At a medical office conference I attended, influential hospital executives stated that investing their capital in infrastructure needs and health information technology (IT) took priority over building new or renovating existing hospital ancillary facilities. However, the many advantages to new facility construction support hospital growth strategies and has the potential to help the long term viability of any health system.
The two notable examples of construction as a long term growth strategy encompassed within healthcare reform are Massachusetts and California. Massachusetts, which passed state healthcare reform in 2006, experienced a 14% increase in medical office construction from 2006 to 2009. California, an early participant of healthcare reform, saw a spike of 450,000 square feet new construction during the first half of 2010 – primarily in Sacramento, Riverside-San Bernardino and Orange County. The expansion of healthcare in these two regions has naturally energized a free market revival of new construction.
Renovating means to modernize. Updating an existing facility can be difficult as a reflection of a building's maturity.
2 Factors Demonstrating Old Facilities Are Ill-Equipped:
1) Today's Healthcare:
Older facilities were not designed with today's delivery of healthcare in mind. New facilities are designed with preparedness for the future providing for new services and future concepts. One such example is parking ratios. Medical office buildings require a parking ratio of five spaces per 1,000 square feet due the high volumes of patient traffic. However, older medical buildings had looser parking regulations that were grandfathered in and in some cases are not even compliant with Americans With Disabilities (ADA) standards. These buildings can have difficulty supporting today's needs and easing patients' accessibility, making them not a preferred treatment center.
2) Inefficient Mechanical Systems:
Older facilities have tired and inefficient mechanical systems where as new facilities offer original space configuration and construction models. Materials and designs used today are not only more energy efficient, which reduce power costs, but geared around patient comfort promoting a high quality experience. Additionally, specifically in relation to health IT, old health facility designs are ill-equipped to accommodate the specifications outlined for internal data centers, a storage facility used to house electronic medical records and a host of other hospital technology components. Even with renovations older facilities are continually requiring "updating" no matter how much "renovation" is done.
There is no question that renovating existing facilities in most circumstances is more cost effective as a short term solution to more expensive new construction. However, as real estate developers we pride ourselves on long term goals, not short term solutions. Building new facilities offers a wide range of opportunities and preparedness that many renovations cannot. When considering these options remember to review the organization's Mission Statement and Strategic Plan to more completely consider the organizations goals.
James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.
Aaron Razavi is Associate Marketing Director at Health Care Realty Development.
Visit their blog at http://www.hcrealty.com/medicalrealestatedevelopment/