Flexibility is King in the Future of Healthcare, Say InterFace Panelists

by Jeff Shaw

LOS ANGELES — Healthcare providers are taking cues from the retail and hospitality industries and keeping an open mind. That’s according to panelists at InterFace Conference Group’s Healthcare Real Estate West conference, held March 2 at the Omni Los Angeles Hotel.

The biggest lessons the healthcare industry has internalized, panelists noted, was making the customer king, remaining flexible and embracing technology — even if the future of that technology is uncertain.

“The buzzword today is omnichannel,” said Andy Hoover, real estate manager for the California region of Providence Health and Services and a participant in the “Impact of Consolidation and Changing Healthcare Delivery” panel. “It’s more like retail today. It’s a customer-focused delivery model — essentially a retail delivery model. It’s a blend of physical and digital components. It’s really not what you put into it. It’s what the customer gets out of it and what they’ll pay for.”

The healthcare system of the future is looking to integrate mobile apps that allow customers to refill prescriptions, make appointments, view test results and potentially even hold virtual visits with their physicians. Healthcare systems are also moving away from hospitals and campuses with long-held, negative stigmas surrounding them.

“The medical office building of 2025 will be dictated by technology and a clinical delivery of care,” said Neil Carolan, senior vice president of development and leasing for Rendina Healthcare Real Estate and moderator of the “Evolution of MOBs” panel. “More and more services that are currently in hospitals will move to less-acute settings. Hospitals are going to be where only the very sick go. The medical office building of 2025 won’t resemble the ones of today whatsoever. Employment and tech have a lot to do with that.”

Rather than sending people to centralized hospitals, the healthcare systems are embracing the convenience revolution and coming to the consumer. Some are still occupying medical office buildings, while others are absorbing space in retail centers or traditional office buildings where they have a built-in clientele.


Owning Responsiblity

This service- and experience-based delivery model is also more focused on price, both from the perspective of the patient and the healthcare system. Transparency and a la carte pricing is a priority, panelists said, as they realize today’s healthcare consumer has a variety of options. Price is also a factor when it comes to healthcare real estate investment as systems determine whether they’ll lease space or take on a joint venture partner.

“There is a lot of discussion on whether the healthcare industry will go the way of the hospitality industry,” said Christopher Bodnar, CBRE’s executive vice president of investment properties for the U.S. healthcare capital markets and a “State of the Industry” panelist. “Hilton and other large hotel chains owned all their real estate 30 years ago. Then they said ‘what’s our core competency? What’s going to make us the most money?’”

Bodnar asserted that many healthcare systems would prefer to keep that cash on hand and to keep doing what they do best, which is providing healthcare, not operating real estate.

“Cash is king right now,” said Bodnar. “Healthcare systems understand they’re really not that great when it comes to operating real estate. They’re saving money by having someone come in that can help them operate it better. If a few big deals come to market and sell, I think there will be a snowball effect. Many will think ‘if the bigger systems are doing it, why aren’t we thinking about it?’”

Panelists noted that today’s current healthcare systems tend to own their spaces if they occupy at least 40 to 60 percent of an entire medical office building. This is particularly true of California groups that have adopted the foundation or nonprofit model, as they can accrue a tax savings of 30 cents to 40 cents per square foot if they own.

Avoiding a third-party landlord or joint venture partner can also be beneficial when recruiting doctors, some panelists said. Others, however, noted those same doctors were a prime motivator to lease instead of own.

“I want to do what I do well and I want the commercial real estate community to do what it does well. I don’t want the surgeon in the office building pounding on my desk because he doesn’t like the rent increase,” said Ken Strople, managing partner at Palisades Health and a “Hospital and Healthcare Systems” panelist. “I don’t want to own the building. I have people to take care of, equipment to buy. We need the space but I don’t want to be the landlord.”

Dr. Margaret Peterson, president of Dignity Health-California Hospital Medical Center and an “Evolution of MOBs” panelist, agreed with the sentiment, noting there is a delicate dynamic between doctors and healthcare operators many don’t want to upset.

“I don’t like having to negotiate with doctors,” Peterson said, noting that every institution she’s worked with sold its real estate about 15 years ago. “If we don’t have to be in the business of nickel-and-diming them, then it’s not so bad.”


Developing for the Future

Many healthcare operators know they don’t want to play landlord. They also know that any future space they occupy must come with a high level of flexibility to adapt to the changes in healthcare, technology and the customer’s needs.

“How space is used is changing dramatically,” said Drew Arvay, managing partner and director at Cushman & Wakefield and an “Evolution of MOBs” panelist. “We’re seeing smaller spaces and we’re seeing a change in the way people use space.”

Panelists agreed that the future of healthcare, and therefore of healthcare real estate, was a bit unpredictable, especially when legislative, tax, technological, and general health and wellness changes were factored in. Programs like Medicaid have also reduced healthcare companies’ reimbursements by 20 percent, leaving the systems to either eat the loss or make up the savings in other areas, like operations and real estate.

Many systems that once occupied 20,000-square-foot spaces in medical office buildings are now opting for 12,000 to 15,000 square feet. Some retail clinics and medical office spaces are going as low as 8,000 square feet.

Systems are also standardizing their design and layout, which leads to a cost savings in the pre-construction phase and a project that averages less than $250 per square foot. This design tends to have a great deal of flexibility built in, with waiting rooms in the front, operators in the back, either small or non-existent doctor’s offices, and uniform patient rooms with adjustable walls in the middle.

“We’re not customizing everything we build anymore,” said Ross Caulum, associate vice president of corporate real estate for Scripps Health and a “Hospital and Healthcare Systems” panelist. “We’re moving from a hospital silo system to a corporate structure to get economies of scale, to standardize. It means the walls in the hospital will be the same as the walls in the clinic’s exam rooms.”

InterFace Healthcare Real Estate Conference, Los Angeles

Panelists discuss “Impact of Consolidation and Changing Healthcare Delivery” at the InterFace Healthcare Real Estate in Los Angeles on March 2. Panelists were, from left, Jeff Weigand, director of real estate for Huntington Hospital; Brian Dunlay, vice president of finance and planning for Welltower Inc.; Bradley Malsed, senior manager for GE Healthcare Camden Group; Andy Hoover, real estate manager for Providence Health & Services; and moderator John Wadsworth, vice president and director for Colliers International.

This type of generic space makes it adaptable to multiple uses and specialists, which is particularly attractive as systems begin to decentralize their point of care and focus on outpatient settings. Ironically, this hyper-efficiency is also leading to more time at the healthcare clinics — for the doctors and nurses, anyway.

“We have to get our healthcare systems to a point where they’re convenient to the customer,” Caulum continued. “The whole evolution of the industry is transitioning from an 8-to-5 medical office building to maybe hours as early as 6 a.m. and as late as 10 p.m.”

“What we can’t do is see you in the ER,” Caulum continued. “That’s the most expensive pathway. So we’re taking on convenient locations and retail centers so people can easily head to the right place of care.”

Bradly Malsed, senior managing director of GE Healthcare Camden Group and an “Impact of Consolidation and Changing Healthcare Delivery” panelist, said the industry all boils down to simple supply-and-demand economics.

“Consumerism is changing the care model,” he said. “It’s important to understand what the customer wants. The old adage of limited choice with limited hours and no view of pricing are out.”

“People today are used to shopping at Amazon and comparing prices and services. They’re now saying ‘why can’t I do that with my healthcare?’ It’s what the customer is demanding.’”

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