Hospital construction bills are being driven upward not only by the expected red tape, but by a nearly perfect storm of other factors: high demand for building materials, both in the United States and developing countries, such as China; experienced building contractors and subcontractors reluctant to take on the complexities of healthcare construction; pressure from labor unions; and a more consumer-friendly bent toward designing larger, costlier private rooms versus the semi-private rooms of the past.

The historic cost trends no longer apply. According to the Association for General Contractors (AGC), copper prices nationwide have nearly doubled since 2001. Steel prices rose nearly 50 percent between 2001 and 2003. And the price of concrete on average rises more than 9 percent per year. According to a recent AGC report, flexibility in construction is nearly impossible: “Unlike consumer electronics makers, contractors cannot generally make a building smaller or lighter.”

This has translated into an especially harsh building environment for hospital operators in California. According to a report by architectural consulting firm Davis Langdon & Seah International prepared for the California Hospital Association, hospital construction costs reached $550 per square foot in January of 2006, compared to $330 per square foot in 2003 – a 66 percent increase.

When El Camino Hospital officials huddled earlier this decade to plan the construction of a new acute care facility in the Silicon Valley city of Mountain View, its initial budget was about $450 million. Nearly four years later, the price is approaching $600 million – a one-third increase in cost. By the time the new hospital opens in 2009, the El Camino Hospital District will have spent about $1.6 million per bed to complete construction - nearly double what the same project would have cost a decade ago.

El Camino is hardly alone. Sutter Health noted that its construction costs have jumped 60 percent over the past three years. Construction of a new 136-bed patient tower at Providence Holy Cross Medical Center in the Los Angeles suburb of Mission Hills is experiencing steady cost escalations. During the preliminary planning stages in late 2004, the project was initially estimated to cost around $116 million. Now, as a November groundbreaking approaches, the projected cost has topped $143 million, or more than $1.3 million per bed.

The cost run-up could not have come at a more inconvenient time. Hospital construction nationwide is booming due to a variety of factors, including continued population growth, and an aging population that requires more healthcare services. According to the Robert Wood Johnson Foundation, $200 billion will be spent on hospital construction over the next decade.