Array Architects' Blog

Dynamic Healthcare Real Estate Strategy, Part 1: Drivers

Posted by Fady Barmada on May 06, 2015 at 9:00 AM

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The US Healthcare System is an evolving and dynamic marketplace with constantly developing technologies, fluid clinical processes and procedures, changing regulatory pressures, as well as socio-economic and demographic shifts affecting consumer demand and utilization. Successful healthcare organizations often re-evaluate market strategy and adjust their business models to address opportunities and challenges as they present themselves. However, while most hospitals and healthcare systems review their clinical models and continuously refine operational models to maintain or improve margins, many organizations fail to regularly evaluate their real estate portfolio. This leads to missed opportunities to cut costs, improve efficiencies and to create value. In this series, we 1) address the business challenges and market trends that affect real estate strategy formulation and 2) introduce various tools and approaches that enable organizations to optimize the value that they receive from their major physical assets.

The need for capital has never been higher for health systems across the US. Aging facilities, the projected wage inflation due to the upcoming shortage of clinical healthcare professionals, the need to invest in new technologies and the expense of ICD-10 implementation put stress on a system’s cash position. Examining an organization’s property, plant and equipment, which are often the largest item on a health system’s balance sheet, can suggest significant monetization opportunities. Optimizing utilization, capital and lease structures, and facilities management approaches can yield substantial cost savings. In this time of market upheaval, it is critical for health systems to proactively mine their physical assets for peak value to maintain competitiveness.

Dynamic Healthcare Real Estate Strategy

Two significant marketplace changes should be considered when designing a healthcare real estate strategy - and will likely drive many systems to re-examine their portfolios. The first trend is the acceleration of consolidation within the marketplace as hospitals and health systems attempt to realize economies of scale to create operational efficiencies, increase their reach, adjust their payer-mix and improve their bargaining power with insurance agencies. Whether assimilating assets from a physician practice that has been purchased, or aggregating two or more systems through merger or acquisition, these transactions force a complete re-evaluation of a system’s portfolio and clinical service distribution profile.

The second trend that should be considered is the shift in clinical care models from an “episodic care”, or a reactive care model, where the patient visits the physician only when they are sick, to a more proactive model known as “Population Health Management”. This model seeks to align care resources (from critical care to prevention to home care) in a continuum to manage whole life issues. Reimbursement structures are changing from a “fee for service” standard that incentivizes episodic care, to an outcomes-based standard that rewards results. This change, along with a general decline in reimbursements, is driving the redistribution of clinical services to the lowest cost, most accessible environment, which translates to an increased demand for outpatient facilities. With respect to the issues discussed above, organizations need to realign their portfolio with the changes in their service models to ensure optimal distribution, capacity, efficiency and patient satisfaction.

Fortunately, new tools and analytical approaches adapted from other industries are enabling systems to gain a deeper and proactive understanding of the potential value, both fiscal and operational, offered by real estate. Through the use of analytics, organizations can contextualize their portfolio inventory with consumer and market data to highlight service alignment, growth and monetization opportunities.

Simulation modeling can positively influence utilization decisions, deliver capacity improvements, provide cost efficiencies and better patient experiences. Data visualization and the creation of specialized decision modeling frameworks highlight the relationships between data pools and provide insight into how systems can leverage real estate to create value and differentiate themselves from other systems. At Array, we are working with our clients to develop an integrated and dynamic approach to real estate strategy and optimization. In the next series of posts, we will explore in detail the critical data pools and the interactive tool sets that we use to enable our clients to achieve their goals.

Make sure to check back for parts two, three & four of this blog series where Fady will explain further his knowledge on dynamic healthcare real estate strategy.

Topics: real estate, facilities management, population health management