By Michael Pappas and Ross Forman
From the June 2017 Issue
As the U.S. Congress and Senate work on establishing an Obamacare Replacement 2.0, the entire healthcare industry faces a climate of uncertainty—one that makes it difficult to project long-term revenue stream potential and directly impacts real estate and healthcare facilities operations. But managing those same real estate and facilities operations can provide hospitals a point of certainty if they play their cards right. One way to do this is to implement and adhere to basic real estate and facilities management principles.
Proactively managing healthcare assets is independent from what may or may not occur in changes to the Affordable Care Act (ACA). The goal of optimizing the performance of the portfolio as defined by the individual healthcare organization remains. With that, healthcare facility executives should focus on known variables they can control, and these include the following aspects.
Average unit costs. Data from the Organisation for Economic Co-operation and Development (OECD) consistently shows the average unit costs for U.S. physicians, hospitals, facilities, and drugs are the highest in the world.
Balance sheet composition. Real estate represents an average 40% of a hospital system’s assets on the balance sheet.
Cost of operations. Utilities, maintenance, environmental services, and others average $5,000 per full-time equivalent (FTE) for a medical center.
Location, location, location. The retail real estate strategy of placing primary and urgent care clinics in more strategic locations than traditional medical facilities is gaining momentum.
A Focus On The Constants
These above costs, financial indicators, and trends are material. These will remain constant regardless of changes in healthcare coverage. Most likely, facility cost ratios will increase as the task of doing more with less becomes the norm.
The question then becomes: What does it mean to go back to basic real estate and facilities management principles, and how does a healthcare facilities department protect itself from the unknown outcomes of an ACA repeal? The answer: start from the beginning, with the following steps:
1. Ensure real estate/facility management goals are aligned with the overall objectives of the healthcare network.
- The organization drives the mission, vision, priorities, and objectives, with real estate and facilities implementing strategies that support those goals.
2. Establish a clear understanding of the current state of the network’s portfolio performance.
- Aggressively manage and benchmark insight, visibility, and transparency into all costs, utilization, and productivity.
- Establish goals, with consistent reporting to track progress distributed to key stakeholders.
3. Develop an appropriate operating model and strategy for world-class service delivery.
- Define the right internal and external capabilities.
- Leverage a sourcing strategy, and maximize economies of scale.
- Ensure ongoing contract management and frequently completed compliance audits.
- Develop and regularly update required ongoing training programs.
4. Establish processes, procedures, and governance.
- Adhere to Standard Operating Procedures (SOPs) in all decisions and commitments.
- Standardize business case requirements.
- Minimize costs and maximize value-add through beneficial impacts on cash flow, and apply the right analysis to present the value of capital projects, revenues, and the balance sheet.
- Prioritize flexibility and agility in all real estate/facility decisions.
5. Enable an increased investment in technology, and work toward a cloud computing workforce, which has higher levels of productivity and employee satisfaction and is a key factor in attracting and retaining top talent.
- Customize space that enables mobility from room to room and remote work from anywhere and anytime to deliver patient services.
- Establish a single source of information for planning and management.
- Create and regularly update an information governance framework to provide guidance to your network around governance, data quality, security, availability, management, and the alignment of data and information across the enterprise.
- Establish and regularly test basic cyber defenses and a coordinated response plan in the event of a breach incident.
Implementing fundamental real estate and facility leading practices is critical to mitigating potential risks of an unknown healthcare environment. This may require new ways of thinking, and a restructuring of internal capabilities and priorities. Without following these fundamental portfolio optimization recommendations, though, healthcare networks leave themselves exposed to poor performing asset management results.
Michael Pappas leads BDO Consulting’s Corporate Real Estate Advisory practice with more than 25 years of experience. He is experienced in providing lease auditing services, as well as janitorial and construction audit and advisory services.
Forman is a managing director in BDO Consulting’s corporate real estate advisory services practice. With more than 25 years of experience in strategic corporate real estate portfolio management and optimization, he brings a distinct perspective to real estate strategy, having held senior level positions at two Fortune 500 companies, as well as leadership roles in top consulting and service provider organizations.
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