ENR California's Owner of the Year
Take a heath-care company whose construction projects are so massive that they often lift entire local economies. Add generous amounts of innovation and philanthropic spirit as well as an enviable record of worker safety and innovation. That’s a recipe for success, and it’s why ENR California has chosen Kaiser Permanente as its Owner of the Year for 2011.
The Owner of the Year selection is based on several criteria, including volume of work in a region; economic, social and environmental success; setting high standards for worker safety; advocating and adopting innovative construction methods; and using progressive project methods. Kaiser, which provides health care to nearly 9 million people in nine states and the District of Columbia, excelled in all of those categories.
Kaiser is immersed in what it describes as “one of the most ambitious construction programs in the history of American health care,” totaling more than $2.9 billion in annual capital improvements nationwide. About $2.1 billion of that total is currently flowing into cash-strapped California.
Susan McDonough, a Kaiser spokesperson, says the company’s current capital budget, which extends to about 2020, includes plans to build, expand and carry out major renovations at 12 hospitals and more than 60 medical office buildings around the country.
McDonough says that funding for these projects comes from the company’s operating cash flow and tax-exempt bond financing. “Our cash flow does originate from member revenue, but we currently have about $6 billion in bond financing for our capital investment and we’re working again for another round of bond issuance next year,” she adds.
Kaiser has divided its California construction program roughly in half between the state’s northern and southern regions.
In Northern California, the company has between 1,800 to 2,000 building projects under way at any given time and is spending slightly more than $1 billion on building and maintaining existing hospitals and other medical facilities. In Southern California, which has been particularly hard hit by economic woes, the company is spending about $1.1 billion a year in construction and maintenance.
“A health-care facility is an economic engine for a community,” says Don Orndoff, Kaiser’s senior vice president of National Facilities Services, Oakland. “As an example, just to build a facility in Richmond, which is struggling economically, is a huge boost to the economy. I went to the opening of our facility in Vallejo, and every politician there was saying, ‘Thank you for bringing this boon to our community.’”
Driving much of Kaiser’s construction in California is its focus on meeting or exceeding the state’s earthquake safety rules for hospitals. California’s Senate Bill 1953, which took effect in 1994 and is overseen by the Office of Statewide Health Planning and Development, requires all hospitals with a significant risk of collapse in a strong temblor to be retrofitted or replaced by 2013. The bill also mandates that all hospitals comply with the state’s most rigorous seismic standards by 2030.
Besides the economic benefits its construction provides, Kaiser has shown a strong commitment to giving back to the communities where its facilities are located. It donates $1.7 billion nationally, which is more than many owners spend annually on capital projects. For example, every major Kaiser Permanente hospital and many of its medical office buildings host regular farmers’ markets, which help local farmers and encourage the consumption of healthy foods.
The $750-million Oakland Medical Center and the $540-million Ontario Medical Center are two major replacement hospital projects that exemplify how Kaiser Permanente meets Owner of the Year criteria.
Both projects show a willingness to embrace innovative construction methods and project delivery systems. Simon Gregson, McCarthy Building Cos.’ project director for the Oakland hospital, says he was impressed by Kaiser’s insistence on exploring new technologies and, if they prove beneficial, putting them into action.
For example, Kaiser sought early adoption of FreightTrain, a Web-based software tool from Healthcare Technical Services, Los Angeles. The software helps companies track, evaluate and respond to subcontractor performance in critical areas such as inspection requests. “We now have metrics to measure, historical information to compare. That obviously helps us manage the whole inspection/quality assurance-quality control process,” Gregson says.
Kaiser also emphasizes worker safety on jobsites. The general contractor for the Ontario Medical Center project, Whiting-Turner Contracting Co., Baltimore, Md., received a California Division of Occupational Safety and Health award for its safety record. The project had six lost-time injuries or accidents over 2.37 million worker hours.
Besides aiming to meet the California seismic legislation targets and using project-management tools to increase efficiency, there are other factors propelling Kaiser’s construction plans, says McDonough. They include ongoing capital maintenance, steady membership growth despite a sagging economy, and a cost-saving template for hospital design.
McDonough adds that if the 2010 Patient Protection and Affordable Care Act enables 32 million previously uninsured Americans to get health-care coverage, Kaiser expects to pick up its fair share of new members.