How hospital mergers are challenging facilities management
Industry experts say a lack of data is leaving healthcare systems at a disadvantage managing portfolios
A surge in mergers creating sprawling health groups in the U.S. is keeping hospital operators on their toes to avoid redundancies and manage their growing real estate portfolios.
Last year healthcare mergers and acquisitions rose 56% compared to 2020 numbers, according to PwC. Driven by financial pressures, the activity is not expected to slow anytime soon.
With facilities and real estate typically the third largest expense on a healthcare system’s income statement, the increasing volume of M&A is pushing many administrators to tap third-party facilities management (FM) providers to streamline work, reduce costs and improve the quality of their facilities, says Mike Mostardi, JLL Healthcare executive director. But there’s rarely a straight line to that decision.
“These mergers challenge facilities management in ways they’re not always prepared for,” Mostardi says.
For instance, take an acute lack of data around performance management.
If you were to ask the VP of real estate for a Fortune 500 company what metrics they use to measure how their facilities are performing, they’d have tons of data. They can speak about how their people function and how their assets perform. However, healthcare systems only tend to collect data around managing the budget and completing preventive maintenance, Mostardi says.
“There is a tremendous opportunity to help from a data standpoint,” he says.
Mostardi points to JLL’s new Performance Optimization Program as a smart opportunity to help healthcare systems better evaluate how they are performing and measure data around patient experience, risk mitigation, and financial performance.
Better data around facilities management can address growing woes ranging from succession planning to meet sustainability and regulatory requirements.
One of the most significant issues healthcare systems are experiencing isn’t confined to the healthcare industry—labor shortages are affecting nearly every industry in every corner of the U.S. About two-thirds of the FM technician workforce will be retiring within the next few years. However, succession planning is barely on the radar, Mostardi says.
“As the old saying goes, ‘fail to plan, plan to fail.’ Hospitals will be hit hard when the person who knows their building best walks out,” Mostardi continues. “Most hospitals don’t have systems in place where they’ve digitized important facilities information such as the piping above ceilings and where shut off valves are located.
“Without a succession plan in place, it will provide a significant blow to patient care when an emergency happens because the facility person who knew how to mitigate that problem isn’t going to be there.”
Data will also be vital when addressing energy and sustainability issues – especially as mandates are imposed.
Healthcare organizations are having a challenging time putting together a business case where they can take advantage of the energy and sustainability strategic opportunities, Mostardi says.
Because a hospital treats patients around the clock, they cannot do the traditional setbacks seen in an office space, such as reduced lighting and HVAC. However, collecting data to see how a healthcare facility operates can highlight where pressure points are.
“A lot of times in healthcare organizations, the facilities team is just firefighting. Peaking their head above the fire and finding those opportunities, they just don’t have time to delve into the data and research such solutions,” Mostardi says. “A partner can reach back into all the best practices to find out where opportunities are for low-cost investments.”
Beyond Data: Merging operations and sourcing supplies
Two other pressure points being squeezed by M&A activity include navigating supply chain and sourcing issues and avoiding redundancies when merging operations.
For example, JLL recently partnered with an organization with 34 hospitals, and they were using seven different systems to manage their day-to-day facility operations.
Through a metrics evaluation, JLL could pinpoint key areas of improvement ranging from the variability of how the hospital system delivered facilities management across its portfolio to a single point of failure. For example, due to the variability of management, each hospital had its own approach to regulatory compliance, and in turn, there were 34 single points of failure. This is problematic because eight out of the top 10 regulatory compliance issues are related to items the facility management team is responsible for, so there is a high likelihood of problems when all 34 are addressing compliance differently.
“When merging, one of the first things hospitals need to do is standardize those systems across the entire portfolio,” Mostardi says. “Where they miss the mark is by putting the standardization work on the backs of their own team.”
With full-time jobs, it could take an FM team 12-to-24 months to implement a new system. Whereas a strategic consultant partnership can get a system up and running in three to six months, Mostardi says.
The same can be said for dealing with sourcing issues.
As COVID cases decrease, CARES money dries up, and the markets take a tumble, hospital’s P&L statements aren’t as solvent as they have been. In addition, with supply chain issues, hospitals feel pressure forcing them to reevaluate how and where they do business.
A partner like JLL, which buys $50 billion of facilities services and supplies annually, has much more leverage to get better pricing, Mostardi says.
However, many of these proactive cost-saving approaches are not yet prioritized within healthcare systems.
“FM and real estate management is often an afterthought within the healthcare community when in reality, efficiencies here set the foundation for improved quality and reduced costs across the board,” Mostardi says.