By Craig Beam & Chris Hickman
The coronavirus pandemic shut down the roughly $45 billion annual healthcare construction industry almost overnight in March.
As they continue to manage through the COVID-19 spread and respond to emerging hotspots, hospital administrators are starting to think now about how to remobilize existing projects – and also determining how to plan for future facilities.
Of course, this comes first with establishing ways to keep the work environment safe for contractors, much like the protocols put in place for reopening healthcare facilities for scheduled procedures after lockdowns at the start of the pandemic. But this also comes with understanding bigger issues such as economics and the general state of healthcare.
With our collective decades of experience in healthcare construction, we’ve seen a lot of different things in our industry – and we agree that this is an unprecedented time. However, our Petra team can tap into that deep expertise to offer important insights to pressing questions on everyone’s minds right now:
1. What will healthcare look like?
That’s the $64,000 question. (Actually, it’s more like the $3.6 trillion question).
No one knows how healthcare will change after COVID-19 – just that it will. In recent months, we’ve seen an explosion in acceptance – by insurers and patients alike – of telemedicine for routine and preventative care. Indeed, national year-over-year comparisons this spring showed an 8,334 percent hike for telemedicine claims. One major academic center already has suggested that telemedicine could represent nearly a third of its appointments even after the pandemic.
Only in late spring did medical centers begin to reopen and book scheduled procedures, which generate the revenue that covers the often-higher costs of critical and medical care (including COVID-19 patients). We don’t know when patients will feel fully comfortable returning to pre-pandemic treatment schedules. That leaves administrators uncertain of an influx of reimbursements, which go more directly to medical care.
Try as we might, you can’t uncouple quality healthcare from dollars. Capital planning and construction are fueled largely by an organizations’ investments, which – like our personal accounts – initially took a drastic beating in the market as COVID-19 reared its head. However, hospital portfolios are starting to return to pre-pandemic valuations, although some administrators remain cautious about capital spending in case they need to redirect funds to daily operations – or more surge needs.
2. What space do I need?
The pandemic confirmed a conundrum: Hospitals need surge capacity to meet patient demands (and future pandemics are predicted to be respiratory-based, like COVID-19), but telemedicine can handle many cases from a doctor’s office without a need for an examination room. We’ve seen firsthand that the public doesn’t want to pay for something it doesn’t need or use, California – in a budget shortfall – took away funding for a stockpile that included mobile hospitals.
Planning historically is based on usage rates and demand. If those telemedicine trends become the norm once we pass this pandemic, obviously we won’t need the same kinds of space. But that’s a really big if. Telemedicine is certainly convenient, but one in four visits can result in an inaccurate or incomplete diagnosis. Health administrators won’t be ready to trade in all their conventional and proven physical diagnostic and treatment space and equipment with that wide margin of error for even the most common cases. Ambulatory facilities will continue to deliver most of those services, continuing a long trend.
We recommend proceeding with building plans to meet your established market projections. The next several months of this public-health crisis will demonstrate what patients expect for chronic, acute and routine treatment. On top of COVID cases, providers are still treating those with cancer, broken bones, seasonal allergies and more – not to mention giving sleep-deprived new parents happy news at well-baby visits. Just as you can’t design all space to expand for a pandemic, you can’t design for an era when patients might be reluctant to see a doctor in person.
Also, don’t forget the Patient Protection and Affordable Care Act, which outlined more efficient and right-sized facilities to care for an influx of 30 million newly insured patients. Passed just two years after the earlier recession, this sparked both growth and design of millions of square feet of healthcare space.
3. How do I best serve my community?
Deciding to build a new healthcare facility and for what purpose should be strategically driven by what those who live in your region need. In many cases, hospitals have unveiled expansions that their communities now are expecting. You need to revisit your master plans and ensure your services still align with projected volumes in your region.
Keep in mind, this isn’t just a hot button for residents. With this public-health crisis refocusing their eyes, your state and federal legislators will be zeroing in whether your organization is meeting or even exceeding demands, particularly as nearly every hospital receives some sort of public funding – starting at least with Medicare and Medicaid reimbursements.
4. Will I get a break on my construction costs?
Many of us in the construction business are wondering if today’s environment will be redux of the 2008-2009 recession in construction. In general, our industry expects that costs will escalate 3 percent to accommodate for the rate of inflation. Around that previous recession, escalation rates peaked in 2006 to 16 percent, then fell to 6 percent below projections by 2009.
Now it’s 2020, and it’s still about supply and demand – which is driven by the wider market conditions. In the near term, we expect that labor and commodity costs will drop.
Of course, installing wiring or plumbing are pretty fundamental trade skills, through healthcare construction does layer on some sophisticated needs. What is different from the past decade is that projects that have been shuttered right now are in the large-scale commercial and retail sectors, where crews and skillsets could more easily align to medical construction. In the earlier decision, the bottom fell out of the housing market, which is supported more by local contractors.
Keep in mind the costs of stopping and starting construction. You don’t simply turn off the lights and close the doors. By their very nature, construction sites are hazardous, and our people know how to work safely. You need to secure those sites, and we know one hospital saw those costs topping $1.5 million. Getting back to work is requiring another $2.5 million. An alternative would have been to scale back drastically and keep the project moving, even at a snail’s pace.
A corollary is whether to re-bid a project. The not-so-secret part of any business is that you big lower when you have work capacity. Personally, in one career project, the 2008 recession allowed for a re-bid at 25 percent less cost, which made a Chicago ambulatory facility viable – and an important part of the organization’s strategy to recruit physicians.
5. What can I do right now?
Even if capital budgets are on hold, meaning your construction funds are frozen, you can still look at project planning, design and approval. This pandemic might lead to adaptations in how you deliver services, but we don’t expect those to completely overhaul today’s facility approaches.
During this time, maintain your planning and scope exercises that can certainly be done remotely and are less-expensive tasks associated with your overall project cost. They also take time. Then, when the financial picture is clearer, you’re ready to bid that work – and perhaps take advantage of lower market rates.
What’s clear is that there are no black-and-white answers, however, administrators should continue to rely on existing capital planning strategies and data for now as we continue to navigate this pandemic. Taking knee-jerk reactions at this moment might result in decisions that put their local residents at additional healthcare risks.
Contact our team to find out how we can help you plan smartly right now on remobilizing your construction agenda – and preparing to deliver the expanded critical healthcare your local communities need.