Renovate or Rebuild?

June 30, 2010
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Three questions that need to be asked
Courtesy of Trinity Health Group
Courtesy of Trinity Health Group

Before
Before

Renovating an aging hospital year after year carries with it the burden of determining what to fix and when-all while being financially responsible. As these facilities age and technology advances, inevitably the question arises: Should we continue renovating this old building or simply tear it down and rebuild? However, the answer is not so simple, especially in today's economic climate. With diminishing assets and looming healthcare reform, hospitals more and more are choosing a conservative approach. According to an HFM/ASHE 2010 Construction Survey, only 16% of planned construction is new while only about 11% is replacements. But, without adequate evaluation, sometimes rehab can prove to be the more expensive option.

So, when making the critical decision to continue updating an aging facility or rebuilding altogether, one must proceed with knowledgeable expertise and caution. How does a facility make the best decision while stretching dollars as far as possible? While there is no proverbial crystal ball, there are actions to take that can accurately predict future growth, prioritize needs, and test the existing facility to determine with proximity exactly what the facility needs. There are three questions that must be asked and once they are answered, the decision to build or renovate usually becomes obvious.

Such was the case with Marietta Memorial Hospital in Marietta, Ohio. The administration and board of this 199-bed hospital had struggled for many years over whether to replace their hospital or to continue expanding and renovating. When my partner Bob Gesing and I arrived at the nearly 80-year-old building, we immediately understood their dilemma. Three sides of the site were severely sloped while the fourth side contained two main water lines buried underground which served the entire city. We could not determine which alternative would cost less nor could we say that expansion and renovation was even feasible. A thorough analysis was needed, a process we divide into the following three questions.

What is needed?

Assessing the hospital's need can be better understood by breaking it down into two detailed parts (figure 1). First, identify the hospital's strategic and operational goals. A good place to start is the hospital's written strategic plan (if they have one). It is also helpful to interview key leaders to identify the hospital's strategic position, keeping in mind some important factors such as customer satisfaction, physician relationships, staff satisfaction, relationship with other providers, areas of competition, potential acquisitions, planned joint ventures, regulatory concerns, trends in payor mix, physician recruitment plans, new programs and services and plans for the expansion, and contraction or elimination of existing services. Also, make sure to check in with key management leaders to understand potential operational changes and perceived needs.

With this information you can evaluate the second part of the hospital's need by assessing future opportunities and limitations presented in the existing site for the next 10 years. Here you must understand your market. How is the population going to change? How will aging, culture, and technology affect use rates? What will be your future share of the market?

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