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Trends in Healthcare and the Implications for Real Estate
by Jon H. Carlson   

There is nothing more constant than change. In regard to the healthcare industry, this is a major understatement. During the past 30 years, this industry has gone through some dramatic changes technologically. Even more dramatic have been the changes in the financing and delivery of health care services.

The ever-rising cost of healthcare, now eclipsing about 17 percent of the nation’s GNP, has major economic consequences in all sectors of the economy. It has led to nearly 60 million Americans being unable to afford health insurance and has been a major economic burden for small businesses.

To begin addressing these issues on a global basis, Congress recently passed the Affordable Care Act (ACA) to reform many aspects of how healthcare is paid and delivered. The emphasis of the new law is to significantly improve financial access to healthcare through a variety of insurance reforms while creating more price competition amongst providers and insurers by making the industry more of a consumer-driven market. The goal is to hopefully start reducing overall costs, although whether the ACA is the best way to accomplish this is still under debate.

Although the new law may be a step in the right direction, as a country, we still have a long way to go. Witness the fact that most developed nations of the world have some form of a national healthcare system with the majority expending far below the 17 percent GNP of the U.S. Nonetheless, these countries still lead the U.S. in several positive healthcare outcome indicators.

With our aging population, the demand for healthcare services will continue to increase. Therefore, if costs are going to be reigned in, this will likely only come by changing the way providers are reimbursed. The focus will have to be more on preventive/primary care and infusing, if possible, more competition within the industry.

To expand coverage, the ACA will 1) make it possible for all individuals and/or small businesses without health insurance to purchase a policy with the help of subsidies and tax credits; 2) mandate that every individual purchase a policy (except in cases of financial hardship) in order to broaden the risk pool and bring unit costs down; 3) eliminate the denial of coverage based on pre-existing conditions; 4) require each state to set up an insurance exchange to create more price competition by putting more information and decision-making in the hands of the consumer; and 5) significantly expand Medicaid eligibility.

In regard to cost reduction, the ACA will 1) fund pilot projects in Medicaid and Medicare relative to exploring more incentive-based provider reimbursement methodologies which will likely translate into more risk sharing between the provider, patient and insurer; 2) promote medical malpractice reform; 3) reduce waste, fraud and abuse in public programs; 4) offer incentives to providers who organize delivery models that align financial incentives and promote the coordination rather than fragmentation of care.

So, what are the implications of healthcare reform and related trends in the healthcare industry for the commercial real estate market? Will increasing access to care for another 50 to 60 million more Americans increase the demand for new medical office buildings (MOBs) and healthcare facilities in general? Or will such growth be greatly tempered by the fact that MOBs built since 2005 are experiencing an average vacancy rate of 25 percent nationally? Will healthcare systems look to monetizing some of their real estate assets in order to generate more cash? Will the increased need for integration between hospitals and physicians result in more acquisitions or dispositions of MOBs? Will the vanilla MOB of the past be transitioned to a more sophisticated model housing a wide variety of outpatient services delivered in more of a retail or medical mall setting? If so, what implications will this have for the skill sets required of property managers?

To get answers to some of these questions, you may want to consider attending a symposium on Oct. 26, 2011, entitled Trends in Healthcare and the Implications for Real Estate and sponsored by the Building Owners and Managers Association of Utah. The event will carry three CEU credits for Commercial Real Estate licensure and will feature two panel discussions involving Utah healthcare and real estate experts. The event will be held at the Tower at Rice-Eccles Stadium from 11 a.m. to 2:30 p.m. and will include lunch. Registration fees are $35 for BOMA members and $60 for non-members. Whether you are a building owner, developer, investor, broker, property manager, leasing agent or healthcare executive, you don’t want to miss this. Register at bomautah.org

Jon H. Carlson is a property manager for Lincoln Harris CSG in Salt Lake City. He can be reached at 801.424.6080.

 

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