Changes underway stemming from the Affordable Care Act are shifting the national healthcare landscape. The US heath care system is bracing for the addition of 30 million previously uninsured patients while at the same time undergoing a series of business transformations that come with significant real estate effects.
Preventative, specialized and routine care is being more broadly distributed to outpatient facilities and away from monolithic hospitals. At the same time, a wave of business consolidations is taking place where standalone “doc-in-a-box” small medical centers are finding institutional buyers in increasing numbers. The buy and the sell side are heating up in medical office property, but even that isn’t where all the action is. On top of these shifts, retail chains long doing pharmacy business are opening clinics for primary care, modifying space calculations and opening new avenues of opportunity for customer engagement. In ten years, your average trip for medical care will not look like it does now, from the property to the practices.
Consolidation Trend Fueling The Buy And Sell Side
There are two main directions the delivery of healthcare services are leading: acute care is being consolidated into ever-larger hospitals that amass resources, share space and achieve economies of scale, while outpatient care is being distributed throughout communities. In Leslie Braunstein’s Urban Land Institute piece “How Changing Healthcare Delivery Will Affect Land Use”, the numbers are run and the difference is clear:
With improved medical technologies, an increasing number of treatments, tests, and procedures can be conducted on an outpatient basis; as a result, the average hospital stay has decreased from 7.2 days in 1988 to 5.5 days now. And while the total number of hospital beds has decreased, the percentage of physicians employed by hospital groups has increased to 50 percent and is growing.
Although increasingly employed by hospitals, physicians and other practitioners are bringing medical care into a distributed network of satellite-type facilities scattered throughout communities, noted Eric W. Fischer of Trammell Crow Company. These include everything from medical office buildings to walk-in clinics located within retail stores such as CVS, Walgreens, or Wal-Mart. The next level, he said, is the “outpatient pavilion” where specialists and sub-specialists can share technology and resources. Finally, there is the acute care hospital.
Demand Is Up For Medical Office And Outpatient Facilities
The multibillion market for present and future healthcare space shows heightened demand as long-standing assumptions about healthcare are challenged and efficiencies sought. Highlighted by Sue Ter Maat in Amanews:
Medical office and outpatient facilities sold for nearly $6 billion in 2012, higher than the 2006 peak of $5.5 billion. Sales of medical office buildings exceeded $2 billion in 2012, more than double the previous sales record set in 2007, according to real estate developer and manager Jones Lang LaSalle’s health care report, issued in May. The company said it wouldn’t be surprised if more records are set in 2013. The report tracked medical office buildings that are more than 25,000 square feet.
The sales increase is partly due to the big push for more outpatient care. Medical office buildings performed well compared with other real estate classes, especially during the economic downturn in 2009, said Mindy Berman, managing director of capital markets at Jones Lang LaSalle.
Less Is More: Standalone Emergency Rooms
Not fitting into other trends is the appearance of the standalone emergency room, as currently under discussion in Alabama. At first glance, the economics of this development trend seem to make little sense: emergency room care is uniformly more expensive than other kinds, such expense having been a major factor in preventing people from seeking care until their conditions make it impossible to avoid. Nonetheless, Alabama is voting on wether or not to undertake more of these ER-only properties.
BIRMINGHAM, Alabama — Free-standing emergency departments — emergency rooms not physically attached to its parent hospital buildings — are in an odd situation in Alabama.
Three of these standalone ER’s are approved by health regulators to be built — all in the Birmingham area.
But there are no rules to regulate them.
Demand outpacing a state’s regulatory ability is an old story and not limited to a single state. Keeping an eye on these developments in Alabama might give us a clue about ER-only adoption across the country.