Health Care and the Future of Medical Office Buildings: A Perspective on the Care-Location-Cost Trifecta in a Changing Industry
Dougherty, Brian J., Muhlebach, Richard F., Journal of Property Management
HEALTH CARE IN THE UNITED STATES--AN ANNUAL $2.3 TRILLION INDUSTRY EMPLOYING AND SUPPORTING NOT ONLY MEDICAL PRACTITIONERS, BUT THOSE IN SEVERAL OTHER INDUSTRIES, INCLUDING PHARMACEUTICAL, REAL ESTATE, ARCHITECTURE, FINANCE, TECHNOLOGY AND INSURANCE-HAS THE POTENTIAL TO BE A BRIGHT SPOT IN THE ECONOMY.
However, its costs and rate of growth are pushing medical inflation significantly higher than the nation's core inflation rate. Inefficiencies are being addressed in order to more effectively serve not only those currently in the health care delivery system, but also the estimated 30 million uninsured and underinsured people who will be brought into the system, as a result of new national health care legislation.
Longstanding assumptions real estate professionals and property owners have relied upon for successfully developing, marketing and leasing medical office buildings are being tested. Real estate managers will be called upon to manage medical facilities in need of repositioning and redevelopment as well as to manage new medical facilities designed to accommodate changing health care delivery methods. By becoming aware of the complex issues surrounding medical office buildings--including location, design, layout, systems, appearance and conditions--real estate managers will be able to determine which medical office buildings can compete in the current target market or whether managers can create viable management plans that meet the new, dynamically changing needs of most health care providers.
CHANGING COMPONENTS IN HEALTH CARE DELIVERY
The macro and micro components of health care--access to capital, cost and revenue areas, architectural changes, advancements in technology, etc.--are shaping and influencing the dynamics of health care delivery; thus, new delivery models are emerging in response to economics, regulatory challenges and uncertainties. While medical treatment in the United States is considered excellent, its current delivery options through office visits, hospital stays and the like, have become fragmented and inefficient.
AVAILABILITY OF CAPITAL
Health care is a capital-intensive industry. Significant investment by medical office providers or hospital owners is required to achieve greater efficiencies, acquire new technologies and create and implement expansion plans. Challenges regarding access and availability of funds and cost of borrowing are prevalent, however.
METRICS: COST-AND REVENUE-DRIVEN DELIVERY SYSTEMS
Medical practices and hospitals must achieve efficient economies of scale to develop new markets and provide additional services necessary to produce the revenue stream required to support medical practices and hospitals. Well-capitalized and successful medical practices and hospitals will leverage their success to raise capital, develop efficiencies, acquire strategically located real estate and negotiate with suppliers for value pricing and insurance companies for optimum reimbursements.
DECREASING REIMBURSEMENTS PROMPT INCREASED EFFICIENCIES
A majority of the payments for health care are made by government programs and insurance companies selected by private companies for employees' health care coverage. Government programs' and insurance companies' reimbursement rates to medical providers have been decreasing--and this trend is expected to continue--placing significant stress on delivery systems and providers, and forcing increased efficiencies across the spectrum of care.
Reimbursement rates are being designed to reward efficiencies and penalize errors and inefficiencies, e.g., unnecessary or preventable repeat visits, re-admissions to hospitals and additional tests. Therefore, the implementation of new health care models will be designed to reduce costs through a combination of many factors, including changes to the design and layout of medical space/facilities, improved standardization of procedures, new technologies and the more efficient use of resources. …