Building Operating Management

Driving Growth

Health care giant HCA counts on facility expansion to meet burgeoning business needs

By Mike Lobash   Design & Construction

Having a conversation with Tom Gormley and the facility staff at HCA, a health care company, is like talking to a sports fan fed a steady diet of box scores. When it comes to their team, they know the average, the percentages and whatever other statistics necessary to get a clear picture of how their game is progressing.

The difference is that Gormley, vice president of design and construction, and his crew of five strategic planners aren’t looking at data from last night’s game. They’re looking at data expected to bear itself out in the real world one, two or three years down the road.

What they’re looking for specifically depends upon where in the country their next project takes them. In Florida, the key could be the age of the population; in Las Vegas, the expected growth of the population; in Denver, the rate and direction of urban expansion.

The hunt for data goes on because the company has learned the best way to grow is to build facilities.

“A well-designed and constructed facility with the latest technology is the first step toward quality health care, but it must be coupled with compassionate and skilled physicians, nurses and staff to provide the level of service we expect at HCA,” says Gormley.

Facility executives at HCA spend more than $1 billion annually on capital projects to gain a competitive edge in a field where facilities are a major route to new revenue and a necessity to meet the needs of the growing communities they serve. As an expanding company that owns 180 hospitals and 80 surgery centers totaling 60 million square feet, HCA is continually trying to determine where the next hospital or addition should be built, what it should look like and how it should function. And given the growing demand for health care services in this country, it’s usually not long afterwards that the design and construction department is told to proceed.

HCA has more than 70 projects in the works from Alaska to Miami. That includes the construction of four new hospitals set to open within a year. In addition, the company owns a total of seven hospitals in England and Switzerland.

Exactly how HCA manages, completes and even decides which projects to undertake is the result of a team effort between the senior management of the company’s east and west operating groups, the capital asset department led by Sara Margraf and Mike Francisco, and the design and construction department. The management group analyzes the community needs, the market conditions, the operating cost, the capital cost and the returns on the investment to develop the right project for each location. The strategic planners stay plugged in to census data, expected volumes, needed capacity, and patient and doctor requirements.

Facility executives at hospitals undertake the same exercises as their colleagues at other types of facilities when it comes time to decide when and where to build. They look at demand for a new building. They look at the potential use. They consider cost. They look at how technology might affect occupant activities.

Deciding where to build hospitals is an intense process that takes community needs into account as well as regulatory requirements and market conditions. Moreover, a hospital has to look at patient needs as well as those of physicians, nurses and hospital administrators.

Physicians, for example, will often split patient admissions between two or more hospitals in areas with multiple health care facilities, says Brent Clark of HCA’s design and construction department. Not only must those so-called “splitters” be identified, there’s a need to develop a list of why certain physicians divide their admissions and then figure out what would lead them to prefer the HCA facility. Perhaps one hospital has a technology that another doesn’t. Maybe one has a better reputation for certain medical procedures.

One recent factor that is driving some physicians to admit patients to one hospital over another, for example, is the availability of the latest and best technology, says Claudia Stengel, HCA’s assistant vice president of planning and architecture. Physicians interested in using the most up-to-date technology, such as robotics in operating rooms, might very well bypass admitting patients to a hospital that doesn’t have the equipment available.

Likewise, where facility executives at corporate-owned buildings need not worry about whether they will be permitted to build their facilities — assuming structures meet local building codes and zoning laws — those at health care companies are keenly aware of the government’s role in hospital construction. Some states require that a hospital file what’s called a certificate of need before building a new hospital or before expanding or terminating certain types of services.

While such a requirement might help avoid duplication or elimination of services to the public in any given area, it’s a step that Stengel says could potentially add years to the permitting and planning phases of a construction project.

That being said, the reality is that the demand for the construction of new hospitals is higher than it has been in two decades.

The number of hospital discharges grew by 5 percent between 1994 and 2000, the latest year for which complete data is available from the Agency for Healthcare Research and Quality, an arm of the Department of Health and Human Services. A little more than 34.5 million people were discharged in 1994 compared to the 36.4 million in 2000. Of that 1.8 million increase, 1.6 million occurred after Baby Boomers began turning 50 years old in 1996. As that group ages, admissions are projected to continue growing.

At the same time, the number of hospitals has declined to its lowest point in nearly 30 years. In 1975, the American Hospital Association reports, nearly 5,900 hospitals were operating. By 2000, that number had dropped to less than 5,000.

That divergence between hospital use and the number of facilities available has resulted in a number of critical situations around the country, Gormley says. In Dade County, Fla., it’s not uncommon for hospitals to have to divert emergency patients because all beds are occupied, even beds placed in hallways when necessary during dire situations. HCA plans on spending $125 million on capital projects between 2001 and 2005 to expand its Dade and Broward County facilities.

While the number of patients admitted to hospitals is growing, so too is the number of patients seeking emergency room services. Between 1994 and 2000, emergency room visits climbed from around 91 million to 103 million. More than half of that increase occurred in the last two years.

Aside from an aging population more likely to seek emergency room services to treat heart attacks, strokes and other life-threatening conditions, a contributing factor to the sharp increase in emergency room visits is the increased cost of health insurance. More than ever, Gormley says, it seems patients without health insurance use the emergency room for primary care rather than visiting a doctor’s office.

“The emergency room is becoming the front door of the hospital,” Gormley says.

Under federal law, hospitals are required to accept anybody seeking treatment through an emergency room. Although more than half of those patients don’t get admitted — an average of 47 percent of HCA’s admissions come from emergency room visits — they do require space, staff and other resources.

The confluence of growing admissions rates, increasing emergency room visits and a decrease in the number of hospitals has created a need for HCA to expand. The company has taken a strategic approach to its expansion that will allow it to allocate 80 percent of capital budget to high-growth areas, Gormley says. It is building, expanding or renovating facilities in 16 of the 20 fastest-growing cities in the United States.

For example, HCA plans to invest $585 million in Florida by 2005. In addition to the Dade County expenditure, it is spending $150 million in Palm Beach County, $180 in the state’s panhandle region and $130 million in Tampa Bay. It also opened the Ocala Regional Medical Center, located in north central Florida, in September last year.

In the meantime, population growth in those areas where HCA plans its expenditures ranges from a low of 8 percent in Fort Lauderdale to a high of 13 percent in Ocala. The nation’s population growth rate averages 4.5 percent.

That strategy isn’t reserved for Florida, either.

Among the company’s largest planned expenditures are $395 million in Dallas, a city growing nearly three times as fast as the national average; $155 million in Austin, Texas, where population is growing four times faster than the rest of nation; and $175 million in Las Vegas, where the population is projected to grow five times faster that the national average between 2000 and 2005.

In addition to Ocala and Las Vegas, new hospitals are planned in, Smyrna, Tenn., Tallahassee, Fla., and Denver.

Many of the new hospitals HCA is building will incorporate the latest design trends in health care facilities, such as expanding the number of private rooms and designing nursing stations strategically to allow nurses to be more efficient and to spend more time with patients. The national shortage of nurses is having a significant impact on the health care industry.

The decision to build or expand hospitals in those markets and others is the result of months spent analyzing demographics, determining market needs and seeking proper approvals. Stengel says planning a new hospital can take anywhere from two to four years depending on the location and how much permitting is required.

Often times, Clark says, the original demographic data that justified a project initially might change significantly by the time planning is complete. Data is reviewed toward the end of the planning process simply to be sure that the original impetus for the project still exists.

What HCA doesn’t want to do, Gormley says, is rush through the planning stage and find out that it built too close to an existing facility offering similar services or built in an area where the local population will not use the facility. For example, building in a downtown area would be less than ideal if there are satellite health care facilities offering similar services in suburban locations.

“We also don’t want to build too close to our own existing facilities and overlap our service areas,” he says.

Although HCA has maintained its status as the largest health care system in the country, it was only six years ago when the company started down a path of downsizing. In 1997, with more than 300 hospitals to its name, one of the company’s founders and CEO, Tommy Frist, resumed leadership of the company and refocused on operating hospitals and surgery centers in communities where the company had a significant presence.

Under Frist, diversified services such as home health and insurance were sold along with hospitals that were not in HCA’s key markets.

The company is now committed to its mission of providing high quality, cost-effective health care in the communities it serves, Gormley says.

Providing that caliber of service is getting increasingly difficult, particularly in the face of rising expenses. Private and public hospitals alike face reduced government reimbursement and rising costs of drugs, labor, insurance and technology. The keys to overcoming these challenges, while still meeting the expectations of shareholders and having the capital to provide the latest in technology and facilities, are to maintain efficient operations, to use volume purchasing to reduce cost and to continue to grow the company.

That growth piece of the equation is where Gormley and his staff fit. Despite the extensive review and planning that new hospitals undergo, the staff understands that delay has its risks. The quicker a hospital is constructed and opened, the sooner it starts producing.

In Denver, for example, where HCA is planning to open a hospital in June, Gormley said the prospects of becoming the premier hospital in the area look good.

At the time HCA’s HealthOne system announced plans to build a new hospital in Denver, its competitor did likewise. By completing the hospital before the competition, Gormley says, HCA is in a better position to attract doctors to the medical office building that will be attached to the hospital and get them to establish admitting practices and relationships with the facility. What’s more, it puts HCA in a better position to attract nurses and technicians in a tight health care employment market.

To meet the planning and construction demands of the new projects, HCA is largely relying on in-house staff to manage construction projects and the architects and contractors with which the company partners. A staff of eight in-house construction managers oversees approximately 20 architects and contractors who do more than 90 percent of HCA’s construction work, Gormley says. HCA also has eight in-house equipment planners who work with the hospitals and surgery centers to select the appropriate medical equipment, furniture and communication systems.

That approach to construction is in keeping with what a recent study found among other health care organizations. According to a study by FMI Corp., a construction industry consulting firm, only 29 percent of health care organizations outsource project management. A larger number, 43 percent, outsource program management.

Gormley says although HCA may pay a slight premium on the front end for its approach, that cost is offset by fewer change orders, minimal delays in construction, no litigation and higher-quality work, which actually means less cost over the life of the project.

“By partnering, we have access to the same quality people, so they really become part of your own staff,” Stengel says.

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  posted on 4/1/2003   Article Use Policy

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