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Calculating Cost of Space Vs. Cost of Occupancy Can Save Millions of Dollars for Hospitals and Healthcare Systems

Jones Lang LaSalle defines critical occupancy data to help improve efficiency and lower costs

CHICAGO June 28, 2013 — In an era of increasing financial pressures and continued changes in legislation, healthcare systems are regularly mandated to improve efficiencies and lower operational costs.  A new report by Jones Lang LaSalle says the management and maintenance of healthcare facilities—and having a clear understanding of the difference between cost of space and cost of occupancy—can help hospitals achieve major savings.

“Healthcare is the one major industry that has not made the shift to viewing real estate in terms of occupancy costs,” said Scot Latimer, International Director, Jones Lang LaSalle. “However, healthcare executives can use tools to better understand how occupancy costs can drive significant, previously untapped savings across an entire healthcare system.”

“It’s understandable; hospital priorities are inherently different from corporations. They are dealing with decisions that literally affect life and death," said Latimer.

In the report, “Seeing space differently”, Latimer defined the cost of occupancy as an umbrella of expenses, including costs to acquire the space (whether it’s a debt or leased cost); lighting, heating and cooling costs; maintenance costs; security costs; among others. These expenses, when analyzed with square footage volume, reveal the true cost of a hospital’s occupancy.

“Cost-per-square-foot information is relevant, but it doesn’t tell the whole story.” Latimer added. “It doesn’t take into account the true cost of managing and maintaining that healthcare space. More importantly, it doesn’t provide any insight into how the asset is performing and impact on throughput or profitability.”

Latimer identifies five critical areas for healthcare executives to analyze when moving toward a “cost of occupancy” strategy:

  1. Asset Performance—Matching the space to the use enhances productivity. For example, 80 percent of resources are consumed at hospital campuses, but 80 percent of locations are off campus. By weighing the usage of each space, it becomes easier to understand the efficiency level of each hospital facility.
  2. Market Location—Knowing how properties are positioned in the marketplace is also critical. Hospitals must be located near where patients live or work, as well as near public transportation. For example, if a hospital supplies patient shuttles because its facility is not  convenient , the expense should be included as an occupancy cost
  3. Management & Measurement—As the business adage goes, “you can’t manage what you don’t measure.” Hospital executives should be relating building performance to business performance by thinking about assets as units per patient volume – and ultimately ensuring the quality per patient unit is increasing while the costs per square footage are decreasing.
  4. Ownership Mix—Not all properties need to be owned, and many can be leased cost-effectively. A two-year lease, for example, may be less expensive in the long run than buying when considering short and long-term costs.
  5. Organizational Alignment—With a greater awareness of all occupancy costs, it is imperative to have key leaders in place that understand the broader business strategy to ensure informed decisions can be made on occupancy and related issues.

“In today’s environment, hospitals are being forced to change,” Latimer said. “There is an inflection point in the industry with the increasing mandates to manage population health and pressure to consolidate and decrease margins. This is making hospitals take a serious look at how they can evolve their business models to meet this new, leaner reality.”

Jones Lang LaSalle’s Healthcare Solutions group  partners with hospitals and healthcare systems throughout the nation, delivering comprehensive inpatient and ambulatory facility management, strategic consulting, real estate capital advisory, program management, property management, transaction services, lease administration and energy/sustainability advisory services. Through its work, the Healthcare Solutions group connects healthcare business strategies to real estate solutions, driving efficiencies and enhancing quality.  For the last five years JLL has been ranked among the top five development firms in the Modern Healthcare Magazine’s Design & Construction Survey. For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s U.S. media center Web page:

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit