ASC Construction Costs Up 50%

Healthcare Appraisers
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In 2006 the average cost to construct a freestanding 12,500 square foot ASC in the U.S. was about $3.6 million.  By 2016, the cost to reconstruct the same exact surgery center rose $1.8 million (50%) to $5.4 million.

According to construction industry cost surveys analyzed by HCTadvisor over the past 10 years, overall ASC construction costs have risen about 50% nationally across the U.S.  All aspects of ASC construction costs have increased.

  • Increase in ASC construction costs by type (2006-2016)
    • HVAC: +72%
    • Contractor fees: +46%
    • Architect fees: +46%
    • Electrical: +40%
    • Core & shell: +33%
    • Equipment costs: +32%

These trends are a death knell to many prospective ASC developments.  It is difficult to realize a reasonable return-on-investment (ROI) when investment requirements increase 50%.

If you are developing a new ASC, consider these strategies:

  • Building out an existing space (tenant improvements) in an existing medical office building with reasonable rent is a cost effective alternative to building a new, freestanding ASC.  Core and shell costs have increased 33% over the past 10 years, and you may be able to find the most cost effective alternative by improving space in medical office buildings that were constructed years ago.
  • Build fewer operating rooms.  Building excess, under-utilized capacity into your facility compounds these problems.  You still have to pay principal and interest payments on unused operating rooms that sit empty and vacant every afternoon.  It is a much better problem to have operating rooms that are over booked and bursting at the seams than to have unused space that cost over $460 a square foot to build.
  • Find an architecture firm with ASC experience.  You cannot afford to run up change orders or revisions if you fail a state or Medicare life safety code survey.  A handful of experienced architects like Boulder Associates and WEL Designs have ASC specialists.
  • Mitigate as much business plan risk as possible.  Once your development costs are fixed, the only variables are case volume and reimbursement.  It is difficult to recover from blowing your revenue projections, so make responsible assumptions about reimbursement and surgical case volume before you move forward with construction.
Model ASC Financial Projections Like a Professional If ASC construction costs are 50% higher than they used to be, you should model out your ASC’s financial projection to make sure you can cover all leases, as well as debt payments on construction and equipment loans.  HCTadvisor’s ASC pro forma Excel (.xlsx) model is intended for use with de novo ASC development projects and ASC renovation projects.

The ASC pro forma model is pre-populated with example inputs. Users must update the input fields with all of their own specific value inputs for case volumes, reimbursement, material costs, staff FTEs, staff salaries, and facility expenses.

Speed Demo – Ambulatory Surgery Center Pro Forma Model

 

This ambulatory surgery center pro forma model includes the schedules below.

Capital Plan Physician Data Input Volume, Revenue, Material Projections
O.R. Utilization Analysis Projected Expenses Staff Plan
Income Statement Cash Flow Statement Balance Sheet
Capital Expenditures Working Capital Equipment & Building Loans