Why new hospitals are being built during tough financial times

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To do so, it must keep up with UM, said Allan Baumgarten, a Minneapolis-based healthcare consultant who also publishes the Michigan Market Review.

“Henry Ford wants to be seen as a top-level destination for medical education, research and specialty patient care for the state and the region,” Baumgarten wrote in an email to Crain’s. “It sees its key competitor as the University of Michigan health system, which has spent more than a billion dollars to replace and expand its Ann Arbor campus and is acquiring hospitals in the Lansing area. Henry Ford needs to make its facilities brighter and shinier and more appealing to both patients, doctors and researchers. It could make small investments and incremental improvements or it could swing for the fences.”

HFH chose to go for the home run. But the timing is difficult.

The health care industry faced its first real recession during the COVID-19 pandemic. Many health systems were propped up in 2020 and 2021 by massive government relief and stimulus investment, which filled financial gaps in soaring care costs from overrun emergency rooms and filled beds.

But 2022 proved a sobering reality. Labor costs rose exponentially due to staff burnout and nurses abandoning hospital employment for lucrative travel contracts.

Even today, contract nursing costs remain at least 60 percent higher than pre-pandemic levels. Nationwide, 53 percent of hospitals were projected to lose money in 2022, according to a report by consulting firm Kaufman Hall.

Riney said the hospital is confident in its fundraising abilities and its portfolio provides excellent ability to leverage funds. The project will also likley be supported by yet-to-be-determined public funding and tax dollar support.

“A project of this magnitude will require multiple funding sources, including our own capital investment,” Riney wrote in a statement. “Additionally, we’re seeking financial support from the generous donors and community who share in our mission and vision. We’ll also explore opportunities for grants and other appropriate funding sources.”

Laura Appel, executive vice president of government relations and public policy at the Michigan Health and Hospital Association, compared healthcare investing to other public goods that must be completed regardless of current financial pressures.

“Regardless of the financial situation in the state, we’re always working on the roads. You can’t let them go,” Appel said. “That’s the same logic for why systems are always working on their infrastructure — you’ve got to keep up even in times of great financial distress.”

It will be decades before the system or the public know whether the bet by HFH was worth it financially, but short of collapse, investments like this are always beneficial to the community, said Alex Calderone, president of Birmingham-based turnaround and consulting firm Calderone Advisory Group.

“I think this is good for the state, city and region, in general,” Calderone said in an email to Crain’s. “The local residents will have access to a world-class facility and its operations will draw more people downtown whose dollars will spill over into other businesses. The infrastructure is aged and in need of replacing and to some degree we are capacity constrained. The research facility is also likely to attract top medical and scientific talent to the area. With that being said, time will tell if there will be a dollar-and-cents return on investment.”

Henry Ford and most Michigan health systems are nonprofits and have a community obligation as well.

Recall that the primary goal of health care, at least from the perspective of the community it serves, is not necessarily to rake in the cash,” Calderone said. “It’s to keep our communities healthy and treat sick patients, and that’s why a substantial portion of the project will be financed through philanthropic efforts.”

This story first appeared in Crain’s Detroit Business.

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