Healthcare: Consolidate or Die
By the time you finish reading this sentence, the healthcare industry’s going to change beyond recognition. Actually, it only seems that fast, as our panelists stressed at Bisnow’s third annual Orange County Healthcare Real Estate Summit recently.
Change doesn’t happen overnight, but give it five years, or even less, and healthcare's going to be a different animal. The Affordable Care Act (ACA) is driving a lot of change, but that isn’t the only factor. (Also, more and more people don't want to get sick, the nerve of them.) Healthcare systems are jockeying to be bigger, better healthcare providers, and more efficient, too. Real estate pros who understand these goals will flourish along with the healthcare industry. The devil, of course, is in getting the details right. Swinerton Builders Healthcare VP Jerry Mejia moderated the owner/developer panel; Swinerton’s an employee-owned GC with expertise in healthcare construction, operating throughout the Western states.
Colliers International VP and director, healthcare services John Wadsworth says that the ACA is having a profound impact on healthcare delivery: it’s going to reduce costs, strongly encourage coordinated care, and force the transition from fee-for-service to fee-for-quality. Heathcare systems are going to continue to strive for increased efficiency, which will lead to further consolidation among providers through acquisitions, mergers, and new affiliations. That's already been going on, of course. There used to be more than two dozen freestanding hospitals in OC. Now there are none: all of them are owned or affiliated with larger systems. (Makes it harder to have a hospital staff softball league, but life is give-and-take.)
Lionakis principal Scott Mackey, an architect specializing in healthcare, agrees that the ACA’s already changing the entire future of the industry, though even people providing care day-to-day—hospital systems, for example—don’t fully understand all the impact yet (no one does; we hear there's all kinds of Easter eggs in the law, like a David Baldacci novel). Also, the trend in healthcare is firmly fixed toward outpatient care. “The days of mega hospitals as a hub have passed,” Scott explains. That means there’s going to be further diversity among healthcare delivery facilities. Quicker, better, cheaper is the way it has to be for healthcare.
Health Care REIT VP-operations Kevin Kirn says that one of the critical decisions now facing healthcare systems is whether to use their own money for expansion and consolidation, or use outside capital. Traditionally, the decision has been based on the cost of tax-exempt debt, and the systems’ perception on how to control the site, but now things are even more complex. That’s especially true because of increasing demands on healthcare system’s resources, such as for digitizing medical records and physician acquisition. Developers who can deliver a building quickly and efficiently will win the deals, because there’s an urge to win market share among healthcare systems.
Pacific Medical Building SVP-development Jim Rohan, whose company works with most major healthcare systems to develop medical facilities, says there’s confusion now, but even so that he’s looking forward to rapid growth in the industry in the coming years. The hub-and-spoke model was the healthcare facility standard for 30 years, and it worked well enough, but now it’s disintegrating as hospitals become cost centers. (We don't wanna start listing all the things that worked 30 years ago and don't anymore.) Most care will be delivered at the edges of the spokes, and those systems with a retail sensibility will thrive.