A US healthcare provider saves on capital cost up to 20 percent and raises service quality through a strategic review of building design, materials, and procurement
A healthcare provider with more than 100 hospitals across the United States faced mounting capital expenditures for new-build, expansion, and renovation projects. Clinicians and patients expected the hospitals to be equipped with the latest technologies and costly high-end features—and were increasingly dissatisfied as those expectations went unmet. At the same time, there was limited standardization in design across hospitals, as clinicians and managers tended to argue that their own institutions’ needs were unique.
The provider needed a way to reduce its capital spend while improving patient and staff satisfaction—and ensuring excellent clinical outcomes. Its leadership asked McKinsey to help identify ways to reduce and optimize construction spending while improving or maintaining the quality of key services and spaces across the hospitals. McKinsey was also asked to help develop solutions based on the extensive involvement of medical staff, hospital managers, and patients, so that every voice was heard and the outcomes fully embraced.
Given the provider's extensive, diverse portfolio of hospitals—and the wide range of services and facilities within each hospital. We quickly realized that building buy-in and momentum for the broader capital optimization effort would require a couple of high-visibility areas to pilot the improvement approach and demonstrate its value.
The obvious place to begin was the patient room. This space, ubiquitous in all hospitals, played a central part in the patient’s overall experience, made up a significant portion of new-build and renovation budgets, and was ripe for standardization. We partnered with architects, engineers, and construction contractors to determine how a better, simpler, cheaper patient room could be designed and built. Together we created “default” design standards that could be used for most patient rooms in most hospitals—rooms which could be built using modular, prefabricated components such as complete bathrooms.
This exercise revealed that standardization could save around 20 percent on the cost of patient rooms, creating opportunities to add or improve several components that were pivotal to patient experience and quality of care. With this insight, we embarked on an in-depth consultation process on the “patient room of the future”—engaging with medical staff and patients via workshops, nationwide surveys, and immersion exercises. As a result, the new design incorporated additional safety rails and power outlets as well as “hotel style” finishes that patients favored.
Alongside patient-room optimization, we launched a second pilot project: improving the procurement of construction materials to standardize specifications and reduce cost. We homed in on a few big categories of spend across hospitals—including lighting, plumbing, piping, and drywalls—and determined the savings and quality improvements possible if specs and optimal sourcing channels were set centrally. Again, savings of 20 percent or more were within reach.
With the savings potential proven, and staff and patients enthused about the optimization process, it was all systems go. Rollout of the new patient room was kicked off across several hospitals, and new, centralized processes were established to enforce optimal materials sourcing across the portfolio.
The next step was to help the provider implement the optimization effort across other key hospital-design platforms and construction-material sourcing categories. Here the team invested heavily in helping to build the client's capabilities, enabling its managers and staff to capture further opportunities over time.
Our work to improve and standardize patient-room designs helped reduce costs by 20 percent over baseline designs, while improving patient care and experience significantly. It also broke through internal resistance to cost reduction by involving clinicians and hospital managers closely in the redesign—and by demonstrating that standardization and modularization made it possible to add features that would improve safety, working conditions, and patients’ comfort.
The team achieved similar impact in optimizing the sourcing of construction materials. For example, we lowered the cost of light fixtures by up to 25 percent by reducing the range of specifications and by sourcing directly from manufacturers to cut out distribution costs. Similarly, our in-depth review of high-cost wash stations identified the opportunity to reduce costs by 10 percent through standardization.
Most importantly, the effort helped equip the client with methodologies and capabilities to lead and sustain a wide-scale change program across all its hospitals. They were now able to analyze capital-optimization opportunities systematically—and digest often conflicting stakeholder views—to achieve lower cost and higher quality across their entire building and renovation budget.