COVER STORY, JUNE 2010

HEALTHCARE SHIFTING
The healthcare industry is zeroing in on the idea of more for less with innovations in design and practices.
Amy Bigley

Denver-based NexCore Group was selected to develop, own and manage Silver Cross Hospital’s new 200,000-square-foot medical services facility in New Lenox, Illinois. The on-campus facility houses 70,000 square feet of hospital services and 130,000 square feet of physician offices.

The financial vice that is constricting the industrial, office and retail development markets is also clamping down on the healthcare and medical office building (MOB) sector. Many development projects were shelved in late 2008 and early 2009, but a reprieve is near as financial credit becomes more readily available and demand for healthcare space increases. Now, developers, healthcare institutions and physicians are exploring ways to maximize their efforts in construction, development and services.

More for Less

The trend of more for less is widespread in the healthcare field, whether referring to doctors delivering better care to more patients at lower costs or projects being designed with more-for-less ideas.

“There’s lots of economic pressures on healthcare providers to try to hold down costs, whether it is on the hospital or physician care side,” says Don Lemonds, vice president/Health Care principal at the St. Louis office of HOK Inc.

Attempts to hold down costs run the gamut from right-sizing buildings and efficient design practices to reduced workforces and compensation. Regardless of the route taken, cost is still the bottom line for developers, owners and physicians.

“Doctors are under siege and trying to survive — they’re in survival mode,” says Tim Oliver, vice president of healthcare development at Denver-based NexCore Group.

The DASCO Companies recently completed the development of Methodist North at Allen Road, a 78,500-square-foot medical office building in Peoria, Illinois. Developed for Methodist Medical Center of Illinois, the facility offers a full array of diagnostic imaging capabilities and a children-friendly pediatric practice.

This survival environment is bringing challenges and changes to the healthcare industry. Physicians and hospitals are exploring ways to create efficient and cost-effective work environments for employees, while improving the quality of care for patients. With new construction costs still high relative to existing buildings, many physicians lack the financial ability to afford new space, notes Oliver. “NexCore is focusing on producing buildings that give more bang for the buck,” he says. “We’re looking to design physician spaces so that they increase productivity to offset the higher cost of office expenses.”

Lemonds echoes the efficient design model and takes it a step further to the concept of lean design, which originated in the manufacturing industry. The basic idea of lean design is to eliminate wasted time and space, and create the leanest and most efficient delivery method as possible. The lean model can be stretched to all aspects of the healthcare industry, including daily clinical operations, project design and construction delivery methods.

“These concepts are really being brought into the clinical operations facilities — rethinking how caregivers function during the day to minimize wasted time and redos as much as possible,” explains Lemonds.

Many healthcare projects are being designed to meet multiple demands and add flexibility to office and patient-care space. Advances in medical technology have both challenged and eased the designing of exam and patient rooms. More is being done in general rooms and the technology used is increasingly complex, with imaging devices and robots in operation rooms, notes Lemonds. Equipment is being designed with flexibility, accessibility, efficiency and safety for caregivers and patients in mind. Although these considerations may require larger workspaces, the overall goal for designers and contractors is the same — efficient space design and getting the most out of the square footage through multiple-use rooms and flexibility in room designs.

The more-for-less strategy is also evident in the changes in the design, construction and delivery methods for projects, especially companies that are utilizing an integrated project delivery method. Having the individual partners — architects, contractors and developer — come together as a team from the start of the project allows for a more efficient delivery process. The team shares the risks and rewards of the project, instead of being disjointed by entering and exiting the project at different stages of development.

Shift to MOB

While predictions about the outcome and effect of healthcare reform abound in the healthcare industry, architects and developers are generally optimistic on the design and development front.

“We believe the reform will increase the demand for physician office space, as more people begin to use outpatient care in medical office buildings instead of emergency rooms,” says Oliver. “And that should generally bode well for the demand part of the equation.”

HOK Inc. recently designed the new Saint Joseph Regional Medical Center in Mishawake, Indiana. The $355 million, 658,000-square-foot project focuses on patient safety and comfort, caregiver efficiency, technology and environmental consciousness. Photo credit: HOK.

Although numbers have been tossed around the industry, the specific increase and demand for new medical space will not be known for some time. The upward trend for outpatient and medical office space is not new, but the reform may force increasing numbers of healthcare institutions and physicians to take a second look at the, oftentimes, cost-efficient option.

“Outpatient facilities generally cost less to develop and operate,” says Murray Wolf, publisher and founding editor of Health Real Estate Insights. “And [the properties] can be an effective way to stake your claim to a suburban or exurban market — a way to ‘follow the rooftops.’”

For every positive aspect there is a caveat for developers not to become overly optimistic about new opportunities. “The medical real estate investment and development community must remain prudent as the MOB market expands to meet future outpatient demand,” explains Gordon Soderlund, senior vice president of strategic relationships for The DASCO Companies’ Oakbrook Terrace, Illinois, office.

Even though an increase in demand for medical office space may occur, the industry is still facing challenges, including the tight financial market. “The healthcare provider industry is facing a widening gap between the haves and have-nots — those who have access to capital and those who will struggle to attract more money for capital projects,” says Soderlund.

While medical office building development continues to have a bright future in the healthcare industry, striking a balance between cost-efficient development, operations and improved patient care and service delivery will be key to surviving and rebounding in the current economy.

©2010 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.