Changes in Healthcare Policies and Preferences Drive New Opportunities in Commercial Real Estate

Changes in Healthcare Policies and Preferences Drive New Opportunities in Commercial Real Estate

Chicago – November 20, 2014 – (RealEstateRama) — Not long ago, hospital emergency rooms were clogged with people seeking treatment for everything from broken bones to sore throats. The solution, it turns out, is not to build more and larger hospital emergency rooms, according to a panel of healthcare executives who addressed The Counselors of Real Estate® professional association’s annual convention in Boston. Leaders of the evolving healthcare system are working to find different, more convenient ways – and places — to treat illness and injury. These new medical goals, policies and delivery options are creating better patient care — and opportunities in real estate.

Panelists shared perspectives on the dynamic healthcare sector, as the impact of the Affordable Care Act; centralized, computerized medical records; and rising medical costs intersect — propelling change. Developers, investors and property advisors alike are rapidly adapting.

Lynn Nicholas, president and CEO, Massachusetts Hospital Association, Burlington, Mass., said emergency rooms are the most expensive way to treat many illnesses and injuries. “Medical providers are increasingly endorsing a goal of providing high quality care that avoids overtreatment,” she said. Fewer trips to the doctor, and fewer trips to the emergency room — as patients embrace preventative healthcare — can also lower costs for patients and providers. She explained that the trend toward less in-patient, more outpatient care is driving growth of retail clinics and urgent care facilities. Better management of chronic disease and end of life care — plus a much-needed ramping up of behavioral healthcare services — allows more care to be delivered at home and in community-based settings, she said, further changing how much space medical offices and hospitals need.

Those who manage and advise about hospital planning are addressing the trend by reconfiguring facilities. Roberta Young, managing principal, Sterling Planning Alliance, Boston, said they are seeing hospitals across the U.S. decrease the number of very large (800 – 1,000 sf) specialty hybrid operating rooms — and when designing new facilities, standardize ones of intermediate size (600 – 650 sf) to more flexible rooms that can be easily repurposed for a wide variety of surgical procedures. Another trend is a shifting of more interventional procedures requiring fixed imaging to the outpatient arena, resulting in more ambulatory surgery-type facilities to be developed away from hospital campuses.

With the development of extensive ambulatory networks to support health system strategies in the new environment created by the Affordable Care Act, she predicted there will be fewer private physician practices in the future, as most become absorbed as licensed practices within hospital systems. “This,” she said, “will require upgrades of medical office buildings and other physician practice sites to comply with more stringent codes and guidelines as detailed in the Facilities Guidelines Institute (FGI) Guidelines for the Design and Construction of Hospital and Outpatient Facilities.”

In the inpatient care arena, she said there is a continuing trend away from semi-private patient rooms — medical practitioners are striving to provide a safer, more private patient experience, which can help decrease the spread of disease and is more cost effective in the long-term.

With respect to infectious diseases, expect to see development of more specialized treatment centers, Young said, as Ebola-readiness increases awareness of potential future needs. She added that this includes planning for more air exchanges per hour, and more isolation rooms with anterooms and bio-containment treatment centers.

John Duggan, vice president of real estate operations for Worcester, Mass.-based Reliant Medical Group expects that in the future, about a third of patients will not need to see their primary provider at all, a third will see an advanced practitioner and the final third will be the chronically ill, who will see their primary provider. The effect on real estate is dramatic because as consumers seek treatment at places other than a traditional doctor’s office, more medical clinics and urgent care facilities will be built to serve them – and more pharmacies are installing in-store clinics. Groups like Reliant are forming partnerships with pharmacy clinics to provide medical care to patients who are too sick or are in need of more services than can be provided at a store location.

As America’s population ages, both the real estate and medical sectors are gearing up to address age-related healthcare needs of the 76 million “Baby Boomers” – those born between 1946 and 1964 who are starting to retire from the workplace. Trish Hannon, President and CEO, New England Baptist Hospital, Boston, said there will be more treatment choices available to them, particularly in ambulatory care services and end of life care.

She also predicted new hospital models where patients will be served in ways very different from traditional facilities. She described hospital configurations which may look and feel warmer – more hotel-like — and offer a variety of services and medical specialties in attractive surroundings. “These are not like the old hospitals you grew up with,” she said.

Other opportunities for real estate practitioners include providing much-needed upgrades and refurbishment of America’s small, aging community hospitals. Perhaps even more intriguing, according to panelists, is the potential for mixed-use senior-living communities to offer fitness facilities, wellness programs and medical services for residents, all on-premesis.

Nicholas said healthcare transformation is long overdue. but it will create future excess capacity in older facilities. As provider systems grow larger and consolidation continues, real estate experts will be needed on staff to ensure nimble response to shifts in the dynamic medical sector.

Young noted there will likely be a need for senior practitioners to guide long-term real estate planning and for savvy investment advisors, as capital remains scarce for hospitals and healthcare systems. Developers, too, will be in demand to reimagine and build new and advanced healthcare delivery options.

But Duggan does not foresee a future medical real estate boom. He said advances in technology are starting to provide more medical diagnostics and monitoring on a variety of small personal electronic devices, supporting and promoting healthier lifestyles and a commitment to fitness. Patients will increasingly be able to access their health information wherever they are, and interact with medical experts and service providers remotely, he said.

The Counselors of Real Estate®, established in 1953, is an international group of high profile professionals including members of prominent real estate, financial, legal and accounting firms as well as leaders of government and academia who provide expert, objective advice on complex real property situations and land-related matters. Membership is selective, extended by invitation only. The organization’s CRE® (Counselor of Real Estate) credential is granted to all members in recognition of superior problem solving ability in various areas of real estate counseling. Only 1,100 people in the world hold the CRE credential. For more information, contact The Counselors of Real Estate, 430 N. Michigan Avenue, Chicago, IL 60611; 312/329.8427;

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