Healthcare Real Estate: The Consolidation Trend
In the wake of the recent Healthcare and Real Estate Summit held in Chicago, a clearer picture is beginning to form of healthcare business trends and property dispositions going forward nationally under the Affordable Care Act (aka “Obamacare”). The commercial property professional in most markets is a stakeholder in these trends in a few different ways.
Healthcare Property Consolidation
The property market in the hospital and health care provider segment faces a series of changes that are at bottom designed to provide greater efficiency in delivery of healthcare services. While the changes are not sweeping or alarming, nor do they reflect anything like a “takeover” of health care by entities other than health care providers, they are significant in property terms because of the trend of consolidation.
The already-existing national trend of hospitals establishing off-campus outpatient facilities and specialty practices is dovetailing with the business plans and exit strategies of independent practices, who are finding their profitability declining. Owing to the rising costs of medical care provisioning – driven by everything from very unwieldy and complex billing struggles to the wider economic picture where six out of ten US doctors reporting that their patients have difficulty paying for care - entrepreneurial physicians will increasingly see buyout offers from hospitals as attractive way to get out from a lease or to sell a building.
Sharing Of Resources Includes Square Footage
Controlling of costs and maintaining high quality of care means an increase in sharing of developed space. The electrical, plant, IT and environmental requirements of healthcare construction represent sunk costs that need to be leveraged across a greater number of health care practitioners going forward. Beyond that, stringent requirements for information technology updates for medical recordkeeping and the aforementioned billing will continue to be a major driver for the sharing of health care delivery facilities meaning labs, waiting rooms, exam rooms and the like.
The commercial property strategy that wins is one that finds solutions for sellers and buyers in support of the consolidation trend.
Doctors Wondering If They Should Own
On the sell side, drivers of the consolidation trend are reflected in the position paper “Should Docs Own Office Buildings?”, by Robert Rosenthal and Barry Weinbaum of Pacific Medical Buildings. While certainly written from the point of view of advocating such ownership, the paper’s description of exit strategies for doctors looking to cash out of such investments rings like a bell for the commercial broker with experience in IRS 1031 tax-deferred exchanges. If the prevailing trend is doctors on the way out of such properties in advance of hospitals and healthcare providers moving headlong to a distributed model driven by cost-sharing, the commercial REALTOR® would do well to watch the local market for examples and be ready to provide a key role in the business plans of doctors.