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The Retailization Of Healthcare Is Leading To Record Hospital Closures

More than 120 rural hospitals have gone out of business since 2005, and the trend has been accelerating since 2010. In Texas, 14 rural hospitals have closed since then. As healthcare spending balloons across the United States, hospitals are on the decline, and real estate needs are shifting closer to the patient. 

Partner Engineering & Science National Client Manager Katrine Hansen, Texas A&M College of Medicine Dean Dr. Carrie Byington, Tandem Hospital Partners CEO Steven Graubart, Medistar Corp. Senior Vice President Paul McCleary, Transwestern Senior Vice President Daina Pitzenberger, McCord Development President Ryan McCord
Partner Engineering & Science National Client Manager Katrine Hansen, Texas A&M College of Medicine Dean Dr. Carrie Byington, Tandem Hospital Partners CEO Steven Graubart, Medistar Corp. Senior Vice President Paul McCleary, Transwestern Senior Vice President Daina Pitzenberger, McCord Development President Ryan McCord

“There are less people in hospitals today than in the 1980s,” the Texas A&M College of Medicine's dean, Dr. Carrie Byington, said at Bisnow's National Healthcare South event. “Fifteen percent of rural hospitals closed last year. We're down to around five-and-a-half thousand while population has gone up more than 40% in that time."

If closings continue at this rate, 25% of America’s rural hospitals will have disappeared in the decade after the passage of the Affordable Care Act. This does not take into account facility deterioration, doctor departures or department closures. Hospitals closures have major financial implications — at $1.1 trillion, hospitals account for about a third of all medical spending. That spending is headed closer to home. 

Welltower Senior Vice President Mike Noto, Healthcare Trust of America Executive Vice President Amanda Houghton
Welltower Senior Vice President Mike Noto, Healthcare Trust of America Executive Vice President Amanda Houghton

“Technology has enabled so many things to happen at outpatient facilities. They’re replacing hips in those facilities now,” Welltower Senior Vice President Mike Noto said. “That’s led to more rural closures, more consolidations, a concentrated patient experience and far fewer health systems.”

A report by Medpac found that in 2015, hospitals had an average occupancy rate of around 62%, and in many cases, patients were potentially putting themselves at risk of infection by staying in the hospital longer than necessary. It estimated one in 25 American patients are coping with an infection that was picked up at a hospital.

In microhospitals, approximately 92% of patients are able to be treated and sent home in under two hours, limiting both risk of infection and medical costs, the Wall Street Journal reports. Studies have shown that patients with heart failure, pneumonia and some serious infections can be given intravenous antibiotics and other hospital-level treatments at home by visiting nurses. These “hospital at home” programs usually lead to more rapid recoveries, at a lower cost.

Moving away from hospitals as a hub for healthcare means bringing healthcare space out of the hospital and into retail centers. Free-standing emergency rooms, 24-hour emergency care centers and walk-in clinics are proliferating in valuable retail locations. Beyond medical facilities, new partnerships are being formed in the retail community to bring healthcare to established locations. Memorial Hermann, the largest not-for-profit healthcare system in Texas, has partnered with RediClinic to see more than 2 million patients in H-E-B and Rite Aid pharmacies nationwide.  

Centura Health Senior Vice President James Corbett, Walsh Construction Co. Director of Business Development Tim Weidman
Centura Health Senior Vice President James Corbett, Walsh Construction Co. Director of Business Development Tim Weidman

Telemedicine is greatly reducing the need for hospital space, or any patient space at all, with 7 million users projected by 2018, and with close to 90% of healthcare executives working on tele-delivery platforms.

Colorado’s Centura Health has used telemedicine to improve outcomes through Centura Health at Home. The program, which began in 2004 and combines home monitoring with a call center, focuses on reducing avoidable hospital readmissions (both a large driver of healthcare costs and an indication of suboptimal care). At one of Centura’s hospitals, for example, the readmission rate for congestive heart failure fell from 13.8% to 4.2% as telemedicine initiatives were introduced.

Shifting healthcare facilities and the rise of telemedicine present their own challenges.

“We need to do better at making sure we can communicate face to face,” Byington said. She worked with the U.S. Olympic team on Zika preparation before heading to Rio for the 2016 Olympics. “How do you make a connection across a screen? For me it helped when I saw them in person in Houston before they left.”

The decline in demand for hospital space is not a decline in healthcare needs, and healthcare professionals say no matter where or how the care is happening, healthcare should always feel personal. Shifting healthcare real estate needs closer to home has caused providers to think more closely about the patient experience.