Medical practices are currently facing significant challenges related to both staffing and real estate. These issues are compounded by a dynamic healthcare landscape shaped by increasing patient demand, economic pressures, and evolving care delivery models. Here are the biggest problems in these two areas:
Staffing Challenges
1. Labor Shortages: One of the most pressing issues is the nationwide shortage of healthcare workers, especially nurses, physicians, and medical support staff. As demand for healthcare services rises, fueled by an aging population and increased insurance coverage, medical practices struggle to find qualified personnel. According to recent surveys, burnout from the COVID-19 pandemic and long working hours are causing many healthcare professionals to leave the industry or reduce their hours.
2. High Turnover Rates: High turnover in medical staff is another problem. Replacing employees is expensive and time-consuming, leading to higher labor costs and reduced operational efficiency. This turnover impacts patient care and continuity, as well as staff morale.
3. Wage Inflation: To attract and retain talent, practices are facing significant wage inflation. Offering competitive salaries, bonuses, and benefits adds to operational costs, especially for smaller practices. For example, nurse and physician assistant wages have been rising consistently, pushing some practices to their financial limits.
4. Burnout and Workload: Many healthcare professionals are experiencing burnout due to high patient volumes, administrative burdens (such as documentation and insurance requirements), and increased complexity in healthcare regulations. This can affect job satisfaction, staff retention, and the quality of care provided to patients.
5. Administrative Burden: Medical practices also struggle with an increasing administrative burden, including regulatory compliance, billing, and insurance coding. These tasks often fall on medical staff or require dedicated administrative roles, adding to staffing pressures and increasing operational costs.
Real Estate Challenges
1. Rising Rental Costs: The cost of leasing medical office space has been rising steadily. With average rents for medical office space reaching record highs in 2023, practices in high-demand areas are struggling to balance the need for suitable space with their operational budgets. Practices may be forced to relocate or downsize to cope with rising costs, which can disrupt operations and patient accessibility.
2. Limited Availability of Space: Medical practices require specialized spaces that meet specific regulatory and clinical needs, such as exam rooms, diagnostic equipment spaces, and waiting areas. However, finding available properties that can be customized or retrofitted for healthcare use is challenging, particularly in urban areas with high real estate demand. This scarcity drives up prices and can lead to longer search times for suitable spaces.
3. Construction and Renovation Costs: The cost of constructing or renovating medical office buildings has soared due to increased prices for materials and labor. Practices looking to build new facilities or modify existing spaces face higher upfront expenses, which can impact long-term financial planning. Additionally, construction timelines have lengthened due to labor shortages and supply chain disruptions, further complicating expansion plans.
4. Long-Term Leases and Inflexibility: Medical office leases tend to be long-term, with tenants staying in the same location for years due to the high cost of moving and specialized fit-out needs. However, these long-term leases can pose a challenge if a practice needs to expand or downsize in response to fluctuating patient demand. Practices often find themselves locked into spaces that no longer meet their needs, or they must negotiate expensive lease modifications.
5. Competition from Larger Healthcare Systems: Large healthcare systems are expanding aggressively, and many are buying up medical office spaces or building their own facilities. Independent practices often find themselves priced out of prime locations or unable to compete for the best real estate, which can impact their ability to attract patients and retain staff.
6. Telehealth’s Impact: While telehealth has increased since the pandemic, it hasn’t completely alleviated the demand for physical office space. Many medical services, such as imaging, surgery, and lab work, require in-person visits. Balancing telehealth services with the need for physical office space presents challenges for practices trying to optimize their real estate investments.
Intersections Between Staffing and Real Estate Issues
• Space Requirements for Staff: As practices expand their teams or offer new services, the need for more space increases. However, the rising cost and limited availability of real estate can make expanding difficult. Conversely, staffing shortages may lead practices to operate with smaller teams, resulting in underutilized office space.
• Operational Costs Impacted by Both Staffing and Real Estate: Rising labor costs combined with increasing rent and construction expenses are placing a significant strain on healthcare practices. Many practices, especially smaller or independent ones, are facing tough decisions on how to manage their budgets without sacrificing patient care.
Addressing these challenges requires strategic planning and adaptability, including a focus on employee retention strategies, creative leasing arrangements, and possibly leveraging tele-health or hybrid care models to reduce space demands where possible.
The Ocean Company is a leading advisory to healthcare practices seeking facility negotiation and occupancy cost examination.