Taking the temperature of healthcare

Sectors: Designers

Commercial building and construction has been doing it tough over the past 12 months, to put it mildly. The one exception has been the healthcare sector, which has seen solid growth over the past five years fuelled by relentless demand for facilities and ongoing government funding. But can this continue?

In the past four years the value of construction in the health and aged care sectors has almost doubled in size, according to the Construction Forecasting Council (CFC) – from $1.913 billion in 2005/06 to $3.694 billion in 2009/10.

Much of this boost to construction has come from public sector spending, with the global financial crisis (GFC) no doubt taking its toll on private developers in healthcare as it has across other property sectors.

Figures from the Australian Bureau of Statistics (ABS) show that the ratio of building approvals in the health sector for public works compared to the private sector increased from approximately 60 percent in 2006/07 to over 80 percent in 2008/09.

In 2006/07 the amount spent on healthcare construction jumped by 38 percent compared to the previous year and then rose by an average of 11 percent over the next three years. In 2009/10 nearly 80 percent of the spending has been in the three most populous states of NSW ($1.122 billion), Victoria ($1.045 billion) and Queensland ($0.745 billion).

The ageing factor

Some of this growth has been due to government stimulus spending but this has been a small factor, according to industry participants. The main driver has been demand from a rapidly ageing population. State governments have been busy – there have been significant public hospital developments around the country with several ‘super hospitals’ currently under construction.

Queensland has two major hospital developments on the go – the 750-bed Gold Coast University Hospital (completion late 2012), and New Royal Children’s Hospital (completion 2014) – as well as another project in the pipeline that was deferred for two years because of the GFC – the Sunshine Coast Hospital. This latter development is a potential public private partnership (PPP) project.

In NSW the 500-bed North Shore Private Hospital project is due for completion in 2013, and in Western Australia the 643-bed Fiona Stanley Hospital is also slated for completion in 2013.

Victoria has two major PPP projects underway – Royal Children’s Hospital, due for completion in 2011 and Parkville Comprehensive Cancer Centre, due to commence in 2011, with completion expected in 2015. In South Australia the new 800-bed Royal Adelaide Hospital is due for completion in 2015.

Not surprisingly, as these projects are completed over the next few years the CFC predicts a slowdown in healthcare construction. The value of construction is expected to rise by 22 percent in 2010/11, by 14 percent in 2011/12, five percent in 2012/13 and then to fall from 2013.

According to Phil Plant, Davis Langdon director and national healthcare sector leader, while there will be a slowdown in construction as major projects come to completion, with population both increasing and ageing, demand for healthcare facilities is not likely to wane. Both the government and private sectors will be looking at new ways of funding and providing facilities.

“There are several reasons for the current boom in health projects. Firstly and obviously, the continued population growth in Australia is leading to increased demand. Secondly, and probably even more influential, is the fact that health facilities are becoming obsolete in a very short time frame due to changing models of care and health standards, as well as rapidly advancing technology,” says Plant.

Small and single trend

A significant trend is that most hospitals in Australia are being designed with a high proportion of single-bed rooms rather than the previous emphasis on multi-bed wards, for both privacy and increased infection control. There is also a new focus on clinical services with many allied and non-clinical services being relocated to smaller local health centres.

The boom in major hospital construction has also boosted the smaller healthcare projects, says Plant.

“For every billion dollar project there are a large number of small to medium health projects ranging from $1 million refurbishments to $50 million new health centres and new ward blocks. This is the case for both public and private health care providers and the trend of moving some non-clinical functions into purpose-built health centres or hubs will ensure the demand for smaller facilities will continue,” says Plant.

Looking to the private sector

While the private sector has also been busy, the GFC has clearly affected them, as it has all private developers. Major private providers such as Ramsay Health and Healthscope, however, are currently quite active with numerous projects either under construction or in the pipeline.

A significant future constraint on meeting demand for healthcare facilities would be funding availability and a shortage of greenfield sites, says Plant.

“With Federal and State budgets under pressure, the ability to fund new major hospital projects is becomingly increasingly difficult. Governments are looking at the PPP delivery model as an alternative form of procurement where the private sector funds, builds, owns and maintains the facilities for a set period. However, even this has its problems in the current financial environment.”

Funding of the construction is just one issue. It is the ongoing costs that present an even greater challenge, with the annual recurrent cost to run a tertiary hospital between a third and a half of the cost to build.

“These recurrent costs are rising at a rapid rate as technological advances lead to more sophisticated equipment and more highly trained staff to operate it. Attracting the right qualified staff, particularly to regional areas, remains a challenge. For every $100 million new facility, in 10 years the recurrent cost could be between $300 million and $500 million – a not insignificant amount for governments to fund,” says Plant.

The private sector faces similar problems, with a limit to how much of these increased costs can be passed on and the associated ramifications for health insurance premiums. The result in the private sector has been a focus on keeping developments lean and mean.

And as hospital projects become increasingly complex, construction companies must be much more than builders, with most contractors taking on a design and project management role.

“Healthcare has been a major source of work for many contractors and consultants in recent years,” says Plant. “Those that have won the contracts have had to become increasingly sophisticated, employing an array of architects, engineers, cost planners and project managers to manage and coordinate the design teams.”

Paul Megram, Rider Levett Bucknall director, says there is a growing emphasis on flexibility in hospital design.

“Most facilities now try to build in flexibility to deal with future churn and to ensure spaces can be used for other purposes. This has led to larger structural grids for construction and column grids so that columns are eight to 10 metres apart.”

In the future, there will be a growing opportunity for co-location of public and private facilities. PPPs will also play an increasingly important role as governments seek ways to meet the ongoing demand for healthcare facilities.

“The Royal Adelaide and Sunshine Coast hospitals are proposed as PPPs and Victoria has the Royal Children’s and Royal Women’s hospitals under this model. There will definitely be growth in this area,” says Megram.

Sustainable healthcare

And with the increasing emphasis on sustainability in buildings, hospitals, with their massive consumption of water and energy, will be under the spotlight.

“Hospitals run 24/7 and anything that reduces their energy and water consumption will be increasingly important.

Sustainable design is becoming a major focus, particularly when annual operating costs are 30 percent of construction costs. Anything that can cut this cost is a major driver in planning and design,” says Megram.

In addition to a reduction in running costs, hospital design increasingly takes into account the reduction of travel distances for staff within the buildings and indoor air quality, both vital for staff wellbeing and productivity.

While all of this adds to the cost of building healthcare facilities, there are significant benefits to long-term return on investment if buildings can cut running costs and increase the efficiency of staff, says Megram.

But what of the future for healthcare construction? Will the costs be prohibitive to ongoing development? Megram says that underlying demand will force both the public and private sectors to find new ways of delivering facilities. In addition to PPPs and public/private co-location, there will be growth in locally focused facilities such as cancer care centres and small- to medium-sized facilities in regional and remote areas.

“Investment in health care will continue. There will be an increasing number of small to medium projects in the $50 million to $150 million range and there will also be a focus on local facilities. The major hospitals cannot provide all the care needed in the community,” says Megram.

“We will also need more aged care facilities to accommodate the growing number of elderly patients who are currently placed in hospitals because of a lack of aged care places. This is an ongoing problem.”