A new challenge for hospitals: reimagining their real estate footprints

Asked what inspires them in their job, most provider-based CFOs will say, “caring for our patients,” “making our community healthier,” or “making healthcare more affordable and accessible.” The COVID-19 pandemic has forced us to put those aims to the test. 

Throughout the last few months, we have participated in decisions to quickly shut down revenue-generating services to keep people safe and watched as costs grew while income slowed. We also have spent heavily to ensure we have the personal protective gear, equipment, space and people needed to care for patients battling COVID-19. None of us know how long or how material the financial impacts will be. Our focus must be on doing the right thing and ensuring there is enough cash to continue to operate and withstand this deadly virus. The inspiration to perform our jobs has never been stronger.

For finance leaders at systems like IU Health, which saw an initial surge in COVID-19 cases, shut down elective surgeries and then reopened them at a safe rate, it’s time to assess the financial impact and roll up our sleeves to help our organizations restore their financial plans as best as possible. While help from the government has arrived and is appreciated, we need to do our part and continue to focus on our fiscal responsibilities to reduce costs and find efficiencies. While most providers have a majority of their costs in labor, this is the worst time to reduce our healthcare workforce. The pandemic might yet worsen and require more caregivers to respond and keep our communities safe. So what do we do now?

Let’s look at what has changed amid the pandemic and lean into that. We have seen physician office buildings and administrative buildings empty almost overnight. Patients and providers embraced the use of virtual care for safety, convenience and timesaving. More employees than ever before began working from home. The pandemic helped us realize we don’t need to see our patients in person every time, nor do we always need large waiting rooms when patients can walk directly from their cars into the exam room and we can register patients virtually before they arrive. We also don’t all need offices and assigned spaces at work. In fact, some of our employees might not need space onsite at all.

In regards to IU Health’s work from home transition, our coders have worked from home productively for years. Additionally, before the pandemic, we moved a large group of schedulers to remote work while making sure we were protecting health and personal information. We planned to move other jobs to work from home over the next several years. However, what we thought would take years literally happened overnight. Our governor’s stay at home order sent thousands of team members unplugging their desktops and phones and carrying them home. 

So what happened when we had our staff move remote? It worked! Productivity in several areas flourished, with our customer service team increasing productivity by more than 10 percent. Our administrative workforce also increased productivity. Employee engagement also is up across the board. We have figured out that allowing employees to work from home can result in a much better work/life balance (something we’ve all strived to find most of our professional careers). Our treasurer said, “For the first time in my career I’ve actually been granted the gift of time,” because he saves an hour and a half each day from not needing to commute into the office.

Given the positives seen from allowing staff to work from home and the virtual care boom, CFOs can focus their cost reduction work at real estate optimization instead of workforce reduction. One study by real estate firm CBRE puts the value of U.S. hospital real estate assets at $1 trillion. At IU Health, we have found reimagining our real estate footprint to be inspiring to our leaders who want to be good fiscal stewards, but are concerned about unintended consequences if we focus our cost reduction efforts on staffing. We are now very focused on optimizing our fixed assets for efficient use of space in operating rooms, physician offices and administrative buildings.  

At IU Health, we began asking new questions, such as: When optimizing our OR assets why do the calculations based on the ORs that are staffed instead of the total OR counts? Why use metrics that only take optimal hours of operation into account rather than seeing the asset as something available 24/7? Why calculate optimal utilization of physician offices by looking at the exam room utilization for eight hours a day five days a week instead of looking at all of the square feet in the office 24/7? If factories don’t look at their fixed assets this way, why do it in healthcare? 

Our decision support team, thinking about these new questions and other efficiencies, just finished building dashboards for the COVID-19 era, allowing us to look at data multiple ways to optimize our real estate assets. The new data have caused a lot of “wow” moments.  

New opportunities posed by COVID-19 for hospitals and physician groups can allow them to reduce costs, hone workforce efficiencies and effectiveness and improve patient care. The savings and efficiencies will go a long way toward offsetting the higher costs hospitals are incurring from COVID-19 and the loss of patient service revenue from pandemic-postponed surgeries and other procedures. More importantly, it helps to reduce our cost curve in the long run and reduce the cost of care for patients and employers. Real estate optimization not only pays financial dividends, but it also can change work culture for the better while we fight the pandemic together.

More articles on healthcare finance:
West Virginia health system gets bankruptcy plan approved; has -120 days cash on hand in Q2
Children’s Healthcare of Atlanta extends furloughs until November
ProMedica posts $234.7M profit


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