Industry Pulse (March 2007)

SAN DIEGO – On the West Coast, Bob Rosenthal is considered a guru – perhaps the guru – of medical office building (MOB) development, as it has been his sole concentration for 35 years of his career. Recently, Mr. Rosenthal announced that he is retiring as the president and managing principal of San Diego-based Pacific Medical Buildings. Mr. Rosenthal is leaving quite a legacy, as he has been involved in the development of scores upon scores of MOBs in about 40 different cities. He also serves on the Healthcare Real Estate Insights^™ Editorial Advisory Board. After beginning his career as an architect, Mr. Rosenthal established a design firm in Madison, Wis., that specialized in healthcare facilities. After moving the business to the West Coast, he sold the firm to American Medical Buildings (AMB) in 1971 and became the company’s regional vice president. Eventually, in 1988, he led a buyout of AMB’s West Coast Division and established Pacific Medical Buildings, where he had led that regional healthcare real estate firm to considerable success during the past 19 years. Mr. Rosenthal was one of the pioneers of providing financial solutions for hospital systems looking to have MOBs developed on their campuses. Watch for a more detailed feature story about Mr. Rosenthal and his career in the April edition of HREI^™.

CINCINNATI – Plenty of television soap operas have centered on hospitals and the people who work in them. In the Cincinnati area, three hospitals and a large health system are providing enough drama to create their own soap opera. The whole fiasco started last year when 470-bed Christ Hospital and two hospitals in nearby Kentucky – both of which are part of the St. Luke’s system – decided to drop out of the Health Alliance of Greater Cincinnati. Health Alliance sued the three hospitals, saying they acted too quickly in deciding to leave the system, which breached their fiduciary duties. The Health Alliance claims that the hospitals should have negotiated their grievances. On the other hand, the three hospitals claim they were being under-funded by the Alliance, and that the Alliance reneged on provisions of the joint operating agreement. Christ Hospital says it believes the Alliance had plans to close its facility. As of press time, it was not known when the trial would end. Some local newspapers have likened the trial to a messy divorce case. The two St. Luke’s hospitals recently signed a letter of intent to combine with St. Elizabeth Medical Center of Edgewood, Ky., pending court approval of the withdrawal from the Health Alliance.

RICHMOND, Va. – Here’s more evidence that skyrocketing construction costs might be the only damper on a healthcare building boom sweeping the country. In Richmond, Va., Virginia Commonwealth University (VCU) Medical Center and Children’s Hospital of Richmond recently called off plans to build a 75- to 100-bed children’s hospital on VCU’s campus. The reason: “ballooning” construction costs, according to officials. In a local news report, Dr. Sheldon Retchin, CEO of the VCU Health System, said: “It was simply unaffordable.” Dr. Retchin added that officials and administrators did not fully realize how much construction costs were rising when they began planning the project in November 2005. The plan called for a hospital that would provide a dedicated pediatric emergency department, acute-care and outpatient services and an MOB. Children’s Hospital was to build and own the facility while VCU would operate it. According to Dr. Retchin, officials were concerned when initial estimates put the cost of the project at about $140 million. When costs soared above $200 million, officials tried to scale the price tag down to about $165 million. Ultimately, however, they decided it was not feasible.

BOSTON – Competition is fierce among Boston’s teaching hospitals, as evidenced by Beth Israel Deaconess Medical Center’s recently announced partnership with New England Baptist. The two systems announced that they are exploring the possibility of collaborating on a suburban hospital project of up to $300 million, possibly at the site of Beth Israel Deaconess Hospital Needham. The project foils Boston-based Tufts-New England Medical Center’s earlier plans to team up with New England Baptist Hospital on developing a 190-bed facility in an unspecified suburban location. According to news reports, the Beth Israel-Baptist partnership is considering and expansion and renovation of Beth Israel’s current 41-bed hospital in Needham, Southwest of Boston. Officials with New England Baptist said in news reports that teaming with Beth Israel would allow the system to gain a desired foothold in the suburbs more quickly than teaming with Tufts-New England. Beth Israel and New England Baptist say they will explore the feasibility of a collaborative project during the next six months. Despite losing a potential partner in New England Baptist, Tufts-New England is still planning to pursue the establishment of a suburban hospital.

PICAYUNE, Miss. – A local, unnamed developer has offered Forrest General Hospital of Hattiesberg, Miss., 20 acres of land off U.S. Highway 11 to build a replacement for the existing, 50-year-old Highland Community Hospital in Picayune, Miss. Forrest General acquired the former Crosby Memorial Hospital last year and announced at the same time that it intended to build a new hospital and an adjacent MOB. The donation offer comes with the option to buy an additional 15 acres adjacent to the site. According to hospital officials, 35 acres would be enough for a hospital and MOB, which would be managed by Madison, Wis.-based Marshall Erdman & Associates. Marshall Erdman would develop both the hospital and the MOB. The first phase of the replacement hospital would have 45 and 50 beds, with the potential for an expansion of up to 28 more beds on top of the facility.  Initial cost estimates put the price tag at about $45 million.

GIG HARBOR, Wash. – A groundbreaking is slated for this coming spring on only the second new hospital approved by the state of Washington during the past two decades. The future 80-bed, $135 million St. Anthony Hospital, part of Tacoma, Wash.-based Franciscan Health System, is to be built in rapidly growing Gig Harbor, just northwest of Tacoma. In addition to the 217,000 square foot hospital, the project would also have an on-campus MOB with about 100,000 square feet. The project is scheduled for completion in early 2009. Seattle-based Sellen Construction has been hired as the general contractor; the architect is Portland, Ore.-based Zimmer Gunsul Frasca (ZGF) Partnership.

LEXINGTON, Ky. – Statistics show that the future $450 million replacement hospital for the University of Kentucky (UK) Chandler Medical Center in Lexington, which is currently under construction, would reach 100 percent occupancy by 2011. As a result of such strong and growing demand, the UK Board of Trustees recently decided to apply for a Certificate of Need (CON) approval from the state to add an additional 192 beds in two new floors on each of the hospital’s patient towers. According to officials, adding the extra beds would delay completion by just two months. The hospital discharged 2,356 patients in December. The future project is planned to have about 1 million square feet of space and would replace the current hospital in phases. The new replacement hospital is part of an overall $2.5 billion, 20-year plan for the university’s “academic medical campus of the future.” q