Here we are 12 months later and not much has changed. So, let’s take a look back at 2011 and identify some of the issues that could shape the future for our industry. Predictions At the beginning of the year, we anticipated that we would see an increase in mergers and acquisitions as hospitals struggled to make ends meet and prepare for the future. This certainly came true. In the first three quarters of 2011, there were approximately 71 deals made according to Sanford Steever, editor of The Health Care M&A Information Source, published by Norwalk, CT-based Irving Levin Associates. The top 10 hospital mergers and acquisitions alone were valued at $5.6 billion, up from $3.8 billion in 2010. Hospital M&A carried a total value of about $7.3 billion in 2011. A second prediction we made was that we would see an increasing trend toward renovating current space to accommodate operational enhancements as opposed to expanding capacity. According to the results from Tradeline’s Academic Medical and Health Science Centers' Top Priorities Survey, space planning and allocation and operating plans top the list. AMCs and HSCs are facing a great deal of pressure to raise the utilization of existing space due to continued general budgetary restraints and lack of funding for new construction and expansion. In addition, the uncertainty that remains from healthcare reform and mandates toward Accountable Care Organizations (ACO) leave healthcare leadership wondering if additional beds will be necessary in the future. And speaking of ACOs, the future seems to be moving in that direction, though how quickly is the real question. We have heard as many people say ACOs will never amount to anything as often as we have heard that they are the way of the future. As The Centers for Medicare and Medicaid Services (CMS) continues to tweak the requirements for hospitals to become more accountable, the likelihood of acceptance 1
Capital Project Solutions – December 2011
grows. An obvious first move for hospitals that are interested in stepping into the ACO pool would be to incorporate a model with their own personnel. Hospitals have large enough staffs that they could easily use themselves as a test case. Can they make the system work with their own employees? Can they deliver the necessary outcomes to adhere to all of the regulatory guidelines? Will their own staff be compliant and see the value in the system? If so, then there is a good chance of success when fully implemented. If the trend for ACO acceptance does continue through 2012 and beyond, what does that mean for the future of new facilities? Does the model of “Patient Centered Medical Homes” change the current infrastructure? Predicting the future is never easy, but it would seem that there would be an increase in convenient care clinics, freestanding EDs and urgent care facilities and a decrease of inpatient beds. If this is the case, there could be a significant impact on the allocation of facility square footage as supported McGraw Hill’s Healthcare Facility Construction Start Statistics. We would likely see a decrease in the need for replacement hospitals but an increase in renovating existing space as well as building smaller more specialized facilities. If we only had a crystal ball! Future Trends So what does 2012 hold in store? One thing is for certain, we will see an increasing utilization of Lean methodologies incorporated throughout hospital planning. From operational processes to facility development, Lean will become the norm. According to Joe Sprague, FAIA, FACHA, FHFI, principal and senior vice president at architecture firm HKS Inc., Dallas in a recent article published in Health Facilities Management Magazine, he describes what he calls "smart sizing." Sprague says efficient designs can reduce a project's size by 20 percent, saving construction costs and operational costs as well. "I think what it boils down to is every design must have utility to it and an outcome that produces favorable results," he explains. "So by designing smart you need less capital and also spend less on the operational side since design is only about 4 percent of the cost of running a hospital amortized over the life of the building." Much like improving operational processes, facility planning will require incorporating more Lean strategies.
At KLMK, you have heard us
preach on the value of collaboration and efficiency through the use of Integrated Process Planning (IPP) and Integrated Project Delivery (IPD). IPP has proven successful in providing a platform that can allow 2
Capital Project Solutions – December 2011
operational improvement initiatives and facility design strategies to align early in the project delivery process. We believe IPP will continue to grow in popularity amongst those planning to deliver capital projects in 2012. In addition, the number of hospitals delivering capital projects with some variation of IPD or “IPD lite” increased dramatically this year and we expect it to increase further in 2012 as well. In fact, for the first time this year, we had a new client tell us that they had already made the decision to use IPD – we didn’t need to spend any time convincing them that it was the way to go. Conclusion Like we said at the beginning of the year, the world of healthcare is a very dynamic and ever changing landscape. Numerous questions remain to be answered in 2012: Will funding remain tight or become more available? Will proposed and enacted regulations continue to impede decisions on major capital investments? Will the elections at the end of 2012 be a game changer? One thing we know for sure is that the future remains uncertain. However, the one certainty is that organizations will be required to change their care delivery models and capital facilities will play a key role in this new model of care. It is critically important that owners evaluate their capital allocations to ensure that each dollar spent is maximized to meet long-term strategic goals. In 2012, we will continue to explore all of these issues and provide advice and innovative facility solutions to assist you in achieving your goals for next year and beyond.
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