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Healthcare Real Estate Is Being Pulled In Multiple Directions

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Healthcare is changing as an industry so rapidly that providers and patients struggle to stay current. For real estate, the struggle is even more pronounced.

Healthcare Real Estate Is Being Pulled In Multiple Directions
Temple University Hospital in North Philadelphia

The traditional model of decentralized primary care providers, specialist networks and inpatient hospitals has become obsolete as technology has made more and more procedures possible to perform in outpatient facilities.

At the same time, many providers want to make access to healthcare a simple, short trip for patients who may not have the time or ability to drive an hour to receive the specific care they need. 

“There has been a tendency toward medical malls with multiple specialties so patients can access all sorts of care; I think that has been sort of the trend,” Temple University Health System President and CEO Larry Kaiser said.

In the drive to meet those demands, many healthcare providers are expanding their real estate footprints, even in a regulatory and funding environment that is far from stable. Those who fall behind are vulnerable to mergers and acquisitions, which have become more and more prevalent, Kaiser said.

“Part of the challenge is becoming more accessible, and for big universities, they’re very centralized," Christiana Care Health System Chief Population Health Officer Sharon Anderson said. "The challenge now is to create points of entry that are local. They don’t have to be expensive sites, but they need to be close to where people are.”

The shifting landscape of healthcare will be front and center at Bisnow's State of Philadelphia Healthcare event at The Westin Philadelphia Aug. 16, where Kaiser and Anderson will be among the speakers.

Healthcare providers' need to turn a profit often requires uncomfortable decisions, and as insurers and the federal government fight to undo many elements of the Affordable Care Act, providers see shrinking payments at a time when they need all the capital they can get to fuel needed expansions. Kaiser said since the 2016 election, there has been "no good news" from the government side.

“[Insurers] have had an advantage for a very long time, and it has been a very fragmented market on the provider side," Kaiser said. "As the providers have consolidated, they have gotten more leverage.”

Temple is in the unenviable position of being the de facto healthcare system for Philadelphia's poorest residents, due to the lack of public hospitals in the city. With Medicare and Medicaid-funded patients making up a bulk of its care, Temple has had to take on more and more debt to keep pace — making it an unattractive partner in consolidation deals.

Healthcare Real Estate Is Being Pulled In Multiple Directions
Christiana Hospital in Newark, Del.

“We’ve explored opportunities and haven’t been particularly successful," Kaiser said. "Part of that is because of our patient base, and part of that is that we’ve seen a lot of consolidation around us and have been left out of the dance, so to speak.”

With its challenged financial situation, Temple Health has not been able to achieve its real estate goals in recent years. What it needs above all, Kaiser said, is a new, consolidated, outpatient care tower on its central campus. Even though it has the land, a development partner in Milwaukee-based Landmark Healthcare and the plans in hand, it does not have the capital to break ground.

“We need to consolidate our outpatient offices here," Kaiser said. "But unfortunately, with these changes in accounting rules where our patients are considered liabilities, we’d need to take on even more debt to do this.”

Christiana Care is in a stronger position financially, and has been focusing more on increasing its local presence in communities across the region for better convenience. Hyperlocal research will allow such centers to specialize based on what a neighborhood seems to need the most, thus reducing the needed footprint, Anderson said.

But even Anderson has second thoughts about expansions these days, due to the constant change that is emblematic of healthcare technology.

“People are expanding, and I don’t quite understand why," Anderson said. "The future of healthcare is virtual care, and to the extent that people are buying and building a lot of brick-and-mortar, it won’t be useful in the next 10 years.”

If a financially healthy provider like Christiana Care is proceeding with caution, then a cash-strapped system like Temple is in a state of deep concern. Without some sort of joint venture or collaboration, especially if the federal government continues to cut funding to healthcare, Kaiser worries about Temple's ability to even make it to the next presidential administration.

“It becomes more challenging for us," Kaiser said. "We look at five-year projections, and there will be some real challenges in that 2020, 2021 range. We will have to make some tough decisions at that time.”

Kaiser, Anderson and the rest of the panelists will tackle many of the industry's hard questions at Bisnow's State of Philadelphia Healthcare event at The Westin Philadelphia Aug. 16.