Health-Care Construction Outlook

Retirees and a robust economy fuel activity

A strong and steady market is expected to grow even more with dozens of health-care projects under way throughout the region and more planned for the future.

by Sheila Bacon

While construction activity in market sectors such as office and sports facilities tends to rise and fall with the economy, health care is one area that remains relatively stable - a theory being proven throughout the Mid-Atlantic region.

Bovis Lend Lease of Washington, D.C., has formed a joint venture with Twin Contracting Corp. of Alexandria, Va., to expand several departments and add a new 144-bed in-patient tower at the suburban Potomac Hospital in Woodbridge, Va. The project includes a 10,000-sq.-ft emergency department expansion and a 1,200-sq.-ft. energy plant expansion.

Minor market fluctuations saw the beginning of a building boom in health care in the late 1990s that peaked in the region - which includes Delaware, D.C., Maryland, Pennsylvania and Virginia - in 2002 at $1.6 billion, said Richard Branch, an economist with McGraw-Hill Construction in Boston, Mass.

The market shrunk in 2003 and 2004, but the forecast for 2005 calls for a 28 percent gain in hospital construction to $1.5 billion, Branch added.

And with millions more in health-care projects on the table over the next several years, those numbers will likely continue to rise.

Busy in the 'Burbs

The health-care market is maintaining a strong and steady pace in Pennsylvania, according to Al Fazzini, director of marketing for L.F. Driscoll, a Bala Cynwyd, Pa.-based construction management firm that places a heavy focus on health-care work. The firm's involvement in expansions and renovations of suburban hospitals confirms a shift in the area's demographics. As people move beyond busy city centers such as Philadelphia, smaller health-care centers on the outskirts must accommodate the shift.

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"We're seeing a lot of hospitals that were suburban that are growing into more urban medical centers," Fazzini said.

That means such hospitals must add beds and increase services to be able to provide care comparable to the more advanced health-care facilities.

Such is the case at Abington Memorial Hospital north of Philadelphia. L.F. Driscoll was the construction manager overseeing the nine-year, multiphased renovation and new construction project that wrapped up this year. The $150 million effort involved construction of a three-story medical office building and a six-level critical-care hospital building as well as a 360,000-sq.-ft. hospital expansion.

Bovis Lend Lease of Washington, D.C., has formed a joint venture with Twin Contracting Corp. of Alexandria, Va., to expand several departments and add a new 144-bed in-patient tower dubbed the G3 Project (garden level plus three floors) at the suburban Potomac Hospital in Woodbridge, Va.

While $38 million of the $50 million job focuses on the new G3 structure, the balance of the project includes a 10,000-sq.-ft emergency department expansion and a 1,200-sq.-ft. energy plant expansion.

The project will update the original hospital, built in 1972, to better serve this growing Alexandria suburb with a population of approximately 32,000.

Busy in the City Too

Turner Construction's Alexandria, Va., office is busy with several jobs for INOVA Health System in Fairfax, including a $146 million package at INOVA Fairfax Hospital. That package includes a new Heart Institute; a new support services building and central utility plant upgrades; and $71 million in additions and renovations at INOVA Fair Oaks Hospital.

Suburban hospitals aren't the only facilities expanding. Large urban centers are seeing a great deal of activity, prompted by technological advances and a surge in the area's population.

Bovis was the program manager for a just-completed $115 million renovation and addition at Virginia Medical Center in Arlington, Va., which added a 436,000-sq.-ft. patient tower, 425,000-sq.-ft. parking garage and 94,000 sq. ft. of interior renovations.

Plans are under way for a new $400 million National Capital Center Hospital at the site of the former D.C. General Hospital, which closed in 2001. Also in D.C., the Children's National Medical Center is looking at a $220 million expansion over the next several years.

Skanska, teaming with joint venture partner Smoot Construction Co. of Washington, D.C., is in preconstruction planning on Johns Hopkins Hospital's new 1.3-million-sq.-ft. new clinical building in Baltimore, which will include a cardiovascular and critical-care tower and the Children's and Maternal Hospital.

Washington Hospital Center leaders are discussing a number of improvements - including a new emergency room, cancer institute and heart center - expected to run between $500 million and $1 billion. Preplanning is already under way for WHC's $100 million ER One - designed to be the nation's first 21st Century "all-risks-ready" emergency facility capable of handling major disasters and mass-casualty events.

Growing Chains

Private health-care providers - many of whom have merged with other systems to form massive entities in numerous locations - are expanding at a fast clip.

"Almost every major health system is doing something," said Joe Kranz, a project executive from Turner Construction's Alexandria, Va., office.

Kranz's office is busy with several jobs for INOVA Health System in Fairfax, including a $146 million package at INOVA Fairfax Hospital that includes a new Heart Institute, new support services building and central utility plant upgrades; and $71 million in additions and renovations at INOVA Fair Oaks Hospital.

Kranz credits the area's growing population and a strong economy for his office's heavy involvement in health-care construction. Of his office's more than $600 million in annual revenues, approximately 10 percent is related to health care, Kranz added.

Big-dollar expansions and additions at hospitals spur numerous smaller projects, which also help keep the building industry busy.

"There's a great demand for large-scale new construction, but also smaller renovations and expansions," said Christine Hackett, vice president with Skanska USA Building's National Health Care Center of Excellence in Rockville, Md. "While hospitals are planning for their major new construction programs, there is almost always a demand for smaller projects" such as reorganization of office space, move preparation and infrastructure relocations.

Aging Bodies, Aging Buildings

Nationwide, the health-care industry is gearing up for an onslaught of baby boomers requiring health care. In the Mid-Atlantic region specifically, those additional patients join an increasing population that grew by 88,000 in 2004, according to economist Branch.

The combination means the region's building industry can expect to see considerable activity for some time.

"We have some catching up to do to get ready for the retirees," said Jeff Bryson, project executive with Bovis Lend Lease in Washington, D.C.

Adding to the growth are medical advances that are prompting not only far-reaching renovations in existing hospitals but construction of completely new hospitals as well.

"A lot of old facilities are constrained by existing floor-to-floor heights," said Jim Eaton, vice president of health-care business development for St. Louis-based McCarthy Building Co., which has a strong history of building for Sentara Health System in the southeast Virginia region. "The way some of these older facilities and designed and built, they just can't accommodate the changes (required by) new technology."

Federal regulations and a focus on quality of care are also bringing about changes in the way hospitals are built. The Health Insurance Portability and Accountability Act Privacy Rule, which affords patients protection for the privacy of personal health information, is the driving force behind the shift to single-bed rooms.

Also, the design of more family-friendly hospital rooms - especially in children's hospitals - means more space for families to spend the night with loved ones.

Eaton said nearly all the plans he sees for greenfield hospitals indicate private rooms.

With a robust health-care market that shows every indication of continuing comes an understandable degree of trepidation on the part of the contractors bidding or negotiating the work.

"My only concern is that hospitals' margins may not be able to keep up with the escalation of construction costs," Skanska's Hackett said. "Our concern is that any delay in decision making to go forward with a project can make it too expensive. As soon as (owners) have to cut back on program scope, it puts the project in jeopardy."