Industry Pulse (October 2006)

MEMPHIS, Tenn. – Methodist Healthcare of Memphis recently announced plans to seek a Tennessee Certificate of Need (CON) approval for a major expansion of its main facility and a replacement for its children’s hospital. Together, the two projects would have a total cost of $451 million. The larger of the two projects would be the $327 million replacement for Le Bonheur Children’s Medical Center. The project would affect another local healthcare facility as it is proposed for the site of the Memphis Mental Health Institute. A new site is being sought for the mental health institute. Methodist is also seeking a 100-bed, $124 million expansion of its Methodist Germantown Hospital, in an east suburb of Memphis. Methodist says the new hospital would not add beds to its because it plans to reassign beds from other facilities to the future Germantown hospital. The projects have 2011 target dates for completion.

SACRAMENTO, Calif. – An ongoing, 470,000 square foot expansion project at UC Davis Medical Center in Sacramento, Calif., is over-budget and running late. Costs for the project are expected to be 50 percent higher than originally planned. The University of California Board of Regents recently approved a new $425 million financing plan for the project, which entails adding a new emergency room and surgery center. The completion date has been set back to June 2009. The new budget – $143 million higher than the original – requires the hospital to use more of its own reserves and increase its borrowing. Rising costs of steel and building materials are to blame for the budget increase, according to hospital officials. In addition, a hospital construction boom in the Sacramento area – instigated by the state’s seismic safety requirements – has resulted in a shortage of available construction workers. When complete, the new UC Davis facility is expected to cost about $652 per square foot.

COLUMBUS, Ohio – The federal moratorium that effectively put a halt to the development of new specialty hospitals ended in June, opening the door for the construction of such facilities nationwide. But in Ohio, Gov. Bob Taft has asked the state’s health officials to look into the effect that specialty hospitals have on not-for-profit acute-care hospitals. A series of three public hearings began in recent weeks, with folks from both sides of the issue scheduled to testify. The governor’s office announced that it is not necessarily looking into banning physician-owned specialty hospitals but is simply gathering information on the topic. There are currently seven doctor-owned hospitals in Ohio, and the Ohio State Medical Association supports the ventures, saying they increase competition and give patients more choices. Ohio was a CON state until 1998, and since then observers say not-for-profit health systems have gone on a building spree across the state. Currently, 28 states control hospital construction with CON requirements. Only one state, Florida, has banned doctor-owned hospitals.

CHICAGO – It looks like there’s a major shift in health system resources taking place in greater Chicagoland. According to a recent report by HealthLeaders-InterStudy, a provider of managed care industry intelligence, the Chicago healthcare market is in the process of shifting resources to make high-demand services more readily available in smaller, suburban hospitals. According to HealthLeaders’ latest Chicago Market Overview, $2 billion worth of new hospital construction projects and renovations are taking place in the 14-county metro area. The report indicates that hospitals are expanding and renovating emergency departments, cancer care, cardiac care and women’s health facilities in order to provide high-demand services such as cardiac catheterizations and open-heart surgery. HealthLeaders also notes that as health systems continue to make this shift, suburban hospitals will continue to pull business away from Chicago’s downtown hospitals. The activity should not fundamentally change the Chicago market, according to the report, where healthcare delivery traditionally has been neighborhood-based, even in the sprawling suburbs. But by enhancing services in high-revenue areas, hospitals are counting on strong bottom lines that will enable them to invest in capital projects and technology in order to be more competitive.

ANN ARBOR, Mich. – The University of Michigan has begun construction on the future $523 million, 1.1 million square foot C.S. Mott Children’s and Women’s Hospital. The new hospital, which is scheduled to open in 2011, will have 264 private rooms, 12 beds in the Intensive Care Unit (ICU) for parents to stay overnight with their children, 16 pediatric operating rooms, special ventilation systems for children with liver, kidney and bone marrow transplants, 30 birthing rooms and a two-story lobby with a family resource center. The facility will be composed of a nine-story structure for clinic space and a 12-story inpatient complex. In addition, the hospital plans to conduct what it calls world-renowned research. So far, the hospital’s fundraising committee has received $49 million toward an ultimate goal of raising $75 million through philanthropic efforts.

WAUKESHA, Wis. – Subsidiaries of Plano, Texas-based LifeCare Holdings Inc. recently began construction on a long-term care hospital (LTCH) in Waukesha, Wis. The free-standing, 62-bed LTCH is being built in a suburb outside of Milwaukee and will be located on 40 acres adjacent to GE Healthcare’s diagnostic imaging world headquarters. LifeCare Hospitals of Milwaukee acquired the land from GE several months ago. The future LTCH will treat patients with complex problems who typically need to stay in the hospital for 25 days or more. The project has received plenty of support from local officials, and the city of Waukesha granted tax increment financing to fund improvements and infrastructure at the site. LifeCare anticipates opening the “digital-ready” hospital in 2007. In addition, LifeCare recently opened a new 22-bed LTCH in Shreveport, La., where it has four facilities and 130 beds. That hospital is adjacent to Willis-Knighton Medical Center North. LifeCare now has 18 long-term care hospitals in nine states.

ALABASTER, Ala. – Shelby Baptist Medical Center in Alabaster, Ala., is planning to seek Alabama CON approval for an expansion that would top $100 million, the largest construction project in the hospital’s 47-year history. The expansion would not increase the number of beds (192) at the suburban Birmingham, Ala., hospital, but would privatize and expand all of the patient rooms. The construction project would entail adding what is to be called the South Tower, which would have 167,000 square feet. Part of the tower would be built on top of the hospital’s current emergency department. The tower would have two floors with a total of 98 beds, with room to add up to 48 more beds in the future. The project is part of an overall plan to upgrade Birmingham, Ala.-based Baptist Health System Inc.’s five hospitals; it recently completed expansion and renovation projects at three of its other hospitals. As recently as 2004, the Baptist system had 10 hospitals. But since then it has sold five hospitals, a nursing home, retirement communities and its former SportsFirst fitness centers. The system says it will be able to pay for the construction project at Shelby Baptist without incurring new debt.

JACKSONVILLE, Fla. – Baptist Health of Jacksonville, Fla., is planning a $114 million, 150-bed expansion of its Wolfson Children’s Hospital. The project is part of a 5-year, $400 million capital improvement plan recently approved by the Baptist system’s board. Projects on the list include the construction of a $65 million, 80-bed building at Baptist Medical Center South and a $26 million upgrade and expansion of operating suites at Baptist Medical Center Downtown – both facilities are in Jacksonville. Baptist plans to take on $100 million in debt to help pay for the projects, with the remaining funds coming from the system’s cash reserves. System officials say the expansion projects are needed to meet the expected population boom in southern Duval and northern St. Johns counties. Duval County’s population is projected to grow 7.3 percent over the next five years, while St. Johns County is expected to grow by a whopping 17.4 percent in that same timeframe, according to statistics from the Health Planning Council of Northeast Florida. Baptist South, in fact, is a new 120-suite hospital that opened in February 2005. Officials expected the facility to keep up with demand for five to seven years, but they now find the hospital often running at capacity. The population has grown so much that the area has attracted a healthcare competitor from the south, as St. Augustine, Fla.-based Flagler Hospital recently announced plans for a $115 million, 300-bed hospital campus in northern St. Johns County. q