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— Health Care Properties Quarterly — June 2016
Developer Insights
M
ost health care organiza-
tions today are shifting
from a hospital-centered
strategy to an ambulatory
network strategy. The goal is
to build a “network of the future” that
improves outcomes and controls costs
by expanding access, aligning services
and increasing efficiency.
This shift represents a significant
investment, and health care leaders
are carefully managing the risks of
this transition. But there is one threat
that most leaders are unaware of –
the risk that a weak facility develop-
ment strategy could undercut an oth-
erwise solid network strategy.
One issue is cost. The “first dol-
lar” costs of facility development
have increased by about 12 percent
in just the last 24 months. The main
risk, however, is inflexibility. A poorly
planned development strategy will
make it hard for an organization to
expand quickly into new markets,
deliver care efficiently and pivot effec-
tively as conditions change.
The key to avoiding these problems
is to understand the five new rules of
health care facility planning.
Flexibility is now a key dimension of
facility strategy.
The future is uncertain
in every health care market. Today’s
facility development plans must be
flexible enough to allow health sys-
tems to respond quickly to changes
in competitive dynamics, reimburse-
ment and care delivery.
Flexible planning could imply addi-
tional space for vertical or horizontal
expansion. However, “just in case we
need it” is not a sufficient rationale
for building more shell space. A solid
facility development strategy should
be based on plausible and well-
defined expansion scenarios.
The concept
of flexibility also
should extend to
facility ownership.
Rather than lock-
ing capital into a
series of owned
buildings, health
care organizations
should consider
utilizing third-party
capital by leasing
some of their physi-
cal assets. A leasing
strategy can give an
organization the ability to shift access
points more easily as markets and
care delivery models evolve.
We have reached a tipping point in the
“build new versus renovate” discussion.
Facility renovations today must meet
increasingly stringent building code,
life safety, energy and seismic require-
ments. In addition, adding services
such as MRI can require extensive
facility and system upgrades. As a
result, it is now often more cost-effec-
tive to build new than to renovate an
existing structure. In fact, renovating a
facility today can actually cost 20 per-
cent more than new construction.
Even where renovation is cost-effec-
tive, location can be a deal-breaker. If
an existing facility is not in the right
market area, the short-term savings of
a retrofit eventually will be erased by
weak market penetration.
Standardization is key to both operat-
ing efficiency and network strategy.
With declining utilization, continued
downward pressure on reimburse-
ment and growing demand for price
transparency, all health systems need
a strategy for reducing operational
costs. In just the last two years, “effi-
ciency” has replaced “capacity” as the
watchword for facil-
ity expansion.
One driving force
of efficiency is stan-
dardization. Design
standardization can
support both pro-
cess efficiency and
quality improve-
ment, which are
important for real-
izing cost control
goals. And facility
standardization
offers strategic ben-
efits as well. Health
systems are finding that well-planned
facility prototypes can make expand-
ing into new markets more efficient.
“Retailization” is now a core con-
cept of facility development planning.
Thanks to high-deductible health
plans, patients are paying more out-
of-pocket than ever before. As a result,
consumer preference now plays a
large role in how providers are evalu-
ated and selected. Previously, health
systems competed primarily on clini-
cal excellence. Now they must also
compete on consumer experience.
Leading health systems are embrac-
ing the tenets of successful retailers
– convenience, consistency and con-
sumer experience. Health care devel-
opment leaders need to keep these
tenets in mind when selecting facil-
ity designs and sites. Going forward,
health care facilities must be close to
patients’ homes and work, enable fast
“in and out” and provide an inviting
environment for service delivery.
The “death of hospitals” has been
greatly exaggerated.
One aim of health
care reform is to keep patients out of
the hospital. The goal is to shift ser-
vices to lower-cost settings and even
provide care at home.
So does that mean health systems
should not invest in hospital facilities?
No.When you look at the nation’s
aging demographics, many regions
actually have a shortage of inpatient
beds. Type of bed also is a growing
concern. Hospital care is moving
toward a “hyperacuity” model, which
will place different demands on the
existing bed structure. Both trends
mean that development strategy will
continue to call for significant invest-
ment in hospital facilities.
But won’t telehealth reduce the
need for clinical space? Not really.
The main effect of telehealth is speed.
Patients see a provider quicker, which
leads to faster referral for diagnostic
testing and follow-up care – both of
which take place in buildings. Tele-
health speeds up the movement of
patients through the system, but it
won’t replace facility-based care any
time soon.
The key takeaway – facility develop-
ment strategy today must be based
on a clear understanding of trends in
demographics, market dynamics and
health care delivery.
Comprehensive planning mitigates
risk.
All of these rules point to the crit-
ical importance of a strategic network
development plan.
A comprehensive plan will take into
account current demographics, popu-
lation trends, local health profiles, tra-
ditional procedure volumes, existing
referral networks, competitive dynam-
ics, market development “hotspots”
and many other issues.
A strategic plan that coordinates all
these issues is the key to minimiz-
ing costs, accommodating change,
expanding access and delivering qual-
ity care in the years ahead.
s
Sam Sears
Vice president,
Hammes Co.,
Boston
Dave Connolly
Senior vice
president, Hammes
Co., Brookfield,
Wisconsin
