By Vionnta Rivers

While the darkest moments of the COVID-19 pandemic have receded, the healthcare industry is facing the new challenges of skyrocketing labor costs, inflation, shifting patient volumes and shrinking margins. Healthcare facilities costs have risen, and facilities management staffing shortages continue. To restore financial stability, hospitals and healthcare systems must consider new approaches to managing their operations, including real estate and facilities. 

U.S. hospitals and health systems are experiencing some of the worst margins since the beginning of the pandemic, according to Kaufman Hall’s August 2022 National Hospital Flash Report, and federal pandemic relief funding is no longer available to offset losses. The gains hospitals saw earlier in 2022 reversed themselves in July as shifting patient volumes shrunk revenues and expenses rose from June. No wonder Fitch Ratings on Aug. 16 revised its outlook for United States not-for-profit hospitals and health systems to “deteriorating.” 

Facilities focus 

Despite these challenges, creative new strategies are available to help healthcare providers thrive despite compressed margins. Facilities, in particular, represent an opportunity to rethink business as usual and contribute to cost savings while improving the patient experience. 

Often, adopting leading practices for facilities management can quickly reduce overall facilities costs by 12-18 percent or more. For instance, using next-generation maintenance strategies can reduce unplanned equipment failures by 17 percent, in turn reducing energy and maintenance costs by as much as 30 percent. Those savings can be redirected to nurse recruitment, patient care or to investments in facilities management that lead to further savings, more productive facilities and an improved patient experience. 

For the typical hospital or healthcare system, real estate operations present two primary challenges related to efficiency and cost. 

One is that the Great Resignation has affected many healthcare systems, leaving them short of skilled facilities management professionals. It is not unusual for such positions to be vacant for a year because qualified talent is scarce. 

Two, understaffed facilities management teams add to the difficulty of maximizing every facility. Healthcare delivery has moved beyond the hospital campus and into complex networks of community facilities, so maximizing the value of every facility requires new approaches related to revenues, costs and the patient experience. 

Assessing opportunities 

While hospitals and healthcare systems have an opportunity to squeeze costs and inefficiencies out of their facilities operations, the path to more productive facilities is not always obvious. One useful tool for diagnosing facilities operations improvements is a performance optimization assessment (POA). 

Performance optimization begins with assessing the current state of healthcare systems and facilities staffing and operations. Ideally, the assessment considers these five critical areas: team skills and development; compliance readiness; business intelligence and performance management; sourcing strategies; and energy and sustainability management. 

Following the assessment, an organization can create a vision and roadmap to capitalize on opportunities. To measure progress, the roadmap should include organizational and departmental critical success factors and key performance indicators (KPIs) focused on financial performance, risk mitigation and the patient experience. 

The third phase of a POA is planning and execution of activities to drive improvement. Implementing a performance optimization program (POP) that infuses in-house facilities management teams with business processes and technologies to elevate facilities management to a higher level of performance, supported by industry experts that empowers teams to succeed without outsourcing. This phase typically includes facilities management technologies that automate and streamline operations to reduce the need for additional staff. 

The fourth and final phase involves leveraging data and expertise, including real-time feedback on key performance indicators to ensure program success. Facilities management technologies provide business intelligence tools that can be used to manage operations, spot trends and measure performance improvements. 

Leading organizations are using POPs to achieve major gains in operational performance. For example, one large healthcare organization implemented a POP after a series of adverse, facilities-related events jeopardized the system’s reputation. 

Leadership recognized that the facilities management team needed a roadmap for improvement and turned to a real estate service provider to lead the POP. Through the POA assessment, the organization identified and prioritized $6.7 million in savings opportunities, which was enough to fund an additional 16 nurse practitioners for three years, including savings of $1.5 million in sourcing, $900,000 in energy, $3.3 million in operations and $1 million in labor. 

The system also was able to reduce Joint Commission findings and the severity of the findings, enhance facilities management staff performance and capabilities, and enhance patient safety. 

Outcomes to expect 

The resulting POP roadmap looks different for every organization, but generally speaking, some common outcomes can be expected. JLL data on facilities management optimization in healthcare organizations reveals measurable improvements that the typical hospital or healthcare system can realistically achieve: 

• agile, efficient operations and maintenance practices that reduce equipment failure rates up to 17 percent and curb energy and maintenance costs by up to 30 percent 
• shared, third-party facilities management services that enable the in-house team to apply new skills related to the maintenance of HVAC and other systems and avoid the steeper costs of outside engineering firms 
• centralized procurement and supplier optimization that reduce purchase costs by up to 18 percent 
• more resilient, energy-efficient facilities that support sustainability goals and reduce spending on energy 
• continuous compliance readiness that reduces regulatory fines by building compliance practices and documentation into facilities management operations 
• safer facilities and cost savings from reductions in workers’ compensation resulting from falls and over-exertion 
• reduced facilities management turnover and recruitment costs as teams are empowered to learn more and become more engaged with their organizations. 

While a facilities management POP will not solve every healthcare financial issue, a high-performing facilities team can help a healthcare provider relieve margin pressures. Most important, an optimized facilities management organization is better equipped to support the patient experience, as well as the outcomes physicians want and patients deserve. 

Vionnta Rivers is an executive director with healthcare at JLL.