The Healthcare Delivery System Overhaul

The healthcare system throughout the United States is in a difficult transition period. Years of rapid expansions, heavy debt loads, inadequate reimbursement rates and the ever-changing nature of healthcare have lead to the current crisis. Hospital bankruptcies and closures have occurred with alarming frequency over the past decade. This comes at a time of increasing public concern over the cost, quality and availability of healthcare.

A recent New York Times survey found that “the cost of health care” was one of the four most important issues to voters in the 2006 elections. Furthermore, leading economists have predicted that in the next thirty years, healthcare spending will account for 25 percent of the Gross Domestic Product, making healthcare, in the words of one economist, “the driving force in the economy.”

The current healthcare crisis represents an historic opportunity, with leading policy makers, community advocacy groups and facility administrators committed to supporting a significant restructuring of the healthcare system. Increasing expenditures as a portion of gross domestic product, spiraling costs and systematic inefficiencies are contributing to a wave of health care facility failures and closures across the country.

These problems, however, create opportunities for specialized developers of healthcare facilities. The crisis can best be addressed by certain methods of reducing the capital costs of developing and equipping new facilities, and by reducing operating costs through more efficient configurations. These goals can be achieved by (i) using surplus land for facilities that are compatible with the adjacent health care facility to create operational synergies and additional revenue sources and (ii) specialized merchant developer and turnkey design/build packages to produce the most cost efficient facilities.

Our team brings unique expertise in the conceptualization and development of large scale economic development projects in urban areas. The industry is poised for the application of our broad range of development services to assist the large number of public and private hospitals and related facilities facing fiscal crisis (hospitals, medical centers, satellite facilities, outpatient units, medical office buildings, skilled nursing and assisted living facilities, etc.).

Our business model is focused on two types of opportunities:

Adaptive Reuse

The first model is the adaptive reuse of obsolete or underperforming healthcare facilities. The adaptive reuse would ideally include a reconfigured health care component, so that the community may continue to be served by a more effective facility, as well as new development of other synergistic uses and facilities. The public purpose result is to enhance community services and act as a catalyst for other development activities in the area.

Privatization of Healthcare Facilities Development

The second type of opportunity relates to assisting viable health care institutions to reconfigure and expand. Many institutions have the need and market demand for expansion, but are constrained by their inability to access the capital markets. The opportunity here is to structure the expansions as “stand alone” projects that can be financed on a non-recourse basis.

This approach is based on using private capital and a private developer acting as a "Merchant Developer." This enables greater efficiencies in planning, designing, financing and constructing facilities than traditional methods.

Most health care institutions have been reluctant to use this potential source because of (i) the complexities related to their 501(C)(3) status; and (ii) concern about interference in their core operations by a profit-motivated entity. Chi has developed innovative mechanisms to defeat both these challenges.

Chi leverages these creative models and techniques to help healthcare institutions compete successfully in a changing industry, and to meet their continuing mission to their communities, patients, employees and physicians.

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