This report originally appeared in the July 2009 issue of DOTmed Business News

Hospitals rely on three primary resources to provide the needed capital to build and provide the necessary life-saving facilities to meet the needs of its community: loans, philanthropy, and reserves. The effects of the current economic downturn have wreaked havoc with all three. According to data collected in an American Hospital Association report "The Capital Crises: Survey of Impact on Hospitals" conducted in December 2008, "nine out of ten hospitals are finding it harder or even impossible to access tax-exempt bonds - a critical source of borrowing for the majority of hospitals." Additionally, "nine out of ten hospitals report that attracting charitable donations has become harder." The report notes that "nearly half of hospitals have put capital projects on hold and many have even stopped projects already in progress." It succinctly summarizes the problem: "Postponing capital projects affects a hospital's ability to meet community needs as well as move toward larger U.S. health care system goals such as improved quality, efficiency and coordination of care."

Scot Latimer AIA ACHA, Senior Partner and Managing Director, Health Care Group for Kurt Salmon Associates, New York, NY, a management consulting firm, whose Health Care Group provides management advisory services to hospitals, confirms there is a problem with increasing postponements and cancellations of projects. "Since approximately mid-year, last year, various organizations have either been curtailing or outright canceling capital projects. The first ones we saw were about this time last year and they accelerated throughout the fall. Most of those that were going to cease or suspend development tended to happen in 2008. There have been one or two laggards that thought they were not going to have to [suspend] but wound up having to do so in 2009. Most organizations that had construction underway have tried to carry on, there have been very few 'dropped tool' edicts issued...but for the most part, folks stopped things that were in planning or design and tried to muscle through maybe with a different schedule or timeframe."



Asked to comment on the state of the market for hospital capital projects so far in 2009, Latimer said "Very, very few things going in the ground this year, whereas a year ago the industry was probably at its peak in terms of new square footage coming online or being put into construction, there's virtually nothing starting construction this year. The architects and contractors have been badly hit by this. Now, as a result, those who are putting projects into construction have seen approximately a 12% decline in the cost of construction over the last year as demand has been down. Costs had previously been increasing at 8% or more per year. Worldwide it has slowed down."

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