AAH Report: Surviving the "Perfect Storm"
As hospitals battle to survive the “Perfect Storm” of a converging bad economy, stumbling banks, and paradigm-changing healthcare reform, they will visit their financial stress upon healthcare architects. That was the basic message, and its overall sense of foreboding, conveyed by the AIA Academy of Architecture for Health (AAH) Leadership Forum this past weekend. Several speakers were not professional designers, but included a former Clinton Administration economist, a developer, and a hospital financial advisor. They discussed, not design per se, but the business environment in which healthcare design will be provided in coming years. And it will be a challenging environment at that.
Developer Todd W. Lillibridge said designers’ hospital clients will now be emphasizing more than ever ROI, access to capital, speed of a project to market, cost-efficiency, risk sharing, and successful physician alignment, not the design firm’s “glorious past.” He noted that 73% of hospitals are facing declining cash for operations, and not even 500-bed hospitals are immune. On the plus side, said Lillibridge, interest rates are at historic lows, so in that sense, now is the time to invest in building projects. “Picking the right partner is the key.”
Hospital financial advisor Kenneth Kaufman gave some idea of the partners hospitals will be looking for. Noting declining capital availability converging with anticipated cost pressures from healthcare reform in any plan, he said hospitals are coming under intense pressure to consolidate. He predicted that the more high-tech, high-margin procedures will be concentrated in centralized facilities, leaving the question of community hospitals’ future role. The upshot is that architects will be dealing with fewer clients with fingers in more pies, but with little appetite for adventure. “A lot of CFOs would rather have 17 consecutive root canals than start another project,” he said.
As an example of the new mindset, Kaufman said hospitals will be closely scrutinizing the recent trend toward upsizing of hospital common areas and patient rooms. This led one architect in the audience to point out that much of the upsizing has been the result of already fully occupied hospitals rushing to catch up with demand in the late 1990s and taking advantage of the availability of relatively cheap money, citing the Cleveland Clinic and UCLA Medical Center as examples. Even consolidation will result, he noted, in an increase in size for some facilities.
The general consensus of speakers was that healthcare architects had to take several key steps in future years to gain contracts, including: understanding clients’ financial realities and speaking their language about these issues, producing hard data from real research to financially justify their program ideas, sharing financial risk with clients’ for the cost-efficient completion of projects, and paying attention to new contractual arrangements such as integrated project delivery (IPD).
Perkins+Will healthcare planner Jean Mah concluded that coming years will see architects asking themselves two major questions: Will healthcare reform devalue architecture? and What is a healthcare architect? One thing is for sure, she said: “We won’t be building what we’re building now.”