Hospital boom felt in rural areas

3 projects totaling $158 million finished in last 6 months; more on way

Milwaukee Journal Sentinel, Feb. 20, 2006

By GUY BOULTON
gboulton@journalsentinel.com

Beaver Dam Community Hospital's move into a $65 million building shows the largest hospital construction boom in more than 30 years isn't limited to large, urban areas.

The hospital, which moved earlier this month from a building that dates back to 1937, became the third community hospital in southeast Wisconsin to complete a large construction project in the past six months.

In October, Fort Memorial Hospital in Fort Atkinson completed a $38 million addition. In August, St. Joseph's Hospital in West Bend moved into a $55 million building in the Town of Polk.

The burst of construction follows a lull throughout much of the 1990s as hospitals adjusted to changes in the way they were paid by Medicare and private insurers.

"Now it has just caught up with everybody," said John Landdeck, president of Beaver Dam Community Hospital.

Since 2001, Wisconsin hospitals and health care systems have begun or completed construction projects with an estimated value of almost $1.6 billion, according to McGraw-Hill Construction., a division of the McGraw-Hill Cos.

That figure doesn't include renovations. And the boom shows no signs of slowing.

Landdeck, president of Beaver Dam Community Hospital for 32 years, has never seen more hospital construction in his career.

For both urban and community hospitals, the boom has been driven by strong profits, low interest rates, new technology - and simple demand.

Admissions are rising as baby boomers age, and the increase in the number of people who are disabled or obese - two conditions that lead to more hospitalizations - are also expected to result in higher admissions in coming years.

And some hospitals simply have reached the point where they need to replace structures built in the 1920s and 1930s.

That was the case for Beaver Dam, a city of about 15,000, roughly 66 miles northwest of Milwaukee.

Beaver Dam Community Hospital was expanded or remodeled in 1958, in 1976 and again in the 1990s.

Hospital officials had known since the late 1980s they would have to radically remodel the building or construct a new one, Landdeck said.

By the late 1990s, a decision couldn't be put off any longer.

"We said, 'This isn't going to work anymore.' "

Building a new hospital became the most attractive option.

"You don't save as much as you think with remodeling," Landdeck said, "and you will end up with an old building."

The new building will cost $1 million a year less to heat, cool and maintain than the old hospital, which will be torn down.

"It makes it pretty hard to say no," he said.

Beaver Dam Community Hospital also could afford the move.

For one thing, it had adjusted to the financial shocks of the late 1980s and the 1990s brought on by managed care and changes in how Medicare paid hospitals.

It increased revenue by adding new programs, including a cardiac program staffed by doctors from Madison, and by expanding other programs, such as orthopedics.

The hospital posted net income of $3.5 million on revenue of $59.2 million for its fiscal year ended June 30.

It also had built up a reserve of about $14 million and raised about $2.5 million from the community. And it borrowed about $45 million - at attractive interest rates.

"We got into the market at a good time," Landdeck said.

Nationally, hospital construction bottomed in 1997, said Robert Murray, an economist with McGraw-Hill Construction.

Since then, the trend has been uneven but upward, with the pace increasing in the past two to three years.

Last year, health care systems and hospitals began work on construction projects valued at $13 billion and totaling an estimated 46 million square feet - the most square footage in new hospital construction since 1972.

The boom is evident throughout the Milwaukee area:

• Columbia St. Mary's has begun work on a $417 million hospital on Milwaukee's east side that will combine and replace the former St. Mary's and Columbia hospitals.
• Columbia St. Mary's also has begun work on an $85 million expansion of its Mequon hospital.
• Wheaton Franciscan Healthcare, the parent of Covenant Healthcare and All Saints Healthcare, plans to build an $80 million outpatient center to serve Franklin and Oak Creek as well as northern Racine County.
• Aurora Health Care completed a $180 million expansion of Aurora St. Luke's Medical Center in Milwaukee in May 2004.

This, moreover, is not a complete list.

Some critics question whether all the new construction is needed and contend it will drive up health care costs.

Competition to offer the most advanced technology has contributed to the building boom.

"Hospital and health care chains want to have the newest and most modern facilities," said Murray of McGraw-Hill.

But hospitals also face growing pressure to improve quality.

SynergyHealth, the parent of St. Joseph's Hospital in West Bend, drew national and even international attention for its efforts to design safety into its new hospital.

Beaver Dam Community Hospital also worked to build a safer hospital than past structures by using more standardization in its design.

It also plans to spend about $20 million to install an electronic medical records system.

Other hospitals just need more space.

Fort HealthCare, the parent of Fort Memorial Hospital, added 98,000 square feet for that reason.

"We simply knew we had outgrown some of the space in the facility," said James Nelson, its chief financial officer.

Fort Memorial, too, has added new services, such as a cardiac program, over the years.

The hospital, built in 1949, was expanded in 1959, 1969 and 1975.

There also was a renovation and small addition around 1990.

Fort HealthCare considered a new building, Nelson said, but held off because of the number of nearby physicians who would have had to have moved their offices.

The small health care system - which had net income of $9.9 million on revenue of $80.5 million in its fiscal year ended Sept. 30 - had been planning for the $38 million expansion for five years and building up its reserves.

It also raised $3 million from the community, with the largest donation being $200,000.

That kind of widespread support suggests the hospital's importance to Fort Atkinson.

The hospital, which is about 34 miles southeast of Madison, can't offer the array of services available at large hospitals in that city or in Milwaukee. But community hospitals nonetheless serve an important niche.

For that reason, Nelson understands the burst of construction by community hospitals.