Healthcare and Real Estate: An Uncertain Prognosis
With an estimated 32 million Americans to be newly insured under the Affordable Care Act (ACA), there are certain to be widespread implications for business and healthcare system providers. While many questions about just what those implications are remain unanswered, we can be certain that everyone will be impacted.
The Bottom Line
According to Van W. Martin, CCIM, SIOR, CRE, “Tough decisions about where best to locate a business and how best to contain occupancy costs need to be made today.”
“As healthcare providers struggle to address this additional demand and businesses evaluate how to cover, administer and pay for the new system, fear of shrinking profit margins will drive tough decisions on expense containment initiatives.
As a result, as we are seeing with newly implemented real estate strategies, business will be increasingly focused on the bottom line. Healthcare providers will need to serve more people, in an increasing number of locations, and do so in a cost-effective way.”
Greater Access to Care, But Where?
Providing more facilities while incurring less real estate expense means that the traditional medical office setting near existing hospitals and healthcare hubs, which often command a premium in rental rate, may no longer be the best location.
Healthcare systems may need to rethink their real estate location decisions, consolidating and co- locating services to convenient settings in proximity to where patients live and work.
Already a growing phenomenon, the urgent care facility that is located in the retail strip center will not only become more commonplace, but it will likely be joined by other ambulatory healthcare facilities as well, such as dialysis, physical therapy or after hours clinics.
Healthcare users in retail settings benefit from better visibility, while patients enjoy easy access and convenient parking.
It will be increasingly important for healthcare service providers to look at the most cost-effective ways to deliver quality care as well. One often overlooked area of opportunity relates to real estate and related strategies.
For example, healthcare systems can save on real estate expenses by locating ambulatory care facilities away from larger, more costly hospital locations. This improved patient access should, in turn, reduce the number of patients that need to be readmitted to the hospital, thereby lowering costs.
Locally, the causal relationship between accessible preventative care and reduced hospital expenses is underscored by the recent announcement that Sparrow Health Systems and Volunteers of America (VOA) have partnered to provide onsite medical services to the VOA at its main location on North Larch Street.
Medical Side Effects
As healthcare providers who have traditionally been office users migrate into a retail setting, there will be some adjustments to be made, both from the perspective of the user and the property owner, as expectations for medical office and healthcare use differ from those of the traditional retailer.
The good news for property owners is that healthcare providers typically have a good credit rating and can commit to market rate lease terms. With that commitment though, will come the demand for more robust tenant improvement allowances, preferably at the landlord’s expense.
Lastly, although nothing is certain about how the ACA will impact business and the health care system, it is clear that expense containment will be a foremost concern. Since for most businesses real estate is typically the second highest expense after human resources, now is the time to carefully evaluate real estate options.