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Checking the Pulse of Healthcare Architecture
The ever-resilient healthcare design and construction market is headed for some big legislation-induced changes
By Sara Fernández Cendón
Back before the dark days of the recession, most non-residential construction sectors were growing at a brisk pace. Healthcare was growing too, but not quite as fast. But today, healthcare architecture’s modest, steady march has become something of a silver lining in the otherwise still-depressed design and construction industry.
For the last several years, the AIA’s yearly Consensus Construction Forecast consistently called for double-digit declines in all non-residential construction activity. The toll on healthcare projects was far less severe, with predictions of mild growth and marginal decline. The most recent construction forecast anticipates growth of 1.1 percent for healthcare in 2011, even as it continues to forecast contraction in most other sectors. Recovery appears more solid in 2012, however, when a growth forecast of 5.5 percent in healthcare seems modest in comparison to the anticipated double-digit growth in the commercial sector. As economic indicators begin to point toward recovery, the healthcare construction sector is coming out of a slower (though not static) phase, and is headed into a period of uncertainty.
Lindsay Hogan, an economist at McGraw-Hill Construction, says contraction in healthcare construction was largely contained to 2009, a year during which the value of construction starts declined by 33 percent according to McGraw-Hill estimates. Hogan says there was gradual improvement through 2010, with large projects toward the end of the year – the UCSF Medical Center at Mission Bay, in San Francisco, and the Parkland Hospital in Dallas, for example – pushing the numbers to a 13-percent increase in the value of construction starts for the year. The U.S. Census Bureau numbers on construction spending paint a similar picture. The annual value of healthcare construction put in place peaked at the end of 2008 at approximately $48 billion. Currently that number is down to about $40 billion.
But even the 16 percent decline in healthcare construction since late 2008 seems mild compared to what happened in other sectors like lodging, which declined by 68 percent, or office projects, which declined by 47 percent over the same period. Ron Smith, AIA, a vice president with HOK’s healthcare practice and president of the AIA Academy of Architecture for Health, says projects with long lead times helped healthcare remain active through the recession.
“Large projects have driven a lot of the stability of the market just because there was a lot of work in the pipeline,” Smith says. “The small to mid-size new projects were the ones most visibly affected because it was easy for owners to stop them quickly.”
In addition to large projects, Ray Pentecost, FAIA, director of healthcare architecture at Clark Nexsen in Norfolk, Va., says government projects were key to the firm’s continued activity in healthcare – not surprising considering that private healthcare construction dropped by approximately 22 percent between 2008 and 2010, while public healthcare construction grew by about 9 percent during the same period, according to U.S. Census Bureau data.
This was partly due to the American Recovery and Reinvestment Act, which allocated $145.7 billion to the U.S. Department of Health and Human Services. In addition to allocating some of those funds to electronic medical records programs and other initiatives with potential facilities ramifications, the department is spending $1.5 billion on community health center capital programs and $500 million on a National Institute of Health buildings and facilities program.
Overall, the healthcare market is (relatively) strong for the same reasons it was before the recession. Hogan says growth in the U.S. population aged 65 and older, and the evolving demands of information technology are driving demand for healthcare construction projects and will continue to do so.
Looking at population growth as the main driver for healthcare construction, Kevin Haynes, a consultant at the construction industry management firm FMI, says the most robust markets will continue to be in areas of rising population, especially the southeastern U.S. On the other hand, areas of high unemployment with larger uninsured populations will be negatively affected, and in those areas large capital projects are more likely to be delayed.
The great unknown
Beyond the recession, much has happened in the world of healthcare in the past two years. The need for healthcare construction is also driven by the Patient Protection and Affordable Care Act, typically known as the healthcare reform bill, signed into law in March. Analysts say a program designed to expand insurance coverage to millions of now uninsured Americans will increase demand for healthcare facilities. Though the outcome of judicial challenges to the law are far from certain and analysts agree that the bill hasn’t reached its final form yet, the tweaks ahead might have an impact on facility demand. With provisions to expand community-based primary care, for example, demand for ambulatory facilities is likely to rise during the next few years.
Some analysts attribute a recent rise in healthcare project starts to the healthcare bill finally being enacted, but in general they sense hospital boards are hesitant to move forward with large capital projects. This has resulted in a different kind of engagement between healthcare clients and architects, according to Jean Mah, FAIA, healthcare global market leader at Perkins + Will. Mah says the last two years have seen a slowdown in construction, but an increase in planning and programmatic work with clients who might have put large projects on hold, but continue to explore options to use the resources they do have. “In the healthcare world, you can’t stand still,” she says. “We're seeing projects come back. Maybe not the same projects--some are smaller, or different--but the outlook is optimistic.”
On the immediate horizon, the temporary increase in federal funding for Medicaid granted to states by the stimulus act, and later extended by Congress is ending in June. As Medicaid reimbursement rates hang in the balance, hospital administrators might find their budgets squeezed, and their larger capital projects further delayed.
Other pressures faced by healthcare systems have to do with an increased focus on clinical performance. Mah says that as reimbursement requirements become more closely associated with outcomes, healthcare architecture demands greater expertise and more in-depth resources to ensure that buildings support the desired results. For this reason, healthcare architecture is one of the most well-developed frontiers in the burgeoning field of evidence-based design—the practice of basing design decisions on empirical, replicable scientific research and data. It’s being applied in projects like the Center for Health Design’s Pebble Project, which seeks to improve the quality of care for patients and enhance the efficiency and productivity of healthcare facilities.
Smith says the charge for healthcare architects is to not simply react to the pressures of the day, but to become part of the creative process that will re-imagine health care for greater quality and efficiency. “I think it’s very important for healthcare architects to be up front and leading the redefinition of healthcare facilities, not in a reactive mode, but as part of the solution in figuring out how buildings should support care as new operational models are developed,” he says.
As healthcare has proven its relative resilience recession after recession, healthcare designers have noticed greater interest in their market. But considering the highly specialized nature of the field, they say breaking in is not easy. Mah says one way to start is by focusing on less complex projects, such as outpatient clinics, physicians’ practices, wellness centers or medical office buildings. With the new healthcare law’s focus on community health, these opportunities might become more common.
Another way into this market is to build a practice from within by hiring healthcare architects and developing a more specialized expertise, which requires greater strategic commitment to the market. But Mah says it’s also possible for firms with limited healthcare experience to develop relationships with healthcare clients interested in “a different point of view,” she says. “There are some projects and some clients that are looking for a fresh perspective – not necessarily healthcare experience, but the design or interiors or some other capability that they value, and they’re willing to work with a firm that can offer that.”
Visit the Academy of Architecture for Health Web site on AIA KnowledgeNet.
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