Chris Dunn is a Member of Epstein Becker Green in the firm’s Nashville office. He counsels health care owners and developers on all aspects of construction projects, from the creation of custom design and construction agreements to creative and efficient dispute resolution. Chris is a fellow in the American College of Construction Lawyers and Chambers Tier One rated within Tennessee.
What are the trends in the Nashville area in healthcare construction? (Office space and worker return issues, major facilities, ancillary facilities like labs research centers and the growing pharmaceutical industry.)
The trends in Nashville area healthcare construction mirror those we see nationally with providers facing a triple threat of adversity; specifically, labor shortages, supply chain disarray, and interest rate increases.
Healthcare construction costs surged between November 2020 and 2021 by twelve percent. In the succeeding year (2022) healthcare construction costs escalated to eighteen percent. Fortunately, while the rate of increased prices continues, the rate of inflation seems to be settling into more of a three to five percent range. The bottom line is that over most of the last three years projects have been much, much more expensive and taken longer to complete and that chilled development in a period where revenue was not growing for most providers. I do think change is on the horizon though.
What kind of growth do you see in the next five years in healthcare construction in Nashville?
I think the Nashville region will see growth in these facility types too. Our population growth will demand it. Nashville’s has a distinct advantage apart from being so central, which is that it’s significant access to water, which will help it avoid limitations like you see now in Phoenix or will likely see in Salt Lake City.
What challenges to construction are contractors and owners facing and how are they navigating them?
There are two (2) very imposing challenges that owners and their prime contractors face right now – both at a level that is unprecedented in most people’s careers.
First, there is an acute shortage of skilled trades in the U.S., especially electricians, plumbers, and carpenters.
Second, lead times for critical equipment used in health care construction are brutal right now. For example, generators can take fifty-two to one hundred plus (52-100 +) weeks; electrical switch gear sixty plus (60 +) weeks and other major HVAC units anywhere from twenty-six to fifty-two plus (26-52 +) weeks.
While most healthcare providers were familiar with the pre-2020 challenges to development, construction in the US has changed drastically in the last three (3) years. As a result, construction agreements and their negotiations more important than ever – providers who are on autopilot and aren’t adapting will be a disadvantage and get less for their design and construction investments.
What recent lawsuits are having significant impacts on the business of healthcare construction and what should owner/executives look out for?
Historically, I personally believe that it is very common for courts to take more of an industry sided approach in their decision-making during periods of economic challenges. Contractors or subcontractors, particularly who are involved in payment disputes, tend to see these benefits to the detriment of owners or developers of real estate. There have been cases in the last twenty-four (24) months nationally that fit this mold. But apart from this shift, there are some legislative trends that present challenges for providers.
For example, Colorado has legislation that’s been enacted to greatly restrict the damages an owner of real estate could pursue if there are serious defects on their projects. The impact on providers is inherently unfair. Specifically, the legislation the ability for an owner to pursue losses of use it may suffer in the wake of a pervasive defect. Another example, closer to home occurred this Spring in Florida where the legislature reduced the period in which claims could be brought under their statute of repose from ten years to seven years. This is a significant reduction when you factor that a health care facility will easily have life spans in the thirty to fifty (30-50) year range.
Epstein Becker Green’s (EBG) Healthcare Construction Group recently held a conference in Nashville. What were some of the main takeaways that providers found most valuable?
Yes, we held the conference to offer healthcare providers a unique environment where they could meet and connect as peers without the sales pressure they see at other events with designers and contractors vying for their attention.
We talked a great deal about the most up to date material and labor cost assessments, points of emphasis in 2023 from the Joint Commission, discussed the 2022 Facility Guideline Institutes editions, and got the latest on pre-fabricated construction and AI from a Nashville area hospital company, and also had an excellent segment on constructing and operating energy efficient hospitals from another publicly traded hospital company in the region.
Another major takeaway focused on the need to ensure that providers were getting very good guidance on reimbursement in building their business cases for their facilities before and during early design phases. Assumptions made about a reimbursement – either through a private insurance or a CMS-based source — are too often ill-informed. When business cases involve issues like site selection, grandfathering status with CMS, and the boundaries of campus expansion, there are many factors that can be disruptive to reimbursement. Savvy providers are beginning to see this and making sure that their designers get great input on the legalities of reimbursement – before programming and the design process get too far down the tracks. Truly, ounce of prevention, pound of cure stuff.