Portland area's nonprofit health providers find room for expansion ...

Daylight streams through prominent windows into patient rooms at the new Randall Children's Hospital in Northeast Portland.

All rooms are private and fitted with extra space and furnishings for family to sleep over. One floor flows out to a terrace garden where young patients can escape to play and relax with family and friends. Every patient floor features a spacious common area with warm woodwork, soft carpets, soothing artwork and floor-to-ceiling windows to make families feel less hospital-bound.

Despite the financial uncertainty hospitals find themselves in, nonprofit health systems in Portland continue to find ways to finance ambitious capital projects. Legacy Health is spending $245 million on the children's hospital project. Oregon Health & Science University has committed $92 million in institutional funding to building a new office tower on the South Waterfront. Kaiser Permanente has a $344 million hospital under construction in Hillsboro.

Randall Children's Hospital

Location: 2801 N. Gantenbein Ave., Portland

The project: A 334,000 square-foot, nine-story tower with 165 beds, four times the size of the original children's hospital at Legacy Emanuel Medical Center.

Opening date: February 2012

Budget: $245 million, including a renovation of the emergency department at Emanuel. Legacy raised $150 million by selling bonds in 2009 that must be repaid over 20 years. The Robert D. and Marcia H. Randall Charitable Trust donated $10 million last September. Other donors total about $30 million. Legacy expects to use cash reserves to cover the balance.

Future income is one of the biggest uncertainties. Oregon hospital revenues haven't fully bounced back from the plunge they took during the depths of the recession. Since 2008, credit rating firms have been busy downgrading nonprofit hospitals, and the outlook for nonprofit hospitals this year remains negative.

For income, most hospitals rely heavily on the federal Medicare program for retirees, and Medicaid, the state and federal entitlement program that covers medical costs for low-income children and pregnant women. Oregon and other states have cut Medicaid payments by hundreds of millions of dollars and are under pressure to cut even more. Health reform efforts by state and federal lawmakers are supposed to shift money toward primary care and away from inpatient medical centers.

"It's a huge challenge," says Susan Mullaney, administrator for hospitals at Kaiser Permanente Northwest, which plans to open the new Hillsboro hospital next year. "The bottom line is, our population is aging. More people are going to need hospital care. We need to be able to provide a top-rate facility for them. We have to do this."

To maintain operating margins, some health systems are laying off workers even as they invest in construction. Legacy Health in December said it would eliminate up to 400 jobs.

Providence Health & Services, which cut 85 positions last year, has imposed a freeze on capital projects.

"Unless it is critical to our patients' health or safety, we are not moving forward with any," says Shelly Handkins, Providence chief financial officer for the Oregon region. "For the next year, I expect us to stay on that path."

The biggest challenge, Handkins says, is the flat or declining federal reimbursements. Hospitals used to cover shortfalls from Medicare and Medicaid by raising prices charged to commercial health insurers and employer groups. Now, Handkins says, "The commercial market can't afford any kind of significant increase. We've got to get our cost structure down."

Those that continue to build say they need to replace crowded, obsolete hospitals.

"Hospitals are designed a lot differently these days," Mullaney says. "We've got to keep pace with that."

Studies have raised concerns about older hospitals' confusing layouts, noise and lack of privacy. For instance, infection risk is lower when patients are given private rooms rather than sharing quarters.

Competition is another driving factor. And some health policy experts worry the competition drives hospitals to build more capacity than needed. Studies suggest excess hospital capacity can drive up spending on services without improving health.

Mullaney says the number of Portland-area people enrolled in Kaiser Permanente health plans has grown too large to be served by a single hospital, Kaiser Sunnyside Medical Center in Clackamas.

Dr. Molly Burchell, clinical vice president for Legacy Health, says population growth and patient needs have created enough demand to keep Randall Children's Hospital busy along with Doernbecher Children's Hospital at OHSU. She says the two children's hospitals are often full or near capacity.

Oregon Health & Science University Collaborative Life Sciences Building

Location: South Waterfront

Opening date: 2013

The project: 500,000-square-foot building in collaboration with Oregon State University and Portland State University with space for education, research, offices for health professionals, retail, food service and parking.

Budget: $160 million will be funded through $110 million in state bonds, an anonymous $40 million gift, $10 million in TriMet support for a new transit station, and with OHSU assuming debt servicing for $30 million of the state-issued bonds. $135 million will be funded by $43 million in philanthropic fundraising by OHSU and $92 million in OHSU institutional funding.

Legacy raised $150 million for its latest round of construction and renovation by selling bonds in 2009 that must be repaid over 20 years. But like other hospitals, it has also found many willing donors.

The Robert D. and Marcia H. Randall Charitable Trust donated $10 million last September. The company expects to raise $30 million for other donors. Legacy expects to use its cash reserves to cover the balance.

An anonymous donor gave $40 million to OHSU, and the university expects to raise $43 million from other donations to help pay for the Collaborative Life Sciences Building on the South Waterfront. The project is also supported by $110 million in state bonds. OHSU plans to spend $92 million from its own reserves.

Nonprofit health systems often have considerable cash available for capital projects. Kaiser Permanente is using internal reserves to cover the entire $349 million cost of the hospital in Hillsboro. The company began planning and budgeting for the hospital in 2005, years before the prolonged economic downturn.

"We don't have to borrow money or issue bonds," Mullaney says. "We're staying the course on this one. Financially, we are still in a stable position to do so."

--Joe Rojas-Burke

Randall Children's Hospital

Kaiser Permanente Westside Medical Center

Location: Tanasbourne district of Hillsboro

The project: 421,000-square-foot hospital with 126 private rooms and capacity to expand to 240 rooms; eight operating rooms; an emergency department with 27 treatment rooms; 60 physician offices with 90 exam rooms; a multilevel parking garage for 900 vehicles.

Opening date: August 2013.

Budget: $344 million, covered entirely by the company's financial reserves.

Source: http://www.oregonlive.com/business/index.ssf/2012/07/portland_areas_nonprofit_healt.html

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