The current health crisis has healthcare institutions altering their approach to facility design and construction. Equity investors and contractors are also ready to familiarize themselves with healthcare construction. While opportunities abound, certain legal considerations are of paramount importance for a successful healthcare construction project. Here are seven considerations when embarking on this new venture.
1. What is the End Game?
Early engagement on construction project requirements is crucial, and not just for discussing how to develop and construct the facility. First, focus on the “what,” and consider in the earliest stages what is the desired end state, and what are the key trigger points. Be realistic about the limiting factors that can result in added cost and time, for example, distant utility-connection points, minimal parking availability, etc.
2. Special Early Project Considerations Specifically for Health Care Facilities
Procurement of funding, zoning and environmental constraints, and labor and material costs are all important early considerations, but so too is assessing whether a state’s “pre-approval” is necessary to construct a new healthcare facility. More than half of the United States operates a Certificate of Need (CON) program. CON laws regulate the establishment or expansion of healthcare facilities and services in a given area by approving their major capital expenditures. (The goal is to control health care costs by restricting duplicative services and assessing a community need, to prevent “empty beds” from increasing prices on the patients who do use the services.)
If a desirable site is in a state subject to the CON process, and the public health department is considering new applications for the type of facility envisioned, then become familiar with the requirements of the CON process. Some states have a two-step process, adding to the timeline of the construction schedule. Understanding how to navigate this process and develop community support is invaluable.
3. Impact of Regulatory Expectations
The Centers for Medicare & Medicaid Services (CMS) has concurrent jurisdiction in overseeing facilities that serve patients who are enrolled in Medicare and Medicaid, and also has its own health and safety standards for certification. If achieving accreditation status through the Joint Commission (one of several health-care-facility accrediting organizations approved by CMS), the health care facility must meet standards and undergo a survey process that may exceed the federal requirements for certifications.
CMS requires compliance with the National Fire Protection Association (NFPA) 101 standards, the “Life Safety Code” (LSC), and NFPA 99 standards, the “Health Care Facilities Code” (HCFC). The LSC provides minimum requirements for the design, operation, and maintenance of buildings and structures, both new and existing, for safety to life from fire. The HCFC provides minimum requirements for healthcare facilities for the installation, inspection, testing, maintenance, performance, and safe practices for facilities, material, equipment, and supplies. These standards then become incorporated into state-specific requirements. The state law must be examined closely, as some states’ public health departments have additional specific requirements. (When state regulations are silent on particular design criteria, the Joint Commission recognizes the Facility Guidelines Institute (FGI) Guidelines for Design and Construction for new construction and renovation projects.)
It is important to communicate upfront as far as what is to be constructed, with communication being continuous between the design and construction teams. Overlooking specific requirements during construction — for example, minimum width of a hallway — could result in denial of accreditation. Having to rebuild a facility by demolishing walls, relocating fixtures and internal conduits, reconfiguring the layout and rebuilding walls is not a hallmark of a successful project.
The type of facility being constructed will inform which sections of the LSC, NFPA 101 and FGI Guidelines are relevant. The requirements of these Guidelines and in turn government laws, can change. In the past few years, using portions of updated editions of the NFPA, CMS transitioned from an “occupancy-based” approach to a “risk-based” approach. With the risk-based approach, items such as building type, the extent to which a building is fire-rated and outfitted with sprinklers, and a building’s certificate of occupancy status may be equally if not more important than the facility’s floor layout. Keeping apprised of evolving design requirements is essential.
4. Fiduciary Responsibilities
As in any other important financial transaction, the value of the fiduciary responsibility to the health organization cannot be underestimated. Although trust and collegiality gained by working with the same broker, design professionals and construction team on multiple projects may be a blessing, it can also be a curse. A project with a fundamental fatal flaw or concealed design or construction error usually meets a terrible fate. Employees must understand that the client is the health organization (and its funding source), and it is imperative for all participants to adhere to strict standards. The team must also continuously communicate, and acknowledge and correct deficiencies as they are discovered.
5. Legal Contract Provisions
If any government or lending approvals are necessary before committing to the to-be-constructed space, leases or contracts of sale should include flexible contingency language. Additionally, the healthcare organization’s design and engineering, construction manager/trade contractor and other related labor or vendor agreements should also set expectations for project requirements regarding, among other things:
The scope of work (e.g., in a multi-occupancy building, is building-shell work separate?)
Feasibility issues concerning design, equipment and scheduling (e.g., a multi-tenant premises will have access issues); and
Compliance considerations (e.g., the contracting party’s obligation to be familiar with the local Department of Buildings (DOB) requirements). Just like with the fiduciary status of trusted consultants, contract protections cannot be taken for granted.
6. Internal Corporate Compliance
Just as healthcare entities need clear, protective terms in contracts with external parties, organizations need to have clear internal corporate compliance standards. Inserting the strictest contract terms is ineffectual if the parties do not enforce them, and for the healthcare organization, that is its employees’ role. It is up to the healthcare organization’s employees to ensure that the contracting parties are complying with their obligations. This is especially true where documents are regularly submitted to government agencies. Memorializing these concepts is recommended, as is the expectation that communications about problem occurrences and their planned resolutions also be memorialized with written correspondence.
7. Reaching the End Game
If there are local DOB issues in particular, engage local consultants and/or specialists. In some major cities, contractors work with expediters or “Code Consultants,” which is a profession in and of itself. It is a valuable investment to retain people familiar with complex code sections as well as what to expect when seeking DOB approvals.
In sum, plan, consult and memorialize. It is important to have in place an integrated system of design professionals, outside consultants (including lobbyists) and counsel, with free-flowing communication among them, during not only the CON application stage but also the post-CON approval/construction stage, and at substantial completion. If any unanticipated site condition or other hiccup occurs, better to tackle it as early as possible than let it linger through the accrediting agency’s inspection. Like with any other major project, the more that is considered at the outset, the better the likelihood of ultimate success.
Virginia Trunkes is a member of Robinson+Cole’s Construction Law Group, where she advocates during negotiations or, alternatively, during dispute resolution, on behalf of all property owners or lessees performing construction, including health care organizations, real estate developers, apartment building, brownstone and condominium unit owners, cooperative boards of directors and shareholders; construction managers, contractors and subcontractors; and design services professionals with respect to their business contracts and adjacent-owner license access agreements. Ms. Trunkes extends her appreciation to Brian D. Nichols, Esq., formerly Partner at Robinson+Cole and now Senior Counsel at Cigna, for his contributions and guidance in preparing this article.