5 Considerations That Can Help Hospitals Manage Occupancy Costs

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Many organizations have started to focus on the costs of occupancy over the cost of space. Although hospitals are slow to make this shift, millions of dollars can be saved, according to a report from Jones Lang LaSalle.

The cost of space is normally just the cost per square foot at a hospital. Jones Lang LaSalle Managing Director Scot Latimer wrote that the cost of occupancy is more useful for hospital CFOs and finance executives because "it covers an umbrella of expenses that can be managed together." For example, the cost of occupancy factors in the cost of space (owned versus leased), energy costs, maintenance and housekeeping costs, security costs and other related costs associated with square footage.

"These expenses, when analyzed together with volume throughput, the number of patients and staff moving through a given space, reveal the true cost of occupancy and return on assets," Mr. Latimer wrote.  

Here are five considerations from the report that can help hospital executives manage and understand their occupancy costs.

1. Asset performance. How are a hospital's properties performing compared with each other and peers? What properties are most efficiently using their space?

2. Market location. What is the average time patients drive to access physicians or other hospital/health system properties? Where does the hospital's core patient base live? Where is growth occurring?  

3. Management and measurement. Are occupancy costs (space, energy, security, etc.) actively measured and benchmarked? Hospitals can only manage what they measure, according to the report.

4. Ownership mix. What properties are owned versus leased? Is leasing more attractive with some buildings and health centers in order to save cash? Are rents collected on time? Are compliance covenants and Stark Law provisions being met?

5. Organizational alignment. Who, within the hospital, is responsible for tying occupancy strategies with the overall financial strategies?

More Articles on Hospital Finance:
6 Ways Hospital CFOs Can Improve Their Leadership Skills
Hospitals Expected to Sell $2B in Medical Office Buildings This Year
Asset Price Inflation: Contributors and Consequences

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