Construction Industry Forecasts

The outcome of the debate is certain to expand healthcare spending in 2011 and create a need for additional facilities, more for hospitals than for residential care. The long term outlook for healthcare construction remains good and will likely be boosted somewhat by whatever Congress decides to do. But the organization of the near term healthcare market is uncertain.  Hospital managers do not know what the mix of their insurer customers will be and how much price concession hospitals will be asked to make to pay for extending health services to additional people. Every aspect of the future market structure is on the table for discussion.

Various pending proposals divide the federal healthcare pie differently between urban, rural and teaching hospitals.  There are also conflicting proposals for allocating funds between primary and chronic care and between preventive and end of life care. Many hospitals focus on one or the other.

The same uncertainty is impacting development of medical office buildings although it is intermingled with the effects of the recession and surplus office space.  Medical doctors are now uncertain about the mix of insurers they will have to deal with in the future.  Will there be a “public” insurer structured to cannibalize the business of private insurers? How many of their patients will end up with a new insurance company? How many patients will still have no health insurance and who will pay for them?

Nursing home and other residential care facilities, especially assisted living, are part hospital and part condo.  Construction tends for the rest of the year will depend more on their condo aspect than their clinical aspect. Hence, construction activity for these facilities will weaken substantially whatever the course or outcome of the healthcare debate.

Overall, healthcare construction spending growth has declined from several years in the 10% range to about 2%, allowing for drops in construction materials costs, since last fall. A further 7% decline is expected in the next six months.  This is as much due to the uncertain market environment as it is to the recession. Then expect a return to the 10% growth range by late next year. But depending on what Congress decides to do, the project owners may not be the same hospitals you now expect to expand next year.