ST. JOSEPH — A $160 million expansion and renovation this fall will modernize Lakeland Health’s main campus in St. Joseph, allowing it to operate as efficiently as possible and drive quality outcomes.
Health care is steadily moving into an age of value-based, or risk-based, contracting where payments from insurers are increasingly based on how well care providers do their jobs, transitioning the industry away from the traditional fee-for-service economic model.
Operating in an aging facility, portions of which date back six decades and are no longer conducive to today’s medical technology and practices, requires Lakeland Health to embark on the ambitious four-year project that begins this fall, President and CEO Loren Hamel told MiBiz.
“We have a number of existing services that just need to be modernized. They are in facilities that are a little too tight and a lot too old to meet the needs of our next generation of patients and next generation of providers,” said Hamel, calling the project “an investment for the next generation of health care.”
“We are in a uniquely challenging health care environment that is transforming faster than it ever has,” he said. “You can give great care in an existing facility, but if you really want the right experiences for your patients and the right experiences for your providers, you have to continually invest in your facilities.”
The planned five-floor Lakeland Medical Center Pavilion will include a new main entrance, medical and surgical suites, a short-stay unit, medical imaging, an intensive care unit, and education and community rooms. Lakeland Health plans to construct 250,000 square feet of new space and renovate another 80,000 square feet at the campus.
Lakeland Health will hold a ceremonial groundbreaking for the project in October and targets the expansion for full completion in 2020, with the new pavilion opening a year earlier.
The project should dramatically ease the flow of patients, staff and visitors through the hospital, improve patient privacy and generate operating efficiencies, Hamel said. Lean process improvements are built into the design and development of the facility to “not just improve the building, but improve the care provided in the building,” he said.
“We’re certainly designing this in a way that will enhance efficiency, enhance throughput (and) enhance the outpatient experience as well as the inpatient experience. We’re keeping that all in mind,” Hamel said.
Generating greater operating efficiencies is increasingly important in the design of health care facilities in an age of value-based contracting, which brings with it greater risk for care providers, said Anthony Colarossi, a health care consulting partner at Plante Moran PLLC.
Under the new contracting model, care providers are paid more as they improve efficiency, cost and quality. Those factors are among the drivers behind the $271.2 million project in Muskegon where Mercy Health is expanding and renovating the Mercy Hospital campus, and transitioning the Hackley Hospital campus into an outpatient setting.
Health care remains about five to seven years away from full implementation of risk-based contracting, Colarossi said. Health systems still have a window to get their operations and facilities aligned with the new model, he said.
“That’s going to come sooner or later, but people are eating away at it and they want to get the fixed cost structure before they take on more risk,” Colarossi said. “Everything is about reducing cost. ‘How do I take that fixed component of my operations and reduce it down so that I don’t have to affect the clinical component cost structure as much today?’”
Also driving the development of new, more efficient health care facilities “is a general acceptance that there’s not going to be a whole lot of new money in health care for a period of time,” Colarossi said. “If you’re reducing the true cost, which is the spend from the payers, then you have to concentrate services in a more cost-efficient manner.”
In St. Joseph, the Lakeland Health project “developed over time,” Hamel said.
Lakeland Health in 2015 received state certificate-of-need approval for a $38.3 million project for eight new operating rooms and three catheterization labs at the St. Joseph hospital. That project led to a much broader look at the facility, Hamel said. Lakeland Health will submit a modified CON application to the state for the new project, he said.
“We started with a mindset of what do we have to do now, then we added what would we need to do soon, and then we added what might we want to do related to the changing health care world,” he said.
Turner Construction Co. will lead the construction and the Chicago office of SmithGroupJJR is the lead architect. Lakeland Health plans to award as many construction contracts as possible to qualified local contractors, Hamel said.
“We do everything we can to involve local contractors in every way we can,” he said.
Lakeland Health plans to finance the project mostly with reserve funds, plus operating funds and $12 million it hopes to raise through a capital campaign.