How Much Does it Cost to Build a Hospital?

 May 04, 2020

The COVID-19 pandemic shines a spotlight on the hospital shortage in many parts of the United States. This stimulates interest by investors to build hospitals large and small, urban, and rural. Naturally, you must completely understand how much it costs to build a hospital. The cost to build a hospital varies by location, hospital size, and scope of services. The cost to build a small hospital is less, but not necessarily so on a per-bed basis. Certain metrics, such as average cost per bed or square foot, lets investors evaluate their financial trade-offs. Read on to learn more about the cost to build a hospital, including large, small, and smart hospitals.

Video:  University of Colorado Hospital | Construction Time Lapse

How Assets America® Can Help

Assets America® can arrange the private financing of hospitals, starting at a minimum of $20 million with virtually no limit. We work with a select network of private investors and banks that can finance new hospital construction and renovations. We believe you’ll be pleasantly surprised with what we can offer you.  If you’d like to explore your options, contact us today at (206) 622-3000 for a private consultation, or simply fill out the below form for a prompt response! 

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How Much Does It Cost to Build a Hospital?

Who can put a price on human life? For better or worse, the answer includes investors who pay for new hospital construction. Without them, our health care system could collapse under stress.

Hospitals share certain functions including administration, treatment, diagnosis, surgery, ER, imaging, etc. Of course, there are support functions such as housekeeping, food service, social services, malpractice legal services, and morgue operations. Some hospitals dedicate themselves to a subset of health problems while others offer a full range of services. These full service hospitals are typically called General Hospitals. Research hospitals work with universities to advance the frontier of medical science.

The foundation of hospital inpatient care is bed capacity. By “bed,” we also include essential equipment like ventilators and heart monitors. Obviously, hospitals must oversee the activities of its medical staff and the safety of its patients. What’s less obvious are the special structural requirements of hospitals. These include complex electrical, communications, and mechanical systems. Floors must support the heavy loads that accompany special equipment. Machines like MRIs require copious amounts of power that complicate the design and construction of electrical systems.

Hard Costs to Build a Hospital

Hard costs to build a hospital are the brick-and-mortar costs for a construction project. They include building materials, utility and fixed equipment, landscaping, and direct labor.

A large hospital with 500 beds and more than 1.3 million square feet will cost about $800 million to $1 billion to construct.

Soft Costs to Build a Hospital

Soft costs to build a hospital include architectural design, accounting, inspection, engineering, legal fees, taxes, permits, financing fees and interest during construction.

Hospital FF&E Costs

Additionally, hospital FF&E costs include computer equipment, movable furniture, telephone equipment, imaging equipment and more.

Average Cost to Build a Hospital Per Bed

Be ready for sticker shock. The largest hospitals require about $1.5 million per bed to construct.

Average Cost to Build a Hospital Per Square Foot

Without referencing the cost of medical equipment, the normal costs to build a hospital are about $400 to $700 per square foot to build.

Becker’s Hospital Review provides the following figures for the cost to build a hospital in a dozen large cities:

  1. Honolulu: $475 to $760 per square foot
  2. New York City: $475 to $700
  3. Los Angeles: $470 to $700
  4. San Francisco: $450 to $650
  5. Boston: $400 to $650
  6. Washington. D.C.: $400 to $650
  7. Chicago: $360 to $630
  8. Portland, Ore.: $380 to $525
  9. Seattle: $385 to $530
  10. Phoenix: $350 to $500
  11. Denver: $370 to $455
  12. Las Vegas: $285 to $455

Cost to Build a Small Hospital

CostFinder provides the following figures for the cost to build a small hospital (20-30 beds):

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Cost to Build a Smart Hospital

A smart hospital comprises prefabricated modules — a “hospital room in a box.” The rooms contain advanced features such as automatic sliding doors and non-porous surfaces to reduce infection. Frosted glass improves patient privacy. Intelligent daybeds include controls for windows, shades, and even for ceiling color. All the rooms contain wiring for smart technology that hospitals can integrate into their infrastructures.

Costs to build a hospital modularly runs around $500 to $600 per square foot. While this is higher initially, prefabrication can speed up completion timeframes by as much as 40%. Did you ever hear the express time is money? Well that certainly applies for modular hospital project! Developers can repay their loans more quickly and save interest expense. One Finnish manufacturer, ADMARES, builds modular health facilities using technology it developed to build cruise ships. Look for rollout of these units in Pennsylvania and five other states.

Video:  What is a Smart Hospital?

Special Factors Impacting the Cost to Build a Hospital

The cost to build a hospital continues to rise as medical care becomes more complex. Without doubt, the challenges facing hospitals are unique, and the cost to build a hospital varies accordingly. Beyond the obvious needs to provide healthcare to a diverse population, hospitals also must contend with two important factors:

  1. Mass-casualty incidents, pandemics, and environmental disasters.
  2. Demographic factors that create a large percentage of older patients in the population.

Responses to Special Factors

Hospital construction must respond to these two factors in several ways, including:

  • Resiliency: Hospital designs must mitigate the damage that unusual events can inflict.       Terrorists can plant bombs and Mother Nature can bring hurricanes, tornados, earthquakes, pandemics, global warming, and floods. Clearly, the COVID-19 disaster illustrates the need for extra capacity.
  • Patient Satisfaction: Bad design can hurt patient outcomes and satisfaction. Things to watch for include overcrowding, inefficient layouts, uncomfortable furniture, ineffective HVAC, and insufficient lighting. These factors become even more important during emergencies and disasters.
  • Technology: Hospitals are unique in that they must accommodate a constant stream of new medical technologies. Healthcare equipment changes and improves at a staggering rate, which mandates flexible hospital design and infrastructure. Designers must bear this in mind when placing generators, plumbing, and HVAC systems.
  • Patient Needs: The old concept of a centralized hospital serving all types of patients is waning. The current idea is to avoid overcrowding a central hub by feeding patients to secondary or specialized facilities. Decentralization is even more important now that so many Baby Boomers need medical attention. This not only impacts hospital designs, but also affects facilities like nursing homes, rehab centers, and hospices. As an example, hospitals often utilize outpatient dialysis centers to accommodate patients with kidney failure.

Hospital Construction Financing

Hospitals have several options to finance new construction and renovation. Bond rating agencies assign better ratings to large hospitals and multi-hospital systems compared to smaller facilities. That’s important because it gives big hospitals an advantage in raising capital at a reasonable cost. Hospitals can choose among the following alternatives.

Long-Term Debt

Hospitals frequently turn to the bond market as sources of long-term debt. The bonds may be tax-exempt or taxable. Rating agencies confer ratings upon these borrowers, and those ratings determine interest rates. For example, S&P’s top investment grade covers bonds rated AAA, AAA-, and AA+. Moody’s labels its top ratings Aaa, Aaa1, Aaa2, and Aaa3. A-rated and B-rated bonds are investment grade, while lower grades are junk. Some bonds carry no ratings.

Bonds may contain credit-enhancing features such as puts, calls, letters of credit, and insurance. These enhancements allows hospitals to borrow at lower rates. The federal government or commercial institutions can provide credit enhancement.

Hospitals that choose to issue bonds must hire a financial advisor or underwriter/syndicate to structure the deal. Investment banks can offer both services. Boutique firms that specialize in healthcare financing may compete successfully with large investment banks. Hospitals must carefully evaluate their capacity to take on debt before pursuing a bond float.

Off-Balance-Sheet (OBS) Financing

OBS financing involves long-term leasing rather than the purchase of a hospital. Structures include sales/leasebacks, synthetic leases, and master leases. This route is most suitable for existing structures rather than new construction. However, hospitals can construct new facilities and then participate in a sale/leaseback transaction.

Real Estate Investment Trust (REITs)

In this arrangement, a real estate company builds the hospital and then leases it to an operator. In this way, it is similar to OBS financing.

Frequently Asked Questions

Are hospitals a smart commercial property investment?

Hospitals can be a smart investment if you perform extensive due diligence before committing to a transaction. There are many variables to evaluate, with location being an exceedingly important factor.

How long does it take to build a hospital?

Modular hospitals can go up in less than a year. However, it might take several years or longer to complete a conventional new hospital project. Much depends on the availability of funding and the intrinsic local demand for the facility.

How much does it cost to build a hospital in Africa?

The cost to build a hospital varies by country, with some being better prepared for new hospital construction. For example, you might be able to build a small health center in Kenya for $20,000. Naturally, large hospitals will cost considerably more, especially in less hospitable countries.

How much does it cost to build a hospital in India?

Construction of a top-quality hospital in India may cost about $152,000 per bed. Note that India has one of lowest health budgets in the world, at just 1% of gross domestic product.

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