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As Healthcare Trends Toward Value and Efficiency, Buildings Follow Suit

AdventHealth Shawnee Mission Primary and Specialty Care in Merriam, Kansas, is a new, 110,000-square-foot clinic. Patients are greeted by kiosks and concierges with tablets to expedite check-in. (Rendering courtesy of Hoefer Wysocki)

Digital connectivity and rising costs are rapidly transforming industries across the country, and healthcare is certainly no exception. Digital health solutions and the material realities of the economy, along with a changing regulatory landscape, are reshaping the way providers deliver care.

For example, the increased uses of telehealth, artificial intelligence (AI) and more community-based facilities (such as urgent care centers) are changing the spaces providers need. This activity is in turn altering the real estate, construction and project management strategies for healthcare providers.

Joe Bolano, Colliers International | Project Management

Healthcare real estate professionals, from in-house capital project leaders to general contractors and project managers, should be aware of two trends particularly driving this sea of change in healthcare real estate: evolving technology and an industry-wide transition to value-based care. These trends are fueling the creation of larger, centralized healthcare systems with more expansive networks of agile, strategic facilities.

Specifically, the industry is moving away from inpatient hospital settings and toward ambulatory care and community-based facilities as part of a larger healthcare system. In turn, built-environment professionals are being commissioned for more agile, specialized and technologically enabled capital projects over more geographically dispersed areas. With this activity comes change to how real estate professionals deliver projects for healthcare clients and reevaluations of the skills and knowledge bases required.

As these community-centric facilities become the norm, construction and project managers must be more knowledgeable and sensitive to the needs of individual communities, not just dense urban centers. With each outpatient and urgent care center comes a new set of municipal regulations, guidelines and codes.

Project managers, in particular, need to have deeper knowledge of these local standards, as well as the local community priorities and market demands. While depth of knowledge is still crucial, breadth is more important than ever, with single real estate service providers often delivering dozens of projects across municipal, county and state lines.

The Connectivity Revolution

Digital connectivity is beginning to change the way patients secure healthcare. With increased access to information and digital resources, individuals can now manage their own healthcare options.

Patients increasingly require less bedside treatment as telehealth becomes more ubiquitous and more effective in delivering quality care that connects providers with patients across distances. This trend, along with the incorporation of AI in imaging and diagnostics, means healthcare delivery will require less patient proximity to large-scale facilities.

This geographical flexibility is affecting the types of structures needed by the medical community. Instead of traditional patient care environments, local wellness centers and urgent care facilities that are linked to medical records and centralized services, such as labs, are becoming increasingly common.

Follow-ups, monitoring, aftercare and test results can be done online or over the phone. Smaller, alternative facilities, already common across the country, will only become more popular, making speed, agility and wide-spanning coordination key to the jobs of real estate development, construction and project management.

The Life Science Boom

Also important is the creation of life science spaces. The increased focus on digital medical technology and the acceleration in bioscience startups suggest that there is a rapidly growing opportunity for real estate professionals to meet the unique industry needs.

There is, for example, a shortage of available life science space in metropolitan areas such as Boston and New York City. Consequently, there is a resultant demand for real estate professionals from development to contracting who can help deliver on this requirement.

In fact, the national vacancy rate for medical office buildings reached an all-time low in 2017. And despite significant construction of new medical office space the following year, vacancy and pricing remained flat while rental growth was the highest on record.

Healthcare construction and project management are perhaps more in-demand than ever. But service providers need to adapt to this evolving delivery model and the technological nature of these spaces rather than focusing exclusively on traditional hospital work.

Successful healthcare developers will need to continue to focus on winning and delivering technologically capable labs and research spaces to meet the demand for both life sciences and patient care, both in the ground-up construction of new structures and in the tenant fit outs that follow.

Built Efficiencies

None of this is to say that hospitals are going away. But the way we think about hospital care is certainly changing.

If you search for hospitals in New York City, for instance, you will be hard-pressed to find a major medical center that does not have a hyphen in its name. With financial demands driving up costs, community-centric hospitals have a more difficult time surviving financially. Larger hospital systems, meanwhile, can streamline and centralize operations and offer efficiencies that smaller or standalone facilities cannot.

Mergers and acquisitions have been a fact of healthcare for some time, but now, in addition to the much discussed rising cost of healthcare, the current political environment and related regulations have made compliance expensive and cumbersome.

Large hospital systems in dense urban centers still maintain an essential role in delivering healthcare, but they are revising their approach. When designing spaces, beds are being repurposed strategically for more specialized and sicker patient populations, while outpatient services — or ambulatory care centers — are becoming important, even for treatment of major medical issues such as cancer.

Because monitoring and follow-ups are increasingly centralized and digitized, hospitals are ensuring that their own spaces are appropriately optimized. So in addition to the abundant opportunity for labs and medical office buildings, the construction of urgent and ambulatory care centers — many spread out across a healthcare provider’s expanding geographical range and often attached to a large hospital system — will be key.

Construction and project management companies will also need to be able to coordinate this growth. One such system in the New York area contains 23 hospitals but has refocused from large hospitals to community-centric health programs. This provider has 700 outpatient facilities spread across New York metro communities and is currently expanding with approximately 65 centers in the city.

Similarly, urgent care centers are growing, especially outside of cities where smaller hospitals are less viable. CityMD, which dominates the New York metropolitan area, expanded to the West Coast with its partnership with CHI Franciscan Health in Washington.

Basically, mega companies and major hospital systems can centralize corporate, research and laboratory function, as well as patient care in many ways. This reduces costs in a healthcare landscape that is facing skyrocketing prices and byzantine regulations.

For real estate professionals, this translates to demand for smaller-care facilities distributed across wider geographies as opposed to a traditional single, expansive medical campus.

In 2019, 21 million square feet of medical office buildings are expected to be built. About 71 percent of these facilities will be off-campus, meaning they will be local, smaller, distributed widely and centrally managed to drive efficiency for providers and patients.

Real estate professionals across the project lifecycle need to deliver efficiency for these healthcare clients, because efficient care — i.e. value care — will be the driving force behind new capital projects for the foreseeable future. Proactive, technologically enabled and smaller spaces are the future.

— By Joe Bolano, Regional Director of Healthcare & Life Sciences, Colliers International | Project Management. This article originally appeared in the May 2019 issue of Northeast Real Estate Business magazine.

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