The Socio-Economic Impact of Healthcare Development

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The Socio-Economic Impact of Healthcare Development

The Value of Real Estate in the Population Health Era The need for healthcare real estate portfolio optimization has never been greater. With the acceleration in mergers and acquisitions, as well as the evolution of clinical models, healthcare organizations must continuously evaluate their physical assets and maximize the value they derive from them.

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TABLE OF CONTENTS Change-Driven Opportunities within the Marketplace

4

Shifting Focus: Health in Communities

5

Investing in Revitalization and Innovation: UPenn

7

Utilization and Simulation

10

Communication and Visualization

11

The Retail Experience

12

TABLE OF CONTENTS

The Socio-Economic impact of Healthcare Development

TABLE OF CONTENTS

CHANGE DRIVEN OPPORTUNITY WITHIN THE MARKETPLACE Hospitals and health systems are economic engines for communities across the US. According to Guian McKee, Associate Professor of Public Policy at the University of Virginia, “Hospitals specifically and the health-care sector in general have been one of the few consistent economic growth engines in U.S. cities through the late twentieth

Change Driven Opportunities Within the Marketplace

and early twenty-first centuries. Typically, hospitals provide jobs at a wide range of skill and educational levels, often with better pay, and more opportunities for advancement than other leading urban economic sectors.”

While a great deal of existing literature explores the economically generative capacity of healthcare, both from a direct employment and a construction contribution perspective, surprisingly little literature exists that illustrates the socio-economic impact healthcare organizations have on their community.

This lack of investigation may be due to healthcare’s recent shift from a reactive

POPULATION HEALTH MANAGEMENT

system, or “episodic care” model, to a more proactive “Population Health Management” model. Population health focuses on delivering comprehensive care

Re-prioritizing clinical outlets and

through realigning clinical resources into a continuum of care (prevention, home

realigning care leadership has emerged in

care, critical care) and managing total cost risk. This approach is forcing healthcare

an effort to control costs, and in response

organizations to investigate the social structures and behavioral patterns of their

to health reform. In the past, the hospital

communities to align resources to where they can be most effective.

was the flagship environment for clinical care, with specialists—who had little to no connection to patients—leading procedural care. Today, population health is directing a return in clinical leadership

According to socio-economics, there is a fundamental relationship between lifestyles, behaviors and economic activity. In this new era of Population Health, healthcare development needs to be valued not only for its near-term economic contribution, but also for its long-term social potential to understand the full impact.

to the primary care physician (PCP).

The hospital is still extremely important, but as part of the continuum of care.

ENGAGE Members

Where the emergency department used to be considered the “front door” of the hospital, the PCP’s office is emerging as the new entrance. Of critical importance in today’s environment are the relationships

MANAGE Outcomes

that PCPs establish with patients and their families, creating individualized “care plans” that direct the utilization of both clinical and non-clinical (valuable community-based) resources to maximize

KNOW The Population

health outcomes. Outpatient facilities have become the care environment of choice. Healthcare systems now focus on fostering healthy lifestyles and creating behavioral management systems that reduce costly hospital visits and improve constituent populations’ quality of life.

Caregivers now take a long-term view on health management, and health systems are increasingly coming to the realization that lifestyles and behaviors affect outcomes.

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SHIFT IN FOCUS: HEALTH IN COMMUNITIES The shift in clinical leadership and primary care environment is driving a growing focus on real estate. As systems try to increase their customer base, they amass large and valuable real estate portfolios through physician acquisition and system consolidation. These facilities provide health systems with multiple touch points, or places where they are able to influence their patients’ lives. Through community needs assessments, optimal clinical alignment and innovative programming, these assets can become engines of social and behavioral progress within their communities.

According to the Advisory Board Company, “No other institution is more integrated into the community or holds more responsibility for the health of those living in it.”

Health systems should use every tool in their arsenal to influence public health, and

Shifting Focus: Health in Communities

real estate is potentially one of their most powerful resources.

Transit-Oriented Communities Connect People to: WELLNESS As healthcare and its reimbursement PHYSICAL ACTIVITY

JOBS

EDUCATION

HEALTHCARE

structures shift focus to wellness and prevention rather than illness and treatment, there has been a significant increase in the number of integrated wellness centers. Moving beyond conventional exercise programs, new centers become competitive service lines for health networks by bringing together physician practices, diagnostics, health coaching and education, and total mind body fitness.

BUILDING HEALTHIER COMMUNITIES Research finds that a primary determinant of a healthy lifestyle is the environment in which a person resides. Kimball Crangle, Senior Developer with the Denver Housing Authority said, “Most people who live in neighborhoods with parks, trails, and greenways are twice as healthy as people who live in neighborhoods without such facilities.” The average citizen also recognizes the importance of these spaces; 50 percent of Americans surveyed by the Urban Land Institute say that “walkability” is a top or high priority when considering where to live. Walkability refers to how friendly an area is to walking, and the indices that measure walkability usually correlate with community health. Compact, mixed-use, amenity-rich, transit accessible neighborhoods tend to have high walkability scores and promote healthier lifestyles.

Improving walkability not only has positive behavioral effects, but research shows it also has direct economic implications.

The Socio-Economic impact of Healthcare Development

PAGE 5

FADY BARMADA

AIA, MBA, Lean Six Sigma Green Belt

The environment of care can have a profound impact upon quality and outcomes. Understanding the myriad of needs and expectations of the various constituent client groups and then balancing those with the spatial and technical demands of clinical processes is what we, at Array, do. With the inclusion of Strategy Advisory Services, we help our clients take a broad, systemic look at their total portfolio of care and support environments to better understand the value those assets have to the patients and their families, clinicians and staff, and

LEVERAGING COMMUNITY ASSETS FOR POPULATION HEALTH In her article, “Making the Economic Case for More Walkability”, Mariela Alfonzo, founder of State of Place, states that an increase of one point Walk Score – a proxy for walkability that rates proximity to commercial destinations on a scale of one to 100 – translated into home price premiums ranging from $700 to $3,000 in 13 of 15 major US markets. Additionally, an increase of 10 points was associated with an increase of five to eight percent in commercial values.

Click here to read the full article “Making the Economic Case for More Walkability” In a 2012 Brookings Institute study focusing on a comparative economic analysis of metropolitan Washington, D.C. neighborhoods using walkability measures, Ms. Alfonzo and co-author Christopher Leinberger found that more walkable places perform better economically, and that residents of places with poor walkability are generally less affluent and have lower educational attainment.

to the community which the organization serves. Given the dynamic nature of healthcare, and the constant evolution of population and community needs, we recognize that optimizing a portfolio of physical assets is not an “episodic” effort, but rather is a continuous process.

The key value of Strategy Advisory Services lies in the formation of longterm relationships with our clients and the creation of a dynamic tool set that provides information critical to strategic decision-making.

IMPACT OF HOSPITAL SYSTEMS ON THE COMMUNITY In the era of population health, hospital systems must re-evaluate their position within their communities. As systems seek to reach beyond the clinical care continuum to bridge care gaps and influence community health, they will need to increase

Fady brings 20 years of healthcare

community integration and become engines of progress. In mixed use, amenity-rich

consulting and design to his role as

neighborhoods, this may mean forming relationships with the community to integrate

Practice Leader, Strategy Advisory

health into decision-making, public policy and planning endeavors. An excellent

Services. He works with a wide range of

example of this is the Robert Wood Johnson Foundation Commission to Build a

healthcare organizations; community

Healthier America.

and children’s hospitals; and academic medical centers. Fady’s expertise focuses on strategic and capital planning; market assessment and clinical alignment; and real estate and physical asset portfolio optimization.

This commission explores the potential impact that health systems have on communities through influencing public policy and planning, and is used as a resource for guidance on strategies and tactics that may be utilized to improve public health.

The commission also suggests that, through innovative programming and utilization of real estate assets, hospitals and healthcare systems can provide some amenities in neighborhoods that may not have resources available, becoming the purveyors of urban renewal, revitalization and economic improvement.

Click here to watch Fady’s Healthcare Real Estate video

PAGE 6

INVESTING IN REVITALIZATION AND INNOVATION: UPENN Organizations that have taken a long-term view of their physical assets, and those that have actively utilized co-programming and urban design strategies to affect the behavioral and economic underpinnings of their communities have benefited greatly from their efforts. One example of an organization that has actively managed its assets and resources in an effort to improve the community is the University of Pennsylvania (UPenn). Through its Western Philadelphia Initiatives (WPI) program, UPenn has seen a dramatic increase in the socio-economic conditions of its community, and has directly benefited from its investments.

Investing in Revitalization and Innovation: UPenn

UTILIZATION DATABASE

PORTFOLIO ANALYSIS

(USE-TYPE-SIZE-LOCATION-CONDITION)

Penn’s case study, “Connecting Penn: From Neighborhood Revitalization to Tech Park,” explores the opportunities and challenges of connecting Penn’s academic mission with the development of its campus and environs. Penn’s endeavor comprises two elements: updating the WPI, Penn’s neighborhood revitalization strategy; and developing a long-term vision for Penn’s two major property acquisitions: the U.S.

COMMUNITY EFFECTS “The Power of Eds and Meds,” a 2014 Penn Institute for Urban Research publication, described some of the measurable community effects of the program including: •

Postal lands and the former DuPont Marshall Research Lab.

poverty rates and a 16 percent increase in median incomes

THE WPI COMPRISES THE FOLLOWING STRATEGIES: 1. Promoting a safe, clean environment: Penn increased the size of its armed police

•

Crime rates have fallen 50 percent since 1996

force and enlarged the Force’s patrol zone.

2. Supporting employee housing: Penn believed providing incentives to its employees

A 22 percent reduction in local

•

Retail square footage is up by 37

to purchase or rehabilitate homes in a defined geography of West Philadelphia would

percent since 1998, and retail rents

have a stabilizing impact. Additionally, the University purchased and rehabilitated

per square foot increased 54 percent

abandoned properties, some for resale and others for rent.

to $400 (2010)

3. Engaging in commercial development: With the pledge to restrict its westward expansion and engage the community in future planning, Penn converted the underdeveloped land on the edges of campus into lively retail and mixed-use spaces.

Some of the University benefits included: •

An increase in undergraduate applications, while selectivity rose to

4. Building economic inclusion: Penn’s “Buy West Philadelphia” program is a targeted

an all-time high, with only 12 percent

procurement initiative to support local small businesses and service providers. In

of applicants being accepted

addition to sponsoring technical assistance and support systems to train small businesses, the University mandated that all capital campus projects valued at $5 million or more would certify that minority-, women-, veteran- or disabled-owned companies represent 25 percent of all construction contracts.

•

The Making History campaign, a fundraising campaign launched in 2007 yielded $5 billion

5. Investing in public education: In collaboration with the School District of Philadelphia and the teachers unions, Penn developed a new neighborhood-based public K-8 school. Penn donated the land, managed building construction and helped develop the curriculum for the Penn Alexander School. Moreover, the University pledged $800,000 in annual operations support to the District-run school for a 10year period, which Penn recently extended to 2022.

The Socio-Economic impact of Healthcare Development

PAGE 7

Trends Affecting Healthcar Real Estate Strategy

Health industry leaders must rethink strategies with an eye toward innovation as traditional wa have shifted toward a post-ACA sytem.

TOP

TRENDS TO WATCH

Raising the stakes for all healthcare players

Primary Care- Back to Basics

From Wholesale to Retail

Reforms’ Pivotal Stage

Risk is spreading to not only include traditional insurers, but also hospitals, physicians, pharmaceutical companies and consumers.

If the ACA is a balance between expanding insurance coverage and encouraging non-traditional ways to pay for and deliver medical services, then primary care is its fulcru

TOP CLINICAL SERVICE LINE INVESTMENTS

of hospitals are investing in cardiology and oncology services

For insurers, the shift from the business-to-business (B2B) model of the 20th century toward a post-ACA business-to-consumer (B2C) model is already underway.

States have emerged as key players in the roll-out of health reform.

Federal Government

State Government

Most investments include expanding or renovating treatment space

B2B

Insurers

B2C Medicaid Expansion

STATS

22

Observation Unit Expansion Percentage of hospitals planning to invest in additional observation units

49

Marketplace Management

Exchange Oversight

Outpatient Revenue Growth Median percentage of 2013 net patient revenue derived from outpatient services; up two percentage points since 2011

Source: The Advisory Board Company, Capital Planning 2020 PAGE 8

re

HOW DO HOSPITAL CFOs VIEW REAL ESTATE?

ays of doing business

Growth will come from scale not patient revenue

87%

of CFOs expect less than 5% growth in net patient revenue by 2016

Source: PwC’s Health Research Institute Analysis

$3 Billion

Innovators in the New Health Economy

More than 90 new health companies created since 2010.

um.

Telehealth

29

companies

Education

15

companies

Connector

9 companies

Process Improvement

14 companies

Model Innovation

7 companies

Analytics

7

companies

Health & Wellness

9

56

Connecting patients and clinicians via technology.

Increase transparency to inform health-related decision making.

Match patients and physicians with treatment and support networks.

Streamline operations to enhance efficiency and patient experience.

Help develop new care delivery and payment methods.

2/3 believe that a network scale of > $3 Billion is required to be profitable

Real Estate is the #2 investment priority 1. Information and Data Management 2. Real Estate and Facilities 3. New Service Lines 4. Acquisition of physician practices

Top ways facilities and their locations can impact the hospital 1. Increase system efficiency

Collect and process patient health data.

Offer insurance services or individual wellness incentives.

companies

By allowing the consolidation of clinical services

2. Reduce Costs

By having the right facilities in the right locations

3. Improve Patient Satisfaction By having a well-run facility

4. Access Populations

By being close to the right demographics

Growth in Telehealth Demand Projected compound annual growth rate

1/3

for telehealth services, 2014-2018

Despite these facts, only 1/3 of healthcare systems have thoroughly evaluated the impact of their real estate in their system’s profitability.

Source: Jones Lang LaSalle The Socio-Economic impact of Healthcare Development

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LEVERAGING COMMUNITY ASSETS FOR POPULATION HEALTH The portfolio inventory database is an essential tool for organizational strategy, but to truly realize the cost efficiencies and capacity improvement potential within the existing portfolio we must get deeper and study the utilization of individual departments within each facility. In an environment of continuous improvement,

Utilization and Simulation

organizations are periodically re-examining their existing operational models and services to improve efficiencies, both spatial and procedural. These efficiencies can help to reduce costs, improve capacity and throughput, and enhance the patient experience.

A dynamic utilization analysis, one that informs and evolves from a continuous improvement strategy, starts with the creation of a utilization database composed of room inventories (including size and program), departmental layouts and SF allocations (usually in graphic form), staff counts and operating costs (maintenance, energy and utilities, capital renewal, etc.). Using this information, we can build simulation models, or Discrete Event Simulations (DES), that can provide insights into the most efficient and appropriate use of space (highest and best use) on a pro-

LAURA SILVOY

forma basis. These models enable systems to prototype and scenario test idealized

Healthcare Systems Engineer

processes and procedure flows, their physical requirements and ramifications, personnel utilization, capacity maximization, scheduling and throughput. This testing

Using simulation and process

empowers systems to make data-based decisions that balance investments, evaluate

improvement tools, Array’s healthcare

potential return on capital and maximize value to the organization and its clients.

systems engineering staff strives to create a better patient experience by

DISCRETE EVENT SIMULATION

combining efficient work flows with

An outpatient spinal surgery center has experienced exponential growth over the past

effective spatial planning.

10 years. Today, this institution has expanded to more than 450 employees who help

Continuously advancing our own productivity and design culture is also a top priority and the team works toward improvement in each aspect of our delivery process.

Laura is part of Array’s healthcare systems engineering team. Her background in both architecture and healthcare systems engineering provides a unique blend of proficiency around the built environment, improvement methodologies and analytical approaches. Armed with technical expertise and the philosophies of lean, Laura transforms high-level process mapping data into digestible information clients can utilize as they work toward an ideal future state.

Click here to watch an example Simulation Model

PAGE 10

perform more than 400 surgeries each month. The growing demand for minimallyinvasive outpatient surgery led this surgery center to expand their reach by offering services in additional locations. Since these new locations will be smaller, they will use fewer resources. The administration also hopes that thee locations will have more efficient spaces and processes.

In this case, a simulation model was used to determine whether the newly designed process is optimal and whether the number of rooms is adequate for the volume of patients the outpatient spinal surgery center hopes to serve.

Click here to read the results in our Simulation Modeling Case Study.

COMMUNICATION AND VISUALIZATION The number of variables that contribute to a comprehensive real estate strategy may be daunting, and finding valuable correlations between data sets and communicating that information to key decision makers is a challenge for those tasked with portfolio analysis and strategy. To tie information gleaned from a portfolio analysis with the efficiencies and capacity improvements gained from a detailed utilization analysis, we need to create comparative frameworks that enable scenario testing and data-based decision modeling. Specialized analytical tool-sets, such as interactive “dashboards,” can help aggregate various asset- and market-based data pools and to highlight the

Communication and Visualization

interrelationship of specific variables.

By visualizing data, you can contextualize the variables and layer information in ways not possible with simple tables or spreadsheets. Graphical representations that highlight causal relationships between data points, and illustrate potential decision outcomes through the manipulation of defined inputs, are powerful communication tools that simplify complex interactions, as well as clearly and concisely convey Click the image above to view an interactive data visualization example.

trends, relationships and the resultant opportunities.

DATA VISUALIZATION Within the architecture profession, creating, receiving and generating data is a daily task. Ambulatory Surgery Facility Assessments, for instance, have the potential to generate large sets of data that various team members, including clients, review and use to make critical decisions.

From available square footage to elevator requirements, from emergency power to plumbing, the assessment team rates each item assessed for each facility. If, at each site, there are 73 items to assess and there are seven sites, the assessment report will result in a large spreadsheet or Power Point presentation that may not be easily digestible or visually appealing. In addition to the assessed items and their ratings, an assessment report will also provide comments for each criterion and a weighted score, to establish item importance.

Gathering data and quickly creating presentable, interactive data visualizations is not only useful in facility assessments. Instead of creating static, one-dimensional reports, we can create interactive graphics from a client’s data volumes or in conjunction with discrete event simulation.

As the design, construction and healthcare industries increasingly rely on data, the opportunities to use data visualization to improve healthcare design planning increase as well. From early strategic planning to functional and space program development, utilizing data visualizations can offer deeper insights into a health system’s needs.

The Socio-Economic impact of Healthcare Development

PAGE 11

THE RETAIL EXPERIENCE As retail healthcare begins to shift our concept of the potential programming spectrum for healthcare real estate, we must also begin to incorporate urban design strategies into our estimations. New mixed-use developments with a healthcare tenant as an anchor are being widely written about, yet why can we not think of health-

The Retail Experience

care developments with co-programming potential? Can a system develop a medical home (aligned to the specific needs of the community) with a community park that contains a garden where healthcare professionals from the system teach residents how to grow healthy food? Can a medical office building host a “Starbucks,” or potentially a daycare facility? These co-programming strategies could not only provide the community with assets, amenities and resources necessary for healthy lifestyles, but also could be additional sources of revenue for the health system.

Historically, we have viewed real estate assets as largely “stand-alone” entities, valued primarily by the net revenues they produce and for their referral potential. This market view is still an important metric when considering physical asset value, yet in the new healthcare environment, we must consider each asset from a broader perspective.

Incorporating retail that resonates with the community makes fiscal sense as well.

Neighbors who meet regularly at a coffee shop will be inclined to seek medical care in the same building due to convenience. A self-registration kiosk strategically placed near the retail entrance, or a greeter who can explain the physician choices will make appointment setting easy.

The health systems nationwide who take the bold and necessary next steps to align their assets with the needs and wants of the communities they serve will be the ones to become known as the leaders of change.

EXAM 120 SF

TALK 96 SF

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INFRASTRUCTURE 766 SF

WAITING/ RECEPTION 320 SF

TEAM CENTER 320 SF

SUPPORT 512 SF

SUPPORT 730 SF

SUPPORT 922 SF

CORRIDOR 2,522 SF

CONCOURSE 3,817 SF

IMAGING 7,158 SF

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SUPPORT 512 SF

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CORRIDOR 2,522 SF

EXAM 122 SF

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TALK 98 SF

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TEAM CENTER 249 SF

SUPPORT 461 SF

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WAITING/ RECEPTION 292 SF

SUPPORT 534 SF

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WAITING/ RECEPTION 320 SF

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SUPPORT 512 SF

CORRIDOR 1,460 SF EXAM 120 SF

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SUPPORT 730 SF

CORRIDOR 2,088 SF

TALK 172 SF

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RECEPTION 165 SF

CONCOURSE 4,906 SF

RETAIL 2,185 SF

VESTIBULE 406 SF

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SUPPORT 579 SF

TALK 96 SF

EXAM 120 SF

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PHARMACY 2,382 SF

Discovering Your Healthcare Solutions Together We are innovators who specialize in the areas your System seeks out to leverage its valuable operational and facility resources. Array Advisors has the expertise and skills to reach beyond your milestones and provide you the decision support you need.

Our Purpose

OUR SOLUTIONS We are dedicated to improvement. Problemsolving and forward-thinking individuals lead our efforts, which focus on your unique place in the healthcare delivery spectrum.

Our knowledgeable staff can help you solve strategic business problems and develop a method to improve efficiency and utilization.

We are Array Advisors, your trusted partners in Strategy Development and Organizational Transformation. The challenges you face are not unique, but your solutions should be. Through a partnership of Strategy and Transformation we help you achieve and sustain. Our process begins by understanding your current operations and clearly defining your system’s goals before generating options. We employ a variety of integrated methods tailored to your strategic challenges, such as, process mapping, operational planning, and healthcare real estate portfolio optimization, to help position your organization for future success.

STRATEGY The need for healthcare real estate portfolio optimization has never been greater.

With the acceleration in mergers and acquisitions, as well as the evolution of clinical models, healthcare organizations must continuously evaluate their physical assets and maximize the value they derive from them.

Click here to learn more about our Strategy services.

TRANSFORMATION Transformation and lean methods are very useful when focusing on operational process improvement. By bringing all constituents together and giving them the tools to experiment and test new ideas, current state barriers can be identified and transcended.

Click here to learn more about our Transformation services.

The Socio-Economic impact of Healthcare Development

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