Monday, January 5, 2015

What is the medical cost of a building?

PBS’s Frontline show aired an interview a few years ago on a very insightful method for reducing healthcare costs. Although not directly related to healthcare real estate, it caught my eye because their findings correlated medical costs to buildings and the actions they took appear to be reducing these costs. Our Healthcare Properties Group routinely works with medical practices that use a revenue per square foot model to determine space efficiency… but this article takes it to new levels that could save us ALL money if the model can be implemented at a broader level.

Here’s a recap of the article:

Camden, New Jersey is a very small, very challenged city. It has high poverty (among the nation’s top 3), high corruption (3 mayors convicted for corruption), and half of its police force was laid off recently. As evidence of Camden’s challenges, various aspects of its operations have been taken over by the state on multiple occasions. On the medical front, there are 79,000 residents, two hospitals, 3 emergency rooms, and about 12 primary care offices in the city. Emergency waits are long, and first available doctor appointments can be days or months away.

After encountering the tragic shooting of a Rutgers University senior and a lackadaisical attitude by Camden police, a doctor by the name of Jeffrey Brenner decided to get to the bottom of the city’s problems. Thus began an in depth data-tracking, gathering, and analytical process in which he came up with some amazing findings. Ultimately, he was able to determine geographic hot spots for crime-related and accidental injuries, diseases, etc… at the zip code, neighborhood, and even building and patient levels. (As a real estate broker in the healthcare space, the building-level statistics intrigued me.)

By correlating events with medical billing data, Dr. Brenner eventually determined which buildings were bringing the greatest costs to healthcare systems. The answers were very concentrated – two buildings in particular stood out. They were nice buildings run by good people, but their 5.5-year impacts were amazing. One building held 350 people and had $15M in payments to the city’s 3 hospitals and emergency rooms (ER’s). The other building held 600 people and had $12M in payments over the same period. Interestingly, $12M was enough money to put a nurse practitioner on every floor of that particular building over the entire 5.5 year period.

Other findings:
  • One percent of the city’s residents generated about 30% of the hospital and ER costs. Five percent accounted for 60%. THAT is concentrated. Camden’s most expensive patient had over $600,000 in hospital bills paid during the prior 5 years. 43 other patients cost $3M ($69,767 each).
  • The #1 reason people came to the ER was head colds, with nearly 12,000 visits. Number 2? Ear infections, followed by sore throat, then asthma, then stomach virus. None of these cases HAD to be treated at an ER… primary care physicians or urgent care facilities could have handled them at a much lower cost.

Taking the data further, Dr. Brenner asserts that all groups have similar statistics… commercially insured, Medicare, any given company… the numbers and ratios hold true.

To fast-forward through the interview, the understanding of exactly where these costs were coming from allowed Dr. Brenner to implement new models for delivering health care. After gaining funding, he hired a nurse practitioner, community health worker, and social worker, and took preventative medicine and obstacle resolution to the areas (and people) of concentration. The team cost $225,000 per year, and preliminary estimates are that they’ve brought a 40-50% reduction in visits and costs. The net savings are difficult to calculate exactly, but there’s little doubt that the approach is saving millions.

The tough part is the broader implementation. In today’s fee-for-service system, there’s no mechanism for billing Medicare or Medicaid for the kind of preventative care the team provides (read the full write-up here for examples of what they did). The proposal has been that the teams be paid for via the savings they generate… sort of an entrepreneurial model. They would have to be careful to avoid the “money for nothing” crowd, of course, but it has potential.

The article goes on to discuss various implementation ideas, some supply/demand balance adjustments that may become necessary, and concerns over weaning patients successfully from this new model back to the fee-for-service (mainstream) world.

Again, the interesting part to me was the idea of tracking medical costs by building. The Healthcare Properties Group routinely works with medical practices who use a revenue per square foot model to determine space efficiency… but Dr. Brenner takes it a new direction by determining healthcare system costs per square foot and then attacking high-cost areas. If his findings gain traction, perhaps we can ALL save money.