Ingenuity, new law help hospital building process in Washington
By M. B. Owens
Getting approval to build a new non-replacement hospital in the United States is no easy task these days. The official red tape, costs and opposition from existing hospitals, particularly in states requiring a Certificate of Need (CON), make it a near-impossible challenge.
According to the American Hospital Association, there are only 10 to 15 new hospitals built in the U.S. annually. And each year it becomes more and more difficult to build those facilities, primarily because of escalating costs.
Washington State is a good example, with only one new hospital approved and built in the last 20 years. However, the creativeness and tenacity of a group of healthcare professionals has changed all that with the approval of a new acute-care hospital in the Gig Harbor community on Puget Sound, just west of Tacoma.
Tacoma-based
Franciscan Health System (FHS) has obtained the go-ahead for an 80-bed (future expansion to at least 112), $140 million hospital and an adjoining medical office building. Due to a well-crafted and coordinated approach by healthcare consultant Hammes Company, with help from local and state elected government officials, construction will begin for the new facility, which is to serve about 60,000 people in the city and nearby counties.
When complete in early 2009, Gig Harbor will have its first-ever hospital, named
St. Anthony after the patron saint of sailors and fishermen.
“It hasn’t been easy, but perseverance and a lot of hard work have allowed us to reach our goals,” said Laure Nichols, senior vice president of strategic planning and business development for FHS. “There were a number of expected and unexpected obstacles that presented themselves along the way we have had to deal with.”
Besides the need for a conditional use permit, rezoning and site application approval, the main barriers were obtaining a CON from the state and finding a way to deal with traffic congestion, along with the major cost involved with mitigating that situation.
In Washington the CON requires that the applicant identify the specific site, demonstrate financial feasibility, and indicate services to be offered and the need for those services, Nichols explained.
FHS, part of the Catholic Health Initiatives (CHI) in Denver, hired Hammes Company to help deal with the initial obstacles and to assist in seeing the construction phase to fruition.
“We work as a team with our client,” said Joe Kunkel, the Hammes senior project executive for St. Anthony. “And on this project our role is broader than construction management, because of our experience in hospital operations and the needs of the project.”
Kunkel, a former hospital administrator and the project manager for the only other approved and recently completed hospital built in the state in more than two decades, said that his goal is to complete the project on time and within budget. In addition to construction administration, he is working with FHS on operational planning, physician development, equipment planning, marketing, and IT for the new facility.
Early on, FHS set out to gain support from the community to demonstrate the need for a new full service hospital and to help overcome any opposition from other regional hospital groups. The nonprofit organization needed this backing to convince the state to approve the CON.
As soon as the letter-of-intent was filed, FHS initiated its “multi-layered communication plan” and contacted local community and business leaders by mail, telephone and in person to encourage their support, Nichols explained.
The community residents, who have to cross a mile-long suspension bridge (soon to become a toll bridge) and travel 15 miles or more through dense traffic to reach the nearest hospital, were very much behind the project. “But we had to galvanize that support,” Nichols added.
The CON’s detailed paper work, plus a public hearing allowing supporters and dissenters to present their case, was the initial focus of Nichols, her staff and Kunkel. As expected, a regional hospital group put up a fight to block building the new facility. But, by following a set game plan and receiving overwhelming citizen support, approval was received “in record time” in May 2004.
The FHS staff was ecstatic as well as many Gig Harbor citizens, but then a major stumbling block arose. An already existing traffic problem became apparent to the city in July 2005. City staff made the decision to require completion of an environmental impact study (EIS) that was mandatory before things could move forward.
The EIS estimated the cost of handling the congestion with new infrastructure to be between $40 million and $50 million, far too much for a single developer to absorb and enough to kill the project. In addition, delaying the construction would add significant cost to the St. Anthony facility, estimated to increase between $12 million - $15 million per year.
"That annual cost increase caused by the delay could also kill the project if it continued very long, so time was of the essence," Kunkel said.
And the answer again was working with the community, along with a bit of ingenuity.
“Every project has issues, some more significant than others. You can’t just throw up your hands when delays occur. Instead you have to be creative and make something good happen," Kunkel added.
FHS worked with the City’s mayor to quickly set up a hospital traffic committee comprised of hospital officials, the mayor, city council members, county commissioners, state legislators, and Washington Department of Transportation officials. The purpose was to figure out a viable solution and keep the project moving forward.
In November 2005, Chuck Hunter was elected the new mayor of Gig Harbor. Getting the hospital project back-on-track was among his top campaign pledges and in January when his term began, he chaired the hospital committee working diligently to find solutions.
The result was an ingenious strategy that included a less expensive short-term solution, combined with a more complicated capital intensive long-term solution. But, implementation of the plan would be the key, and a year was already lost on the EIS.
The short-term strategy was to obtain what is referred to as a CERB grant from the state’s Community Economic Revitalization Board, which awards funds available from the state to help spur economic activity in an area. There was $40 million available for the fiscal year to all local communities, but competition is fierce.
"Because of their expertise, FHS had its Foundation write the grant proposal for the City," Nichols said. With Kunkel making the final presentation before the appropriations board, the result was a $5 million grant to be used for design and initial improvements to the intersection leading into the new hospital. The grant is expected to receive final legislative approval.
But the CERB grant only pays for a small percentage of the $40 million total cost of the required infrastructure improvements. Consequently, the committee came up with an innovative approach they refer to as “Hospital Benefit Financing.” It is a form of tax increment financing using sales taxes. However, this method is something the legislature has avoided for local jurisdiction projects.
Kunkel explained that historically, the state did not want to set a precedent for this type of funding.
But, FHS with leadership from state Representatives Derek Kilmer and Pat Lantz, mobilized the right people to help deliver what seemed by many to be impossible – a new state law.
“We had to define the specific circumstances this financing would apply, for legislation to have a chance of passing,” said Kilmer. “It is only for new nonprofit hospitals requiring CON approval.”
It works by earmarking up to $2 million a year for up to 30 years of local sales tax revenue that is incremental from a set baseline year. The baseline is created after studying the sales taxes in a defined geographic area for a year, in this case, Gig Harbor from August 2006 to August 2007.
Using the baseline data as a starting point, any incremental increase in sales tax qualifies for project financing, and Gig Harbor has a lot of new retail businesses under construction. As the sales tax grows from the baseline year, that money can be taken and applied locally for infrastructure improvements to the specific project within a defined Hospital Benefit Zone. Currently, however, there are no new taxes. Money that would go to the State's general fund stays local, with the local government matching the amount utilized.
Funding is earmarked to pay for a revenue bond used to raise the initial capital for improvements. And remarkably, the legislation (the first of its type in Washington) passed and was signed into law this year, something not typical for new medical facilities.
“Communities doing special things to have a hospital built is not unusual, but passing new legislation, such as in this case, is unique,” said Rick Wade, senior vice president of the American Hospital Association. “Hospitals have a significant economic impact on an area, not only for their medical mission, but also because they employ many people and attract new businesses. Communities really want to find ways to have them built.”
The design and initial growth paid for by the CERB grant will take into consideration the longer term project so there is little or no waste of resources.
“It is unusual to have a group of all the right people together working to resolve a problem like this,” Mayor Hunter said. “But the community had to find solutions because it really needs this hospital, particularly for the increasing elderly population.”
The expense of carrying a patient by the fire rescue squad to the other hospitals is very high, due not only to the 15-mile distance, but also the heavy traffic along the way. It takes the emergency vehicles two hours to make the roundtrip, according to Hunter.
Economic benefits of the St. Anthony facility are considerable. “The hospital will bring 450 new jobs with an average wage, with benefits, of $62,500 per person,” Representative Kilmer said.
There are also secondary economic ramifications. “Every dollar of spending by a hospital in Washington State creates $2.40 in business activity,” said William Beyers, PhD, University of Washington. “There are slightly more than two additional jobs created in a community for every job in a hospital.”
But, economic benefit aside, the real need for the new hospital is to provide much-needed medical service to the community.
Representative Kilmer explained that the community desperately needs a hospital, and that while running for the legislature he heard from numerous residents that something needed to be done. One elderly woman’s story stood out. Because of the distance and traffic congestion, her husband, who had suffered a heart attack, had to endure a lengthy and delayed ambulance ride to a distant hospital, thus prolonging his suffering.
“You must understand how gut-wrenching it is when the person you love most is in an ambulance (on the way to the hospital) and stuck in traffic,” the woman exclaimed.