The location of any new healthcare facility is a critical factor in determining the long-term success of the investment. This is especially true for large facilities, whether they be acute or ambulatory care, or even multispecialty clinics, due to their higher capital requirement and operating cost structures.Large facilities have the potential to provide enormous value to a healthcare organization and the community they serve, yet due to their cost can also pose a significant risk.
This potential for risk causes many organizations to get mired in indecision. Given the dynamic nature of the healthcare economy and the need for “speed to market,” indecision may be an even greater risk to long-term organizational success than large asset investments. This is not a problem unique to healthcare, yet it is becoming more critical as issues such as access, competition and consumerism change the face of the industry. Other industries, such as retail and manufacturing, have standardized analytical methods to assess the potential operational and fiscal impact that location can have on facility investment decisions.
Some of the most common methods are:
Location cost-volume analysis: A simple location decision tool that looks at a future volume forecast, along with fixed and variable costs known for each location. This helps justify potential sites through predicted throughput volumes, this is the most common analysis method currently utilized in healthcare.
Weighted factor rating method: Compares a number of locations using both quantitative and qualitative criteria, and applies ratings to each of the criteria to determine the winning location.
Center of gravity method: Determines the approximate location of a service location or distribution center that minimizes access or logistics costs, while considering the location of markets, volume of goods shipped and / or received and shipping costs.
Transportation problem model: Deals with distributing goods and services across a portfolio of specialized facilities and locations. It looks at the capacity of goods at each source, requirements at each destination, and a host of materials, manufacturing, transportation and warehousing costs. The model then determines optimal location(s) that minimize total transport costs and maximizes access, while service level and quality targets.
Most of these methods are only beginning to find their way to healthcare facility investment analysis, yet some organizations are already realizing their potential to define the opportunity for systemic value of various locations. Virtua Health System in Southern New Jersey has pioneered a robust location analysis approach, utilizing methods, models, and expertise from multiple industries. Virtua Health sees location as a critical aspect of their “lean” service delivery strategy and has benefited greatly in terms of service access, profitability, and patient satisfaction.
As mentioned earlier, other industries have long adopted the practice of analyzing the condition, utility and value of each physical asset from a systems perspective, focusing on the broader impact to capacity, cost and market access. Healthcare systems that adopt similar perspectives and methodologies will be able to reduce investment uncertainty, improve speed to market and gain a true competitive advantage.
- Fady Barmada