Boost margins and strengthen your financial position through real estate

In recent years, changing industry dynamics have steadily squeezed operating margins for U.S. healthcare providers. The COVID-19 pandemic has only escalated these financial worries, resulting in an estimated loss of $323.1 billion for hospitals and health systems in 2020. In this fiscally challenging environment, reducing operating costs and adding top-line revenue is more critical than ever—and real estate and facilities should be part of the solution. 

Harnessing real estate and facilities can directly boost operating margins, improve bond ratings and lower your borrowing costs. In addition, residual revenue generated from your real estate can become a significant contribution to excess margin, further strengthening your financial position.  

In the coming year, short-term real estate strategies and tactics will help cut and avoid costs relatively quickly and create a foundation for longer-term strategies. 

Here are key ways you can take action to reduce your real estate costs. 

• Leverage portfolio analytics to align your real estate with your strategy. The more locations in your service delivery network, the greater the risk that your organization holds more space than it needs—and every underutilized facility affects operating margins. The more quickly you align your service delivery strategy with your facilities network, the more quickly you will begin to eliminate facilities that are not aligned with your strategy. 
  
  As more care has shifted from inpatient to outpatient settings, for example, your main hospital may be larger than needed. Advanced portfolio data and analytics tools can help you aggregate disparate data points to create actionable insights about your health system’s potential, such as identifying locations best suited to serving the patient population and uncovering facilities that are under-performing. 
   
• Understand and benchmark your occupancy costs. Over time, occupancy costs can impair your earnings and overall financial performance, especially if real estate costs have been rising more quickly than revenues. Understanding the total cost of occupying your real estate provides a baseline for measuring cost savings. For example, a review of historical occupancy cost data will show whether your costs are trending upward, staying flat or falling. 
   
• Review lease agreements for hidden opportunities. In response to the pandemic disruption, rental rates have fallen in many markets and landlords are eager to retain paying tenants. An audit of landlord building expenses may also uncover expense recovery opportunities. Leased facilities often offer hidden opportunities to improve margins. By studying real-time utilization alongside larger cost trends, you can ensure your organization only pays for the space it needs. 
   
• Reduce energy costs through alternative energy partnerships. Onsite renewable energy partnerships can reduce your energy costs and your carbon footprint, too. Your rooftops and parking facilities, for example, can be used to generate power from your facilities without any upfront investment by your organization. Instead, you can partner with a solar energy provider, which will cover construction costs for a solar panel installation in exchange for a power purchasing agreement with your organization. 
   
• Adopt a “systemness” centralized facility management approach. In a typical hospital or healthcare network, FM operations are decentralized. Siloed workflows and outdated communications and analytics programs often lead to counterproductive activities and conflicting processes. For example, an FM team invests in refreshing a facility, not knowing that it is slated to be vacated within the year—because of teams and processes are not integrated. By creating one interconnected system of FM people and processes, backed by FM technologies, you can streamline FM operations, enforce facility quality standards and establish standard KPIs to track progress against goals. 
   
• Prioritize capital projects with data-driven planning. Whether it’s routine maintenance or a major retrofit to comply with a seismic safety ordinance, healthcare facilities require ongoing investment to remain functional, safe and compliant. Yet today’s margin pressures mean that capital may be limited for facilities projects. The solution is to prioritize capital investments to ensure that your limited cash is put to the best use. Through a comprehensive assessment of your facilities, you can gather data about the conditions of your facilities, building systems and maintenance needs. Then, you can create an objective, data-driven capital plan that prioritizes capital investments and helps reduce the disruptions and the expense of last-minute emergency repairs.
   

While cutting costs is essential to restore financial stability, generating new revenue streams can help provide sustained financial flexibility. Many hospitals and health systems own underutilized land and facilities that can potentially be transformed from financial burden to revenue-enhancing assets. 

• Extract value from unused owned spaces. Every medical campus, complex or office building has underutilized spaces that represent revenue loss—and opportunities. If your organization owns multiple MOBs across a region or nationwide, a review of occupancy levels in each facility will reveal where occupancy is low and leasing should be stepped up.
  
  In some situations, you may be able to consolidate your organization’s space to create a larger vacant space for a third-party lessor. For example, one health system converted a subterranean storage floor into a surgery space that was leased to a joint venture partnership comprising the health system and physician group—ultimately producing high revenues per square foot. 
   
• Boost productivity in underutilized properties. In some instances, the best solution for an underutilized, less productive facility is disposition. However, an underutilized property in a strong location represents revenue opportunities. By adding physicians, changing the service mix, reconfiguring space, extending service hours or making other changes, you can maximize revenues. 
   

To discover all 15 real estate strategies to boost healthcare margins, and learn more about how real estate can help you reduce costs and recapture revenue, click here.  
 

JLL Healthcare enhances the patient experience, improves financial performance, mitigates risk and advances outcomes through real estate and facilities solutions. As a leading provider of healthcare facility management services with over 540 hospital clients, JLL Healthcare’s team of 1,500 dedicated professionals supports over 350 million square feet of healthcare facilities.