Colocation costs represent a significant component of operational budgets for healthcare IT organizations. Leasing space, power, and managed services from a third-party colocation data center often proves more cost-effective than constructing an enterprise data center. However, elusive variables—location premiums, energy efficiency metrics, contract structures, and compliance requirements—can drive expenses beyond initial estimates. This listicle outlines ten primary cost drivers that healthcare IT decision-makers should evaluate when planning colocation deployments.
1. Location Premium Differences
Geographic location exerts one of the largest effects on colocation expenses. Top-tier markets such as New York, London, and Tokyo command premium rates driven by high real estate values, increased demand, and robust connectivity options (FS Blog). Remote regions may offer lower base rates, but limited provider options can introduce scarcity premiums (DataBank). Healthcare organizations must balance proximity to care facilities against cost savings.
- Market demand and competition
- Real estate and power costs
- Accessibility to backup resources
Cost Impact: High
2. Power Usage Effectiveness
Power Usage Effectiveness (PUE) measures the ratio of total facility energy to IT equipment energy. A PUE closer to 1.0 indicates high efficiency and typically translates to lower power bills passed to tenants (Lightyear). Most enterprise colocation environments operate around a PUE of 1.45, but best-in-class data centers achieve 1.2 or below. Healthcare IT teams should weigh energy costs, cooling strategies, and sustainability goals against higher facility rates.
- Current vs target PUE
- Cooling infrastructure design
- Renewable energy incentives
Cost Impact: Medium
3. Pricing Model Structures
Colocation pricing models define how tenants pay for space and services. Under Triple Net (NNN) agreements, clients handle taxes, insurance, and maintenance fees directly. Modified Gross and Gross models bundle these operational expenses into a flat rate (DataBank). Lease terms, cost transparency, and the allocation of vendor responsibilities vary across structures. Healthcare IT decision-makers should assess which model aligns with budgetary policies and risk tolerance when consulting colocation providers.
- Triple Net vs Gross comparisons
- Included operational expenses
- Flexibility in term lengths
Cost Impact: Medium
4. Rack And Space Requirements
Space allocation in a colocation facility typically comes in two formats: lockable cabinets and enclosed cages or private suites (HorizonIQ). Cabinet-based plans suit smaller deployments, with cost tied to power circuits and basic rack units. Larger footprints often require custom suites, which incur monthly square-foot charges plus utility fees. Precise forecasting of rack unit (RU) needs and growth projections helps healthcare IT control renting surplus capacity. Accurate planning of data center components reduces over-provisioning.
- Cabinet vs cage pricing
- Standard vs custom rack sizes
- Power per cabinet allocation
Cost Impact: Medium
5. Connectivity And Bandwidth Needs
Network performance is mission-critical for healthcare applications, from electronic health records to imaging archives. Providers offer Dedicated Internet Access (DIA), IP Transit, and cross-connect services with guaranteed throughput and latency SLAs (Lightyear). Best-effort broadband may appear cost-effective but risks inconsistent performance. Organizations should align data center connectivity plans with application priorities and regulatory mandates.
- DIA vs best-effort internet
- Number and type of cross-connects
- Bandwidth scalability options
Cost Impact: High
6. Compliance And Security Obligations
Healthcare colocation must comply with HIPAA, HITECH, and other industry-specific regulations. Security features such as multi-factor access control, biometric verification, video monitoring, and audit trails add to monthly costs. Robust encryption policies and vulnerability scanning are often included in premium colocation services offerings (US Signal). Tightened security frameworks deliver one of the chief benefits of data centers in the healthcare sector.
- Physical and logical access controls
- Encryption and data protection
- Compliance audit support
Cost Impact: High
7. Redundancy And Uptime Guarantees
High-availability requirements in healthcare demand redundancy across power, cooling, and network systems. Tier III and Tier IV facilities offer 99.982% to 99.995% uptime guarantees, with corresponding price premiums (DataBank, FS Blog). Service Level Agreements (SLAs) outline penalties for unplanned downtime, making SLA terms a critical negotiation point for IT leaders. Premium colocation services often include enhanced SLA provisions.
- Tier classification and cost delta
- SLA uptime and remedy clauses
- Dual power and network paths
Cost Impact: High
8. Support And Service Tiers
Service levels for on-site support range from basic rack access to 24/7 remote hands and managed device maintenance. Providers of managed colocation and managed data center services charge premiums for rapid ticket response, hardware swaps, and firmware updates. Careful review of response times and included vs. billable tasks prevents unexpected labor charges.
- Response time commitments
- Included labor vs call-out fees
- Managed vs self-managed options
Cost Impact: Medium
9. Hidden Fees And Surcharges
Beyond recurring charges, healthcare IT must account for setup, migration, and configuration expenses. Providers often levy installation fees, port or circuit change fees, and power reservation surcharges that may not be apparent in initial quotes (TechTarget). Equipment decommissioning and remote access penalties can also inflate budgets. A proposal that appears as a cheap colocation arrangement can become costly when add-ons accumulate. Review colocation hosting agreements for bundled or itemized service fees.
- Installation and migration fees
- Power and circuit change surcharges
- Remote access and lockout charges
Cost Impact: Medium
10. Annual Rate Adjustments
Most colocation agreements include annual escalators tied to inflation or operational cost indices. Increases of 3% to 5% per annum are common negotiation points (OpenMetal). Over a multi-year contract, cumulative rate hikes can significantly impact long-term cost projections. Healthcare IT leaders should secure fixed-rate clauses or caps to maintain budget certainty.
- Inflation and CPI escalators
- Fixed-rate vs floating clauses
- Contract term length considerations
Cost Impact: Low
Cost Impact Summary
| Factor | Impact | Primary Considerations |
|---|---|---|
| Location Premium Differences | High | Market demand, real estate, power |
| Power Usage Effectiveness (PUE) | Medium | Data center energy efficiency |
| Pricing Model Structures | Medium | Lease terms, operational expense handling |
| Rack And Space Requirements | Medium | Cabinet vs cage, power allocation |
| Connectivity And Bandwidth Needs | High | DIA, cross-connect, SLA tiers |
| Compliance And Security Obligations | High | HIPAA, access controls, encryption |
| Redundancy And Uptime Guarantees | High | Tier level, SLA penalties |
| Support And Service Tiers | Medium | Response time, included labor |
| Hidden Fees And Surcharges | Medium | Setup, change, reservation fees |
| Annual Rate Adjustments | Low | Inflation escalators, contract length |
Healthcare IT organizations that understand these ten cost drivers in colocation services will be better positioned to negotiate agreements aligned with budget forecasts and performance goals. By evaluating regional premiums, energy efficiency, pricing models, and support levels, decision-makers can optimize investments in secure, high-uptime environments. Compared to public cloud deployments, a colocation arrangement offers direct control over hardware and predictable operational expenses (colocation vs cloud). Transparent discussions with providers around surcharges and rate escalators further mitigate unexpected charges. Ultimately, a structured approach to comparing colocation providers ensures predictable costs that support long-term strategic objectives.
Need help with managing colocation costs for healthcare IT? We help by identifying colocation providers that align with compliance requirements, budget targets, and performance SLAs. From market analysis to contract negotiation, our team guides healthcare organizations through each step. Connect with us to explore tailored solutions for your infrastructure strategy.
