In March 2012, three days of hearings explored the constitutionality of the hugely divisive Affordable Care Act, known derisively as ‘Obamacare’ by its opponents, which extends health insurance to 30 million Americans for the first time. While the nation’s highest court has recently ruled the Act constitutional the country remains almost equally divided over the legislation, with polls showing around 40 percent of people approving and 40 percent disapproving of the law.
Although the future of the Affordable Care Act remains in the balance, some form of overhaul to the $2.6 trillion healthcare system is inevitable. Uncertainty around the impact of the reforms, combined with continued downward market pressure on hospital endowments and donor contributions suggest that the challenges of funding and cost will remain for the foreseeable future.
Driven by this increasingly competitive environment, changing reimbursement models and rising costs, healthcare providers around the country continue to take a cautious approach to the future and their budgets. Over the last two years we have seen flat or decreased budgets allocated to new construction, while hospitals and medical service providers turn their focus toward facility modernization, renovation and maximizing the return on their facility investments. Renovation strategies are placing increasing emphasis on infrastructure and I.T.
While squeezing the most out of every facility and every dollar is not a new trend in healthcare, providers are now obliged to take optimization to the next level. Many hospitals and medical centers are looking toward ‘lean’ process and design as a way to do more with less.
Faithful+Gould believes that an efficient built environment can play a vital role in better health outcomes and reducing the cost of care. Within this constrained environment, we continue to deliver cost effective solutions to a range of healthcare providers.
At a leading New York healthcare institution, we are currently working with key facility directors to turn their traditional infrastructure re-investment master plan into a project prioritization plan. This effort seeks not only to identify future capital re-investment programs, but to challenge the priority and cost of each project, optimizing the effect of every dollar invested in infrastructure.
Another example is our work at the Children’s Hospital of Philadelphia (CHOP), where we have seen facilities project managers increase their use of cost estimating/cost management services to validate costs. We have assisted CHOP as they work through Guaranteed Maximum Price proposals and push back on change order requests. We deliver an independent unbiased opinion of the market and the value of proposed construction, seeking best value for our client.
In the public sector the Veteran’s Administration (VA) has tasked Faithful+Gould to develop quarterly market reports. These reports serve as tools that allow VA’s internal managers to evaluate the market and how it will impact the cost of their active and planned projects.
Despite the current conservative and cautious tendencies in the healthcare real estate marketplace, there are long-term glimpses of optimism.
As the global market recovers, endowments will also recover and donations will improve. Market recovery will also loosen constraints on credit and make borrowing for improvements less constrained for healthcare institutions.
As the financial side of the equation improves, history suggests that the demand will improve as well. If national healthcare reform has a similar effect on the industry that state healthcare reform did in Massachusetts, we can expect to see an increase in new medical real estate, as providers seek to develop community focused facilities that will be optimized to provide lower cost services.
We may also see a decline in large-scale hospital projects and a move toward smaller, more efficient buildings. There may be industry consolidation as single hospitals seek to join larger organizations in gaining access to capital in a tighter financial era. Hospitals are likely to engage with their communities more than ever, with a proactive focus on health education, healthy living, and disease prevention.