Operations and Facility Management

Kirk Rose (Headshot credit: Courtesy of HMC Architects)

The healthcare industry is caught in a perpetual struggle against escalating costs—in patient care, staffing, services, and construction. Consider California: Even before the pandemic, the state’s hospitals operated on razor-thin margins, with an average profit margin of 2 percent to 2.5 percent.

Forty percent of California hospitals were incurring losses. This precarious financial footing was exacerbated by the pandemic, with major hospital systems suffering staggering losses that are still being overcome several years later.

Skyrocketing inpatient facility construction costs, now $1,600 per square foot or more in California according to cost estimators (excluding design and equipment), add to the financial strain. Delays in project initiation and extended timelines compound these costs with material and labor escalation.

Traditional architectural approaches often neglect the critical importance of financial viability in project planning and design, leading to inefficiencies, inflated expenses, and missed opportunities for revenue generation. The need for a financially driven approach to healthcare design is more pressing than ever, and architects must lead this movement by considering economic factors in every stage of master planning and design.

Think like a hospital CEO

A hospital CEO once told me: “I told my architect I have $200 million, and he keeps drawing a $500 million project.” Architectural approaches that fail to consider clients’ financial models often result in projects that aren’t cost-effective to build and fail to optimize revenue and throughput potential for patient care. Such projects are not likely to be approved for financing by hospital boards.

Architects frequently spend months programming and designing their ideal combination of buildings before submitting plans to a cost estimator, only to learn that the cost is too high.

Adopting a CEO’s mindset can inject financial savvy and agility into every stage of programming, master planning, and design. Architects can create facilities that meet functional requirements and serve as strategic financial assets by aligning project decisions with revenue generation and cost optimization goals. Through rigorous evaluation and innovative techniques, the design team can optimize program net-to-gross ratios and building layouts while maximizing client investment returns.

Temecula Valley Hospital’s cost-effective planning

For example, for Temecula Valley Hospital  in Temecula, Calif., HMC implemented Lean design principles and strategic planning to create California’s most area-efficient (lowest building gross square foot per bed) and cost-effective greenfield hospital. The project achieved significant space savings with a reduced-circulation plan, which eliminated 3,000 square feet per floor without impacting patient capacity.

The plans for Temecula Valley Hospital introduced a universal care unit (UCU) model that enabled shared spaces across departments, further eliminating space and reducing costs. Additionally, the more compact plan was more efficient to staff and operate, highlighting how careful planning provides substantial financial and operational benefits.

In projects at Henry Mayo Newhall Hospital in Valencia, Calif., and Harbor-UCLA Medical Center in Torrance, Calif., HMC successfully built to tight budgets while achieving high program efficiencies. One key strategy employed was “wedding cake” stacking, reducing floor plate sizes from bottom to top, which allowed placement of air handlers on several levels of the building, nearer the spaces they served. This strategy lowered costs on mechanical systems by reducing duct run lengths.

Where to begin

Taking a financially linked design approach starts with asking clients for a business case focusing on revenue-generating patient care spaces and how much financial investment in the building the business case supports.  The architect can then model initial programs and costs over time before drawing the project, allowing for early financial modeling of project options. Using spreadsheets for initial design options and cost analysis provides a clear picture of the financial landscape and ensures that design decisions are grounded in economic reality.

This approach involves close collaboration and open lines of communication with the C-suite and cost consultants, and a knowledge of achievable stacking configurations and planning ratios for efficient space utilization. By minimizing unnecessary space, architects can maximize patient care throughput and revenue.

The design team will need to represent a diverse skill set, combining medical planning, engineering, and an understanding of construction methods and sequences, as well as regulations. Establishing interdisciplinary teams that include financial experts alongside architects will foster a holistic approach to project planning. Leveraging knowledge of contractors for both cost and schedule issues will help mitigate cost by including procurement, phasing, escalation mitigation, and buyout strategies.

Additionally, investing in training and professional development to enhance architects’ financial literacy and strategic planning skills will be essential for driving industry-wide change.

Role of architects in delivering financially viable projects

Owners can be easily swayed by eloquent architects discussing patient care, wellness, hospitality-like environments, and the latest trends. While compelling, this perspective represents only part of the equation. Integrating business-oriented design thinking with patient-centric approaches is essential.

Architects play a pivotal role in ensuring projects are financially viable. The architect’s goal should be to create beautiful and feasible designs, which get funded and built, serving our communities.

As healthcare organizations navigate cost containment and revenue optimization, architects should lead the way by championing financially viable master planning and design.

Kirk Rose, AIA, DBIA, is the healthcare practice leader at HMC Architects (Los Angeles).