Construction Cost Analysis and Update

Sutter Health Van Ness Campus Hospital

Health systems looking to expand their facilities and improve their services may face significant challenges when it comes to construction costs. The cost of building and renovating healthcare facilities is a significant expense, and changes in construction costs can have a significant impact on a health system’s budget and ability to expand. Especially following supply chain disruptions throughout the Covid-19 pandemic, construction costs are at a record high level.  

Construction costs have been increasing in recent years, largely due to a combination of factors such as a shortage of skilled labor, rising material costs, and increased demand for construction services. The COVID-19 pandemic has also contributed to these rising costs by disrupting supply chains and increasing the cost of raw materials, such as lumber and steel. 

According to recent reports, construction costs for healthcare facilities have increased by as much as 3-4% annually over the past few years. However, that’s on the low end. In some cases, we have seen prices that have increased as much as 40 percent. This means that health systems looking to expand their facilities or build new ones may face significantly higher costs than they would have just a few years ago. 

What does this mean for health systems looking to expand? The current state of construction costs presents several challenges for health systems. First, the increased cost of construction may limit a health system’s ability to expand or upgrade their facilities, particularly in areas where the demand for construction services is high. Health systems may need to carefully evaluate their expansion plans and consider alternative approaches, such as renovating existing facilities or partnering with other organizations to share the cost of new construction. 

Additionally, the increased cost of construction may affect the quality of the facilities that health systems are able to build. Higher construction costs may result in reduced budgets for things like medical equipment, technology, and other essential features that are necessary for providing high-quality healthcare services. 

Despite these challenges, there are several strategies that health systems can use to navigate the current state of construction costs. One approach is to work with experienced construction partners who can help identify cost savings and other efficiencies in the building process. Health systems can also explore alternative construction materials and methods that may be more cost-effective while still meeting their needs for safety and quality. 

Another approach is to leverage technology and data to better understand the total cost of construction and identify areas where cost savings may be possible. For example, health systems can use data analytics tools to track and analyze construction costs, identify areas where they are spending more than necessary, and adjust their strategies accordingly. 

Finally, health systems can explore alternative financing models that may help them manage the cost of construction. For example, health systems can work with public or private partners to secure financing for their expansion projects, or explore new approaches to funding, such as crowdfunding or social impact bonds. 

Most importantly, health systems need to adjust their goals and expectations regarding construction and development costs to align with current markets. Health systems may need to carefully evaluate their expansion plans, explore alternative approaches to construction, and leverage technology and data to better understand the total cost of building and renovating healthcare facilities. By taking a strategic approach to expansion and focusing on cost efficiencies, health systems can help ensure that they are able to continue providing high-quality healthcare to their communities.  

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Chris White

Business Development Manager

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