How healthcare systems are improving margins in today’s economy
Healthcare cost cutting with data
Real estate savings can boost operating margins and liquidity, impacting bond ratings and borrowing costs, says Coursen. But data is key to getting it right.
For instance, some operators may have opportunities to shift to lower-cost freestanding and non-acute sites, which are in demand as patients increasingly gravitate toward more convenient options for primary, urgent, and even emergency care. These locations have higher EBITDA margins up to 25% compared to 10% for acute and post-acute facilities, according to McKinsey & Company.
“Advanced data and analytics tools provide early opportunities to move toward portfolio optimization because they aggregate disparate data points to create actionable insights about a health system’s performance improvement potential, allowing for smarter, more strategic real estate decision-making,” says Greg Gerber, Senior Managing Director, Healthcare, JLL, who leads the firm’s Midwest Healthcare Markets Practice.
For example, Trinity-Holy Cross worked with JLL to provide data-driven insights into the relative success of the existing network of clinics, present opportunities in the market to expand strategically, and identify how to optimize the portfolio. An early step in this process was to create custom dashboards to synthesize data.
“This helped us to identify high and low performers in the region,” Gerber says.
Similarly, Children’s National Hospital used location analytics for a build-to-suit ambulatory surgery center in Prince George’s County, Maryland. The health system’s leaders felt uncertain about a site identified by their previous real estate advisor without the benefit of robust data analytics.
“Our goal is to help understand where the competition is, where they can grow, find new patients, or shift existing patients to a new facility to unlock efficiency,” Coursen says. “Advanced data analytics can’t tell you where to locate on their own without human interpretation, but they are an essential tool for decision making.”
Another cost savings strategy is to bundle same-landlord leases and renegotiate extensions “under a master, multi-location lease,” says Jay Johnson, JLL’s Healthcare Practice Leader for the U.S.
Hospital and health system real estate portfolios have grown dramatically in the past decade through mergers and acquisitions with other hospitals, systems, and physician practices. At the same time, the largest medical property investors have also grown their assets significantly through acquisition and new development. Portfolios have grown to hundreds and sometimes thousands of locations in multiple markets, often across state lines.
As a result, without realizing it, many health systems have substantially increased their exposure to specific landlords. Bundling allows significant relationships involving multiple leases with the same landlord to be combined under a new lease that meets specific objectives the health system may have, including but not limited to reducing overall square footage and rent.
“Health systems should manage and scrutinize portfolio data in a centralized database, using an appropriate, real estate-purposed technology to identify all landlord relationships and potential bundling opportunities,” Johnson says.