Description

In 2007, the annual per capita healthcare expenditure in the US was $ 7,500, for a grand total of $ 2.2 trillion. More than a third of that sum was spent on hospitals; in most European countries they even account for half of the costs.[1] Between 2012 and 2014, healthcare costs represented 17.1 % of the gross domestic product in the United States and 11.3 % in Germany. In the United States, hospitals are the second largest provider of jobs in the private sector; in Europe, 10 % of the total workforce is employed in healthcare — between 2.9 and 5.5 % in hospitals.[2] About two thirds of healthcare budgets is typically spent on personnel. However, the authors of a study initiated by the European Observatory on Health Systems concluded that hospitals ‘have received remarkably little attention from policy-makers and researchers’.[3] They also maintain that ‘the nature of the healthcare marketplace and its influences may act against the rational application of healthcare interventions. A number of perverse incentives act on the healthcare marketplace, including industry and its relationship with those who license, reimburse and prescribe its products.’[4] The authors conclude that ‘(…) Just as “war is too important to be left to the generals”, hospital care is too important to be left to hospital managers and health professionals’.[5] Precisely because healthcare is a public service, the business case of individual hospitals follows the same principles of sound management that are customary in other sectors.

The architecture of hospitals affects their performance as economic units or, to put it more provocatively: their spatial qualities and their business model coincide. From a public health perspective, mistakes at the design stage result in a recurring waste of financial resources, for instance by creating overcapacity and by letting very expensive equipment stand idle.

Given the substantial cost of healthcare buildings and the constantly growing demand for their services, hospitals need to function as efficient production facilities while not neglecting the need to provide compassionate care. Finding the right balance between these objectives is the main issue in healthcare today. Architecture can play a crucial role in this regard, but it can do so only on the basis of sound business models.[6] In other words, architects working on the planning of hospitals need to have a basic understanding of such models, if they wish to convince hospital managers and financial administrators of the feasibility of their designs. They have to be ‘fluent in the language of business if they want to be heard.’[7]

The investment required in building or renovating a hospital is usually so large that the organization must base that investment, along with its programming and design decisions, on a sound analysis of long-term consequences. Factors such as the strategic positioning of the hospital relative to other hospitals, the distribution of healthcare facilities in the region and developments in medicine and technology are the most important factors in assessing the soundness of its business model. This requires the management, financial backers and the other parties involved to come up with a sound strategy for anticipating future changes in healthcare financing, care delivery processes and technology — all of them rapidly evolving fields. While the annual costs for buildings (depreciation and financing) and the technical infrastructure of hospitals are modest when compared to the total operating expenses, the physical infrastructure has a major influence on the quality and operational effectiveness of the hospital. A well-designed and well-built hospital can contribute substantially to improving quality and medical outcomes, reduce costs and, ideally, increase revenues. In other words, just as the contribution of architecture to better healthcare delivery depends on a sound business model, so, too, a sound business model is facilitated by good architecture.

If one regards the hospital as a relatively autonomous organization, a sound business model means running it in an economically sustainable manner. Just like any other business, the hospital generates revenue by selling products. The products can be complete packages from initial diagnosis to treatment and follow-up (diagnosis-related groups or DRGs, for instance) or individual components such as a diagnostic test, an outpatient appointment, a specific therapy or a night’s stay. Prices can either be negotiated and agreed on beforehand (for instance in contracts between providers and insurance companies) or based on the incurred costs (time and materials). Other sources of revenues could include teaching, subsidies, royalties and diagnostic services for third parties. Since medical processes are labor-intensive, personnel costs represent the largest share of the hospital’s budget. The medical staff can be on the payroll of the hospital, but the hospital also often acts as a service provider that facilitates the medical specialists’ private businesses. Medicines, medical instruments, prosthetics, disposables, food and nutrition, energy and maintenance make up most of the rest of the operating expenses.

From the 1940s to the late 1990s, a process of continuous economic and demographic growth accompanied the evolution of healthcare systems. Longer life expectancies, advances in medicine and technology, and sustained increases in prosperity resulted in ever more and larger healthcare facilities. Now, new economic and demographic realities in Europe and the United States, the costs of public healthcare systems and the rediscovery of preventive health strategies have rendered this trend obsolete.

The business case for building new hospitals or for major renovations can be made only if these investments significantly contribute to the realization of a sound business model. There is, for example, no business case for waiting areas in a consumer-driven healthcare delivery model. There is, however, surely a business case for creating streamlined patient processes. Whenever it is possible and sufficient for consumers to consult a specialist online, then there is no case to be made for this group coming to visit outpatient departments (nor, therefore, to build capacity to accommodate such visits). Our criterion for a valid business case for a new hospital building is this: that every component of it must be essential to and actively contribute to safe and efficient patient processes and information flows, with fewer errors, better quality of care and better outcomes, at a significantly lower price and with less resource consumption and overall effort than occurs at comparable existing facilities. It must also remain fit for purpose for at least 30 years, with relatively minor modifications and upgrades during that period — something which will require carefully considered flexibility/cost trade-offs. The business case can be deemed valid only if it has been tested against and been found to be satisfactory in a variety of long-term scenarios. These scenarios need to take into account the potential effects of a range of factors: variability in demand, the emergence of breakthrough technologies, drugs and devices, the appearance of new diseases, improvements in care delivery processes and so forth.

The most crucial task one faces while developing the business case is estimating required future capacity (beds, operating theaters, etc.) — the starting point for programming — and, based on that, determining the investment (and debt) that the hospital can absorb at acceptable risk. The needed capacity is dependent on the product portfolio and the patient categories (and numbers) that the hospital expects to serve. The most frequent mistakes organizations make in this process are 1) wanting to do everything, i.e., not making clear choices in terms of the product portfolio and patient categories; and 2) playing it too safe, i.e., factoring in every potential chance of capacity shortage at peak demand. The usual outcome is programming much more capacity than the hospital will ever use.

The required capacity can be estimated on the basis of a fine-grained analysis of the current capacity utilization at the departmental level (inpatient departments, operating rooms, outpatient departments, etc.), employing data that is usually readily available. The capacity-usage analysis illuminates a number of important issues: actual vs. perceived capacity requirements (now and in the future), ways of improving short-term process and capacity utilization, and the optimal location of departments relative to each other. Hospitals should make sure to cluster departments from the perspective of what is safest, most efficient and most convenient for patients rather than from the perspective of physical proximity and the convenience of staff.

Further capacity optimization is possible through an analysis of patient care pathways.[8] Sound business cases should favor the use of end-to-end patient care pathways, and not focus solely on investments in specific facilities or departments, such as operating rooms or inpatient beds. Programming should revolve around the identification of ‘capabilities’ catering to these end-to-end patient care pathways, which may be thought of as self-sustaining organizational entities (business units, for instance) executing a distinct set of processes to treat a specific group of patients for a specific diagnosis.

Moreover, the organization may anticipate the possibility of combining various business models. Thus, a project for a new hospital might distinguish three zones: the actual hospital (with hot floor and wards); a zone built by the hospital but run by private parties (containing functions that can be outsourced: shops, restaurants — part of the activities in the public spaces); and a zone designed by the hospital but built and run by private investors, which would likely attract such facilities as a hotel, housing for senior citizens and wellness and sports centers.

Once the program, the investment and the implementation plan are finalized, a financial model can be developed, including risk and sensitivity analysis. The key here is to focus not on the model’s output, which is essentially a set of financial ratios, but on how robust the input is. This requires the business case to be built from the bottom up, based on investment in the capacity required for a set of patient care pathways catering to an (almost) guaranteed patient demand — the core of the hospital. The investment level that the hospital can absorb at acceptable risk must be based on the turnover of this core element, in combination with the hospital’s current financial health. The scarcer the resources, the more urgent the need for qualitatively better and, therefore, more efficient care pathways. By integrating the optimization of care pathways and of capacity utilization into the building design process, architecture can contribute substantially to and, ideally, embody a sound business case.

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Originally published in: Cor Wagenaar, Noor Mens, Guru Manja, Colette Niemeijer, Tom Guthknecht, Hospitals: A Design Manual, Birkhäuser, 2018.