CHICAGO, Nov. 2, 2022 – The last few years tested the healthcare industry in unanticipated ways, adding stress on systems to contain costs in a tight labor market all while preparing for economic uncertainty. Despite the challenges, the medical office sector remains one of the most resilient commercial real estate sectors, and investors view it as a key alternative asset class due to unwavering demand.

JLL’s new Healthcare and Medical Office Perspective details key themes currently affecting U.S. healthcare systems and medical office owners and operators, including labor challenges, elevated costs and industry disruptions. These factors, among others, put pressure on health system margins and provider performance, yet the industry continues to adapt and grow.

“Health systems and other care providers continue to face economic challenges in the aftermath of the pandemic, including labor shortages, payor and reimbursement pressures and disruption from innovation and new entrants into the sector,” said Jay Johnson, National Practice Leader, Healthcare Markets, JLL. “Facilities offer both risks and opportunities to healthcare providers, and, despite the challenges, the critical nature of healthcare and large tailwinds from a growing and aging population continue to make healthcare real estate one of the most stable asset classes for investors.”
Under pressure

Healthcare system margins are impacted by higher cost pressures than ever before, and, although margins are projected to improve, 75% of hospital CFOs still plan to decrease their operating budgets, according to a survey from The Academy.

Like many industries coming out of the pandemic, healthcare systems and providers face persistent talent shortages that are slimming margins. The U.S. Bureau of Labor Statistics (BLS) predicts a shortage of over 203,200 registered nurses each year through 2030. The vicious cycle of chronic under-staffing puts significant cost pressure on healthcare systems, which are paying higher wages to attract and retain nurses. Labor accounts for 55% of healthcare systems’ operating costs, and Kaufman Hall reports that median labor expenses increased 37% from 2019 to March 2021.

The payor mix is shifting toward publicly funded sources fueled by aging and income-driven demographic tailwinds. Government-sponsored healthcare coverage is expected to grow by 19% through 2028. With a higher percentage of payors relying on Medicare and Medicaid’s pre-determined and fixed repayment rates, hospital systems could seek to recoup additional revenue from private payors. Additionally, employer-sponsored benefit costs are expected to rise an average of 7.6% in 2022.

Business Affairs Homepage