Healthcare Construction Challenges and Opportunities

The healthcare industry has faced unprecedented challenges in recent years. While providers attempt to emerge from the pandemic, the industry still grapples with labor shortages, supply chain disruptions, rising prices and increased demand. A gathering storm of these issues threatens affordability and access to care for consumers and poses material risks to profitability for providers, payers and other healthcare stakeholders.¹  However, by developing a comprehensive understanding of these issues and working with a trusted construction management team steeped in industry knowledge, healthcare systems will weather these turbulent times and thrive while continuing to provide essential care. Understanding the challenges facing the industry as a whole is critical to successful delivery of construction services in support of patients and staff.   

Challenges Facing the Healthcare Industry

Healthcare prices have historically increased faster than the rest of the economy. From 2001 to 2021, on average, healthcare costs increased faster (3.3%) compared to the cost of all goods and services (2.2%).² Even though employee wage growth rose to its highest rate during the pandemic, consumer income is not currently keeping pace with inflation. As labor and supply expenses grow, hospital margins continue to decline.³

Healthcare inflation aligns with labor costs. The shortage of healthcare workers and resulting surge in wages in recent years may have only recently been factored into overall medical pricing. Hospitals face higher turnover as employees cite pandemic-fueled stress and burnout as the root cause. At the same time, hospital utilization overall has not yet recovered to pre-pandemic levels, so revenues are not keeping up with expenses.  

Healthcare’s supply chain challenges are primarily focused on component suppliers as the main bottleneck. There is a raw material shortage for manufacturers, including semiconductor chips used in medical equipment such as MRI machines, blood sugar monitors and pacemakers.  

While daunting, these challenges are not preventing healthcare systems from investing in facility construction and renovation as the need for space and care persists. An aging population and extended life expectancy is just one example driving an increased demand for services. Healthcare systems recognize the need to take steps to meet those needs and, despite market uncertainties, health systems are pushing forward with construction projects. As a leader in healthcare construction, CG Schmidt can help you navigate these challenges and build for the future.  

Trends in Healthcare Construction

Early collaboration is a key factor in completing projects on time and within budget, and a report by McKinsey reveals that early collaboration results in a 15% to 20% improvement in cost and schedule performance.⁴ Bringing CG Schmidt and owners, architects, engineers and key subcontractors into the process early leads to better design and decision making. 

Seeing patients as soon as possible is a frequent goal, and design and construction decisions hold the potential to support or neglect this goal. CG Schmidt utilizes Lean Construction methods, such as incorporating modular construction like millwork, ductwork, MEP systems and even bathrooms and exam rooms, to accelerate the project schedule. Modules are built off-site, decreasing disturbance to patients and staff in occupied areas. Prefabrication and onsite construction can be completed simultaneously, additionally reducing onsite occupied space. By standardizing design, streamlining material procurement and leveraging prefabrication and manufacturing, CG Schmidt delivers a more cost-effective project in less time. Ultimately, and most importantly, this approach offers a safer environment for project personnel, patients and staff working in and around the jobsite. 

An innovative approach to technology provides further benefit to healthcare systems. Intelligent modeling allows us to virtually alter a building’s design and provides information about the possible impacts on labor and material costs and time constraints. Using cloud technology and various mobile apps facilitate communication and real-time responses and aligns the project team to maximize collaboration. Artificial intelligence may be used to sift through data collected in the field and support productivity. Leveraging virtual, augmented and eventually haptic reality can provide a heightened experience in space planning by allowing clients to virtually experience what future spaces can look like.⁵

Healthcare specialties are also experiencing more diverse construction needs. The US behavioral healthcare market is projected at $99 billion by 2028, an increase from $78 billion in 2021.⁶ Much of the growth is attributed to larger healthcare systems coordinating smaller clinics in populated areas—similar to recent trends in freestanding emergency departments—with the goal to provide more convenient and accessible locations for those in need of care.  

What Type of Construction is Right for You?

In considering the unique challenges and trends aligned with your project, determining whether the project should be new construction, renovation or acquisition is a crucial decision. CG Schmidt counsels and presents pros, cons and testimonies for every choice, maximizing spending while meeting your specific project aims. Understanding the owner’s perspective is one of the most critical components in aligning financial and real estate strategy with business needs. Leveraging a construction manager as an advisor early in the real estate process yields maximum results for the growth or renovation initiative as whole. 

New Construction allows for incorporation of modern technologies that may not have been available when the existing facility was built, such as automated systems or voice command. Building a new facility also provides the opportunity to design around specific needs such as specialized equipment, spaces for patient and guest comfort and privacy, and even expandable areas for future growth. A new, modern facility helps attract staff and incorporates the latest technology and designs for patients.  

New construction also allows for building in communities or for specialties that need more healthcare facilities and providers. A recent report suggests more than 80% of US counties lack proper access to healthcare. Surprisingly, medical deserts are not limited to rural areas, and many city residents also lack access proper care due to economic conditions.⁷ New facilities not only provide more access to care, they can also relieve stress and overflow of neighboring emergency departments and urgent-care centers.

Renovations of existing space allows for adapting the structure to suit your needs while optimizing proximity to patients in existing areas with consistent demand. While owners are responsible for upgrading the existing building per modern ADA, health and safety codes, renovation projects often keep costs lower than new construction. One important factor to consider when choosing whether to renovate or build new is the impact to operations, community need for accessible care and the care model itself. CG Schmidt has extensive experience working on healthcare renovations in occupied spaces and takes ample opportunity to minimize disturbance to patients and staff.  

Adaptive Reuse or repurposing of a space is an increasingly popular facility strategy for hospital systems expanding or shifting services away from main hospital campuses, This strategy often requires less capital, and repurposed space can be made operational more quickly than new construction. Most often, the inventory of existing buildings available for adaptive reuse are built for retail use, though office and industrial buildings are also frequently available. Large numbers of buildings, conveniently located, now stand abandoned or underutilized. These spaces have many of the characteristics that healthcare organizations desire, including good visibility, abundant parking and large, open floor plates. Adapting these buildings for healthcare use can save time and cost with the collateral benefit of reinvigorating the community and bringing care closer to the community.  

Healthcare systems currently and will continue to face unique industry challenges. As an honest broker and trusted partner, CG Schmidt can help you navigate the myriad of construction complexities to meet project outcomes, minimize costs and optimize the future of patient care. 

References 

1. Addie Fleron and Shubham Singhal, “The gathering storm in US healthcare: How leaders can respond and thrive,” McKinsey & Company, September 8, 2022, mckinsey.com.
2. “The Ills of Inflation May Make Consumers and the Health Care System Sicker.” Deloitte, 5 Dec. 2022, www2.deloitte.com/us/en/pages/about-deloitte/articles/press-releases/the-ills-of-inflation-may-make-consumers-and-the-health-care-system-sicker.html.
3. Dhar, Asif, et al. “Inflation Signals Unrest Ahead for Health Care.” Deloitte Insights, 15 Feb. 2023, www2.deloitte.com/us/en/insights/industry/health-care/health-care-affordability-inflation.html.
4. Banaszak, Jim, et al. “Collaborative Contracting: Moving from Pilot to Scale-Up.” McKinsey & Company, 17 Jan. 2020, www.mckinsey.com/capabilities/operations/our-insights/collaborative-contracting-moving-from-pilot-to-scale-up.
5. Lisa Feeley, “Room for Innovation,” Medical Construction and Design, January/February 2023. 
6. “US Behavioral Health Market Size Worth USD 99.40 Billion in 2028.” GlobeNewswire News Room, 23 Feb. 2022, www.globenewswire.com/news-release/2022/02/23/2390169/0/en/US-Behavioral-Health-Market-Size-worth-USD-99-40-billion-in-2028-with-remarkable-3-6-CAGR.html. 
7. Brian T. Horowitz  Twitter Brian T. Horowitz is a writer covering enterprise IT, innovation and the intersection of technology and healthcare. “What Are Medical Deserts, and How Can Technology Alleviate Them?” Technology Solutions That Drive Healthcare, 10 May 2022, healthtechmagazine.net/article/2022/06/what-are-medical-deserts-perfcon. 

CG Schmidt, a family-owned company since 1920, is a leader in quality construction management, general construction, and design-build services with offices in Madison and Milwaukee. The company serves the markets of education, healthcare, senior living, multi-family, corporate, industrial, community and religious facilities.

As a fifth generation, family-owned construction firm, CG Schmidt is a respected industry leader. The company has built a reputation for tackling the most recognizable projects in the state, helping to literally shape the Milwaukee skyline and create quality, state-of-the-art buildings in Madison, the state of Wisconsin and beyond.