Hard to believe, but we’re only six months away from the day—January 1, 2014, to be precise—when the Affordable Care Act will usher in a radical transformation of the American healthcare system. Healthcare operators are scrambling to decipher what the new law will mean to their bottom lines and capital facility budgets.
For advice on how AEC firms can succeed under Obamacare, we turned to Patrick E. Duke, Senior Vice President at KLMK Group (www.klmkgroup.com), which advises healthcare operators on the planning and construction of capital facilities.
Duke, a BD+C “40 Under 40” honoree (Class of 2010), says firms must home in on three trends: 1) the shift by healthcare providers toward “population-based management”; 2) the push toward a fast-paced “retail environment” in healthcare; and 3) heightened interest in energy and operational cost savings among healthcare operators.
1. POPULATION-BASED MODEL HELPS SPREAD THE RISK
Today’s version of “fee-for-service,” whereby healthcare operators are reimbursed more on volume than on patient outcome, is on the way out, says Duke. It is being replaced by a system in which healthcare operators will be given a set amount of money to manage the care of a defined population of patients.
TOP HEALTHCARE ARCHITECTURE FIRMS
2012 Healthcare Revenue ($)1 HDR Architecture $185,763,0002 HKS $134,000,0003 Cannon Design $109,000,0004 Perkins+Will $100,962,2555 Stantec $98,471,4576 NBBJ $96,169,0007 HOK $84,300,0008 SmithGroupJJR $66,700,0009 Perkins Eastman $63,800,00010 RTKL Associates $60,746,000
TOP HEALTHCARE ENGINEERING FIRMS
2012 Healthcare Revenue ($)1 AECOM Technology Corp. $180,210,0002 Jacobs Engineering Group $77,100,0003 URS Corp. $43,327,3324 Smith Seckman Reid $40,105,6005 KPFF Consulting Engineers $30,000,0006 Affiliated Engineers $28,217,0007 TTG $24,719,9058 Parsons Brinckerhoff $22,700,0009 Dewberry $21,226,70210 Allen & Shariff $20,300,000
TOP HEALTHCARE CONSTRUCTION FIRMS
2012 Healthcare Revenue ($)1 Turner Corporation, The $1,856,850,0002 McCarthy Holdings $1,750,000,0003 Clark Group $1,055,387,8704 Skanska USA $833,093,7005 Brasfield & Gorrie $780,723,2476 JE Dunn Construction $759,053,6317 DPR Construction $749,013,6118 PCL Construction Enterprises $729,454,5149 Whiting-Turner Contracting Co., The $551,510,96710 Robins & Morton $545,100,000
Giants 300 coverage of Healthcare brought to you by DuPont www.fluidapplied.tyvek.com.
To be profitable under such a regimen, says Duke, healthcare operators will have to control costs by, ironically, keeping people out of the hospital. They will do so through various means: limiting the use of expensive emergency room visits, treating patients in lower-cost outpatient facilities, keeping people healthy through wellness programs, and cutting down on readmissions.
“The common response among providers thus far has been to cast as wide a net as possible to spread the risk over a broader population, just like life insurance,” says Duke. Some healthcare systems are growing their patient bases by buying up or merging with other providers. A more common practice is to build specialty facilities to provide more profitable services outside the hospital setting.
For example, the University of Maryland Medical System will open a 68,000-sf cancer center at its Upper Chesapeake Health affiliate in Bel Air, Md., in September. The new center will save local residents the 30-mile trip to UMMS’s Baltimore campus, while solidifying its position in the suburban market northeast of the city.
“Healthcare providers are looking at the services they can offer that are more specialized, with better outcomes in a lower-cost setting,” says Duke. AEC firms must be prepared to respond to this shift in direction.
2. ‘RETAIL HEALTHCARE’ PUTS EMPHASIS ON SPEED TO MARKET
As healthcare moves into more of a retail mode, getting specialty outpatient and primary-care outreach units to market as quickly as possible will be top-of-mind for hospital execs. Duke believes that will make them more open to modular construction. “If modular can get the facilities up faster to capture a growing market and get the cash registers ringing sooner, they’ll go with it,” he says.
Repurposing existing spaces is another route that healthcare systems are using to widen their patient bases quickly. In the Atlanta area, for example, Kaiser Permanente continues to explore repurposing vacant Blockbuster stores into neighborhood clinics, which then feeds patients into the Kaiser system. Vanderbilt University Medical Center has done the same at 100 Oaks Mall in Nashville, with great success.
“Healthcare operators want designers and contractors who can evaluate a building and come back quickly with solutions,” says Duke. Firms that can offer systems solutions for new facilities—designing standard units, bundling them, and rolling them out fast—will also be in demand, he says.
3. SAVING EVERY NICKEL ON ENERGY AND OPERATIONS
Healthcare providers are finally getting serious about saving on energy and operational costs. “Before Obamacare, they focused on supply chain and wouldn’t get serious about energy or facility operations because they didn’t need to,” says Duke. “As systems consolidate, they have the scale explore options like energy monitoring and retrocommissing, to identify sustainable cost-saving solutions.”
Another route to controlling costs is to develop new facilities under Performance Guaranteed Facilities arrangements. Under a PGF, the hospital contracts with a service provider to finance, plan, design, build, and maintain facilities over a 20- to 30-year period, at a fixed total cost.
“The hospital owns the building and the land, but the service provider takes the risk of developing the facility and maintaining it, including replacing equipment on an ongoing basis,” says Duke. This sheds a lot of risk for the hospital. If, for example, the OR goes down due to a maintenance error, the PGF provider takes the hit.
Duke says that, in Canada, value-for-money studies showed that life cycle cost savings averaged 15-20% on a net present value basis through the use of PGFs to build and operate new healthcare facilities versus traditional project delivery options.
The witching hour for Obamacare is fast approaching. Will your firm be ready to compete in the new American healthcare landscape?
Read BD+C's full Giants 300 Report
Related Stories
| Jul 17, 2013
Top Multifamily Architecture Firms [2013 Giants 300 Report]
IBI Group, Niles Bolton, Perkins Eastman top Building Design+Construction's 2013 ranking of the largest multifamily architecture and architecture/engineering firms in the United States.
| Jul 17, 2013
CBRE recognizes nation's best green research projects
A rating system for comparative tenant energy use and a detailed evaluation of Energy Star energy management strategies are among the green research projects to be honored by commercial real estate giant CBRE Group.
| Jul 17, 2013
Should city parking space requirements be abolished?
Some cities are deliberately discouraging construction of new parking spaces by allowing the construction of buildings with a lower ratio of parking spaces to dwellings (as low as 0.75 spaces per residence).
| Jul 17, 2013
Retail store openings at five-year high
Analysis by RBC Capital Markets shows that U.S. retailers are planning to open 42,757 stores over the next 12 months, and some 83,700 locations over the next two years, both five-year highs.
| Jul 16, 2013
Amid single-family housing’s comeback, rental market not skipping a beat [2013 Giants 300 Report]
As the economy recovers and homeownership becomes a realistic option for more consumers, will it spell the end of the multifamily sector’s hot streak? The experts say no.
| Jul 16, 2013
As the U.S. economy sputters back to life, contractors wait for the green light on projects [2013 Giants 300 Report]
There are enough positive indictors in the economy to justify greenlighting projects, but building owners and developers remain reluctant to pull the trigger.
| Jul 16, 2013
Robotics: A new way to demolish buildings
A robot prototype uses water jets to break up concrete structures and then sucks up the water and debris for reuse and recycling.
| Jul 15, 2013
Innovative Swallows Nest cultural center in Taiwan aims for zero carbon emission
The Swallows Nest cultural center in Taichung, Taiwan, employs bioclimatic architectural elements and complex geometry with a goal of being a zero carbon emission structure.
| Jul 15, 2013
Zaha Hadid unveils plan for boutique condo development in New York
Related Companies taps the London-based architect for the 11-story 520 West 28th Street residential development adjacent to the High Line in Chelsea.
| Jul 15, 2013
Sole proprietor’s success attributed to good ole referrals and some new technology
I recently attended a technology expo focused on software solutions for design firms. While I was there, I struck up a conversation with an architect who, two years prior, had made the move from a big firm to a sole proprietor.