Hospitals across the country are currently adapting their strategies and processes to meet the key imperatives of healthcare reform — enhanced quality at a lower cost. While clinical integration, care coordination and process improvement efforts remain top priorities for providers, Fred Campobasso, healthcare real estate managing director at Navigant, says a health system's real estate and facilities play an important role in meeting the requirements of healthcare reform. "Facilities, like technology, are an enabler," he says. "Aged facilities are behind from a competitive as well as asset-efficiency standpoint, and modernizing improves efficiency and attracts patients and physicians."
Mr. Campobasso explains the impact facilities have on process improvement, specifically, with his 70/30 rule. "Simply put, expanding or renovating facilities alone aren't necessarily a solution to better operations," he says. "You can accomplish significant operational change/efficiency without brick and mortar capital spend." However, his experience has led him to believe that approximately only 70 percent of total possible improvement can be achieved without expansion or renovation; for example, through efforts such as lean process improvement and cultural change. To reach that extra 30 percent, hospitals will need to renovate or construct facilities. For example, proper adjacencies between the emergency department, diagnostics and therapeutic services can't be created through process improvement. Best practice facility program, design and technology integration will improve outcomes including patient safety. "You can change all the processes you want, but some improvements will require physical changes," says Mr. Campobasso.
In addition to aiding in process improvement, facilities also play a major role in a hospital's strategic growth initiatives. Value-based, coordinated care will lead many health systems to grow their ambulatory care offerings while scaling back on inpatient services, and these strategic decisions impact facility planning. "The strategic planning process should simultaneously look at the clinical and non-clinical operations side of the enterprise, planned and existing facilities, and financial analyses to justify the investment," said Mr. Campobasso. After the overall strategic plan has been set — which could include everything from physician recruitment, program and service growth plans to consolidating current services — the facilities needed to support these initiatives should be identified. For example, a health system might have to choose between renovating an inefficient hospital in its current location or constructing a new location at a higher first cost that would provide long-term operational benefits. Other formidable strategies in preparing for healthcare reform that could impact facilities and real estate include:
Despite the potential gains of investing in facilities and real estate, the economic downturn of the last few years coupled with the uncertainty of healthcare reform has caused many health systems to minimize capital expenditures and defer the start of many construction projects. While many hospitals have since begun new projects, continued deferment could lead to a spike in capital spending post 2014, says Mr. Campobasso.
However, spending on facilities doesn't just go toward strategic projects; it also must be used to pay for infrastructure and deferred obsolescence of facilities. This creates a challenge for hospitals with slim budgets and tight resources. Hospitals without the financial resources for capital spending will have to look to alternative sources of funding or risk the inability to sustain operations. According to Mr. Campobasso, hospitals will increasingly need to find capital partners, either through mergers, affiliations, joint ventures or other third-party sources, to help them maintain their facilities and their mission. Hospitals that want to maintain independence are increasingly looking at alternative funding sources like healthcare real estate investment trusts, which Mr. Campobasso said have a significant amount of liquidity at an attractive cost of capital, and the U.S. Department of Housing and Urban Development hospital funding program, as opposed to traditional bond market funding.
Facilities that aren't able to expand and/or modernize will increasingly move into the "have nots” category of the healthcare system, says Mr. Campobasso. "If you're not executing operational performance improvement plans coupled with strategic capital spending, it will be difficult to sustain both the margin and the mission, making these facilities increasingly vulnerable to acquisition," he says. "As communities fight hard to maintain autonomy for their hospitals, it will become more and more difficult to do so."
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Mr. Campobasso explains the impact facilities have on process improvement, specifically, with his 70/30 rule. "Simply put, expanding or renovating facilities alone aren't necessarily a solution to better operations," he says. "You can accomplish significant operational change/efficiency without brick and mortar capital spend." However, his experience has led him to believe that approximately only 70 percent of total possible improvement can be achieved without expansion or renovation; for example, through efforts such as lean process improvement and cultural change. To reach that extra 30 percent, hospitals will need to renovate or construct facilities. For example, proper adjacencies between the emergency department, diagnostics and therapeutic services can't be created through process improvement. Best practice facility program, design and technology integration will improve outcomes including patient safety. "You can change all the processes you want, but some improvements will require physical changes," says Mr. Campobasso.
In addition to aiding in process improvement, facilities also play a major role in a hospital's strategic growth initiatives. Value-based, coordinated care will lead many health systems to grow their ambulatory care offerings while scaling back on inpatient services, and these strategic decisions impact facility planning. "The strategic planning process should simultaneously look at the clinical and non-clinical operations side of the enterprise, planned and existing facilities, and financial analyses to justify the investment," said Mr. Campobasso. After the overall strategic plan has been set — which could include everything from physician recruitment, program and service growth plans to consolidating current services — the facilities needed to support these initiatives should be identified. For example, a health system might have to choose between renovating an inefficient hospital in its current location or constructing a new location at a higher first cost that would provide long-term operational benefits. Other formidable strategies in preparing for healthcare reform that could impact facilities and real estate include:
- Increasing capacity of ambulatory facilities and/or relocating these facilities either on or off campus to increase access to these services at a lower cost.
- Consolidating or eliminating duplicative services. As health systems consolidate, hospitals will look for opportunities for consolidation, and closure of duplicative services to reduce costs.
- Optimizing locations including creating a retail orientation and other ambulatory settings to make preventative and primary care more accessible, thereby reducing costs.
Despite the potential gains of investing in facilities and real estate, the economic downturn of the last few years coupled with the uncertainty of healthcare reform has caused many health systems to minimize capital expenditures and defer the start of many construction projects. While many hospitals have since begun new projects, continued deferment could lead to a spike in capital spending post 2014, says Mr. Campobasso.
However, spending on facilities doesn't just go toward strategic projects; it also must be used to pay for infrastructure and deferred obsolescence of facilities. This creates a challenge for hospitals with slim budgets and tight resources. Hospitals without the financial resources for capital spending will have to look to alternative sources of funding or risk the inability to sustain operations. According to Mr. Campobasso, hospitals will increasingly need to find capital partners, either through mergers, affiliations, joint ventures or other third-party sources, to help them maintain their facilities and their mission. Hospitals that want to maintain independence are increasingly looking at alternative funding sources like healthcare real estate investment trusts, which Mr. Campobasso said have a significant amount of liquidity at an attractive cost of capital, and the U.S. Department of Housing and Urban Development hospital funding program, as opposed to traditional bond market funding.
Facilities that aren't able to expand and/or modernize will increasingly move into the "have nots” category of the healthcare system, says Mr. Campobasso. "If you're not executing operational performance improvement plans coupled with strategic capital spending, it will be difficult to sustain both the margin and the mission, making these facilities increasingly vulnerable to acquisition," he says. "As communities fight hard to maintain autonomy for their hospitals, it will become more and more difficult to do so."
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