Stephen G. Dailey

Designing and building a new hospital building can be a perilous undertaking for healthcare leaders who become too easily enthralled with the alluring possibilities of such a project.


At a Glance

Hospital and health system executives charged with overseeing a facility design-and-build project should follow the examples of organizations that have successfully completed such projects. Here are just a few lessons learned from fruitful projects:

  • Simplistic cost comparisons do not define value.
  • Alternative design solutions offer a hospital the opportunity to test the value of its original design thinking.
  • Functional designs reflect proven best practices.

For a hospital executive team, embarking on an initiative to design and build a new hospital facility can pose unforeseen dangers. The many tempting designs that the team may be presented with could be likened to the song of the sirens in Greek Mythology, beckoning wayward sailors to their demise on rocky shoals. Here, the building project's "siren's song" draws the unwary hospital executive team along with the alluring promise that the new building will "solve all problems."

This circumstance brings to mind a common axiom that I recall was taught in graduate schools in hospital administration 30 years ago: "Administrators often are terminated at the conclusion of a building program." The lesson was threefold:

  • The building project can take attention off critical operational issues that, if not addressed, will result in organizational failure.
  • The building project can cost more and take longer to accomplish than anyone expected, resulting in failure.
  • Once placed in operation, the building project may not solve problems as expected, resulting in failure.

This axiom has not lost its currency. Today, even the most experienced hospital executive teams and boards face complex circumstances in hospital design and construction that intertwine mission, goals, and objectives with budget, marketing, image, and a dizzying variety of expectations and constituencies. In the healthcare industry, nowhere else but within a construction project are hospital and health system management confronted with such large discretionary financial resources to expend. With their organizations facing increasing competition for patients, these leaders feel compelled to build highly accessible, visible, and attractive hospital buildings to attract patients, staff, and physicians. I cannot recall speaking with a single hospital leader who did not expect his or her organization's new building project to enhance or sustain growth and improve patient and staff satisfaction.

Planning a new addition or hospital also is one of the most creative activities many hospital executives will ever undertake. In this process, many find that the "creative inner child" takes hold of the entire organization, as it is human nature to delight in the creativity, anticipation, and sheer fun inherent in a new building project. Few opportunities in the hospital environment capture the spirit or harness the imagination the way a major hospital building design and construction project can; its siren song is beautiful and alluring.

The hospital design and construction industry understands how a new design and construction project can capture the imagination of a hospital organization. It stands to reason, then, that designers would want to build on the excitement and anticipation that such a project engenders. The critical challenge for each hospital executive team is to listen objectively to each proposal and then appraise design ideas before deciding which option is most attractive or viable. In this way, hospitals can "harness that creative inner child" and balance creativity with functionality.

It is incumbent on the hospital executive team to evaluate design and construction ideas, strategies, and expectations with critical thinking processes focused impartially on separating facts from assertions, best practices from hypotheses, functionality from trends, and true efficiency from assumed efficiency. Moreover, as hospital executives weigh the organization's options, the realities of ever-tightening payment and potentially more restricted access to capital compel them also to include a dispassionate consideration of costs.

Hospital executives also can take many other steps to increase the likelihood of a project's success. Reading articles and books by the design and construction industry experts is, of course, an essential part of the preliminary research executives should undertake into how to most effectively plan and build a project. Even here, however, caution is advised: Such resources often tout certain methods of construction as solutions when there are no facts to verify those opinions.

Hospitals and health systems also can employ individuals from the design and construction industry to represent their construction project planning interests. This practice helps ensure that a project model will be designed according to industry points standards.

Unfortunately, in practice, none of these steps is fail-safe. The harsh reality is that each hospital executive team is faced at some point with two fundamental questions: "How do we know this project is a good value?" and "Are we spending our money on the right solution to meet our future needs?"

Simple common financial benchmarks, such as cost per bed or cost per square foot, are sometimes used to attempt to answer those questions, yet such an approach does not answer the question, "Is this project a good value?" One of the best ways to answer this question is to learn from the experiences of organizations that have successfully completed such endeavors-those that have already steered a safe passage through these dangerous waters.

Lessons Learned

The following case studies are based on experience with actual building and design projects. These experiences highlight key lessons that hospital executives can apply when undertaking similar projects.

Lesson: Simplistic cost comparisons do not define value. Traditional benchmarks, such as hospital building cost per square foot, are often not the appropriate metric for determining value. One CEO who recently compared two distinctly different hospital designs that each met the program for his hospital commented, with a tinge of frustration in his voice, "Cost per square foot should be a valid measurement tool, but it isn't! It works only when the designs are identical and we are comparing construction cost. It doesn't tell me which design I can afford, or which design will cost less to operate."

Why don't such traditional measures work? Measures such as cost per square foot are limited because they do not allow for comparison of program elements.

For example, one hospital in the Southwest was considering a design solution to replace 100 semiprivate medical surgical beds with private medical surgical beds in a new patient tower. The cost for this addition was estimated to be approximately $300 per square foot with a total cost of $50 million. A more efficient hospital design-build solution configured the expansion in a different location and was able to provide 100 new private medical surgical beds (with patient rooms identically sized) plus six new operating rooms not included in the original $50 million design solution at a guaranteed lump sum price (including construction and architectural and engineering design services) of $42 million. The cost per square foot of the alternative design was also $300 per square foot, yet the client received substantially more program, plus the architectural and engineering services and the six additional operating rooms, while paying $8 million less for the project.

Use of such traditional benchmarks also rewards inefficient design elements that are inexpensive to construct and actually do reduce cost per square foot, but that also involve excess and/or wasted space and, ultimately, add to the total construction cost.

Lesson: Alternative design solutions offer a hospital the opportunity to test the value of its original design thinking. This lesson was borne out in the experiences of a healthcare organization in New York: The organization had planned for construction of a brand-new hospital, and the project was proceeding along a traditional path of programming and budgeting with an architect and a construction management firm. The executive team found the initial results disappointing because the needed replacement building appeared unaffordable. Yet an alternative design that included every single program element in the original hospital program was created and constructed for $100 million dollars less and even included program elements that had been cut from the original design to reduce project costs.

This lesson is reinforced by the experiences of a medical center in the middle Atlantic region that worked for more than a year to project future patient volumes and to develop a new design and construction master plan. The hospital executives carefully reviewed several architectural and construction management firms, ultimately selecting one of each to design, price, and construct their new project. Unfortunately, the hospital was told that its financial performance was such that it could afford only one of several phases of planned construction.

The hospital decided to request an alternative design from a hospital design-build firm. The firm evaluated all the elements in the original hospital master plan and reviewed the hospital's history and the potential impact of adding all the phases of planning to the hospital at once. The firm then developed a completely different design solution, which not only was equivalent in price to the "first phase" estimates of the hospital's architect and construction manager, but also included a completely new emergency department (ED) not included in earlier design. The hospital board of directors selected the design-build firms' solution over that of the architect and construction manager that it had hired, and the project was built. The combination of the new, much higher-capacity ED and all the planned phases of construction led to huge volume increases in the ED and significant increases in the hospital's net income.

Simply put, selecting the architect and or construction manager with the "best presentation" is no guarantee of project value. It is important to pursue an alternative design solution with a guaranteed lump-sum price.

Just as physicians differ in their patterns of efficient treatment of patients and lengths of stay for the same diagnosis, architects differ in their ability to produce efficient design solutions. In medical care, third-party payers have created incentives that reward efficient care patterns. In the case of the typical hospital design, the pencil in control of the design process has no such economic incentive or reward for efficiency.

Efforts to create incentives for a construction manager to control cost by sharing savings in the project with the manager fail to achieve their potential because a higher-than-necessary original budget estimate (prepared by the construction manager) will automatically generate artificial savings that are then shared by the hospital and construction manager. Imagine if a hospital set the reimbursement level for each DRG and then shared the savings between its cost and reimbursement with Medicare, and it will become readily apparent why "shared savings" with the construction management firm that
sets the project budget should be discredited as a cost-control mechanism.

A guaranteed design-build lump-sum design solution that is created as an alternative to a design will not be considered if it does not meet or exceed the original design program while providing greater financial value. This competition at the design level with a guaranteed price provided by an alternative design is a powerful tool that allows hospitals to ensure that their final project design is a good value.

Time and again, alternative design solutions have allowed full program plans to be executed within budget when the original design and construction team either exceeded budget or created a budget that was inordinately large at the outset as a tactic to remain under budget.

Lesson: Functional designs reflect proven best practices. Will that expensive, beautifully designed hospital lobby decorated with quarry tile impress patients and improve their loyalty to a hospital? Such ideas too often can sway hospital executives toward attractive but impractical design approaches.

I recently listened to a hospital administrator talk animatedly about his need to remove the quarry tile because it was difficult for aged patients to walk on and expensive and difficult to maintain, and because the round walls, quarry tile floor, and atrium ceiling created noise and confidentiality and privacy issues. He hoped to redesign his lobby to become more functional. He conceded that the upscale, museum-like lobby was beautiful (in fact, the architectural firm won awards for the design), but it also was impractical and poorly thought out. "I'm glad I was not the CEO when the lobby was designed, because I could have been talked into the same thing in the name of marketing and image," he said.

Lesson: Knowledgeable designers should challenge hospital staff to embrace functional and efficient design with proven design elements. It is common for hospital staff to be included in the design stage to help ensure that the final hospital design meets the needs of the staff that will operate within that design. And this practice can be effective. However, programs that simply catalog and reflect staff requests without a trial evaluation can all too easily lead to unintended consequences and a waste of hospital staffing time and resources.

For example, one nurse confided to me that her new ED was exactly what she and her staff members had asked for after months of meetings. Yet when her staff actually worked in the ED, they became increasingly disenchanted with the design. The discontent with the new department was visible on the employees' faces and customer satisfaction scores actually decreased after the new unit opened.

Exhibits 1 & 2

dailey_exh1-2

Lesson: Financial budgeting during construction should be evaluated in light of the actual proposed design and resultant construction phasing. The evaluation should be performed to identify and prevent or minimize disruptive phasing assumptions that may prove fiscally disastrous.

As an example, in the mid-1980s, I was appointed hospital administrator responsible for a complex hospital design and construction project already under construction at a 190-bed Northeastern hospital. The hospital's lack of understanding during the design process, before construction began, of how a hospital construction project should be phased became clear as the hospital attempted to maintain patient access to the hospital during construction on the very constricted site. Lacking the financial reserves to pay for delays, the hospital faced a choice between closing two of three public entrances for patients or paying for an extra nine months of construction cost and interest that was not contractually guaranteed. Predictably, when the construction manager was allowed to close all but one entrance for financial reasons, outpatient satisfaction declined, leading to a decline in outpatient service volume and revenue.

Sometimes, hospital planning comes down to the simple basics. Hospital leaders should look at long-term trends and historical experience to understand future needs. Sometimes, the biggest costs of hospital building initiatives are derived from items that were left out of the construction project plans.

Lesson: Planning for future needs requires a thorough understanding of organizational characteristics and experience of the hospital controls. One hospital with more than 300 beds in the Southeast developed a construction project program that requested an ED expansion with significant outpatient departmental expansions. In a meeting, the new hospital CEO commented to me that his executive staff had made it clear that the hospital's inpatient growth was stagnant, but that outpatient services patient volume and ED patient volume were growing at an amazing rate.

In preparation for a design solution, I had researched and evaluated the entire hospital.

In reviewing data from the previous 10-year period, a dramatic-yet-overlooked finding came to light: The hospital would soon run out of inpatient beds. Hospital admissions were increasing by 5 percent a year, while length of stay had decreased from nearly twice the national average to the equivalent of the national average during the previous 10 years. Census had remained the same, but admissions were trending to double in number. Monitoring only census on "dashboard reports" led the hospital to ignore the fact that length of stay had reached a point where it was unlikely to be reduced further, yet admissions were still growing. The continuous reduction in length of stay over 10 years had hidden the admission growth.

Resisting the Siren's Song

Hospitals put systems in place to prevent a physician from performing a new medical procedure without peer review of the procedure and without convincing documentation that the physician is qualified to perform the procedure. The medical procedure itself would have to have been shown to be cost-effective and beneficial to patients.

Hospital design and construction should be no different. Too often, the hospital design process becomes grand "experimental surgery," functioning without controls. Simply put, hospital designs should reflect best practices that are both observable and measurable. One way to accomplish this is to compare and contrast two distinctly different hospital designs that each satisfies the program plans for the hospital.

The hospital design and construction process can lead hospital ships to rocky shoals if critical thinking processes are suspended as hospital executives allow themselves to succumb to the allure of attractive and compelling design options that may be presented to them. In general, the basic selection process used to select an architect is inadequate to ensure that a hospital design and construction process will deliver efficiency, effectiveness, and value.

Most important, hospital executives should pursue alternative designs as a means to perform quality-control test on the project designs developed by the originally selected design and construction team. If the alternative design proves to be a superior product, the time, money, and effort spent on the original team will not have been wasted. Those dollars will simply have contributed to the process that allowed for the alternative plan's development. Absent such an effort, the hospital will have failed to test its product and missed an opportunity to enhance the final project and increase its value.


Stephen G. Dailey, FACHE, is vice president, hospital consulting, HBE Corporation, St. Louis, and a member of HFMA's Greater St. Louis Chapter (sdailey@hbecorp.com). 

Publication Date: Tuesday, May 01, 2012

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