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4 Mistakes Hospitals Make When Managing Their Real Estate

Written by Posted On Thursday, 13 September 2018 11:47

According to a study from the CBRE, $1 trillion of real estate owned by U.S. hospitals could be managed more efficiently to improve patient care. But to succeed, hospitals and health systems need to start thinking like real estate investors if they want to generate cost savings, provide efficient patient care and secure capital for technology and care investment.

Here are four mistakes hospitals make when managing their real estate.

1. Lack of Efficiency

Lack of efficiency is one of the primary issues with hospital real estate management. Hospitals tend to overlook the effectiveness of energy strategies, staff efficiency and technology. Using capital more efficiently can often lead to significant cost savings.

Staff efficiency can lower costs, and one way to do that is through color-coded uniforms. Requiring hospital staff to wear female’s and men's scrub tops of certain colors will help other staff and patients better identify staff.

Switching to outsourced management can reduce facilities costs by 10%-12%. With an outsourced option, things like property management, development, project management, transactions and leasing activities are outsourced to third-party experts. Hospitals enjoy lower operating costs and enhance the operating value of the real estate.

The biggest expense most hospitals face is energy costs. Energy cost control and carbon footprint management can help lower costs while improving the hospital’s environmental impact.

2. Overlooking the Impact of Real Estate

Real estate accounts for as much as 40% of a hospital’s assets on its balance sheet. Yet most hospitals focus on labor and supplies when considering cost-cutting measures.

Proper management of real estate assets and energy use can provide more significant cost savings without hindering patient care.

3. Ignoring Their Real Estate Portfolio

Hospitals often ignore their real estate portfolio, but examining real estate assets can help improve cost savings. It's important for health systems to determine if their real estate assets are matching their strategic plan and which ones are underperforming or have become obsolete.

When hospitals analyze their real estate portfolios, they can determine which obsolete properties can be offloaded. Facilities that are performing at or above standard can be maintained or enhanced, and hospitals can also add new strategic locations to their portfolios.

Of course, these changes are significant, but they can often yield significant savings of 20-25% or more.

4. Not Offloading Assets

The best way for hospitals to improve the efficiency of their real estate is to use less of it. Healthcare lags in comparison to virtually every other industry when it comes to return on assets.

But we’re seeing many health systems taking the plunge and optimizing their real estate portfolios. New York City’s Weill Cornell Medical Center gained $65 million just by selling 21,000 square feet of space in an East Side neighborhood.

Some healthcare organizations are partnering with real estate investment trusts, or REITs. REITs can be strong income producers, with them paying out 90% of their taxable income in the form of dividends. In one partnership, Ventas acquired 10 hospitals from Ardent Health Services for $1.75 billion. As part of the deal, Ventas sold hospital entities owned by Ardent while maintaining 9.9% of the hospital operating company.

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James Stevenson

Hi, My name is James and I've been involved in the property and real estate industry for 10 years now. I hope people will like to read about my thoughts and experiences in the industry and please contact me if you want to discuss my articles further!

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