The authors identify three myths surrounding health care costs, the third being that most health care costs are fixed. "We estimate that upward of 95% of what health care managers think of as fixed costs are actually under their control and therefore not really fixed." And in regards to real estate, they state:

"Space costs are also not fixed. Space is perhaps an organization's most fungible resource. If demand for space is reduced, units can be consolidated into smaller space, and excess space can be repurposed, sold, or subleased."

Really? Over a long enough time frame this is certainly true. A lease can always be allowed to expire, in some instances a suitable subtenant may be found, and, for a price, excess space can be repurposed. In the short term, however, this flexibility is much more difficult to achieve. With medical office build-outs approaching $100 psf in some markets, many healthcare organizations lack the ability or the desire to enter into the shorter term leases which support this vision of flexibility.

There are a number of strategies an organization can employ to enhance or maintain flexibility in its real estate portfolio.  

1.  "Ladder" your leases. A bond ladder is a portfolio of fixed-income securities in which each bond has a significantly different maturity date. A Lease Ladder is a portfolio of leases with different maturity dates.

If organizations grew at a fairly constant rate over time, a Lease Ladder would naturally evolve. Most institutions, however, have growth spurts, resulting in significant portions of their real estate portfolios being negotiated under similar market conditions.   In addition, organizations often focus on making leases co-terminus with the future goal of co-locating certain activities. The "cost" of this concentration of lease expirations, is a limiting in the flexibility of an organization to downsize or re-locate an activity. In addition, if a sizeable portion of a lease portfolio is renewing at the same time, the organization is increasing its exposure to upward swings in market rental rates. A Lease Ladder allows for the equivalent of dollar cost averaging in a stock portfolio. By negotiating leases throughout the market cycle, there is the potential for a lower average portfolio rental rate. 

2.  Standardize tenant improvements (TI). The fact that every Starbucks or McDonalds looks pretty much the same is not just a marketing strategy,  it is also a cost minimization strategy.

Standardization of fixtures, finishes, furniture, equipment (FF&E), and, when possible, layouts, can significantly reduce fit-out costs. This reduction comes about through lower architecture and engineering fees, and the potential for reduced the pricing of FF&E.  Standardization also increases the ability to shuffle space users. Even when total standardization is not possible due to varying  program and licensing requirements, the sharing whenever possible of TI standards and FF&E will help limit the initial investment in a space. The downside? A perceived loss of control or status symbols by the space users.

3.  Intensify usage. Many healthcare organizations are already "timesharing" physician office space. This same strategy can also be used for other patient care activities.     

Not only can different physicians use the same office suite to see patients on different days and times, but different departments can as well.  Wellness and screening programs can run after work sessions in space used by other patient focused activities during the day. Adding a "second shift" in the early evening hours can increase the efficiency of medical office space. Departments forced into these space-sharing arrangements may argue that employees become less efficient without dedicated offices. However, other industries have already trail blazed this practice, and the continuing move towards electronic medical records will facilitate this option.