Providers reevaluate construction under funding, tariff threats

Modern Healthcare – Friday, April 25, 2025
By Alex Kacik and Caroline Hudson

Federal funding uncertainty and rising costs are delaying some health system construction projects. But major inpatient and outpatient expansions are still forging ahead, for now.

Some providers are pausing projects including aesthetic improvements and phased facility renovations as they brace for higher building costs linked to tariffs and a federal crackdown on healthcare spending. However, health systems have not delayed new inpatient towers, outpatient campuses and other expansion projects that executives say are sorely needed as a growing patient population strains their hospitals and overextends staff.

“The current climate has forced us to take another look at our capital expenditures like our aesthetic projects and reconfigurations, but our big projects where there is a major strategic need are not slowing down at all,” said Dustin Pasteur, senior vice president of facilities and construction at Tampa General Hospital.

Tampa General typically sets aside several million dollars a year to revamp its 98-year-old main hospital campus, which is an amalgamation of seven different buildings that have been added over the years, Pasteur said. The Florida health system incrementally updates small sections of each unit across the campus, but those renovations have been temporarily paused to give the organization some financial breathing room, he said.

The health system has not slowed construction on its 565,000-square-foot, $550 million surgical tower near its flagship hospital that will add 144 beds and 32 operating rooms to its inpatient network by late 2027. Tampa General is also moving forward with urgent care and primary care expansions in Babcock Ranch and a new medical office building at Citrus Hills.

“We know we need to move into markets that don’t have good coverage, like Babcock Ranch,” Pasteur said. “We have every intention of finishing projects we have started.”

Health systems are factoring lower reimbursement and higher expenses into their budget outlooks. However, pausing or canceling expansion projects may not be an option, especially in fast-growing areas with high patient demand and limited capacity, executives said.

Congress is considering Medicaid cuts, which could reduce payments for a significant portion of health systems’ patient mix. Providers are also facing potential National Institutes of Health grant funding cuts via a proposal to cap grant payment rates and the agency’s termination of ongoing grants.

Lower reimbursement could make it harder for health systems to manage construction costs, which are poised to increase after President Donald Trump imposed a universal 10% tariff on imported goods. Trump recently paused additional country-specific levies, but the current and looming taxes on imported materials like lumber and steel are expected to inflate healthcare construction expenses.

Mark Pascaris, senior director at credit rating agency Fitch Ratings, said he expects some systems will delay or downsize capital projects, while others may cancel projects altogether. He said academic research centers may be most at risk, given the added costs from tariffs in addition to uncertainty in NIH funding.

“This is a time when many hospitals are still working hard to get their operating margins back to something close to the pre-pandemic level,” Pascaris said.

Systems with strong balance sheets may decide to absorb added costs if a project is critical to their strategic direction, he said.

San Diego, California-based Scripps Health has not made any changes to ongoing construction projects. But possible construction cost increases and federal funding reductions could have a significant impact on future projects, Chris Van Gorder, president and CEO of Scripps Health, said in a statement.

Tariffs combined with possible cuts to Medicaid and Medicaid supplemental reimbursement programs could put construction projects, hospital operations and access to care at risk, he said.

“All these cost increases and reimbursement reductions have to be considered together, and they will impact our ability to provide care, comply with unfunded mandates, purchase medical equipment and fund construction and replacement of aging facilities,” Van Gorder said.

Similarly, Indianapolis-based IU Health is not pausing any capital projects, but is closely monitoring the economic landscape and potential impacts tariffs may have on the construction of its new downtown Indianapolis, Fort Wayne and Fishers hospital projects, a spokesperson said.

Other health systems, including Pittsburgh-based UPMC, Ohio State University in Columbus, San Diego, Charleston, South Carolina-based MUSC Health and Lexington, Kentucky-based UK HealthCare, have not delayed or canceled construction projects.

Executives say it is too early to measure the impact of funding changes and tariffs.

A UPMC spokesperson said the system is accelerating capital spending on facilities, operational infrastructure, technology and clinical programs. For example, work continues on the new 636-bed UPMC Presbyterian tower that is scheduled to open in late 2026, in addition to the systemwide transition to the Epic electronic health record.

A spokesperson at the Ohio State University Wexner Medical Center said its construction projects are far enough along that they remain on schedule and on budget.

“Overall, health systems seem to be continuing their growth plans, cautiously, but still moving forward,” said Jeff Fuller, president of the healthcare group at J.E. Dunn Construction Co., in an email. “We have seen a couple projects slowed or stopped due to the overall business model of cost and associated reimbursement from the medical line being built, specifically behavioral health.”

Funding woes and other financial uncertainties are not new to providers, as executives continually shift resources to cover any budget gaps.

“It seems like there’s always something that could potentially go away and leave us with a funding problem, so until it actually happens, we don’t do anything different,” MUSC Health CEO Dr. Patrick Cawley said. “If you start slowing projects down, you’re going to find yourself very far behind, so that’s why we don’t want to overreact.”

Cawley said rapid population growth in South Carolina means there is a constant need for more facilities to meet patient demand. MUSC has various projects underway, including the Kiawah Partners Pavilion slated to open in late 2025 that will serve patients in the Sea Islands area. The pavilion will include a freestanding emergency room, primary care, specialty care and other outpatient services.

However, Cawley noted MUSC has plans in place to respond quickly if substantial funding cuts happen, especially given its status as a safety-net health system.

“We operate at a lower reserve level, but that forces us to act quickly if something does happen,” he said.

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