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"Boom!", (c) Michael Klinger, Healthcare Facility.net, 2/4/2006

A Mega-Project Round-up: Despite rising construction costs, there is a nationwide health care construction boom under way.

Despite rapidly rising building materials costs, hospital construction projects around the country are booming. Many of them are what Jack Darnall, vice president of the health care division at Brasfield & Gorrie and current chairman of Associated Builders and Contractors, calls “mega-projects” — those costing $100 million or more.

Some projects, especially those involving renovations and upgrades that are considered necessary and unavoidable, may actually be spurred to faster completion by the rising costs associated with construction — increases that have, over the last few years, added millions in materials costs alone to the price tag of projects that have been delayed. Says Darnall, “You know prices aren’t going to fall over the next several years, so if anything, it may be encouraging owners to go ahead and build now before they encounter more inflation.”

Darnall sees three factors driving the increased construction spending around the nation. First, “it is a lot easier to get financing” now than it was just a few years ago. What he calls “pent-up demand,” as projects that have been on the boards but have been awaiting the necessary financing, probably account for some of the projects in the works now.

Second, changes in technology are also driving many owners’ decisions to build or renovate. “With new radiology, diagnostic and surgical technologies,” says Darnall, facilities “want to make sure they have the most up-to-date and sophisticated equipment. It allows them to do their jobs better.”

A third, factor — possibly the most important across the country — is the shift in health care demographics. As the baby boom cohort ages, it is going to require more medical attention.

“More facilities are going to have to be more efficient, they’re going to have to offer more services and they’re going to have to be more convenient,” Darnall says.

Mega-trends like these help to explain the ubiquity of the boom. In specific regions, however, there may be additional factors. In California, some projects are being forced to completion by a 2013 statewide deadline for seismically sound retrofits to hospital buildings and other health care facilities — requirements that in many cases have led to new construction. In Maryland, a fund-raising rule change is making construction a more desirable and feasible option for many hospitals.

Whatever is driving the boom, Darnall says, “It looks like it’s going to continue for awhile.”

Here are some of the major projects now under way nationwide:

Sacramento: $460 Million

Northern California’s Sutter Health has gotten the go-ahead for a massive, $460 million consolidation project in downtown Sacramento. If capital cost estimates for the project — which have doubled over the past three or four years — don’t kill the plans, renovations to Sutter General Hospital will include a new emergency room, radiology department, 25 operating theaters and an expanded cafeteria and administrative offices.

Meanwhile, the master plan for the health care hub will include a 250-bed structure housing a women’s and children’s hospital with newborn and intensive-care operations, as well as a 150,000-square-foot medical office building, all right across the street from the renovated original General Building.

The project will begin this year with construction on a children’s theater, a 1,100-space parking garage and new residential units. They will be followed by the hospitals and office building, all to be completed by 2010.

San Francisco’s KMD will be the project’s architect, and Turner will be general contractor.

This project, along with several other major renovation projects in Northern California, is part of a boom motivated, at least in part, by a 1994 state law requiring hospitals to be rebuilt or retrofitted to meet new earthquake-safety requirements, all by 2013.

Baltimore: $1 Billion

The first steps have been taken on the path toward Baltimore’s St. Agnes Hospital’s six-year, $160 million expansion and renovation project. Mid-December saw the beginning of a $14 million update to the hospital’s emergency facilities, cancer center, cardiology unit and operating areas, and maternity rooms. The rest of the project will include a new tower, which will eventually hold two-thirds of the beds in the current hospital.

That current building will continue to house 116 beds, including critical and intensive care units, both of which were rebuilt more recently than the rest of the hospital, now more than 40 years old.

Also in Baltimore, Johns Hopkins Medicine has released a rendering of an $800 million expansion, the largest single hospital construction project in Maryland, according to reports. The project includes a 12-story adult hospital, a 12-story children’s hospital and a new entrance to the medical campus. The new additions will be located on land where a garage and other structures were located.

The new facilities will utilize a contemporary look with glass and brick, which should make the building stand out among other Victorian-era structures in the area.

Both the eastern and western tower — the children’s and adult hospitals, respectively — will have a curving glass façade that matches the building with a bend on the street in front of the buildings.

Perkins & Will designed the facility. Site excavation is set to begin soon and Hopkins is hoping to complete the project by July 2009.

The Maryland Health Care Commission regulates hospital construction projects and notes a significant increase in capital projects over the past few years. Driving this increase are rises in occupancy and a change in state-regulated hospital rates that now allow for hospitals to raise funds specifically for capital projects.

Around the state, the commission has also recently approved a $210 million project at Anne Arundel Medical Center in Annapolis and $124 million at Baltimore Washington Medical Center in Glen Burnie.

Lexington: $450 Million

One of the largest construction initiatives ever seen in Lexington, Ky. — a 1 million-square-foot tower expansion at the UK patient-care facility — comes after the relatively recent completion of a $74.4 million, 142,300-square-foot biomedical research building.

The current project, being undertaken by construction manager Gilbane Building Company, will also include a food services area, utility infrastructure system upgrades and significant central plant renovations, in addition to a 1,129-car parking garage with a connecting pedestrian bridge.

Chicagoland: $3 Billion

When Loyola University Health System broke ground on a $103 million expansion project in mid-December, it joined a group of hospitals whose commitment to construction and renovation projects will likely exceed $3 billion over the next 5-10 years. Those hospitals include the University of Chicago Hospitals, Rush University Medical Center, Children’s Memorial Hospital, Northwestern Memorial Hospital and the University of Illinois at Chicago.

Arizona: $428 Million

Banner Health will add a separate tower exclusively for Banner Children’s Hospital in Mesa, Ariz., part of a $230 million expansion to that city’s Banner Desert Medical Center. The company is also committing $198 million to build a new patient tower at Banner Thunderbird Medical Center in Glendale. Both projects are slated for completion in 2008.

Houston: $517 Million

HCA officials say they will invest $517 million to build a hospital in Pearland, Texas, and modernize 10 other Houston-area company hospitals over the next three years.

Factors driving this campaign include population growth in the suburbs and increased demand for medical care.

In Pearland, a medical office building is already under construction, and a 60-bed hospital, the community’s first, is in the works. HCA, the nation’s largest for-profit hospital chain, plans to break ground on the hospital in summer 2006. Other companies have shown interest in the Pearland market. In December 2004, Memorial Hermann Healthcare System, a nonprofit operation, indicated it plans to expand there on 27 acres it already owns.

Hospital projects can go forward quickly in Texas, where the state does not regulate the number of hospital beds, note experts.