Hospital construction slows in 2011
Premium content from Portland Business Journal - by Andy Giegerich
Date: Friday, February 18, 2011, 3:00am PST
Despite dramatic patient demand increases through the next decade, Portland-area hospitals are expected to launch few construction projects in 2011.
As a result, the region’s major health care capital projects will come from ongoing work such as Legacy Emanuel’s $242 million children’s hospital renovation and Kaiser Permanente’s $344 million Westside Medical Center.
The lack of big-time activity continues the health construction slowdown that lasted throughout 2010. Oregon hospitals continue to spend their capital dollars judiciously after pouring more than $1.5 billion into construction and expansion projects between 2005 and 2010.
While 2011 activity is expected to double over last year, Oregon’s total projected construction starts are only expected to fill 643,000 square feet, compared to 1.48 million in 2009.
“While large-capital hospital spends have slowed, we continue to focus on projects that will keep us up to date with current technologies, like imaging equipment for cardiac catheterization labs,” said Bryce Helgerson, Legacy Emanuel’s vice president for hospital operations. “Those can often range in the millions of dollars.”
Nationally, McGraw-Hill Construction Research & Analytics, of Bedford, Mass., projects health care construction will increase by 6 percent in 2011, outperforming the overall nonresidential construction market.
Health industry analysts hope more facilities will arrive soon. As Baby Boomers become senior citizens, hospitals will need to address expected increased capacity needs over the next decade. The Pew Research Center projects that by 2030, 18 percent of the nation’s population will be older than 65. Just 13 percent of Americans fit that description today.
Between Jan. 1 and 2030, 10,000 Baby Boomers will turn 65 each day.
“We’re generally concerned about the aging population and the expanded number of folks entering the health care system” through health reform measures, said Sean Kolmer, deputy administrator of Oregon’s Health Policy and Research office. “Our goal is to do more on the preventive side ... to reduce the number of people going into hospitals, as well as coordinate care better.”
Yet 73 percent of hospitals nationally delayed making capital investments in 2010, according to the American Hospital Association. Another 67 percent reported that they’ve not stated or continued capital projects since the recession began in 2008.
“While we’re seeing new clinics and facility improvements, the overall assumption is that utilization will rise, and people will need more services.” said Dale Woodin, executive director of the Chicago-based American Society for Health Care Engineering.
Area hospitals and health systems are remaining quiet about any future expansions. At the same time, some continue to seek property. In October, Salem Hospital purchased the former Oregon School for the Blind, in Salem, for $6 million. Kaiser Foundation Health Plan paid $6.4 million in December for Northeast Airport Way laboratory space.
Bellevue, Wash.-based Peace Health, after purchasing Southwest Washington Medical Center, bought 75 acres in North Clark County last month. And Providence Health and Services-Oregon continues to sit on a 20-acre parcel it purchased early last year in Vancouver.
Portland-based Providence paid $16.1 million for the property. Some 15,000 Providence members live in Clark County.
“You’ll know when we’re ready” to develop the parcel, said Providence spokesman Gary Walker.
Health-care construction weaker than other sectors
Legacy Emanuel’s children’s hospital work by no means indicates that health care construction is as strong as work in other sectors.
Growth in several key construction fields will dwarf 2011’s projected 6 percent increase in health care construction spending, according to McGraw-Hill Construction Research & Analytics, of Bedford, Mass. The researcher predicts that:
• Single-family housing starts, in terms of dollars, will climb 27 percent.
• Multifamily housing will rise 24 percent in dollars and 23 percent in units.
• Commercial building starts — stores, warehouses, offices and hotels — will increase by 16 percent. However, the upward swing follows a three-year decline in which starts dropped by 62 percent in dollar terms.
• The institutional building market, which includes schools construction, will drop by 1 percent, meaning the sector will have dropped for three straight years. Public works construction will also drop by 1 percent.
• Manufacturing building starts will increase 9 percent in terms of dollars and 11 percent in square feet.
Kim Kennedy, McGraw Hill’s manager of forecasting, said health care reform could pose the biggest issues to potential industry construction. Reform is expected to take full-on effect in three years.
“What will the courts do? What will the states do?” Kennedy said in an e-mail. “Will states continue to move forward quickly enough to meet 2014 deadlines? The passage of the legislation went far to settle the market, but the lingering questions remain a drag. Uncertainty is never good for the big capital investment that construction requires.”