Economic volatility, supply chain chaos and construction inflation are blowing up strategies and capital plans. 

Despite this, and competition from data center development, healthcare systems must find a way to meet the needs of a growing population expanding to new parts of the Houston-area suburban fringe, executives and builders said at Bisnow’s Houston Healthcare Conference at Hyatt Regency Houston Galleria on Thursday.

“The cost certainty continues to flux,” said Karen Mooney, associate vice president of facilities planning design and construction for MD Anderson Cancer Center. 

MD Anderson is feeling the effects of the boom in data center development in Texas, which is straining demand for construction materials and equipment. Two projects the system planned to launch within the next five years are now planned for further out, Mooney said.

“Things are getting pushed out more, instead of things being greenlit right now,” she said. “We have to handle what we already have underway, and the cost increases from that.” 

This forces them to be much more flexible about timelines, which is easier for the construction side than the operations side, she said.

But greenlighting a project doesn’t mean everything will go according to plan, especially with current equipment lead times.

For projects that engineering firm Shah Smith & Associates has in progress, there is a 12- to 19-month wait for medium-voltage switchgears, an 18- to 26-month wait for substation transformers, and a 36-month wait for gas-fired generators, principal Scott Sevigny said.

This creates a substantial delay from healthcare systems’ original estimate on when they can treat patients in a new location.

“That's when it shows up on the truck,” Sevigny said of the lead times he quoted. “You still have to get it off the truck, in the building, wire it up, commission it before you can get the first patient, because you need emergency power.” 

Healthcare competes with data centers in some ways, since both demand some of the same equipment, said Todd Freed, director of healthcare, Houston, for Austin Commercial.

While hospitals need emergency power, data centers also have huge power demands. Delays are also tied to tariffs on steel, aluminum and copper, while data centers have already tied up large swaths of the steel and concrete supply.

“Data centers are crushing almost every project when it comes to structural steel or concrete,” Hoar Construction Regional Healthcare Director Synjyn Dodd said. “Some of these lead times are astronomic.” 

A project may build in two years to plan for strategy, but lead times can drastically change during that time, Dodd said, adding that he’s seen some increase by 30 weeks over the past year.

Schedules are now largely set based on when a project can acquire power equipment, Sevigny said.

In a growing market like the Greater Houston area, looking ahead is a requirement. Memorial Hermann Health System last year bought 40 acres in Waller, a growing city northwest of Houston, for a “possible future development.” 

Though Memorial Hermann hasn’t announced plans for that land, it’s shown prudence through its past real estate investments.

Building in an undeveloped market is risky, especially when you don't know whether enough population will develop to generate the volume needed to cover the cost of constructing and operating a facility, said Jerry Ashworth, CEO of Memorial Hermann’s Katy and Cypress hospitals. 

“At the Katy campus, we occupied that land in 2005, 2006, and I'm pretty sure when we bought the land, everyone probably thought, ‘What are we doing way out there?’” Ashworth said. “Well, now it's not way out there.”

The Katy hospital saw 3,300 trauma registry patients during the past fiscal year, putting it just behind Memorial Hermann’s Texas Medical Center campus as the busiest in its system, he said. 

“The same thing with Cypress,” Ashworth said. “The first time I drove to the Cypress campus, I couldn't believe we were building a hospital that far out.” 

But as the population on the west side of Houston has grown exponentially, Memorial Hermann has worked to expand its Katy hospital, but maybe not quickly enough.

“We would love to have started expansion on that campus much sooner than we did,” Ashworth said. “We're taking a more proactive approach with our Cypress campus.”

Memorial Hermann’s board has approved almost $900M worth of expansion work in about four years, he said.

Despite the challenges, work will continue as Houston’s growing population needs healthcare and hospitals.

“The market's insane,” Memorial Hermann Vice President of Facilities Engineering and Construction Michael Hatton said. “With healthcare, we're all in an arms race to see who can build it quickest and fastest and the biggest.”