At $271.2 million, the expansion and renovation at Mercy Health's Mercy Hospital campus in Muskegon stands as one of the largest health care projects in Michigan today.
Now in the design phase and targeted for groundbreaking in May, the Mercy Hospital project is also indicative of an upswing in health care construction and capital investments across Michigan, as evidenced by a spike in 2015 in projects requiring state certificate-of-need review.
The number of projects approved during 2015 grew to 383 with a combined value of $2.78 billion, up from 298 projects for $1.05 billion in 2014.
There were 348 CON applications submitted in 2015 to the Michigan Department of Health and Human Services for projects with a collective value totaling $2.40 billion, which compares to 243 applications the prior year for $1.08 billion. The applications include projects that are still awaiting approval and whose review extended into 2016.
On the project list from the state are an assortment of mundane investments to replace or upgrade medical equipment such as MRI and CT scanners, plus numerous sales of nursing homes throughout Michigan.
The list also includes large and small capital projects to develop new facilities or expand and renovate existing facilities ranging from ambulatory care centers, medical office buildings and even a handful of replacement hospitals. For example, the $389.5 million plans for a new hospital at Marquette General in the U.P. is the single-largest project in the state.
The activity has been ramping up the last couple of years following the economic turmoil of 2008 to 2010, a period where “the brakes were put on” large capital projects as financing was difficult to secure, said Anthony Colarossi, a health care consulting partner at Plante Moran PLLC. On top of that came the passage of the Affordable Care Act that created uncertainty, plus the emergence of population health where care providers are compensated by how well they care for the people they serve versus the volume of care they provide.
After adjusting to the new era of health care, health systems are now proceeding with corresponding capital investments, Colarossi said.
“People have kind of figured out their strategies now, and their strategies are quite different than what we saw in the 2000s,” Colarossi said.
Much of the focus for health systems today is developing ambulatory capabilities and renovating existing buildings or developing new facilities, Colarossi said. Health systems need facilities that are much more flexible “so it can go back and forth from one type of service area to another very easily so that they’re not investing in bricks and mortar in a foolish manner,” he said.
During the Great Recession, many health systems also identified inefficiencies in their facilities as they sought to generate cost savings. As the economy recovered and interest rates remained low, health systems began to “implement some of those things to fix some of those inefficiencies” through renovations, Colarossi said.
Construction projects of note in West Michigan that earned CON approval in 2015 include:
- The Mercy Health expansion and renovation in Muskegon that will consolidate in-patient care at the Mercy Hospital campus and drive efficiencies by eliminating redundancies with the Hackley Hospital campus about three miles away. The Hackley campus will become an outpatient medical center.
- The $38.3 million development of eight new operating rooms and three catheterization labs at Lakeland Hospital in St. Joseph that received approval in June. Executives declined to discuss the project with MiBiz.
- North Ottawa Community Hospital earned CON approval in August for a $7.4 million emergency room renovation and expansion.
- Spectrum Health in September received the OK for a $6.9 million project at Butterworth Hospital for its adult bone marrow transplant program.
- In Lansing, Sparrow Health System broke ground last May on the Herbert-Herman Cancer Center, a project where the state waived a CON review. In its letter of intent to the state filed in February, Sparrow listed the cost of the 147,000-square-foot, four-story building at $55 million.
Colarossi expects growth in health care construction to continue for the foreseeable future. Health systems will develop more “centers of excellence” and consolidate physician practices and other professionals into those centers.
“This has legs,” he said. “We’re going to see some old campuses close, especially when you’re looking at what’s happening in rural markets and new buildings come up that are more focused to what really needs to occur in that community. If you haven’t constructed a facility in the last 10 years, you’re going to see significant renovation in order to make it more specific to the identified centers of excellence that are going happen at that campus.
“This is a 10-year stretch that you’re looking at.”