Help Bring Money to the Table

Posted on October 20, 2010

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Hospitals make money in three ways:  payments for service (Medicare, Medicaid, private payment), increases on investments, and increased philanthropy. In this economy, many projects are left in suspended animation due to reduced income from all three sources.

Design and construction professionals are not in business to make donations or cut fees, but postponed healthcare projects hurt everyone. Instead, design-builders can get creative and add value by uncovering additional sources of funding for their clients.  Here are some…

Traditional sources:

  • Bonds.  Municipal or state bonds are often available for healthcare projects provided a market of interested buyers exists.
  • Loans.  Besides USDA and HUD 242, civic-minded investors or consortiums, similar to venture capitalists or angel investors, may be more open to making capital available when banks are less so.
  • Grants.  Federal and private grant sources exist, but require research and dedicated grant writing effort.
  • Tax Incentives.  Everything, from formal, federal programs like historic preservation and sustainable design to less advertised negotiated deals with local government for waived or deferred taxes, is game.
  • Local Government.  Temporary community tax or millage increases must be balloted and voted on by the public.

Ownership sources:

  • Third Party Financing.  For-profit systems may have some flexibility to team with real estate developers and other associations with deeper pockets.
  • Joint Venture / Sponsorship / Partnership.  Another healthcare system may have cash waiting to be used if the right financial opportunity arises, and affiliation could offer unexpected synergy.
  • Sale / Merger.  Sometimes it takes a business and ownership model reorganization, the ultimate sacrifice for some, to realize a project that must get done.
  • Alternative Ownership.  Promise may exist in borrowing ideas from other industries like higher education, which have had success making projects happen on tight public, not-for-profit budgets with set-ups like public / private partnerships and sale-leasebacks.

Sometimes overlooked but helpful sources:

  • Gifts (or Services) In-Kind.  Network to see who might offer discounted or gratis help—especially construction-related services like surveying, contract review or landscaping.
  • Donation / Bequeath of Land.  In more rural or suburban areas, wealthy and modest individuals like farmers may be excellent sources of land, which is sometimes the priciest part of a project.
  • Naming Rights.  Usually worked into a capital campaign, legacy-driven citizens may take an interest in a specific project.

Construction team sources:

  • Creative Project Phasing.  By staggering which parts of a project are done at which time, projects can be spread over multiple fiscal years; CON states that allow shell space can aid this strategy.
  • Creative Billing.  By working backward from funding sources, fees can be paid as funds become available rather than on a more typical regular payment schedule.
  • Program Reassessment.  Six sigma and other internal troubleshooting may eliminate the need for some of the project square footage.
  • Off-Balance Sheet.  Occasionally, professional service providers can provide small bridge loans or extend credit—or they may know someone who can with very attractive terms.

This list is not exhaustive, but representational of the creativity involved in bringing a project to fruition in these difficult economic times. In some ways, the options are endless and it makes a lot of fiscal sense to do some research as well as ask around to see what others are doing to solve the same problems. A hospital and community may own a project, yet everyone who has a hand in its execution ultimately has a financial stake in it, and in its success.

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Posted in: Project Cost