Hospital Boom(ers)

"There are $4 billion worth of projects underway in Philadelphia and surrounding counties. In western Pennsylvania, an additional 1 million square feet of hospital space will be added by 2009," from the Pittsburgh Tribune-Review (Feb. 25, 2007).

"Hospital boom felt in rural areas: 3 projects totaling $158 million finished in last 6 months; more on way," reports the Milwaukee Journal-Sentinel (Feb. 19, 2006).

"56 out of 148 Minnesota hospitals since 2002 have planned or are conducting new building or expansion projects. The projects' total is estimated (conservatively) at $1.57 billion," notes a discussion paper posted by Minnesota Blue Cross/Blue Shield.

Wherever you turn, there are signs of a remarkable surge in hospital construction.

Take a look at these two charts from "Hospital Construction Trends," a report prepared this past November by health care analysts Jeffrey Stensland and David Glass for the Medicare Payment Advisory Commission (MedPAC), an independent, federal commission established to advise the U.S. Congress on issues affecting the Medicare program.

Now compare this hospital construction data to the relatively flat trend in hospital use.

In an article in Hospitals & Health Networks Magazine, Dave Carpenter reported:

"The most significant expansion and replacement of U.S. hospitals since the post-World War II building spree continues to fuel a red-hot construction market. With hundreds of additional projects in the planning stages, it's a trend that's expected to last through the rest of the decade. ... The Sun Belt no longer dominates the action -- the second wave of construction activity has spread to every region. ...  [Nationwide] new hospitals and clinics valued at $22 billion were under construction as of late 2005. ... Underpinning it all is increased consumer demand, especially as the first of the 77 million baby boomers turn 60 this year."

According to John Hughes, Vice President of FMI, a firm that works with national manufacturers of hospital construction products and equipment, "Each time we look at the trends for healthcare construction, the numbers seem to be revised upwards. ... Currently, construction put in place for total health care construction will increase almost 34% from $34 billion in 2005 to $45.4 billion in 2009."

photo: Montrose, Colorado's medical center is important to attracting businesses and people (especially retirees) to the area, planning commission chairman Frank Casey told me during my visit. For more on this point, see my post "Quality of Life."

Hughes, like Carpenter, notes that "one important driver is the approaching retirement of baby-boomers," also citing the fact that many hospitals have reached the age where they are in need of repair, improvements, or replacement. It's the "perfect storm" behind the boom in hospital construction, as he puts it.

photo on right. In Moab, Utah, Allen Memorial Hospital is building a new regional medical center on this site. As Allen Memorial notes on its web page: "In addition to patient and staff benefits, the new hospital will contribute tremendously to the health of the larger community by helping attract and retain business, ensure a healthy and productive workforce, and provide well-paying jobs to employees who support local merchants."

Health care reporter Maggie Mahar (author of Money-Driven Medicine) recently wrote on her Health Beat blog about what she calls the "land-rush mentality" behind at least part of this boom. Mahar reports that "In Phoenix, Roger Hughes, executive director of St. Luke's Health Initiatives, a Phoenix-based health care foundation, told me how resources were allocated in his hometown. 'Hospitals are rushing to get into areas where the population is beginning to expand, thinking, 'If we don't get in there, the other guys will beat us.' "

Not surprisingly, Mahar then asks about the costs to all of us of this surge in construction. Someone's got to pay, after all.

For cities and towns, it's a tough dilemma. No one wants to drive up costs, but there's legitimate concern -- especially in smaller cities and towns -- about the consequences of losing their hospital, or not having a strong medical facility that will help attract businesses and meet the demands of the baby-boom generation and others.

In preparing this blog posting, I received a response from an Oregon planner about the situation his coastal community is facing: "We have a 37-bed, critical access hospital that is affiliated with a regional medical provider, and which is barely breaking even financially. It is a aged building that needs replacement. We are making sure that planning decisions we make and planning actions we take will not adversely affect the hospital or its rebuilding options. I am both the city's planning director and a member of the hospital's board of trustees. The hospital is essential to the city. If the hospital closes its doors we will have an exodus of boomers, including me."

Research has found that the closing of a hospital -- especially if it the only one serving the area -- can have an adverse economic impact, especially when "multiplier effects" are added in. While there's debate over just how significant this impact really is, for local elected officials (and planners), there's little doubt about the value of having a strong medical center in the community.

Take a look, for example, at what the Athens, Texas, Economic Development Corporation prominently posts on its web page: "Athens, Texas is retirement ready! Athens is the largest city and the county seat of Henderson County.  Athens is a town filled with a great sense of pride on the quality of living that has been established for the population of 12,000.  ... Home to an extensive medical community, Athens array of medical services is a comparative to those of large metropolitan cities. East Texas Medical Center offers a 117 bed unit , Level III Trauma Center's 24/7 Emergency Care, EMS Ambulances and an Air 1 Emergency Helicopter."

I'm sure you can readily find a closer-to-home example.

As I noted in my previous blog post, hospitals are also increasingly broadcasting their big impact on the local economy. (There are even consulting firms that specialize in these kinds of economic impact studies; but recall the critical comments at the end of my last post from Jeanne Keller about these economic impact studies).

Why tout economic benefits? Perhaps because hospitals realize that local support is crucial to getting their construction projects through the regulatory pipeline. Some 37 states require major health care projects, such as new hospitals or expansions to existing ones -- to go through a state regulatory approval process to obtain a "Certificate of Need."

Just as communities have long promoted the caliber of their K-12 schools, parks, and cultural amenities, the quality of local health care facilities has now become an important part the equation. Cities and towns recognize that our national economy means we're all part of a competitive marketplace, where attracting and retaining businesses (and residents) is the goal.

But, again, we need to ask ourselves, "who pays for all this hospital construction?" And then remember, "we do."

-- Editor's Note: see our related post, Hospitals Pitch Their Economic Impact