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HOSPITALS: The best way to spend the money?

One THCB reader apparently was boring their partner about this, and seeing eyes glaze over got so steamed up they decided to write to THCB:

I was at a health care board meeting last night (the organization involved must go unnamed) where a new 100 bed hospital was approved for $220,000,000!!!! $2,200,000 per bed/room. (slightly higher since they are building the infrastructure to later support construction for more beds, but nonetheless even at half the price….)

Are we nuts? I believe the Plaza Hotel on 5th ave in NYC sold recently for only $1,000,000 per room. What sort of reimbursed revenues will be necessary to recoup that investment? I don’t fault our little hospital group, but this seems to me a damning statement about the status of the US health care system. It’s simply not sustainable at such ridiculous levels of investment (AND with the lower levels of clinical outcome we get for all this dough, it’s a travesty.) I wonder what a new hospital in Europe goes for?

Good question. Anyone got an answer?

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8 replies »

  1. OK,
    Took a littel digging. A Sudbury hopital is going to cost $363 Million (Canadian)
    http://www.thesudburystar.com/webapp/sitepages/content.asp?contentid=558112&catname=Local+News&classif=
    “When the dust has settled from Sudbury Regional Hospital’s second phase of construction, the hospital will be left with a $10-million mortgage on a $363-million institution.
    “Last month, Infrastructure Ontario announced completing the city’s amalgamated hospital will cost about $225 million.
    “The $363-million final price tag includes $140 million or so spent six years ago on the first phase of construction before the project was halted because of big cost overruns.”
    Looks fab-u-lous:
    http://www.hrsrh.on.ca/portal/DesktopDefault2.aspx?tabIndex=1&tabID=27&moduleId=85
    Statistics for the Sudbury regional system (I have no idea how many of the 500 beds listed are in the new construction):
    http://www.hrsrh.on.ca/portal/DesktopDefault2.aspx?tabIndex=5&tabID=333&moduleId=684
    Cheers,

  2. …and then there’s road construction, which is what – a million bucks a mile or something? Makes one wonder about the construction industry in general, doesn’t it.

  3. Umm. 1M per bed is a starting point, and a fair one at that. It just goes to show you – throwing a big number out and scaring the masses, at least these masses, is pointless.
    But do it to Joe Public and they’ll scream “no wonder those hospitals/doctors cost so much, look what they have to earn to make it up”
    And so the wheel turns etc.

  4. With all due respect, there’s a big difference between the requirements of a hotel room, albeit, a luxury hotel, and those of a room in a hospital. That’s comparing apples and oranges.
    Keep in mind this very rough figure includes ORs, nursing stations, an ICU, complex communication capabilities, and all the other services needed to diagnose, treat, feed and care for sick patients. It’s a whole hospital, but you’re only talking about patient rooms.
    I have heard this figure bandied about, as a rough way to estimate future building costs for a new hospital. The number also includes escalating costs of materials, labor, equipment, architects, engineers and all the rest. Very different from assigning value to an existing building.

  5. > I wonder what a new hospital in Europe goes for?
    > Good question. Anyone got an answer?
    But how should this be figured or compared? Fraction of healthcare budget? Fraction of median wage? What? How shall we compare “Europe” with “Boston”? Now that I think about it, I don’t think its a good question.
    t

  6. The CFO of the Barnes-Jewish-Christian System here in east central Missouri says it costs about $1M per bed to add rooms at an existing medical center. This is not the same as building a new facility, and does not speak to the cost of staffing the new beds.
    The SSM System is building a new facility in Fenton, Missouri to replace an aging facility that sits on some extremely valuable real estate closer in to the city. St. Clare’s is to be a 158 bed hospital (with extensive outpatient facilities) built at an estimated cost of $236M — about $1.5M per bed if you want to think of it this way.
    FWIW…
    t

  7. A few months back, if I remember correctly, Paul Levy, CEO of BIDMC in Boston, estimated the cost of new hospital construction in Boston at about $500 per square foot. Equipment would be on top of that. By contrast, the 30 story NYC office building where my office is located recently sold for $1,000 per square foot, and there have been a few transactions above that. High end condos in full service NYC buildings routinely command $1,500 per square foot. As for the hospital in question here, it could well be that it can be significantly expanded at moderate cost. If you are going to look at the cost per room or the cost per square foot, the more relevant metric would be based on full buildout.

  8. Simply dividing the cost of the building by the number of beds may be very misleading. Won’t the “hospital” have any outpatient capacities, i.e. ER, clinics, outpatient surgery/procedure rooms?

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