Faced with outdated boilers, chillers and heating and ventilation systems along with inefficient department designs, growing patient volume and a limited budget to boot, hospitals systems across the country are evaluating if upgrading or building a new facility is right. There is no question that renovating existing facilities in most circumstances is more cost effective as a short term solution to more expensive new construction. However, building new facilities offers a wide range of opportunities and preparedness that many renovations cannot.

3 ways for hospitals to decide to construct new facilities or renovate existing ones:

1. Use a comparative strategy when assessing the situation: The hospital should assess their present situation while also comparing with local and national trends. Gauging how similar sized hospitals in geographically similar areas expanded is a good comparison when considering future development. If the hospital building doesn’t work well with the way care is being delivered today, be it not large enough exams rooms or too narrow hallways, the decision to upgrade can be overweighed by bringing a new facility to the market instead.
2. Conduct interviews: Who would have better input of ways to improve existing facilities than hospital employees who work in them every day? One-on-one interviews with departmental directors, key staff members as well as physicians can prove very useful when wanting new insight on strategy overview. Integrating and involving perceptions of medical staff and senior management offers guidance and new lines of thinking and in a project of this scale these considerations are exactly what are needed to carefully analyze renovating or new construction. I think it also is a great way to build team morale as hospital members are encouraged to contribute ideas and collaborate in a process they wouldn’t normally.
3. Run department tests: One method is to test and review each service and department for size and need and convert it to net square feet, department gross square feet and building gross square feet.  This helps build a foundation for how to develop a complete picture for space requirements. Some factors to consider are: staff activity and efficiency, equipment settings coupled with space functionality now and for future growth, hospital room adaptability and of course, patient flow.

Overall, renovation in many situations may be the only choice. New construction is often considerably more expensive, but renovation is a short term solution. When considering these options remember to review the Mission Statement and Strategic Plan to more completely consider the health organization’s goals.

Your Medical Real Estate Adviser

Jim Ellis

Hospitals consume massive amounts of energy ranking second as the most energy intensive commercial building, 2.5 times the energy intensity and CO₂ emissions of commercial office buildings. A large part of the energy usage is through HVAC systems which serve a plethora of vital functions, a few including: regulating building temperature and humidity, room pressure and airflow, filtering and controlling for pathogens and contaminants.

The replacement of a broad range of HVAC systems and related equipment reduces operating costs while improving patient comfort and system reliability. HVAC systems play the largest role in maintaining indoor air quality which helps control gaseous indoor emissions and volatile organic compounds. This makes for a healthy, safe and patient friendly environment.

3 Ways to Optimize HVAC Performance:

1. Reduce HVAC use in unoccupied areas. When areas are in low use or not being occupied, a lower air-quality and temperature are required, such as in operating rooms which have particular temperature and humidity thresholds during surgery. I suggest exploring options for energy efficient scheduling including: setbacks, start-stop settings and temperature resets complementing outside conditions.
2. Install variable frequency drivers on fan motors. In areas that require low ventilation, a variable air volume system regulates airflow due to demands of the space unlike a constant air volume system. According to the U.S. Department of Energy report this can reduce power use in fans by 50%.
3. Consider upgrading to displacement ventilation (DV). Unlike a traditional overhead ventilation system, DV supplies a steady flow of cool air at the floor level which, through upward convective flow, carries heat and contaminants towards the ceiling exhaust. DV reduces ventilation air change per hour and chiller lift, improving efficiency and energy savings.

Elizabethtown Community Hospital located in New York made great strides when they overhauled their HVAC system. After a comprehensive energy analysis, decisions were made to install a high efficiency boiler and chiller, cooling tower and supportive components as well as replace old air handling units and add variable speed drives. Expected savings on a per square foot basis are $1.41, a 30% energy cost reduction.

To maximize existing facility capital, budgeting for energy improvement measures is crucial for the future stability of a hospital and the health of its patients.

Your Medical Real Estate Adviser

Jim Ellis

Commonly referred to as a hybrid operating room, it allows surgeons to use the tools they need to not only see inside the body, but make repairs at the same time. Older and standard operating rooms can be inefficient and overcrowded: not integrating patient data and increasing turnover time between cases. The hybrid approach brings a new meaning to the term operating room. However, this shift in room design requires a shift in thinking.

Traditional operating rooms are 400 square feet in size. Now, to accommodate all the machines, room sizes are increasing to 600-800 square feet. Figuring out the logistics of the room design can be overwhelming as equipment takes up most of the room while only maneuverable in certain ways, plus space for the team of technicians to run the machines needs to be accounted for as well: either in an adjoining room or behind protective glass. Not just highly technological components are required for enhanced healthcare though, quality team work, communication and preparedness are all essential as well.

These sophisticated operating rooms not only allow surgeons, physicians and the rest of the health care team to perform a multitude of procedures in the same setting, but at the same time delivering a new kind of patient experience. At Yale-New Haven, their pediatric hybrid OR offers color-changing LEDs as well as frameless frosted glass which lines the walls, giving control of the environment to the patient. This sense of autonomy aids in making patients feel calmer, and as a result, less anesthesia is required. Instead of wheeling machines in or not having accommodating equipment such as proper lighting and a moveable table, hybrid ORs provide all the tools in one place giving patients the highest degree of comfort and safety.

Travis Air Force Base in California knows the benefits of a hybrid OR first hand as they’ve implemented a new world class operating room that’s double the size of any standard one. Designed especially for cardiac and vascular surgeries, the OR contains radiology and cardiac catheterization labs. Two impressive advantages are the convenience and collaboration that the room facilitates. Instead of carting the patient off to the intensive care unit after heart surgery, the cardiologist can be on-hand and have the proper tools to do everything he needs right inside the OR. Should the cardiologist find something wrong, he can inform the surgeon on the spot, rather than a scheduling a second surgery.

Hybrid operating rooms offer medical practitioners, surgeons, and patients and their families a new approach to surgical procedures that’s less invasive, more patient centric, and at the same time fosters collaboration making for a highly efficient and safe environment.

Your Medical Real Estate Adviser

Jim Ellis

Lean initiatives involve hospitals identifying and standardizing processes with the end goal being streamlined operations. Much like there are inefficiencies and gaps in delivering healthcare, there are inefficiencies throughout the design process as well. When going Lean, different techniques involved range from simulations and modeling to flexibility, modularity, standardization and more. Once processes have been targeted, these methods can be used to improve them.

Lean methods have long been used in manufacturing organizations to increase efficiency and streamline processes, but are now beginning to make an impact in the healthcare industry as the results have been favorable. As the healthcare field grows even more competitive and challenging, healthcare facilities are faced with the task of delivering care with fewer resources. Lean methodology aids hospitals in this endeavor immensely, especially in two very important areas: communication and the patient experience.

Patient experiences and the ability for all participants involved in the healthcare continuum to communicate effectively help drive Lean processes. When designers put themselves in the perspective of a patient, simulating modeling to assess flow, it is a highly effective tool to envision ways to reduce costs across the board. Likewise, when nurses, physicians, and hospital executives provide input and are able to collaborate and contribute their ideas to the design team, best solutions can be found.

A newly designed hospital that touted its Lean design methodologies recently was Virtua Voorhees replacement hospital in New Jersey. Virtua Voorhees officials used simulation and modeling geared towards patient and clinician movement to identify inefficiencies and change department layout, maximizing staff and patient flow.

UNC Health Care applied a Lean communication approach of their own to their orthopedic departments, and saw immediate results. After physicians discussed with patients their target discharge dates and means of accomplishing recovery by then, length of stay was decreased by one day, equating to three to four more free hospital beds each day, and patient satisfaction rose by 10%. The most dramatic part was that had UNC officials applied the approach to the rest of the hospital, capacity would have risen by 80 beds, improving net income by $35 million.

In this challenging and dynamic climate, Lean methods are an innovative process to help hospitals improve outcomes and set new standards in high quality.

Your Medical Real Estate Adviser

Jim Ellis

Throughout 2012, around 6.3 million square feet of medical office space will be delivered according to Marcus and Millichap, a national commercial real estate firm. While this is well below the annual average from 2006 to 2008, it is an increase from last year. In part 2 of my medical real estate industry trend report I’ll delve into how the factors including: healthcare information technology (IT), health organization consolidation and the 800 pound gorilla – healthcare reform, will all play a role in shaping 2012’s medical real estate.

3 Influencing Factors:

Healthcare IT:

From tele-health services to widespread adoption of electronic health records (EHRs), health IT is a growing field. While EHRs may support higher quality of care, they do free up physical storage space allowing it to be used for more critical purposes. Tele-health on the other hand could dampen growth in the years to come as treating patients, especially those who needed constant monitoring, via telecommunications will reduce office and hospital admissions while providing patient care quickly and efficiently.

With these great data requirements, it’s no surprise that data centers are a growing facility project hospitals are implementing. According to the HFM/ASHE 2012 Construction Survey 1% of hospital executives plan on constructing data centers in the next year and 11% plan on developing them in the next 3 years. With wired cable systems for building automation services a top priority as well as wireless services for patient safety features and patient charting, data centers serve a viable need for health systems looking to upgrade their data infrastructure.

Physician Practice Consolidation:

With forced cost pressures from dwindling government reimbursements and from health initiatives such as Accountable Care Organizations (ACO’s) and EHRs, a viable solution for some small practices and hospitals is the consolidation pathway. In 2011, there were 86 hospital merger and acquisition deals, up from 77 in 2010, and 107 physician group merger and acquisition deals, up from 67 in 2010, according to Irving Levin Associates, Inc. This flurry of mergers marks a momentous occasion as the way healthcare is delivered is changing and hospitals struggle to survive in this competitive market. By joining with a larger practice or even hospital as many are currently doing, smaller practices may keep tempo with capital and technology needs.

As consolidation and mergers continue to rise, this trend will give rise to larger developments. Larger groups adding more physicians will clearly need larger spaces. Likewise, hospitals buying practices located in medical office buildings have a tendency to merge small physician practices together in a single area increasing demand for larger floor plates.

Healthcare Reform:

Even though the constitutionality of healthcare reform is still being reviewed by the Supreme Court it is having a considerable impact on medical real estate. Health and hospital systems are cautious and in a, “wait and see approach” with healthcare reform, but they aren’t backing down and the medical real estate construction market in 2012 certainly will not bottom out.

Healthcare reform for many hospitals and health systems is causing a heightened focus on return-on-investment as well as a patient-centered care approach. Outpatient facilities exude both these qualities which is why it’s no surprise 16% of hospital executives indicate them as future projects according to an ASHE Construction Survey. They save patients and hospital executives money; patients don’t need to pay higher priced hospital bills, while hospitals may treat patients quickly and conveniently without all the overhead costs associated with a hospital. Health models involving retail and medical malls are also growing in popularity as hospitals are striving to reach consumer demand for increased convenience.

In this aggressive healthcare environment those organizations who fully grasp the intense strains of capital requirements, reduced reimbursements, demographic market shifts, health IT, consolidation and health reform’s vast impacts will have the foresight needed to react more quickly, be better prepared and stay solvent.

Your Medical Real Estate Adviser

Jim Ellis

Overview:

Medical real estate development is not what it used to be as hospital budgets remain relatively flat from last year for new construction, according to a Health Facilities Management/ASHE 2011 survey. However, coupled with rising space demand there is a strong correlation for occupancy gains in 2012.

3 Influencing Factors:

Medicare Reimbursements:

Not only are dwindling Medicare reimbursements changing the timeline and type of facilities constructed, but where physicians are practicing. The majority of hospital executives are either reevaluating, less likely to proceed or will definitely not proceed with future construction projects due to reduced reimbursement rates. There is a heightened focus on return on investment and scrutiny of all costs involved which is why the hospital executives that are moving forward with planned projects are focusing on outpatient centered and ambulatory-care facilities.

Medicare and Medicaid reimbursement rates are also making it more difficult for private practices to stay in business. Standard leases within a medical office building typically used to be in the 1,000-3,000 square feet range which compensates for a small physician group practice. Today, the average lease space is between 5,000-8,000 square feet and holds larger physician practices. As hospitals continue acquiring physician groups, they are also acquiring medical office space. Physician groups, many of whom have their own leased space, are vacating for the preferred route of hospital owned space.

The Era of Accountable Care:

As a way to mitigate reduced Medicare reimbursements and increase patient quality of care and satisfaction, hospitals are moving toward a state of accountability. From finding methods to reduce readmissions to being rewarded Medicaid and Medicare incentives, or in some cases penalties, for patients’ hospital experience, accountability equates to value of care.

According to the ASHE 2011 Construction Survey, 16% of hospital executives indicate future projects for them are outpatient facilities in neighborhood settings while urgent care clinics and free standing emergency departments were noted as future projects by 14% and 7% of hospital executives respectively. As hospitals are progressing toward this patient-centric delivery model, a greater access to ambulatory settings will be involved providing a more convenient and accessible environment of care.

Demographic Trends:

A shining light on the medical real estate horizon is the aging Baby Boomer market. Over the next decade the 65-plus age segment will expand around 36% as Baby Boomers transition toward retirement. This age group has a tendency to incur more medical expenditures driving healthcare demand and development. While quality, long-term, mission driven planned development requires diligent foresight into the universal needs of healthcare recipients beyond targeted demographics, I do foresee Baby Boomers contributing to the need for medical office development especially in the form of cardiology, orthopedics and oncology.

Stay tuned for part 2 in my overview of 2012’s medical real estate market!

Your Medical Real Estate Adviser,

Jim Ellis

Hospitals and systems are at more financial risk than ever for care costs and quality due to the Affordable Care Act.  Should healthcare reform pass, an influx of Americans, 7 million by conservative estimates, will be insured creating more demand for hospitals to streamline services and critically analyze the cost effectiveness of new initiatives. Those hospitals and health systems taking steps now to adjust are not only preparing for the potential future, but improving quality of care, efficiency, and the overall health system in America.

The current and traditional fee-for-service model is one of the reasons why America spends more money on health care than any other industrialized country. The Affordable Care Act’s far reaching goals are there precisely to find alternative ways to reward hospitals not for services performed, but for quality of care. All of this is helpful for patients and hospitals alike as it enforces a personalized patient-centric hospital experience while boosting the bottom line by being rewarded incentive payments for high patient satisfaction scores and not wasting money duplicating processes and services.

Hospitals taking action now are striving to provide reliable, exceptional quality-care to improve health outcomes and an important aspect is forming new relationships with health organizations. When asked how health reform impacted his organization, John Kelly, chief of ftaff and chief patient safety officer of Abington Memorial Hospital said, “Our approach has been to look for all the necessary partnerships within our community of providers to come to a better rationalization of care.”

Healthcare partnerships can come in many forms, from Accountable Care Organizations to Value Based Purchasing, but what’s important is maintaining the health of the patient across the continuum of care. From hospital admission, to follow-up services performed, to at-home care, hospitals are tracking patients through each cycle in their care to reduce costly avoidable readmissions and to make the patient healthier and happier.

From a medial real estate perspective hospitals are already acquiring physician practices to help smooth coordination and focus on outpatient care. In 2011, there were 107 physician group merger and acquisition deals, up from 67 in 2010, according to Irving Levin Associates, Inc. Likewise, according to the ASHE 2011 Construction Survey, 16% of hospital executives indicate future projects for them are outpatient facilities in neighborhood settings. The need for cost effective high quality care is greater than ever and hospitals and health systems embracing this need will benefit no matter how the Supreme Court rules on health reform.

Your Medical Real Estate Adviser

Jim Ellis

The CCTP was created by the Affordable Care Act as a way to test potential programs that can improve care transitions from the hospital to the patient’s home, another health facility or other setting. There isn’t a set of rules for this program, rather it is an incentive to help get community-based organizations (CBOs) to develop their own community-centric methods that they best see fit to fix preventable readmissions and promote patient care. The focus on community-care measures hinge on the notion that only part of the problem can be fixed from within the hospital. A coordinated action plan that works in conjunction with a network of facilities that all promote patient self-care is optimal in keeping the patient healthy enough not to be readmitted.

CBOs approved for the CCTP will receive an all-inclusive rate per eligible discharge which is based on transition services costs. While many CBOs will apply to receive these all-inclusive rates from the $500 million in allotted funds, preference will be given for CBOs that provide services to underserved populations, small communities, and rural areas while offering interventions that span the continuum of care.

Earlier in March, the Centers for Medicare and Medicaid Services (CMS) added 23 sites the program bringing the total to 30 providers supporting over 126 hospitals and helping more than 223,000 Medicare beneficiaries throughout 19 states. By promoting community involvement to help improve transitions, avoidable readmissions and costs may be reduced while the patient experience is enhanced.

The second plan CMS has implemented for reducing readmissions has a more targeted approach. Like the CCTP the Initiative to Reduce Avoidable Hospitalizations among Nursing Facility Residents aims to curb avoidable readmissions for Medicare and Medicaid patients. However, CMS research specifically in this field has deemed 45% of hospital admissions from Medicare and Medicaid patients receiving skilling nursing facility services could have been avoided, resulting in $2.6 billion in Medicare savings.

Nursing facility residents are particularly at high risk for medical complications to arise as they are more likely to have over night hospital stays and be in a state of transition from the hospital. This initiative works by CMS partnering with independent, non-nursing facility organizations to develop and implement evidenced-based practices to decrease preventable readmissions. The $128 million initiative will strive for improving communication between providers and preventive services to aid low-income elderly patients and their families more personal care.

What suggestions would you make?

Your Medical Real Estate Adviser

Jim Ellis

Stage 2 Requirements and What to Expect:

While a long list of items were proposed, they all centered on a progressive push for doctors and hospitals to improve quality and efficiency through IT usage. Though not too far a cry from electronic health record certification standards proposed last year, noted National Coordinator for Health IT Farzad Mostashari, Stage 2 Meaningful Use rules pivot around the need for greater health information exchange. This means that health organizations need to develop methods to exchange data across organizational boundaries.

A requirement that caught my eye was 10% of patients must be able to “view, download, or transmit to the third party their health information.” This requires massive data storage needs along with the ability for a streamlined flow of communication for electronic health records between patients and physicians. This is a positive step in the right direction as other industries have seen great results from mining large sets of data. With big data management brings forth the potential for great improvements: from more efficient population health management to more personal patient experiences and of course, finding ways to reduce costs.

With these great data requirements, it’s no surprise that data centers are a growing facility hospitals are implementing. According to the HFM/ASHE 2012 Construction Survey 1% of hospital executives plan on constructing data centers in the next year and 11% plan on developing them in the next 3 years. With wired cable systems for building automation services a top priority as well as wireless services for patient safety features and patient charting, data centers serve a viable need for health systems looking to upgrade their data infrastructure.

One health system that recently held a ground breaking ceremony for its new data center was Roper St. Francis Healthcare (RSFH) in North Charleston, South Carolina. Health system executives are building a 16,000 square foot facility to serve as a safe haven for around 40 tons of electronic communications equipment responsible for housing and distributing data to 100 RSFH facilities in a nine-county area. Once operational, the data center will expand the health system’s ability for future technological growth, a chief concern for health system and hospital executives across the country.

Your Medical Real Estate Adviser

Jim Ellis

Physician-owned hospitals are hospitals that have any physician with any type of ownership, and are known for top notch healthcare. In fact in January of this year, the Physician Hospitals of America (PHA) announced that 16 of the 37 winners of the prestigious Inpatient Patient Satisfaction Summit Award were physician-owned hospitals. Essentially, 45% of the most satisfied patients are coming from facilities that compose less than 5% of hospitals nationwide. Physician-owned hospitals credit their high patient satisfaction rates due to freedom from administrative layers between patients and doctors. However, as good of results as they demonstrate, not everyone is a fan.

History and Current State of Affairs:

Pressure came against physician-owned hospitals in 1989 when Congressman Pete Stark introduced a law, referred to as the Stark Law, that would prohibit physicians from referring their Medicare and Medicaid patients to facilities which they had a financial interest. The mindset was that physicians would make unnecessary self-referrals, increasing utilization of medical services causing a burden on tax payers.

However, there is an exception for every rule and for a number of years, the “whole hospital” exception allowed a referring doctor to have a financial stake in a hospital, as long as the referring doctor was licensed to perform services at the hospital and the ownership or investment interests was in the hospital itself and not simply a subdivision of the hospital. When healthcare reform came along though, there came increased requirements for this exception.

According to the Patient Protection and Affordable Care Act, no physician-owned hospitals may start or current ones expand. However, like I said earlier, there is an exception. In this case, any existing physician-owned facility that was Medicare certified by December 31, 2010 would be exempted. This in turn caused a growth of new construction and expansion to meet that deadline, but since then, there really hasn’t been any new developments on the medical real estate side. Today, physicians who have a vested interest in this field, are continuing to lobby congress as they fight an up-hill battle, especially after a very recent set-back.

Pros and Cons of Physician-Owned Facilities:

Opposition is great for why physician-owned facilities should remain on the sideline. Along with the possibility for the increased utilization of medical services, opponents criticize physician-owned hospitals for selecting the healthiest and high-reimbursed patients leaving low-reimbursed and unhealthy patients for the community hospital to treat. When Richard J. Umbdenstock, president of the American Hospital Association, voiced against the bill for expanding rights to physician-owned hospitals, he stated that it would cut Medicare payments to hospitals.

On the reverse side, physician-owned hospitals provide some of the highest quality care while increasing patients’ choices for affordable care. Should Congress grant relief to physician-owned hospitals, a vast majority would take advantage. Of the 70 physician-owned hospitals polled by PHA, 55% would want to upgrade their infrastructures immediately and 35% would want to upgrade within the next 5 years. According to the PHA, these expansions would result in $450 million spent on new medical construction generating over 1500 positions added to the healthcare job market.

What are your thoughts on whether physician-owned hospitals should be allowed to expand?

Your Medical Real Estate Adviser

Jim Ellis