Cost of Care

4 Ways Real Estate Strategy Curbs Costs and Supports Care

August 6, 2018 3:17 pm

Thoughtful facility selection and design supports population health strategies—and the bottom line.

U.S. healthcare spending is seemingly on a never-ending rise. The United States spent 17.8 percent of its GDP on healthcare in 2016, compared to an average of 11.5 percent for 11 high-income countries assessed in a recent article “Health Care Spending in the United States and Other High-Income Countries,” published in JAMA. And, the United States spent $9,403 per capita, which is nearly double what other countries spent.

The growing demand for lower-cost care alongside optimal patient outcomes is prompting industry leaders to consider more modern, convenient, and intelligent locations. And as they do, some are finding that new real estate strategies can help them stay ahead through fast-evolving industry trends, from the shift toward population health management and increasing costs per patient to rampant mergers and acquisitions (M&A) and the emergence of the mega-sized, nontraditional health system.

Real Estate Strategies Offer Cost Savings

With the needs of a growing elderly population looming, the nation’s healthcare providers face ever-mounting pressures to expand quality of care services while containing costs. As costs per patient continue to rise and operating margins tighten, the pressure to reduce costs while improving outcomes has reached a fever pitch.

Some things remain unknown, such as the future of the Affordable Care Act (ACA). What we do know is that the transition to value-based care is certainly well underway, regardless of debate over public policy.

By perfecting the “puzzle” of care settings and reaching more patients, more effectively, health systems can make invaluable headway in their critical goals of reducing fixed and operating costs. The sooner leaders can identify cost containment strategies the better, because costs continue to rise, margins are falling, and uninsured populations are increasing.

Projections for Operating Cash Flow

Real estate strategies offer compelling ways to realize meaningful cost savings and operational efficiencies. Following are four ways hospitals and health systems can stay ahead of the curve:

Leverage the M&A boom to improve facilities performance and value. Industry consolidation is on pace to continue throughout 2018. In fact, while 2017 seemed to be the year of hospital M&A, JLL analysis points to an even higher volume of M&As this year as healthcare leaders ready themselves for value-based payment and the convergence of healthcare providers and retailers.

These mergers, together with unprecedented cross-industry collaborations with pharmaceutical companies and other nontraditional players, are opening up new opportunities to create megahealth systems that can allow organizations to fuel growth and improve care while improving cost control.

Cost containment is often a key motivator for initiating M&As, and with the right real estate portfolio strategy in place, it can be borne out by expanding geographic and patient reach. A health system’s real estate assets represent one of the largest sources of value and capital investment for the organization. A data-driven analysis can help identify opportunities to create efficiencies and drive more value from each facility and put each to its highest and best use. By offering the right places for the right care at the right time, health systems can trim operating expenses associated with less efficient, one-size-fits-all facilities.

Unlock operational efficiencies with a centralized approach. In a typical hospital or healthcare network, facility operations are decentralized. Siloed workflows, outdated communications, and a lack of analytics programs often bog down work processes. Centralizing management and automating workflows will streamline operations and reinforce standard procedures, freeing up personnel time for more proactive strategies.

Many institutions already have centralized clinical operations, finance, and human resources. Facility management could be a natural next step. As health systems expand their real estate portfolios with micro-hospitals, ambulatory centers, and other outpatient facilities, centralized facility management and maintenance may be the most efficient way to manage their growing footprints.

Another critical area is centralized control of facilities data and analytics, which allows healthcare systems to view all facilities holistically. With a complete picture of how well different facilities are performing and where equipment upgrades or repairs are needed, the facilities team can make accurate capital plans based on data rather than informed guestimates.

Just as centralized clinical operations technology improves efficiency and patient outcomes, centralized facility management technology improves efficiency and facility operations. In the sensitive healthcare environment, failure of a single piece of building equipment can jeopardize the reputation of an entire health system. Facility management technology and centralized management supports preventive maintenance, and today’s automated systems can even generate automated alerts if a building system is malfunctioning or approaching a complete breakdown.

In developing their paths forward, partnering with a third-party facility management service provider is a common path to centralization. However, it’s important to choose a service provider that understands the ins and outs of healthcare facilities compliance and accreditation. A facility management partner can work with healthcare systems’ facility management tools or provide up-to-date technologies and approaches to optimize organizations’ limited resources and keep facilities operating smoothly. In addition, a facilities management partnership can help reduce compliance risks, improve patient and staff satisfaction, and reduce operating expenses in the long run.

Embrace new definitions of what it means to be a health system—and how that plays out on the map. Although hospitals remain a critical center of many health systems, many are grappling with volume declines and margin erosion in their markets. Traditional networks may soon be rendered obsolete as industry leaders find that new opportunity lies outside the hospital campus.

Community-based care settings like ambulatory surgery buildings, emergency clinics, and micro-hospitals are proving useful ways for organizations to reach more patients more effectively. From medical office buildings to healthcare-anchored retail centers, more tailored care settings can improve the patient experience, adding to patient loyalty and in turn, the hospital balance sheet. Furthermore, outpatient centers are often less expensive to build and operate than a conventional hospital.

However, managing a complex network of various medical facilities requires a thoughtful strategy informed by location analysis. Thinking differently can reap big rewards, such as when a new urgent care center brings in a steady stream of patients because of its position as an anchor tenant in a highly trafficked shopping center. It’s important for executives to carefully weigh the risks and benefits of paying a little more to be closer to where patients already spend time.

The rush to meet patients in their communities is escalating, with a full 70 percent of medical office building construction projects in 2017 occurring in off-campus locations and 73 percent on track for 2018, according to JLL’s 2018 Healthcare Real Estate Outlook. And while these more innovative real estate strategies are seeing momentum across the country, growth is especially strong in areas with fast-growing populations, like New York, Chicago, Atlanta, Dallas, and Los Angeles.

With the Tax Cuts and Jobs Act repeal of the ACA’s individual mandate, care providers will once again absorb the financial risk associated with a larger population of uninsured patients. This financial uncertainty reinforces the need to provide high-quality care experiences that keep patients coming back while also curbing costs as effectively and creatively as possible.

Hospital-acquired infections (HAI) remain a persistent challenge—and facility strategy can help address this challenge. One out of every 25 hospital patients acquires at least one HAI, according to Center for Disease Control (CDC) estimates. Although multiple factors contribute to these troubling rates, the physical environment ranks fourth on its list of HAI causes—a clear signal of room for improvement.

Fortunately, hospitals can take measures to reduce infection risks by improving the design and management of their care environments—from the maintenance of ventilation systems to floor care and the cleanliness of room décor.

Smart facility maintenance practices can not only reduce operating costs over time and support facility accreditation, but also improve patient outcomes. For example, having a facility management expert who has worked directly for the Joint Commission would boost both facility accreditation efforts and better protect patient safety.

Facility managers can’t afford to be complacent when a one-eighth-of-an-inch crack in the ceiling is a Joint Commission deficiency or when a minor air conditioning leak could expose immune-compromised patients to life-threatening bacteria. Critical care environments require next-generation equipment maintenance strategies to ensure that building systems are reliable and appropriately supporting patient comfort, care, and safety.

Now What?

Healthcare delivery is being transformed as we speak, from technological breakthroughs to regulatory change to changing patient demographics and demands. This transformation is in turn driving new approaches to real estate and facilities that can help boost revenue and trim costs while maintaining and even enhancing the quality of patient care.

The potential is vast. In the aftermath of intense M&A, many health systems are now sitting on large amounts of underutilized real estate. Their traditional, large campus-based facilities simply did not need the level of rigorous planning associated with a more complex, diverse location network.

By recognizing real estate as a key lever for capturing demand, and prioritizing strategic portfolio planning, healthcare leaders can uncover new opportunities to serve their patient communities more efficiently and effectively. And that could be key to solving an array of challenges in the fast-changing future of healthcare.

Richard Taylor is executive managing director, Healthcare, JLL.


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