Health Systems Are Using Creative Real Estate Strategies to Reduce Margin Pressures

JLL's 2022 Healthcare and Medical Office Perspective Report lists seven ways health systems can use real estate to increase revenue and cut costs.

Health systems' margins are under extreme pressure, thanks to ongoing labor challenges, supply chain issues, rising capital costs, and strained payer relationships. All these issues have forced healthcare leaders to get creative in the way they cut costs—one such solution revolves around their real estate strategies.

Real estate can account for about 40% of a healthcare system’s balance sheet, according to data from JLL’s 2022 Healthcare and Medical Office Perspective Report. Margin relief has become a fundamental part of health systems’ efforts to improve the financial well-being of their organizations. By leveraging real estate assets, systems can use the cost savings to take the pressure off margins, according to the JLL report.

The report lists seven ways health systems can use real estate to increase revenue and cut costs.

• Managing the real estate portfolio with appropriate technology and data to generate timely, actionable improvement insights
• Aligning locations to mission and business objectives
• Expanding, relocating, and/or reprogramming sites to maximize patient access (market share) and patient volumes (revenue)
• Blending and extending leases to reduce rent or square footage in exchange for longer terms
• Bundling leases where there are multiple locations and significant square footage with a single landlord
• Reexamining administrative workplaces and adjusting to the new work-from-home paradigm
• "Reverse monetization" of assets with significant hospital occupancy

"Health systems and other care providers continue to face economic challenges in the aftermath of the pandemic, including labor shortages, payor and reimbursement pressures, and disruption from innovation and new entrants into the sector," Jay Johnson, National Practice Leader, Healthcare Markets, JLL, said in the report. "Facilities offer both risks and opportunities to healthcare providers, and, despite the challenges, the critical nature of healthcare and large tailwinds from a growing and aging population continue to make healthcare real estate one of the most stable asset classes for investors."