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Getting top value out of your building program

By hfm magazine, November 2009

At the end of 2008, 56 percent of hospitals were considering or were already holding off on renovations or plans to increase capacity. This construction slowdown came as little surprise given the industry’s financial picture at the time: the credit crunch, drop in total margins, decrease in overall admissions, and rise in uncompensated care.

Although economic pressures continue, many hospitals today are reaching a point where further delay is no longer a viable option. Investing in infrastructure often is vital if organizations are to strengthen competitive edge, replace outmoded equipment and facilities, and demonstrate their ability to serve an aging population.

Instead of asking whether to build, many hospital executives these days are more interested in learning how to get the most value out of their building program. Interviews with some of the top names in the business suggest the way forward is to align projects with current trends designed to:
  • Recognize utilization shifts
  • Boost quality
  • Promote care coordination
  • Create a healing environment
  • Adapt to the new economic reality

Recognizing Utilization Shifts                                      
HFMA research confirms what many hospitals know anecdotally: It’s particularly important right now to stay on top of utilization patterns as volatility in patient volumes is throwing off established demand projections. Most hospitals are seeing a decline in inpatient volume and a corresponding increase in outpatient volume. Yet they also anticipate outpatient volume growth will be modest, and many hospitals continue to project growth in inpatient volume in cardiac services.

What this means is that those ready to reactivate building projects that were put on hold when the economy collapsed need to give increased attention to the planning process moving forward.

For the most part, organizations already have removed service line costs and attacked their sacred cows, and the result has been a strategic plan that focuses on two or three key areas. Now it’s time to look at individual projects and make sure they reflect those initiatives, notes Joyce Durham, RN, AIA, principal and director, facility planning practice, Health Strategies & Solutions.

Also, leadership should re-examine projects within the context of reform. “We don’t know how healthcare reform will turn out, but we know it’s going to be an ongoing process for probably the next decade,” she says. “At a minimum, it’s going to be about efficiency - doing more and better with less. It’s also going to be about shifting people away from the ED (emergency department) and other high-cost settings if they don’t belong there.”

Durham points out that just five areas occupy 70 percent of the space in a typical hospital: inpatient beds, surgery, obstetrics, emergency, and imaging. “If you do a detailed assessment of workload volume and projected needs for just these areas, you’ll be answering a lot of questions,” she says.

Of course, many of the projects that have been put on hold are well into the planning stages, with organizations often having invested $100,000 to $200,000 or more already. It’s hard to stop and reevaluate projects now, she says, leading some hospitals to consider across-the-board cuts of a certain percentage.

Reducing costs with such a broad brush may be a quick way to scale budget, but it’s incredibly short-sighted. Consider, for example, a hospital that was planning an operating room (OR) on its second floor and a very large atrium/lobby space on the first floor. “Reduce the lobby by 20 percent and no one will even notice, but scaling back the OR is cutting into a very high revenue-generating space,” Durham says. “To reduce square footage, it’s probably better to prioritize your revenue-generating or strategic spaces, one to four, and then focus on numbers five to 10: Can you take those out, or put them in alternate locations?”

The take-home message: Do your planning homework and really pin down projected volumes. After translating workload volumes into major room and space requirements, stop. Don’t be tempted to add more space to outdo a competitor, satisfy a vocal clinician, or plan for a major catastrophe. With healthcare facilities, Durham says, there is no competitive advantage to overbuilding.

Building with Quality in Mind   
Another issue at the forefront of many building projects is quality. Private payers are expected to follow Medicare’s suit in refusing to pay for some of the 28 serious reportable events (never events) identified by the National Quality Forum, and the issue “is starting to gain legs and generate some litigation,” according to Bob Gesing, AIA, principal, Trinity Health Group. Although there is probably not a lot a hospital can do from a facilities standpoint to keep a surgeon from operating on the wrong body part, it can make sure the facility doesn’t hinder staff in trying to prevent or mitigate that event.

Promoting quality through operational process improvement and responsive space planning requires a particular mind-set, notes Gesing. “We advocate using a never events checklist as you go through each stage of the design process - from planning to schematics to design development - to make sure you’ve addressed all the events. For example, does your design allow a visitor to leave a patient room with a newborn infant or a patient with dementia to leave a unit and get out of the facility without crossing a control point? Do you have or are you creating blind spots?

When it comes to medication errors, says Gesing, the solution may be as simple as figuring out how many linear feet of countertop space in your pharmacy or medication rooms you need to accommodate the volume of prescriptions that staff may be processing at any one time. “Because if you don’t have enough room, the scripts may be packed so close together that things start to cross over. Often these support areas are overlooked or reduced in size to cut costs without consideration of potential errors and the consequences that could result.”

This kind of scrutiny isn’t just for new construction. Gesing recommends that hospitals triage their facilities to identify trouble spots, and then put together a task force (facilities management, risk management, infection control, safety officers, clinical leaders) to develop an action plan for incorporating the necessary fixes into the organization’s capital program over time. “You can prioritize the problem areas in terms of the probability or extent of the identified risk. Maybe 20 percent of the things on the list - the low-hanging fruit - can be handled quickly and cheaply, another 20 percent will need to wait for a major new facility project, and the rest can be done through renovation.

“For the things that have to wait, see what can be done operationally in the meantime,” he says. For example, if there is a small medication room where six nurses need to cram in to get meds out by 10 a.m., then maybe the hospital can set up a cart outside the room and require those nurses picking up scripts to move out there to check them - twice - before taking them to patients.

Of course, sometimes there is a space and design solution for a quality problem, and sometimes there isn’t. The key is to know the difference, says Gary M. Burk, AIA, NCARB, principal of the architectural firm Ratcliff.

One area where design often can be the right solution is reduction of noise from central nurse stations, which today also have to accommodate dietitians, therapists, social workers, case managers, and other staff who need access to the patient chart.

Ratcliff’s Terry L. Kurrasch, FACHE, senior strategist/planner, describes one project in which the hospital decentralized the nurses’ station: “For a unit of 30 to 35 beds, there would be one larger station that functions as a reception point and then three to four smaller stations. And we’ve also decentralized the supply area, which increased space slightly but put the supplies closer to the nurses and the nurses closer to the patients.”

The more time nurses spend as hunter-gatherers, Kurrasch points out, the less time they have to spend on patient care. Often, the only way to determine whether more space is the answer is to do an operations analysis, which involves gathering and analyzing quantifiable measures of how a department operates.

Promoting Care Coordination
Care coordination is another important consideration, as global or bundled payment methods continue to gain steam. Many organizations are looking for ways that their space planning can better accommodate the patient experience along the continuum of care.

Admittedly, the concept of patient-centered care led to an overuse of centralization in the 1980s. “It turned out that bringing things like ancillary services to the patient bed was a very expensive thing to do and also inefficient in terms of staff utilization,” notes Burk. Still, the best parts of the approach can be used in current construction projects, he says, noting that Sutter Health is doing just that by incorporating what it calls “cellular care” into its prototype hospital.

The cells are designed to expand and contract operationally to manage comprehensive functions, such as intake, which would include a single registration process coupled with exam and even some treatment processes. These units would be adjacent to imaging and interventional services to take care of all preadmission testing and, at another time, procedural prep and step-down recovery. This area could also be adjacent to and configured much like the ED, so that as the ED gets busy, it can potentially expand into those exam/treatment rooms.

The man behind this evolving concept is Sutter’s David F. Chambers, director, planning and architecture, facility planning, and development. Chambers believes that hospitals and health systems have worked hard to optimize the wrong things, that is, clinical cost centers or departments - virtually none of which are connected to a specific outcome. Cellular care brings interdisciplinary teams together in production groups to produce three general patient outcomes for acute care: a completed care plan; successful completion of a procedure, if one is indicated, that ends in either discharge or admission to the appropriate inpatient unit; and a successful medical outcome.

Fewer hand-offs in patient flow mean fewer opportunities for errors and a greater likelihood of producing a better quality deliverable. “In a conventional facility, for a typical protocol of preadmission tests, for example, patients may move through 15 to 20 discrete steps, compared with six to eight in a cellular model,” explains Chambers. There are cost benefits as well. “Having reduced the discrete steps in the care process, you’re not going to need all the space currently required for all those queues and hand-offs that no longer exist; in general, we anticipate that we may will need 30 percent less space. And because throughput is greatly increased, you don’t necessarily need as many units as in a conventional model, where the units are less efficient.”

Creating a Healing Environment
Mark Scott, partner, Starizon design consultancy, believes keeping focus on creating a healing environment for patients and caregivers is key to getting the most from a facility investment. Having been president and CEO of Oregon’s Mid-Columbia Medical Center, which was the first in the nation to take the Planetree model system-wide, Scott says designing for experiences probably costs a bit more in the beginning. “But in the end, you save so much money if you do it the right way and only have to do it once.”

Fifteen years down the road, Mid-Columbia’s design continues to hold up wonderfully, says Scott, noting that people are still coming from all over the world to see it. “Often when I go into a brand-new hospital, I find that all they’ve done is to stick the same old play in a new theater. They spend millions of dollars on these wonderful new cathedrals that have been designed in some CEO’s or architects’ office without any input from care providers. Eighteen months later, they’re scratching their heads, trying to figure out why performance is the same, outcomes haven’t changed, patient complaints haven’t subsided. It’s because they haven’t designed new spaces for new experiences to happen.”

For example, Scott points to the typical nursing station: loud, crowded, with lots of materials stacked up to the ceiling and everybody hoarding. “If you want a nursing station open to the public - and patients and families have a right to participate with staff in their care - you really need a number of offstage areas in your design.” Every patient room, he says, should have big windows and beautiful vistas and a place for family members to spend the night. Hallways should be elegant.

“It’s where patients take their first steps toward recovery: They shouldn’t have to serpentine down hallways that are filled with IV stands, gurneys, trash bags, laundry bags, pharmacy carts, wheelchairs, dietary carts, etc.”

Adapting to the New Economic Reality
As projects become active again, hospital leaders need to be sure they’ve adapted appropriately to the new economic conditions. In the past year, many hospitals have lost a third of their investment portfolios. And of course, the bond markets are making it extremely difficult for them to access tax-exempt debt.

“We believe the underwriting criteria for all investment grade offerings are going to be scrutinized much more closely going forward than they were two to three years ago,” says Richard Galling, president and COO of Hammes Company.

On the other hand, says Todd Kibler, partner, CFO, and senior vice president of finance and investments, “If you were working on a project before the economic crisis, then the demand for it is probably still there.” So the question becomes, how can you rethink the project so that it’s still financially feasible?

“Strategically, you’re probably still going in the right direction,” he says. “But you may need to approach that legacy project in a smaller, slower, or more spread-out fashion.”

As an example, Kibler cites an organization that decides it wants to establish a greenfield hospital in a growth market. “Historically, the organization’s leaders may have been more aggressive in their assumptions about that market. Today, they may decide to back down on it, to do 40 beds instead of 80 beds and decide whether to expand later. They can do the base project, design the expansion at the same time, and build it incrementally.”

It’s not that there’s more financial risk, says Kibler, but that there’s a greater sensitivity to taking on that risk. “Obviously, financial ratios are different now. Also, finance committees, as they begin to thaw, are starting to ask a lot more critical questions about development budgets, so your project had better be truly viable financially.

“Regional or national systems with multiple hospitals are putting more emphasis on allocation planning and on consistency in terms of reviewing and allocating capital; they’re imposing a more formal discipline. Typically they’re still doing a five-year capital plan, but they may need to rethink which hospitals will get how much capital.”

Also, many people assume that this is a great time to buy out a project - to get bids, negotiate, and sign contracts with the construction manager, so he can buy out the subcontractors and suppliers and everyone is under agreement - and Galling agrees. “But there’s also a significant amount of additional risk with the construction industry right now. Contractors and suppliers are having problems maintaining and renewing their own lines of credit. So you don’t necessarily want to take all the savings that you achieve by buying out the project now and put them right back into the project - you need to set aside more contingency that you would have before.”

What about other ways to acquire capital outside the bond market? Galling and Kibler say that monetization of non-core assets continues and there are still portfolios of medical office buildings for sale, but the price is different than it was a year ago, and so is the ability of the developer to secure favorable financing. So expectations have to be recalibrated.

They’re also seeing some hospitals and systems explore the possibilities of having a third party own the acute care components of their campuses, which is new. In many cases, says Galling, this is a short-term strategy for getting a new campus up and running until they can go back to the bond market.

“In fact, much of what we’re doing for clients these days is providing a bridge, helping them tap into the taxable market through developers to get transactions done in the interim.”

hfm magazine can be located on the Web at www.hfma.org.