Healthcare Projects Through a Debt Crisis Lens

Posted on November 21, 2011


One important cultural tenet, in this time of more-or-less global economic malaise, is fiscal responsibility.

Faced with the European Debt Crisis, fiscal responsiblity for countries hoping to survive has translated lately into “austerity measures”.  Austerity measures are aggressive attempts to get a country’s financial house in order in double-time; it includes large scale debt reduction, spending freezes, paring down to essential public services, cutting or suspending benefits to government workers, and workforce reductions. California exercised something similar when it introduced involuntary furloughs for government workers. The U.S. Post Office has threatened something similar suggesting it may stop delivering mail on Saturday.

Austerity measures are politically correct now because it is a last-ditch, 11th hour attempt to signal to outsiders ‘No really, we’re serious about this’.

As austerity and frugality are now en vogue, spending and visible wealth are more than gauche; they draw ire and social digust.  Case in point:  the Occupy Wall Street protests.

Historically, a display of wealth was a way to signal high social status. One sure way to prove wealth was to throw away money, in a figurative manner—to consume conspicuously in empty, ostentatious ways.

As belt-tightening is now not only necessary but acceptable and even trendy, penny-pinching does not carry the social stigma it once did. The pendulum has swung so in favor of the budget-conscious to where social status and public opinion are ignored by participants:  saving money is that essential.

Anyone on the wrong side of the spending curve can be caught in a politically and socially bad place. This carries through to healthcare administrators managing the budget of a razor thin margin, socially-responsible enterprise like a hospital. Capricious use of capital could be a public relations nightmare.

Yet some hospitals that continue to execute projects the way they did when times were booming and money was plentiful and cheap (i.e. design-bid-build and CM-at-risk) are in danger of this perception. Design-build offers not only a more attractive first cost, design-build is more efficient from a resources standpoint:  it gets a hospital in their project and earning revenue months sooner—and that is huge in right now. Costly change orders?  Gone. And the labor required to manage the project, whether a third-party or in-house staff, is severely reduced.

One image a hospital board does not want:  a group of irresponsible stewards with money to burn. Yet that could be a distinct reality by maintaining the lazy status quo with traditional project delivery. Options have evolved, and every dollar must be critically analyzed for maximum hospital benefit. The shame lies not in trying something, or adapting austerity measures at your hospital, but in using old, faulty reasoning as shelter for today’s decisions. This is a new, sustained era of smart spending, and I recommend blending in.