Embracing the Health Care Construction Market Post COVID-19
The health care industry has been at the helm of fighting COVID-19, an unprecedented pandemic in modern history. Despite the financial impact, health care systems have responded to the crisis in a magnitude unrequired by any other sector.
Mainly due to lost revenue from non-emergency or elective surgery patients, many health care systems have reevaluated, delayed or canceled large capital projects. Most essential, and often smaller, projects moved forward, but not without challenges.
THE NEW NORMAL FOR HEALTH CARE CONSTRUCTION
Across the United States, construction contractors have had to dedicate additional time to learn, adhere to, and adjust to various new safety requirements considering COVID-19. The guidelines differ by state and city and are frequently updated or changed to keep in line with new and developing safety measures, and contractors must quickly adapt.
General guidelines include temperature checks, contact tracing logs, cleaning logs, social distancing, mask-wearing and informational signage. Even with fewer projects, construction firms are seeing higher costs for the added administrative requirements and protracted schedules due to workforce limitations. After the pandemic, scheduling will normalize, but several protocols promoting more sanitary and healthy work environments will likely become part of the new normal for years to come.
Supply chain issues and the availability of proper PPE have also contributed to timeline extensions. Fortunately, many of the issues predicted in March 2020 regarding supply chain backlogs following the reopening have not been realized. While material costs increased in the past four months, prices are expected to be lower by the end of 2020 than in the first quarter.
The historically low construction labor pool was a challenge before the pandemic and has since been significantly exacerbated. Thirty-two percent of construction laborers were between 45 and 64 years old in 2018, according to the Bureau of Labor Statistics. Trade schools continue to experience lower admissions, and younger workers are choosing alternative career paths.
In March, when COVID-19 notably began to spread in the United States, many construction workers chose to shelter in place for fear of becoming sick or spreading the virus to family members. With schools and child care facilities closed, others had to stay home to care for their children. For some, staying home for an extended period allowed them to receive increased unemployment benefits and other assistance offered by the Families First Coronavirus Response Act. Also, some workers who were close to retirement decided to retire early. All of these factors affected field and manufacturing workforces, compounding COVID-related issues.
THE IMPACT OF LOST HEALTH CARE REVENUE
One of the biggest issues facing the health care construction market, specifically, is the financial impact health systems continue to face due to COVID-19. According to the latest edition of Kaufman Hall’s National Hospital Flash Report, based on July 2020 data from more than 800 hospitals, operating margins were down 28% in the first seven months of the year compared to the same period in 2019.
Many systems have spent millions of dollars expanding areas for additional ICU beds to manage the COVID-19 patient surge, in addition to the increase in staff, overtime, supplies and equipment required to treat the patients. Although case numbers have decelerated in some states, hospitals continue to experience lower patient volumes than in 2019, as patients are not yet ready and/or trusting to go to an acute care hospital unless they absolutely must.
Pending evaluation of financial commitments and cash flows, health systems nationwide are reevaluating capital projects and reconsidering the need for certain projects to move forward. From a construction standpoint, the short-term emergency projects that are progressing will not offset the long-term effect from the projects that have been canceled or postponed indefinitely.
Moving forward, health care construction and ancillary industries will be challenged to navigate the short term while systems and hospitals take a step back. Infrastructure projects will proceed as hospitals look to improve HVAC systems for infection prevention, add flexibility to change pressurization on a moment's notice, separate patients in the emergency department, increase ICU and isolation capacity, expand storage capacity, upgrade bulk oxygen systems and control supply chain. Another expectation is that more health systems serving rural communities will build a network to have more available health care on a smaller scale immediate to patients, known as the micro-hospital model. The micro-hospital model would also reduce the stress on systems’ base hospitals during events like COVID-19.
As system managers and construction contractors navigate the evolving challenges, the nature of and need for the health care industry guarantee it will bounce back quickly and stronger. Those who wish to bounce back with it must remain flexible, innovative and resourceful.