Brandeis International Business School

Healthcare reform has fundamentally changed how nearly everyone in America interacts with healthcare systems, from insurance coverage to the type and quality of care available to today’s healthcare facilities. In the wake of this dramatic shift, Brandeis International Business School and JLL conducted a study on the impact of Healthcare Reform on healthcare real estate. The research found that Healthcare Reform is redefining key factors affecting healthcare real estate, including cost efficiency, the evolution of a retail model and technology.

“Healthcare Reform in the U.S. has affected the way healthcare systems operate, leading to more opportunities to implement smart real estate solutions that reduce costs while improving patient care,” said Mindy Berman, Managing Director and Practice Lead, JLL Healthcare Capital Markets. “This crucial market research from Brandeis International Business School and JLL informs healthcare systems on the way Healthcare Reform will impact their real estate strategies now and in the foreseeable future.”

“The growth of retail has dramatically changed the healthcare landscape,” said JLL Managing Director Mindy Berman. “The industry is moving off of the hospital campus model into a community-based distributed delivery system. This is a quantum shift from episodic-based hospital and outpatient centers to providing care that is much more consumer centric and spontaneous. We call this “the retailization of healthcare.”

According to Edward Chazen, who oversaw the research efforts at Brandeis International Business School: “Distributed care is growing faster than hospital-based care as measured by square footage. A prime example is the explosion of the CVS MinuteClinic operation. Their revenue has increased by 400% in 5 years.

“Universal healthcare means that service will be delivered very differently, in more dispersed physical locations,” Chazen continued. “Doctor’s offices will be more efficiently utilized for patient care and less for administration. This will result in greater efficiency.” Chazen is the former Head of the Real Estate Specialization at Brandeis International Business School.

The research, Impact of Healthcare Reform on Healthcare Real Estate, points to five key ways U.S. Healthcare Reform is defining healthcare real estate:

1. Retailization – The number of retail clinics in the U.S. increased 10 percent last year, according to the report. These clinics are alleviating pressure on overburdened Primary Care providers and emergency rooms through either base care or urgent care models.
   
   The report points to CVS MinuteClinics as an effective retail clinic business model, with economical, accessible and time-efficient medical care in a walk-in, seven days a week setting. At CVS MinuteClinics, a nurse practitioner or physician assistant diagnoses and treats minor health conditions, performs health screenings, monitors chronic conditions and dispenses vaccinations. While these sites only occupy about 100-300 square feet of space, they have served more than 20 million patients and have a 95% customer satisfaction rating. This retail clinic model proves that a smaller real estate footprint can still provide premium patient care while reducing costs and pressure on traditional hospitals.
2. Geographic Distribution of Care – Healthcare providers are taking a chapter from the retail industry’s handbook and using demographic analytics to determine what type of healthcare facility is best-suited for a specific geographic area. The research points to Massachusetts as an example of this trend, with retail clinics or urgent care centers in medium- to high-income areas where patients will pay a premium for care. However, this means that there are less patient care options in rural or lower-income communities. In fact, the average family in an underserved community has to wait an additional 20 days for a new patient appointment, according to the research. 
3. Customer-Centric – As Healthcare Reform continues to drive competition among healthcare providers, customer-centric practices will define the industry leaders from the laggards. Healthcare systems that have lower waiting times and improve the overall customer experience through modern, accessible facilities and advanced patient databases will become providers-of-choice for individuals and families seeking premium care.
   
   “Healthcare organizations are starting to think like retailers and reach consumers with the right facilities in the right locations to enhance their overall experience at the hospital,” said Chad Pinnell, Managing Director, JLL Healthcare Solutions. “Consumers have many choices in today’s competitive landscape, so healthcare organizations that go above and beyond in catering to the patient population will be the most successful in the future.”  
4. Technology – In the wake of healthcare reform, strategic applications of technology and design can help healthcare organizations refine their real estate and increase patient care. The research found that shared space, standardized rooms, modularity/mobility and “lean and green” medical office buildings can lower space needs and increase productivity by 33 percent. This model sees an average of 3,000 patient visits per room annually, while lowering the square feet per room to 400.
   
   Technology can be a double-edged sword for healthcare institutions, decreasing space needs with innovative, state-of-the-art medical equipment – yet this crucial technology can occupy a significant amount of real estate. The research cites laparoscopic operating room medical equipment that occupies an average of 176 square feet by itself as an example of a real estate design challenge created by new technology. This technology also creates strenuous requirements for healthcare HVAC systems and electronics.
5. Cost Efficiency – While specific real estate strategies differ for each healthcare system, all must grapple with the need to do more with less. The report cites a number of cost-savings solutions, including better space utilization (including flexible design), renovating sites into private inpatient rooms and expanding facilities into suburbs and underserved communities.
   
   In addition, healthcare legislation and the Affordable Care Act allows lower-cost care providers to put more pressure on traditional healthcare systems. In fact, urgent care costs are between 72-83 percent lower for these providers than costs from a traditional healthcare system. This is causing many healthcare systems to dramatically expand outpatient operations to drive cost efficiencies. For example, the Beth Israel Deaconess healthcare system in Boston increased its outpatient surgical operations by 17.6 percent between 2008 and 2013, and outpatient facilities now make up about 19 percent of the system’s real estate portfolio.

The report, Impact of Healthcare Reform on Healthcare Real Estate, incorporates insights gleaned from industry research, site visits to four leading healthcare systems and interviews with experts in medical real estate and healthcare systems.

JLL’s  Healthcare Solutions group partners with hospitals and healthcare systems throughout the nation, delivering comprehensive inpatient and ambulatory facility management, strategic consulting, real estate capital advisory, program management, property management, transaction services, lease administration and energy/sustainability advisory services. Through its work, the Healthcare Solutions group connects healthcare business strategies to real estate solutions, driving efficiencies and enhancing quality. For the last five years JLL has been ranked among the top five development firms in the Modern Healthcare Magazine’s Design & Construction Survey.

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $55.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.