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Real estate’s inextricable link to performance creates opportunities for change management and significant savings
CHICAGO, MAY 15, 2014 – With the primary focal point of healthcare executives remaining on clinical issues—matters that help an organization achieve its mission—unprecedented attention is being paid to and must remain focused on healthcare real estate and its inextricable link to performance, change management and significant cost savings potential.
As Chief Financial Officers at major healthcare systems tell real estate services company JLL that real estate has become their No. 2 investment priority, JLL is sharing how clinical and operational related issues can be viewed and impacted by unleashing the powerful leverage within its portfolio. A new study, “What 5 emerging 2014 healthcare trends mean to you”, released as part of JLL’s broader healthcare outlook states CFOs can reduce real estate operating expenses (typically 40% of the balance sheet), create significantly improve corporate flexibility, free up more funds for highly desired clinical improvements, and deliver high performing, safe facilities that are critical to delivering efficient, high quality care to patients.
"Increased consumerism and brand awareness coupled with operating margin pressures have a big effect on providers’ real estate strategies," said Sydney Scarborough, Managing Director, of JLL’s Healthcare Solutions group. "There is an enormous opportunity for healthcare organizations to use real estate to enhance their market position while at the same time reducing operating costs."
The five major healthcare trends outlined by JLL, and some of the questions healthcare executives should ask their staffs to ensure that their healthcare operations thrive moving forward, are:
1) Internal competition for capital increases challenges.Fierce competition for capital within hospitals and health systems has forced many hospital executives to divert money from real estate investment beyond critical infrastructure maintenance and improvement programs. A creative capital asset strategy and risk assessment are key to lowering the cost of delivering care, managing costs in light of reduced reimbursement, and positioning the brand in the era of increased consumerism. Key questions executives are asking include: “Has a thorough risk assessment of capital assets been completed? Is there documentation that all facilities meet industry safety standards and regulatory compliance? Does the condition of the facilities reflect the value of the brand?”
2) Decrease in transactions shifts focus to consolidation and integration.As the era of mega-mergers subsides, the emphasis has shifted to the assimilation of physicians groups already acquired and the centralization of operations at the System level for acquired medical centers. Healthcare systems face the challenge of converting from holding companies into true operating companies and real estate plays a big role in that conversion. Good questions might include: “Are services and facilities in the best locations to meet the needs of the present and potential patient base? Will those services and facilities drive population health initiatives? How can the continuum of care across the system be built and enhanced? What non-medical functions (i.e. data and call centers) could be consolidated or moved off site to achieve savings?”
3) Continued fine-tuning of physician and medical group integration.Physician groups will continue to play an increasing role in not only the financial results of healthcare organizations, but their success in supporting the industry’s transformation in focus from volume to value. A strategy to align the physician locations and outpatient medical services with a hospital's broader population base should come with location analysis and a complete understanding of options. Key real estate related questions to ask are: “How does the current roster of physicians and services align with where they are needed? What location changes need to be made to meet market demand now and in the future? What is our deployment strategy from a system perspective?”
4) Consumer choice will increase the importance of networks and branding.As technology enables improved access to price and quality data, consumers will shop for healthcare services based on their personal situations. Ongoing loyalty to healthcare providers will be less of a given than in the past. Locations and building configurations should be easily identified and accessible to attract patients to the right facility for their immediate needs, and minimize hassle. This conjures up questions that include: “Where does the system realistically stand in quality, price and convenience versus the competition? How do our facilities look and feel relative to the competition? Does the facility portfolio support the system’s brand?”
5) Reimbursement changes are magnifying the emphasis on managing costs.In the face of declining revenues and to drive value, healthcare systems are exploring all avenues to increase the efficiency and effectiveness of care delivery. Leaving no stone unturned, many healthcare organizations have realized that real estate/facilities management is inconsistent, if not bad. This raises key questions: “Do we know what is spent annually on occupancy costs (plant operations, leasing, purchased services, routine project management)? Are inpatient facilities and the outpatient/medical office real estate portfolio being managed in a consistent manner across all locations? Are there opportunities to reduce these costs and by how much?”
JLL’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. Bookmark it here: http://www.us.am.joneslanglasalle.com/UnitedStates/EN-US/Pages/News.aspx
For information specific to healthcare, please visit: www.us.am.joneslanglasalle.com/healthcare.
About JLLJLL (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 fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. For further information, visit www.jll.com.
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