BY MAUREEN N. MARATITA
Journal Staff
Sgro
Guam has taken the first steps to replace the island’s aging Guam Memorial Hospital, with the passage of Public Law 121-36.
Also known as the Twenty-First Century Healthcare Center Act, the legislation lays out why a new facility is necessary and inclusion on a medical campus for the Guam Department of Public Health and Social Services, as well as the Guam Behavioral Health and Wellness Center.
Gov. Lourdes A. Leon Guerrero intended to allocate $300 million of American Rescue Act funding towards the cost of the hospital, but said at a press conference on Nov.19, “… now I think it’s only $220 million, as we are using some of that [ARPA funding] for the other programs that we have pushed forward.” The amount of $263 million was included in the ARPA spending plan released by the administration on Nov. 23. Michael F. Q. San Nicolas, Guam’s delegate to Congress, told the Journal in a Dec. 2 press conference that funding from President Joseph R. Biden’s infrastructure bill may also be possible.
In August, at an open meeting hosted by San Nicolas, U.S. Army Corps of Engineers personnel discussed with senators, Guam Chamber of Commerce representatives, government of Guam representatives, and media the “charette” or plan and design for a new hospital, estimated at $3 million. USACE estimated the cost of a new hospital at about $740 million-plus.
Peter R. Sgro Jr., president of International Group Inc. was the president and chairman of the Guam Healthcare & Hospital Development Foundation, whose purpose was to plan for a private hospital, now Guam Regional Medical City.
He told the Journal, “I feel the Army Corps estimate of $743 million is extremely high by as much as $143 million.”
Sgro said the reason is within thefacilities condition assessment report USACE issued on April 8, 2020. “They state that the estimated cost was developed on the basis of a typical DoD military-type cost estimate, using a certain software used in estimating military construction projects. Under their estimate, the construction cost comes up to about $2,000 a square foot for a 315,000 square foot replacement hospital they recommend,” he said. There are no detailed cost breakdowns contained in any of the estimates, he said.
In addition, he queried whether USACE has experience in the development of a “new community based acute care bed hospital.”
The expertise required must be sought and secured before the design sessions begin, Sgro said. Experts should participate in design sessions he said. Seasoned investment bankers should be part of every session. “I strongly suggest that part of the team include one or two individuals that have a minimum of 15 years hospital management experience in the mainland.”
From Journal files
Various federal laws and Medicare are directly correlated to revenue, he said. Experienced Guam physicians and nurses, a medical IT expert and the contractor should be involved in every phase of the design, he said “You get everybody on the same page from the beginning, which ultimately will save you a lot of time and money.” Friction would be reduced that way too, he said.
For a much-need capital injection into the economy, Sgro said, “… it just makes more sense to have this project go completely out to the private sector for competitive bidding on a design-build-lease finance structure as required under Public Law 36-56 …”
To determine the size of a new hospital, Sgro said there are acceptable equations and other considerations unique to a community to insure the financial sustainability of a new hospital. “Various factors must be seriously considered, especially in this case where the new hospital is replacing a hospital that for decades cost taxpayers in subsidies and direct appropriations approximately $30,000,000 annually.”
Such factors include the ages of the overall population, as well as a shortage of nurses that would make it difficult to staff acute care beds, he said. “Our nursing shortage is not unique to Guam and is in fact a national problem. But the shortage of nurses must be considered in the size of a new hospital since like hotel rooms; hospital’s generate revenue based on the number of acute care beds that can be operational,” he said.
As to the island’s two local hospitals, Sgro said, “It is no secret that both GRMC and GMH do not have all their acute care beds operational because there are not enough nurses to staff the number of available acute care beds.” Sgro referred to a speech at one of the Rotary clubs, where it was suggested that the new hospital should have more than 300 acute care beds. “If you considered the current ratio of our shortage of nurses, [that] would result in about 100 acute care beds not being available for patients since there would not be enough nurses to staff these many acute care beds,” he said.
Financial sustainability must be considered at every phase of a hospital’s development, he said for the hospital “to be financially sustainable and break the pattern of the need for additional direct appropriations and subsidies.”
Considering those points, Sgro said, “I would suggest the new hospital be no more than 150 acute care beds and no more than 350,000 square feet.” He did suggest “that the initial design include the ability for a seamless expansion by an additional 50 acute care beds in the future — an expansion where the construction cost would be about 50% less per square foot compared to the initial construction cost.”
Both GRMC and Naval Hospital Guam are just under 300,000 square feet each, Sgro said, “The reason I added an additional 50,000 square feet is to allow space for outpatient services that will generate more revenue,” he said. Private sector providers of various services could competitively bid on services, he said. Equally, he said the new hospital should not duplicate specialties available at GRMC, for financial stability.
Sgro said manpower, materials, equipment and financing costs will be the primary reasons for the construction costs to increase between 25% to 30% over the next three years.
“Assuming a hospital design that results in a total construction cost of $600 million this size project would require 3,000 construction workers over a three-year construction period. If you add the development of a new Behavioral and Wellness Center and new Public Health building, then more than 3,000 construction workers will be needed,” he said.
There are risks that that warrant early detailed discussions with federal immigration authorities, he said. “A lot will depend on the H-2 program approval for non-military projects. If approval for these required number of construction workers does not result, then it will be very difficult or even impossible to even begin the construction phase for the hospital.”
The Journal asked what government action Sgro would recommend if after one year there is no tangible progress with the development of the hospital.
“I would take the history of certain state hospital care systems, including that of … Hawaii that ultimately resulted in a much more improved delivery of hospital care services.” Like Guam, Hawaii initially owned and operated provided all public hospital services, but now there are none, he said. “As more and more private hospitals started opening in Hawaii, both the government and the people of Hawaii ultimately recognized that the delivery of hospital care was much more advanced and met the healthcare demands of the people of Hawaii. This model is one that should be considered, with the ability based on tax savings to simultaneously establish universal health care in Guam that would also apply to residents of the region.”
If the government discontinued providing hospital services, this would result in savings of approximately $30,00,000 in tax-payer dollars, Sgro said. “Combine that with the millions of dollars allocated annually to our medically indigent program. This would be more than enough funds to provide each and every qualified indigent or financially burdened individual meeting a given set of standards, funds to pay private insurance companies to issue private health insurance. This would have a direct benefit not only to our local but also our regional indigent population, with health insurance to cover care provided not only by the private hospitals but also for care provided to them by all private providers of care,” he said.
For the development of a public hospital, decisions will require multiple parties, which not only increases cost but will take more time to complete the project compared to a development if a private hospital, Sgro said.
As to his experience with the foundation, he said there were things he would do differently, with hindsight.
The foundation contracted the prestigious University of Pittsburg Medical Center International to do an essential feasibility study for a hospital development on Guam, as it sought equity and debt financing. “UPMC is definitely a terrific collection of various hospitals and medical research centers with billions invested into its model of healthcare excellence,” Sgro said. However, the study did not meet expectations.
“The result was a voluminous study that was very professional looking, containing nice pictures, nice graphs and an overall an impressive collection of binders when first presented to us. But the content had so much inaccurate information and failed to address various healthcare and economic factors unique to Guam. The entire business and financial model had no application to Guam.”
The foundation refunded 75% of the cost and then put its own team together with varied professionals from Guam, San Francisco, Wisconsin and the Philippines.
“The resulting feasibility study we ended up doing on our own proved to be a complete success. We presented this new study to over eight financial institutions and other potential equity investors that resulted in over a $400 million successful debt equity financing,” he said.
It was important to investors that any hospital meet the healthcare demands of the community, Sgro said. Three members of the investment banking firm putting together the financial package attended every meeting of GRMC’s charette, he said. “A charette is not just about design. A big part of the charette deals with financial sustainability of the hospital.” A wide group of experts in different fields also attended meetings. Focus groups included local surgeons who met with the architects concerning operating rooms, he said and Guam obstetrician-gynecologist Dr. Thomas Shieh devoted time to discussing needs of the labor and delivery department.
The need for a new hospital is significant, Sgro said. “It is well known globally in the hospital development industry that the useful life of a hospital is 40 years. GMH is now over 50 years old with over $21 million in various electrical, mechanical, fire safety systems and structural capital improvements that need to be made just to meet codes. This estimated $21 million needs to be available even with plans to build a new replacement hospital, since it will be years before the new hospital is complete and ready to take on the transfer of patients from GMH to the new hospital.” mbj
