Wednesday, December 21, 2011

Heavyweight development

Boy, did I underestimate the capital capacity of the Partners Healthcare System when I wrote a post suggesting that plans by Brigham and Women's Hospital to spend roughly $500 million for new clinical and research space would be problematic.  I said:

I write it as a citizen watching the unfolding of a business plan that seems to me to be building in future health care cost increases for our region, or worse, potentially weakening one of the country’s great hospitals.

I underestimated by a factor of two, for now the hospital has filed a notice of intent with the Boston Redevelopment Authority to develop 360,000 square feet of research and wet laboratory space and 355 to 455 parking spots.

I am not current with construction costs in the highly congested Longwood area of Boston, but I believe it reasonable to assume at least $1000 per square foot for lab space.  Underground parking spots, requiring slurry wall construction in these high water table soil conditions, come in at $80,000 each if not more.  So, the total price tag, assuming room for 400 cars, not counting demolition and clearance costs of the existing structure, is about $400 million.

This takes your breath away.  A billion dollar construction program, in the face of the end of the federal stimulus program for NIH research and likely flat funding going forward.  The capital accumulated must therefore derive mainly from margins made on the clinical business.  If anything gives the lie to the idea that the recently signed contract with Blue Cross Blue Shield was not overly generous, you have it here.

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