INDIANAPOLIS — What does the future hold for the healthcare real estate industry in 2016? In a new white paper penned by Keith Konkoli, executive vice president of healthcare at Duke Realty (NYSE: DRE), the author predicts the industry will experience an increase in the development of new facilities, as well as an uptick in consolidation in 2016.
Here’s a summary of five key trends and issues the firm expects this year and beyond:
1. Healthcare real estate construction will continue to increase — Healthcare development has been strong in recent years, and there should be no letup in activity in 2016. A recent study by the American Institute of Architects (AIA) says it expects “healthy growth” for non-residential construction this year. That includes the healthcare sector, which AIA predicts will experience a 5.8 percent increase in construction in 2016.
The industry is experiencing an uptick in the development of a wide variety of healthcare properties, including rehabilitation hospitals, medical office buildings and off-campus emergency rooms/community micro-hospitals. Even so, the industry hasn’t reached a point of saturation and providers aren’t yet overbuilding.
Keith Konkoli, Duke Realty
2. Healthcare providers will need to deal with the challenges of ‘site neutrality’ — An important but perhaps overlooked issue — one that will affect reimbursement rates — arose Nov. 2, 2015, when President Obama signed the Bipartisan Budget Act of 2015. Part of that budget compromise includes plans to significantly alter the reimbursement scheme for products and services furnished by off-campus outpatient departments. This provision, dubbed “site neutrality,” will reduce reimbursement for hospital-owned outpatient physician practices and clinics to the same level as reimbursement for non-hospital-owned practices and clinics.
3. The industry will continue to see more consolidation — The pace of healthcare consolidation has accelerated during the past few years and that is expected to continue in 2016. Mergers and acquisitions (M&As) grew 14 percent in 2015 to 1,498 transactions across 13 healthcare sectors, including hospitals, managed care, pharmaceuticals, laboratories and home health and hospice.
That set a new record for healthcare M&As, surpassing the previous record of 1,318 transactions in 2014, according to Levin Associates, which publishes business intelligence for investors on senior care and healthcare M&As and finance. Some M&A deals make sense, but others can bring real estate challenges, which means a growing number of systems will need to contend with those challenges.
4. Providers will continue to develop new, innovative designs — Healthcare reform has helped to accelerate the evolution of healthcare facility design, and that process is continuing. The biggest trend is a high-tech ambulatory facility that is a medical home model or comprehensive care clinic where all services are under one roof and patients can have multiple appointments, all in one visit.
These facilities are often close to patients’ homes and are much more convenient for them. This model is being driven by the Patient Protection and Affordable Care Act (PPACA), which places a strong emphasis on cost-effectively keeping patients well and ensuring they stay well after being treated.
Another important design trend is the integrated care platform that provides agility to accommodate changing clinical practices. In addition, hospitals and health systems continue to focus on designing and developing sustainable healthcare facilities.
5. More providers will focus on the importance of expert property management — While superior property management of healthcare facilities has always been important, it’s become even more vital during the past few years because of the increase in financial, compliance and healthcare laws and regulations, and more stringent enforcement of those requirements.
In addition, there’s been an increase in environmental laws and regulations that cover a wide variety of issues such as energy efficiency, water and air quality and environmentally friendly building materials. It’s essential that property managers stay up to date on all of these issues for the sake of both the owners and the tenants.
Keith Konkoli is executive vice president of Duke Realty’s healthcare operations. In that role, he is responsible for overseeing a team of professionals who work closely with clients on their healthcare facilities, lending assistance in planning, development, ownership and management.
The healthcare segment of Duke Realty’s portfolio totals more than 6.4 million square feet, and includes medical office buildings, rehabilitation facilities, cancer centers and ambulatory care centers with diagnostics, oncology and surgery services.