Hospitals and their ancillary businesses need to find avenues to reduce costs and become more efficient. That’s the consensus of the panel of medical office experts at the 2011 Interface Medical Office Conference focusing on the Southeast on Wednesday evening at the InterContinental Hotel Buckhead in Atlanta.
The meeting comes amid a time of great change and uncertainty on the national healthcare scene. Adding to the drama are legal challenges to the Patient Protection and Affordable Care Act signed into law by President Barack Obama in March 2010.
The panel, led by moderator John Mugford, editor of Healthcare Real Estate Insights, delved into the challenges and opportunities for hospitals and developers to work together to reduce costs and increase efficiency.
One example of what developers can do is construct medical office buildings (MOBs) to suit the desires of patients while saving money for healthcare systems. A medical office development housing a primary doctor, a women’s clinic with outpatient care and a pediatric practice with shared staff would be an ideal development for both healthcare systems and developers, according to Tom Kouloris, a former hospital administrator who handles Capital Projects and Infrastructure with PricewaterhouseCoopers.
The reason is that it’s convenient for patients to have multiple specialty clinics in one place and it helps drive down costs for healthcare systems to provide care. Aligning the interests of a healthcare system with those of its patients gives the development long-term viability, increased efficiency and lower costs.
This development is just one real estate solution for a healthcare industry fighting economic headwinds that include proposed Medicare cuts, a looming decision on the health care overhaul and complications from the recession.
“Real estate is a great way to form alignment,” says Van Fletcher, vice president and principal of Meadows & Ohly. “New construction is still a viable tool.”
Outside influences
P.J. Camp, principal of Hammond Hanlon Camp, describes the state of disbelief that the healthcare development community found itself in at the start of the recession. “We were all in shock, we all thought healthcare was recession-proof. Or at least recession-resistant,” says Camp.
The biggest outside influence facing the healthcare industry, though, are proposed cuts to Medicare.
“Medicare cuts are in the crosshairs, and that’s how everyone gets paid,” says Tommy Tift, president and CEO of HealthAmerica Realty Group. “We’re in an uncertain time.”
Medicare covers 60 percent of the revenue for healthcare systems, according to Kouloris. Medicare provider payments are expected to be cut 2 percent a year for 10 years, starting in 2013. “One thing that’s for sure is that Medicare cannot continue as is,” says Kouloris.
Another looming obstacle facing the industry is the new healthcare law, which mandates that everyone in the U.S. have health insurance.
The Supreme Court will review this mandate in spring of 2012 to decide if the measure is constitutional. The ruling is slated to come out in June. Until then, the medical community is trudging ahead. Developers, meanwhile, are somewhat at a standstill due to the uncertainty.
Hospitals as tenants
Hospitals are increasingly leasing spaces in medical office buildings. Private doctors made up 67 percent of medical office users 3 years ago. Now, private doctors only make up 53 percent, according to Kouloris.
Hospitals have edged their way into the market, which can lead to some good opportunities for developers. “It’s a great trend because it improves the credit of the building,” says Fletcher.
Consolidating offices into one multi-specialty development is an efficient way to increase alignment among practices.
Although, as Kouloris joked, some thought needs to go into which practices are housed under one roof. “An ob-gyn practice and a mental health clinic wouldn’t be a good mix.”
What’s ahead?
On the future of medical office buildings, the panelists had this to say:
“A lot of the low-hanging fruit has been picked,” says Camp. “But hospitals are being more thoughtful about their core real estate.”
“MOBs are becoming more partner-oriented because interests are aligning,” says Tift.
“There is a full assault on independent owners,” says Kouloris. “A lot of activity is on the merger/acquisition side.”
“Healthcare systems are getting out into the community as outposts,” says Fletcher. “They’re going out into retail developments.”
— John Nelson