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Focus on Healthcare Facilities & the Affordable Care Act

Changes that are already here and what may be coming

he Patient Protection and Affordable Care Act (PPACA), also known as ObamaCare, was officially signed into law in March 2010, with some of the most significant changes rolling out in 2014. The reform vastly expands Medicaid and promises healthcare access to all, aiming to plug holes in the system through which individuals have previously been denied coverage, such as medical underwriting. To date, 7.1 million people have already signed up, and according to a whitepaper produced by Deloitte, an estimated 32 million will receive insurance under the new laws. As a result, Deloitte estimates that an additional 64 million square feet will be needed to accommodate the new demand.

Health Facilities Management (HFM) and the American Society for Healthcare Engineering of the American Hospital Association (ASHE) recently published a survey highlighting healthcare construction trends. It was completed by approximately 500 hospital and health system executives nationwide, and one key finding was that more than half of respondents are considering the PPACA in senior leadership discussions about potential changes needed to existing facilities or campus designs.

At Helbling & Associates, we partner with numerous healthcare entities to attract and secure talent with the right skill sets who enhance their organizations and further their strategic goals. Within this overview, we will address a few key areas (with a focus on construction) where the healthcare industry has experienced change since the introduction of ObamaCare, and where it may expect to see changes in the future. We asked Gary Acord, Vice President, Design and Construction at Memorial Sloan-Kettering Cancer Center, and Jenny Freeman, Senior Vice President and Director of Healthcare at Hunter Roberts Construction Group, to lend their views on the topic. Combined, Gary and Jenny have over 50 years of healthcare project and construction experience.

Increased Outpatient & Ambulatory Facilities

Presumably, if more people are insured, less people are forced to go to the emergency room for non-emergency treatment. As noted in our previous article, Facilities Management Outlook 2012 Part I: Focus on Healthcare & Higher Education | Strategic Initiatives, there will continue to be a focus on outpatient and ambulatory facilities rather than on inpatient care facilities.

The HFM/ASHE survey revealed that one-fifth of respondents have an ambulatory facility project underway or planned in the next three years (and a considerable number of them may end up in neighborhood settings).

“Aside from defining an ambulatory care network,” Jenny says, “most major investments have been reduced. There are very few new beds being built in New York.” Although the number of insured citizens will rise, the need for new inpatient hospital beds may decrease, as the focus on preventative care is emphasized and outpatient facilities become increasingly accessible.

Critical procedures will happen more and more in an ambulatory setting, Gary predicts, with the trend being “building ambulatory healthcare facilities that are hospitals without beds.” Most diseases now, even extremely severe illnesses like cancer, are being treated like a chronic disease, he explains. “People go to an ambulatory facility, get their procedures, and go on with their lives.”

By Caroline Drazin, based upon interviews with industry professionals, Gary Acord and Jenny Freeman

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Focus on Healthcare Facilities & Affordable Care Act Spring 2014 Navigator

Challenges with Funding & CapitalOne of the biggest challenges healthcare institutions are facing is availability of capital. When asked how organizations are financing construction projects, 48 percent of HFM/ASHE survey participants reported they would be using existing cash reserves. “It’s not easy for healthcare systems to borrow money anymore,” Gary points out.

Capital is being depleted by PPACA because more people have insurance and the demand for healthcare services is increasing. Also, healthcare systems are primarily nonprofit and are subject to bond ratings, depending upon how strong they are.

It’s a struggle for them to make ends meet and maintain portfolios, says Gary. “If you can’t keep cash on hand up, your bond rating goes up and it’s harder to borrow money to do projects.”

Challenges with Budget CutsAccording to the American Hospital Association, hospitals have absorbed more than $117 billion in new cuts since 2010. Over the next ten years, healthcare providers will be hit with a $155 billion reduction in Medicare reimbursements alone. There is also a financial incentive through Medicare to reduce admission rates, via the Medicare Hospital Readmissions Reduction Program (HRRP) established in the Affordable Care Act, which will penalize hospitals with high rates of readmissions (with exceptions).

Hospitals will not be reimbursed for procedures they performed incorrectly or for poor services, Gary says. There will be an emphasis on facility designs that enable improved clinical process and infection control.

Gary predicts the trend of merging healthcare systems will continue. The mergers typically drive construction programs to align the new business models with community healthcare needs.

Jenny notes that where there are Medicare budget cuts, there will be more caution about the project delivery method. Also, institutions will adopt alternative approaches to improving throughput that do not require capital investment.

“The challenge is identifying what the reimbursement rate will be and how the Affordable Care Act will affect the income stream for facilities,” Jenny explains. “I think everyone has adopted a 'wait and see' attitude.”

Influence on Building DesignConsidering healthcare design, Jenny re-emphasizes the push towards ambulatory facilities and away from hospitals. “The level of acuity being treated in ambulatory facilities has been expanded tremendously, and FGI guidelines are being modified to reflect lower constraints in out-of-hospital settings.” 

Also, as a response to mounting pressure to minimize cost and improve efficiencies, more healthcare systems will be renovating and retrofitting existing facilities. But sometimes, updating an older facility can be more complicated and more expensive than building a new one. Gary and Jenny agree the decision (to retrofit or not to retrofit) will need to be made on a case-by-case basis, after careful evaluation by each institution.

Multiple factors must be considered when deciding whether to retrofit or build a new facility. “Retrofitting takes more time and requires 'hopscotching' around the building,” says Jenny. “It can mean impacting and disrupting patient care areas. New building is much easier to perform, but more costly.”

Additionally, Gary points out, “It’s hard to predict the impact of a renovation project on a healthcare facility’s revenue-generating potential. With new construction, there is typically minimal to no impact on an existing business.”

A major consideration is location relative to market share, Gary explains. A healthcare system may evaluate whether their current location has an ideal demographic, or if they would be better served somewhere else – a “cost-benefit analysis”. However, if the facility is based in a major city, they may be forced to retrofit due to unavailability of real estate.

In the future, Gary predicts, it will boil down to what the best decision is to gain market share.

According to an article in Health Facilities Management, another likely change that may influence healthcare facility design is that physicians will be trending away from private practice and consolidating with other physicians or becoming hospital employees. This, combined with the growing need to attract high-quality talent, may lead to hospitals looking more and more to physicians for input on state-of-the-art facility design features.

Also, if ambulatory surgery facilities will be performing more complicated procedures, this must be considered during the design process. These environments will house more wireless technology and in-person treatment, less walls, and more common spaces (a trend Healthcare Design Magazine compared to the corporate office shift towards the open floor plan).

Read more of Helbling’s perspective articles on A|E|C, Facilities Management, Talent Management, and Career Development by visiting our Knowledge Center.

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Moving ForwardThe Affordable Care Act will affect everyone in some way, but the healthcare sector will continue to undergo significant changes. When asked what other key trends she is seeing for the healthcare industry overall, Jenny notes a much greater introduction of and emphasis on technology, and more comprehensive care and preventative care initiatives.

Both Gary and Jenny predict that healthcare construction will still happen, but with major alterations. Budget cuts and an increase in the insured population will force healthcare systems to rethink mergers and partnerships, and to reduce service offerings and operating expenses.

Focus on Healthcare Facilities & Affordable Care Act Spring 2014 Navigator

Gary Acord is Vice President, Design & Construction at Memorial Sloan-Kettering Cancer Center.

Jenny Freeman is Senior Vice President & Director of Healthcare at Hunter Roberts Construction Group.

A special thanks to both of them for their time and expertise.

Caroline Drazin is Marketing Coordinator with Helbling & Associates. She works closely with our search consultants in developing articles and blogs about talent management, career development and executive search. She may be reached at carolined@helblingsearch.com.

Sources:

American Hospital Association, American Society for Healthcare Engineering of the American Hospital Association (ASHE), Deloitte, Health Facilities Management (HFM) Magazine, Healthcare Design Magazine