More than 120 healthcare industry groups, including hospitals and health systems, have urged Congress not to abandon the transition to value-based care that began nearly 20 years ago.

To succeed and thrive in this changing environment is both a matter of clinical success and developing a well-informed strategy for where you should be tomorrow. As new revenue sources and efficiencies are explored, real estate has an increasingly influential role in achieving sustained financial stability and success.

1. Build in room for change. More outpatient facilities are popping up all over the country, but how will these facilities need to evolve over the next decade? There must be room for change in today’s rapidly evolving healthcare market.
2. Optimize existing real estate to stretch dollars. A healthcare system’s real estate assets represent one of the largest sources of value and capital investment for the organization. A data-driven analysis can help identify opportunities to create efficiencies and drive more value from each existing facility, and put each to its highest and best use.
3. Put convenience on center stage to increase patient accessibility. Convenience increasingly drives where patients go for care. Hospitals are learning from retailers, making it easy for patients to stop in.
4. Demographics matter more than ever. Smart site selection requires predictive and deep analytics, considering age and income levels, competitors, traffic patterns, visibility and hundreds of other factors.
5. More locations can mean more risk—but there are ways to reduce it. As health systems manage more and more diverse locations, rising complexity means rising risks. Advanced management can stem the tide.

More locations on the map must leave room for future change

While healthcare systems are seeking more patients overall, acute care hospitals are more focused than ever on keeping patients out of their beds. Is it a lack of hospitality? Quite the opposite. While patient services are improving within the hospital environment, health systems are doing their best to keep patients healthy, and minimize the need for acute care. Welcoming patients in the right place for the right care not only offers conveniences and better outcomes, but it keeps costs down for everyone – patients, providers and healthcare systems alike.

HCA Holdings, the nation’s largest investor-owned hospital company, in late January announced it would add 48 urgent-care locations by the end of 2017 and increase its free-standing emergency departments nationally by 31 percent to a total of 80. On an earnings call, HCA president Sam Hazen said, “If we don’t invest and expand to add more capacity, our growth will be limited.”

Smaller, off-campus medical office buildings (MOBs) are the hot commodity today. In 2016, 447 new MOBs were developed off campus, averaging 63,585 square feet, while only 186 were on-campus, averaging 97,949 square feet, according to Revista. We expect demand for large parcels of land for new hospital developments to continue, but at a much slower pace.

This outward expansion to blanket more communities and regions, while taking on increasing responsibilities for improving wellness, raises new questions as health systems plot their next move:

• Where can we make a difference? Reaching underserved communities is a critical part of the mission for many healthcare organizations. We’re seeing more ambulatory facilities surface in wealthy zip codes to help generate revenue that can help systems deliver on their promise to serve those who can’t afford care. One not-for-profit healthcare organization carved a niche targeting underserved, rural areas in California, Portland, Washington and Hawaii. In these communities, the system is expanding locations to advance its goals of improving access to comprehensive, high-quality healthcare, while enhancing the quality of lives it serve.
• How do we become an anchor for the community? Leading health systems have realized that bigger- picture thinking is necessary to have a meaningful impact on wellness. Having visible and accessible care locations is only one piece of a much more complex puzzle; how can you further entrench yourself as a true partner in the community? One of the nation’s largest health systems brings resources that help generate jobs and improve local economies when it opens new facilities. In the long term, this strategy helps improve population health by increasing income that can be spent on preventative care.
• Where is there needless duplication? Health systems that have recently acquired facilities should consider whether disparate buildings can be combined into one centralized center of care, to better serve the community. An analysis of the payer base can help evaluate possible overlaps in the coverage area.

Throughout this report, you will find 5 actions to take to ensure your real estate portfolio is positioned to withstand the challenges facing the healthcare industry in the years ahead:

Your health system today: working with what you’ve got

The real estate in a healthcare system’s footprint typically represents one of the largest sources of value—and capital investment—for the system. A portfolio analysis should challenge the status quo, and ask “Are we doing the most we can with what we have today?”

The total number of U.S. hospital beds is steadily shrinking—down from about 1.73 million beds in 2012 to 1.68 million in 2015, according to the American Hospital Association. While that difference may seem small, it’s a signal of larger trends that are in play. The mix of services provided at the main hospital campus is shifting, with emphasis being placed on more critical and specialty care. Patients who are recovering from surgery are more likely to be cared for in a less costly rehabilitation center, freeing up beds so healthcare systems can create more centers of excellence on their main campuses.

Total U.S. Staffed Hospital Beds

Additionally, many hospitals are renovating to offer more private rooms. This shift allows them to increase patient comfort and satisfaction, while also reducing the risk of hospital-acquired infections. Since private rooms require more space per person than shared rooms, this trend is reducing the overall number of beds.

It’s notable that while the total number of acute care beds is declining, not every healthcare system is shrinking. In fact, many systems in major population centers are in growth mode. And for those systems, these trends are even more profound, since the new construction can be designed with an eye to the future without the constraints of buildings designed in a different era.

There are multiple ways hospitals can optimize their existing real estate assets to support a growth strategy and reduce costs. Here are a few key questions that the smartest systems are asking:

• Is the main campus the best “home” for administrative staff? Many health systems are finding efficiencies in consolidating finance, human resources, information technology and other non-clinical staff in an office building outside the main hospital campus.
• How can we generate a return and reduce holding costs from unoccupied space? Some healthcare systems hold large pieces of land or buildings for future expansion strategies. If a site won’t be needed for another 10 years, leasing to a third party may make the space profitable in the meantime and generate much-needed income that can be put to use immediately.
• Are our current hospital beds compliant? Changing building codes can leave executives wondering if their facilities pass muster with the latest regulations. One example: California’s Senate Bill 1953, a state law designed to ensure acute hospitals can withstand an earthquake. If a feasibility study determines the hospital does not meet standards, executives must decide whether to renovate, build a new wing or provide acute services elsewhere in the community. Every state has different regulations, of course, but ensuring compliance is critical wherever you are.

What do patients want? Accessibility is key

Many healthcare systems have prioritized the need to improve population health and expand their patient base. In theory, opening more locations can help reach more patients. But picking the right locations is crucial; data-driven decision-making can help avoid costly mistakes.

A key question: How far are patients willing to travel for care? That answer may differ depending on their ailments. An individual requiring cancer treatments, for example, may be willing to travel long distances to see the best doctors. But a patient who has a stomach ache or who needs weekly allergy treatments will prefer a close, convenient office for a spur-of-the-moment visit. The matter of convenience becomes even more complex when you consider different types of care. Patients may want to visit an optometrist or dentist office near their workplace for quick lunchtime check-ups, but prefer urgent care centers located near their homes for easy access on weekends.

Another consideration: helping reluctant patients help themselves. A growing segment of the population includes people who don’t want to go out of their way to see a doctor.

Retail clinic locations have increased 38 percent in the last five years, according to Kalorama Information, and are positioned for significant growth in the future, as patients continue to seek out convenient, low-cost healthcare services.

Healthcare systems are taking bold steps to make healthcare part of the fabric of a routine day. For some providers, this means partnering with retailers to open clinics within supermarkets and drug stores. Others choose locations in heavily trafficked shopping centers where their brand receives exposure. Data and analytics tools can help inform these location decisions.

A side benefit to more, smaller locations: increased brand visibility. In 2013, a Midwest-based healthcare system opened a new medical center in Cincinnati with an emergency department right next to the on ramp of a major interstate, also bordering a residential community. The colors of the building façade incorporate the brand’s colors and make the building stand out to locals and interstate travelers alike. The intentional architecture and building placement helps ensure that when patients need care (emergency or otherwise), they think of the brand.

Where to plot your next move? Look to big data

Just like traditional retailers, robust data and analytics can help healthcare executives to understand where patients are coming from, what they want and what their future needs may be. But identifying the right location to provide medical care also requires a more nuanced approach than simply finding a site for a clothing store or supermarket.

After all, treating a medical condition doesn’t always mean a visit to a one-stop shop. A patient may see their primary care doctor for stomach pains and leave with a referral to a specialist. And the specialist may order tests that can be completed at a nearby outpatient lab. Moreover, healthcare systems can predict that a chronically ill patient with one condition has a very high likelihood of experiencing additional conditions that will need treatment. To ensure that all these complimentary services provide the best patient experience and outcome, healthcare executives need to look at a map of facilities in their network, a patient’s likely path from one to another, and thoughtfully consider how different providers work together to support patients’ total health.

The good news: the data is there to be analyzed, understood, and used in decision-making.

Customer data is not just about their healthcare. For example, population growth statistics and new housing starts can help identify areas where more primary care physicians may be needed in the future. Demographics can point to where aging populations are creating new healthcare needs. Traffic data, competitor locations and drive times can all help narrow the options.

Until very recently, however, different departments within the typical healthcare system have not shared the vital big data they have collected for years to truly help optimize and find the best locations to better serve patients. Consider the various forms of related data, compared to the distinct responsibilities that exist in a healthcare system:

• Physician assistants (PAs) have access to key performance indicators (KPIs) related to utilization of exam rooms, net operating income, physician referrals, drive times, underperforming practices and wait times.
• C-suite executives own the key initiatives and mission for the entire system.
• Business development and analytics departments identify new opportunities.
• Real estate departments maximize the portfolio by eliminating duplicate facilities and adding more specialties to one location.

Typically, no single group mentioned above has all the data – even the C-suite executives. When departments break down the silos and create a method to share this vast knowledge and history of data, real estate departments can add significant value. Consider what happens when a health system layers in raw data such as patient addresses, payor mix, no shows/cancellations, referral partners, competition and acquisitions with current and projected demographics. These analytics can help identify the perfect patient for each specialty, where they live, their habits, and the likelihood of traveling to a physician or potentially having a no-show or finding a competing provider. Health systems that leverage predictive analytics to better plan their real estate portfolios can better fulfill their mission to serve the population effectively, creating the best patient experience possible.

Advanced data and analytics tools are helping executives bring together these many disparate data points to create a holistic understanding of a health system’s potential. Next-generation geographic information system (GIS) technology can visually integrate every data point that matters in your location decisions. The right technology tools can layer in details such as real estate market trends, neighborhood demographics, buying patterns and competition from other healthcare providers, sometimes on a highly granular level.

One major healthcare system, for example, is leveraging multiple tools to plot a future for its network of healthcare facilities on the west coast. Using one seamless tool, the health

system is examining demographics, construction starts, competitors and other diverse data points. The technology it uses allows it to “fly in” to a neighborhood, and choose from thousands of data points, including other locations in its own portfolio. This level of customization supports rapid and thoughtful decision-making that can generate scenarios in real time.

How do you manage the risks?

Offering the right place for the right care carries many benefits, but there are risks, too. As healthcare providers expand into more locations, risks from ongoing operations multiply exponentially, as does the risk that a system may take on more space than it needs. At a fundamental level, health systems in growth mode face the risk of over-locating, with too many locations serving overlapping geographies. Excess capacity is especially likely when an acquisition of a hospital or another healthcare system expands the portfolio of facilities overnight. In these cases, a data-driven portfolio analysis can help identify locations best suited to serving the patient population and shine a light on less-productive locations that may need to be closed.

More facilities also mean more opportunities for things to go awry on a day-to-day basis. Unfortunately, a problem at one location can have a ripple effect on the reputation of the entire system. A patient who hears a news story about unsterilized surgical equipment at a local hospital will be less likely to visit another hospital or urgent care center under the same brand, even if no problems have ever occurred beyond one single location.

Facilities risks can often seem small in the beginning. A leaky faucet is more of an annoyance than a true disruption. But deferred maintenance costs more to fix in the long run and can have drastic consequences. Consider the case of one hospital that deferred the repair of a hot water line problem that had been flagged as an issue for years. Eventually a pipe burst over a patient room, pouring 190-degree water over the bed—by sheer luck when the patient was in the bathroom. Problems like this can be avoided when hospitals take a preventative approach to maintenance and centralize facility management so all facilities in a system are managed to the same standards.

For more information, please contact:

• Peter Bulgarelli | Executive Managing Director | +1 312 228 2564 | peter.bulgarelli@am.jll.com
• Richard Taylor | Facilities, East Region | +1 443 451 2612 | richard.taylor@am.jll.com
• Rob Perez | Facilities, West Region | +1 714 747 5419 | rob.perez@am.jll.com
• Michael Marsh | Facilities, South Central Region | +1 44972 975 0175 | michael.marsh@am.jll.com
• Chad Pinnell | Facilities, Midwest Region | +1 614 460 4415 | chad.pinnell@am.jll.com
• Greg Gerber | Transactions, Chicago Region | +1 312 228 2330 | greg.gerber@am.jll.com
• Bruce Gordon | Transactions, Indianapolis Region | +1 317 810 7008 | bruce.gordon@am.jll.com
• Greg Baxendale | Transactions, Atlanta Region | +1 404 995 6348 | greg.baxendale@am.jll.com
• Paul Heiserman | Transactions, Columbus Region | +1 614 460 4408 | paul.heiserman@am.jll.com

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.