Real estate portfolio optimization

In years past, many hospitals didn't think twice about buying new property as an investment in the future, confident that they would eventually see a return on their investment. But, as the song says, "the times they are a'changin."

Since passage of the Affordable Care Act in 2010, healthcare executives have been trying to read the tea leaves to determine their best strategy. 

Early reports suggested optimism. With about 32 million Americans expected to receive insurance coverage under ACA, Deloitte Consulting's report, "Can Healthcare Rescue Real Estate?" that 64 million additional square feet would be required to meet the increased demand. 

Of course, what that report didn't factor in was the drop in reimbursements that many providers must now contend with, the result of recent Medicare regulations and a variety of market forces. These more recent developments have prompted some stakeholders to suggest that renovating existing real estate makes more sense than investing in new property.

Jeff Hoffman, a senior partner at the consulting firm Kurt Salmon, expressed the prevailing view succinctly: "Don't spend capital that drives up the cost of care." 

Organizations that are moving away from fee-for-service and into value-based systems are being very cautious about expanding through acquisition of new property, said Hoffman, because many realize that such acquisitions will likely make medical care more expensive. "This is the time to be investing in tools, procedures and capabilities to better understand how to improve patient care and to lower the per unit cost of care," he said. 

Lincoln Medical Center in New York City certainly sees the value of optimizing its existing property. Working with Stalco Construction, the hospital recently expanded and renovated its emergency department rather than buying new property. 

The need for expansion resulted from a 15 percent growth in the local population over the last decade. The $24 million project increased the size of the ED to 57,905 square feet (an increase of about 70 percent) and tripled the number of treatment areas to about 150. The expansion used nearby space previously taken up by other hospital departments. 

For administrators looking to better utilize existing property, such as for an ED, administrators need to collect detailed data on patient flow, which includes knowing "when your patients arrive, how long they stay and how long it takes you to move your patient from the ED to an inpatient unit," said Milton Nunez, Lincoln's executive director. 

Once you have a full picture of patient demand, you can start making incremental improvements to that flow process, in some cases even without any redesign or property re-purposing, Nunez said.