Healthcare real estate houses untapped savings, report finds
Hospitals can shave costs by reconfiguring their real estate footprints, according to a new report.
Many health systems own the facilities that house their hospitals, clinics and administrative offices, but few analyze data to determine how to best use them, real estate management experts at JLL conclude in a report published Monday.
Consolidating less-used facilities, bundling lease negotiations with landlords and grouping complementary services could reduce purchased services expenses, limit energy costs, preserve equipment, and improve patient and employee satisfaction, according to the report. Such strategies could reduce health systems’ facilities costs by 12% to 18%, JLL projects.
“We don’t see a ‘systemness’ approach in a lot of healthcare real estate,” said Richard Taylor, divisional president of healthcare solutions at JLL. Part of the problem is a lack of relevant, quality data, he said. That’s despite the fact that real estate is the third largest asset on health systems’ balance sheets, he said
Health systems are actively acquiring or merging with other systems and physician groups, which can be hard to fold incorporate into their operations. While labor and supply chain are typically the top priorities, collecting data related to facility utilization , energy usage, population growth and maintenance schedules can guide the process, JLL said.
For example, increasing preventative maintenance work orders by 17% can reduce reactive work order requests by 25%, extending the shelf life of equipment, the real estate management firm found. Grouping complementary services in certain markets and improving the design of facilities can boost patient and employee satisfaction scores, according the report, which cited integrated healthcare systems’ Hospital Consumer Assessment of Healthcare Providers and Systems scores in the low 80s compared to the mid-70s average.
“Integration should happen after mergers and acquisition, but many times it does not,” said Jay Johnson, national director of healthcare markets at JLL As an example, Johnson cited a case in which a health system employed four pediatricians in four different offices within a half-mile each.
“Someone looked at the leases and didn’t do anything because they weren’t about to expire. But they could’ve lowered their costs for support services, consolidated medical equipment, reduced administrative costs and created a better brand presence,” Johnson said.
Poor planning, inadequate leadership support and a lack of institutional capacity or expertise often stand in the way of comprehensive real estate strategies. But healthcare executives will be forced to look beyond labor and supply chain cost as they navigate the post-pandemic environment, the report says.
“We have seen health systems eliminate a lot of labor and operate with skeleton crews. But then they have to hire facilities management firms, which is expensive and can reduce quality,” Taylor said. “They need to train and grow their labor force and find more creative ways to save money.”