One low-cost approach is the provision of a base building that comprises principal circulation paths, a fixed main structure and primary mechanical, electrical and engineering services which can accommodate a variety of functions. Additional buildings can then be attached and constructed in phases at a cost appropriate to their function.
The Netherlands Board for Health Care Institutions proposes a ‘layered hospital’. They suggest a smaller proportion of a hospital needs to be clinically specialized than generally thought and hospital infrastructure should be designed according to its function.
The initial investment costs of ‘layered hospitals’ could be as much as 10–15 percent lower. Furthermore, the model has more flexibility in terms of future use, which increases the residual value.
On average, the cost of a square meter of the hot floor is twice as high as the cost of office facilities and has a much shorter life-cycle. The initial investment costs of layered hospitals could be as much as 10–15 percent lower and offer greater flexibility. For example, more flexible capital stock located near the edge of the hospital site could be subdivided and sold off for non-health uses if demand falls. More radical still are systems for modular construction which use standardized units, fewer bespoke rooms and highly flexible designs to allow their use to be changed.
In all cases there are a number of design approaches that can be used to reduce the costs of operation including:
While some of these approaches may reduce the costs of design and construction, others may increase costs which can be offset later by savings in the lifecycle costs of hospital operations. Some low-cost providers in India have minimized bed spaces to save construction costs. Other providers have eliminated kitchens, staff dining rooms and other ancillary spaces.
However, some approaches may be unhelpful in the longer term if the target market expect and will pay for privacy. There are also issues with infection prevention and control that need to be considered, particularly given the growth of antimicrobial resistance. There is also some evidence that the quality of patient environments has an impact on recovery and staff morale.
Land costs can be reduced by not offering car parking and eliminating landscaping. Some of the Indian providers in our case studies have also selected lower cost locations. However, these strategies may also be counterproductive in terms of competitive positioning. In addition, cheaper land may be located in less accessible areas where parking will be required.
Overall, the costs of operation and adaptation, and the value a building adds over its life, dwarf the initial cost. Too much focus on cost minimization can lead to decisions that reduce the quality of the patient experience, increase the costs of day-to-day operations and impact the ability to change the building’s use.
One radical solution is the asset-light model – the separation of ownership of a healthcare facility’s physical bricks and mortar from its actual healthcare operations business. Hospitals in India and Asia have been pursuing this strategy. In Singapore, Parkway Hospital’s Chief Executive Officer recently pointed to this as a major strategic decision by the hospital chain. The hospitals enter into a plain ‘operations and management’ contract to operate a facility, which is owned by a separate company focused on real estate. All capital investment plus profits or losses are borne by the original owner of the property, while the hospital chain receives a management fee.
Alternatively, the chain identifies the property, refurbishes it and then manages it as a hospital. In this case, profits or losses flow to the chain, while the property owner gets a fixed lease. In both cases, the chain gets a foothold in a new location. Finally, there is the potential for the use of real estate investment trusts (REITs), where a corporation or trust is developed using the pooled capital of many investors to purchase and manage income property.
Keith Smith from Advanced African Solutions says: “There is a definite trend towards offering more flexibility in design and life function of facilities. This is not so easily achieved through traditional construction methods that require expensive and time-consuming practices to expedite even the smallest of functionality changes. What is needed are construction methods that offer increased flexibility of use while still maintaining the principles of cost certainty, program certainty and quality certainty.”
A hybrid of traditional, modular manufactured facilities and mobile healthcare facilities can deliver this. Hybrid construction occurs when a building is built partly using traditional methods and partly using three-dimensional sections (or modules) which are built and fitted out completely off-site under factory production line conditions.
Modular construction uses pre-engineered units installed on-site as fitted-out and serviced ‘building blocks’. Light steel framing is an integral part of modular construction as it is strong, light weight, durable, accurate, free from long term movement, and is well proven in a wide range of applications.