Hospital construction projects generate new jobs and opportunity in Kentucky

By Josh Shepherd

Against the backdrop of a weakened national economy and amid concerns about the long term impact of federal health care legislation, Kentucky’s major health care systems are making high profile investments in new construction all across the Commonwealth.

There are at present some half dozen major construction projects underway in nearly every urban sector of the Commonwealth. Pikeville Medical Center is investing $130 million for a new medical office building and upgraded parking facility. Louisville’s Norton Healthcare System has committed $120 million to convert Suburban into Norton Women’s Hospital and Kosair Children’s Hospital, with a project completion date in late 2013. The Baptist Health Care System is rapidly approaching completion of $200 million worth of new construction on its Central Baptist complex in downtown Lexington. Just down the road from Central Baptist, the finishing touches are being applied to the massive new University of Kentucky Chandler Medical Center.

Even in some of Kentucky’s regional hospitals, millions are being invested in new construction and updates. Frankfort Regional Hospital is adding an $8 million dollar expansion to its Emergency Department and in the Land-Between-the-Lakes region of western Kentucky, Trigg County Hospital has been given a green light by the FDA to invest $7 million for a new surgery and rehabilitation unit.

Since 2010, Kentucky’s health care industry leaders have invested roughly a billion dollars in new construction projects, all of which have created hundreds of new jobs for both the short and long term in their respective communities.

In view of such building projects, it is tempting to conclude that Kentucky’s health care industry is bullish enough about the future to take on substantial risks. But according to Mike Rust, Executive Director of the Kentucky Hospital Association, these projects are about updating aging facilities, keeping current with the latest health care technology, and the maintenance of healthcare quality. “It would be more accurate to say that the industry is cautiously optimistic. There are still questions about the impact of the Accountable Care act. If one looks closely at the new construction going on, it’s more likely linked to an aging facility than needs an upgrade,” Rust said.

The new Owensboro Medical Health System hospital is a prime example of that point.

By far, the most aggressive and far-reaching construction project is that of the new Owensboro Medical Health System (OMHS) in Daviess County. In what has been described as the second largest construction project in Kentucky, OMHS hospital is costing an estimated $385 million, according to OMHS President and CEO Jeff Barber, Ph. D.

The Owensboro construction project is remarkable for a number of reasons, most notably because OMHS is taking on the project as an independent health care system. It has managed to defray some costs through contributions from private and commercial organizations, but the lion’s share of the risk is on the shoulders of OMHS itself.

The new hospital construction site is located just a few miles east of downtown Owensboro on US Highway 54 and is easily the most imposing structure in the area. It is visible from at least a mile away, perched upon a point above the flood plain overlooking Owensboro’s Yellow Creek Park.

 The decision to take on such a project was not made overnight.  Barber, who took over as OMHS President and CEO in 2004, said it took nearly three years of research before the Trustees and Medical Staff arrived at a final answer to the question of whether to renovate their existing facility or build new.

The downtown hospital is already a jigsaw puzzle of renovation projects ranging from the recently completed Mitchell Cancer Center, not even a decade old, to sections dating back to the eighties, seventies, and some sections of the original building dating all the way back to 1939.

“During the previous several years of renovation, we had moved the emergency room from one side of the campus to the other, which meant our adjacencies – our OR, Cath Labs, and diagnostics – were not conveniently located close to each other. Things were done with a purpose, but were not as operationally effective as our patients deserved,” Barber said.

OMHS hired a planning group and an architectural firm to develop a master facility plan that would bring all wings of the hospital in line with contemporary standards of health care delivery. Once they began to understand the complexity involved in a full scale renovation of the existing complex, the conversation quickly turned to a comparison of the cost to build new.

 The OMHS campus is bordered by two one-way streets, a major highway, and a railroad. In a renovation project, some buildings would have to expand across those barriers, Barber said.

 “When all was said and done, the estimate to renovate was about $421 million. It was not going to cost much more to build a new hospital. We also factored in the losses we would have sustained while renovating because we would have had to shut down sections of the hospital. Building offsite in a new location meant that nothing would hinder our normal operations. That fact was also a strong argument in favor of new construction,” Barber explained.

IPDT: Shared Risk in the Construction Process

 One of the unique features of the OMHS construction project was implementing an Integrated Project Delivery Team (IPDT) contracting approach that Barber claims maintains a high degree of control over costs.  The contract arrangement spreads the risk of cost overruns to all the principle players in the construction process. It also allows those key players to share equally in cost savings and includes incentives to meet scheduled time frames.

Basically, the building contracts were negotiated in advance among the engineering firm representing OMHS, the architect, the construction firm, and the Mechanical, Electrical and Plumbing (MEP) representatives simultaneously. All four were brought under contract at the same time and all agreed on a total projected budget.

“Operationally, how it works is that you have your architect, construction, and MEP folks all working together so that an architectural design would be reviewed by the construction and mechanical folks to see if the design would work within the parameters of the budget. It facilitated a much smoother building process. A lot more stuff could be prefabricated off-site according to exact specifications and then just brought in and installed to the main building,” Barber said.

OMHS was inspired to adopt IPDT during their visits to other hospitals during the initial design process. One hospital had tried to integrate an agreement among the principals involved, but they had waited too late and could not get all the principles to come to terms.

“The trick is to bring everyone in right at the beginning and hammer out an agreement before any ground is broken. That way, they all have an interest in bringing the project to a finish within budget and within a reasonable time frame. If they complete aspects of the project within so many days, there are bonuses they enjoy. If there are cost overruns, we all share in the losses,” Barber said. “It makes communication between all of us smoother to reduce project costs by trying to anticipate design changes at the front end and avoiding as many unexpected costs as possible on the back end. It’s a good concept and it’s working out quite well for us. All parties have been pleased with the way things are working out and it has streamlined the process. They haven’t had to go back and do many changes because they were able to anticipate those changes beforehand and designed it all the way through.”


During the planning process, Barber said he and members of the trustees visited a lot of hospitals going through their own construction processes, evaluating how colleagues integrated adjacencies of service lines and patient flow.

“We spent a huge amount of time on design, figuring out how we can improve the efficiency of the flow of our health care delivery so that it is less of a burden on patients, families, visitors, medical staff and employees,” Barber said

The new facility will allow OMHS to improve the flow of their service lines as seamlessly as possible from the physician’s office to the patient care areas. Ideally, service lines, Barber explained, will be delivered all on the same floor so that neurology and neurosurgical offices would be located on the same floor as the hospital suites designed for their diagnostics and procedures. Cardiac surgery and cardiology offices will be on the same floor, and the same goes for their other service lines.

What is especially appealing about the new hospital is that the board and medical staff had the forethought to purchase land on a location that allows the hospital space to expand for the next 50 or 60 years. “No one can predict what will happen in the next several decades, but at this moment, anyway, we have a location that is free from the barriers forced such a high price tag on renovation when this whole project began.”

The old hospital will still have its place within OMHS, Barber said. The plan is not to export services to the new hospital that are already brand new at the established facility. Cancer care and research services are already state-of-the-art where they are and, thus, will remain at their location.

 “Our decision to build new seems to have corresponded nicely with an overall surge in economic development across Owensboro,” Barber said. “Our new construction is already attracting the attention of young physicians looking for a good place to practice and settle with their families.”

As a ribbon cutting ceremony looms closer, OMHS is occupied with its elaborate plans to begin operations in June 2013. The plan is for the transition from the old hospital to the new one to happen quickly. If all goes well, Barber said, OMHS would take possession of the hospital around February, spend the spring orienting the staff

It’s hard to tell what the future will bring, Barber said. But before there was ever a ground breaking ceremony for the new hospital, a lot of careful planning had gone into the decision to build a new hospital. The end result of that work has already triggered growth in jobs and opportunity in a city that appears to be enjoying an economic resurgence.

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