Healthcare is undergoing a significant transformation in its approach to infrastructure and space utilization. Traditionally, hospitals have concentrated all their departments, including non-revenue generating ones, within their main campuses. However, this trend is shifting as healthcare systems explore off-campus options to optimize space and enhance operational efficiency.

According to McKinsey, many organizations are pursuing end-to-end improvements in processes that drive value for both patients and the business. One notable change is the decreased demand for administrative space due to the rise of remote working.

The Driving Forces Behind Off-Campus Expansion

Several key factors are motivating hospitals to move certain teams and departments to off-campus sites.

Limited space is one of the main reasons health systems are reconfiguring their space utilization and shifting toward to off-campus locations. Many hospitals, like Mass General, are experiencing a capacity crisis. Moving non-essential departments off-campus can free-up valuable space on-campus for additional beds and specialized facilities.

Healthcare providers are also challenged by narrowing margins. Financial pressures, including higher rental rates for on-campus space and rising project costs, are prompting hospitals to seek more cost-effective solutions. The increasing costs of capital, labor, and materials—surging by 35% to 40% as reported by REJournals—exacerbate these challenges.

Operational efficiency is another key factor behind this movement. By relocating non-revenue generating departments, hospitals can streamline their operations and focus on patient care and revenue-generating activities within their main facilities.

The Rise in Project Costs: Understanding the Factors

The costs associated with major healthcare projects have also been rising significantly, influenced by factors ranging from supply chain issues to the cost of construction to necessary technology upgrades. These rising costs make it less likely that health systems can justify building new campuses to house all their services. Instead, providers are moving administrative and corporate teams to off-campus locations.

Global supply chain issues have led to delays and increased costs for the materials and equipment necessary for construction and renovation projects. The overall cost of construction has surged, driven by higher prices for labor and materials. This trend is evident in numerous healthcare projects across Indianapolis and elsewhere.

The need to update healthcare facilities with the latest technological advancements also contributes to increased project costs. Modernizing infrastructure in order to accommodate new medical technologies and equipment is essential for maintaining high standards of patient care.

The Pandemic Effect: Accelerating Change

The COVID-19 pandemic also significantly impacted healthcare system operations and space utilization. By the end of 2021, hospital labor expenses per patient were 19.1% higher than pre-pandemic levels, with a dramatic increase of 57% observed at the peak of the Omicron surge in January 2022, according to the American Hospital Association (AHA).

Additionally, the pandemic necessitated a reevaluation of hospital functionality, prompting healthcare systems to adapt by integrating AI and virtual appointments in their space planning, thus reducing the need for physical space for certain services. Moreover, the shift to remote work, accelerated by the pandemic, has also negatively influenced the demand for administrative space within hospitals.

Remote Work and its Impact on Healthcare Space

It’s important to emphasize the broader impact remote work has had on healthcare administrative space: Healthcare systems are developing strategies to adapt to the remote work phenomenon while optimizing their physical space. This includes repurposing administrative areas for clinical use or other essential services.

The importance of adaptive strategies in the evolving healthcare landscape cannot be overstated. Hospitals must continuously assess and adjust their space utilization plans to remain agile and efficient in a changing environment.

Expansion and Efficiency

The move to off-campus sites for non-revenue generating departments represents a strategic response to the numerous challenges facing the healthcare industry. By addressing capacity issues, financial pressures, and the impacts of the pandemic, hospitals can enhance their operational efficiency and better serve their patients. As the healthcare landscape continues to evolve, adaptive strategies and innovative space utilization will be crucial for success.