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This white paper is the second in a series designed to explore critical changes taking place within U.S. Healthcare and some of what this will mean to the changing real estate landscape.1 Healthcare strategy does not always translate neatly into what should be complementary disciplines focused on quality improvement and cost containment (i.e. value). But improved value is clearly what the customer (government, employers and consumers) is demanding. Comparisons to other industrialized countries, while somewhat flawed, nevertheless succeed in convincing people that we can do better. There is too much waste and limited healthcare assets are being deployed in less than optimal ways. This represents where better management of real estate can play a key role. NEW RULES OF HEALTHCARE REAL ESTATE FROM
Campus Based Individual Practice Sites Opportunistic Fragmented Service Distribution Multi-tenant / Small
TO
Distributed Model Group Practice Sites Designed Mix of Services One-Stop Care Experience (Retail) Single Tenant / Larger
Healthcare is the most difficult, chaotic and complex industry to manage today.
-Peter Drucker
A corollary, if more subtle, element of reform is shifting financial risk to the consumer or user of healthcare services.
One way of positioning a discussion about real estate is to focus on the need for healthcare to become more proactive (preventive) and less reactive (illness).
PROBLEM ADDRESSED
Variation in average length of stay and outcomes Overuse of emergency department
IMPACT
Changes rules for facility investment and campus dependency From 30 to over 50% non-emergency care in hospital emergency departments; expansion of urgent care and offhours care is cheaper, better Less than 47 hours stay; much lower payment; feeds mandate for lower cost chronic care management driven to primary care/ambulatory care centers Helps shift primary care to more convenient locations where retail rules apply
Hospitalists. In an over-specialized industry like healthcare, it is hard to believe that we need yet another specialist but such is the case. Physicians that specialize in treating patients in beds actually reflects more of a generalist orientation. It is in fact a substitute for primary care physicians who used to follow patients in the hospital. Hospitalists can be viewed as both a benefit and a curse, depending on your perspective. For the health system as a whole, it is turning out to be a benefit with higher quality outcomes and thus lower cost. For the primary care physician, some view it as a curse. For the new primary care physician, it is simply the way of doing business and they dont know any other. But for the experienced physician who truly believes that the best care involves hospital visits, it is a curse. And this is where the subtlety comes into play for real estate. Most investors in medical office buildings have traditionally favored on-campus locations. The theory holds that it is hard to move a hospital so there is some security in that location.12 However, it is necessary to dig further and notice what tenants occupy an on-campus medical office building. Usually, it is a mix of primary and specialty care physicians. What is deceiving, however, is that this mix is often in need of dramatic reconfiguration. Analyzed carefully, what the hospitalist movement has done is enable primary care physicians to become untethered from the hospital. This has many implications that go beyond the focus of this paper. For our purposes, the key point is that primary care practices now need to be distributed throughout the market to afford full market coverage. Said differently, reform suggests that primary care physicians not be located as much on campus, since the campus focus is now more inpatient care with hospitalists and specialists attending to admitted patients. Frankly, on-campus ambulatory care generally does not compete well against off-campus, retail orientated ambulatory care with its superior locations, easier access and, often, more pleasant look and feel. Retail Clinics/Urgent Care. This is really a response to two separate things: the shortage of primary care physicians and the desire of retailers to attract foot traffic (a retail concept). Traditional healthcare has been late to embrace this addition to the care continuum. It has clearly improved access for some people for some services. Contrary to the initial reaction by a traditional industry, it is not really threatening to traditional healthcare delivery. However, it is a wake-up call to what matters to consumers. One-stop, convenient care is a more efficient model but has been hard to develop because of the inability to form large multi-specialty groups except in some isolated, mostly rural areas in the United States (e.g. Rochester, Minn., Temple, Tex. and Urbana, Ill.). Retailers have found a nurse-driven model that can work for some basic and routine problems. This represents one more palpable move toward true retail delivery of healthcare services.
Observation Days
Hospitalists can be viewed as both a benefit and a curse. For the health system as a whole, it is turning out to be a benefit with higher quality outcomes and thus lower cost.
New sources of capital and ownership structures are likely to be involved as well. Health systems are learning that they can sometimes monetize such real estate and still control the use of these buildings under a properly structured master lease arrangement. To successfully meet these future challenges, hospitals and health systems will require access to a new core competency real estate.
By designing and locating ambulatory care facilities more correctly, a healthcare system can dramatically reduce the number of facilities it owns and maintains while improving access to care, as well as the experience.
While applying some retail rules (such as limited space for waiting areas to foster limited waiting times, and easily accessible parking), Mercy has created high-throughput, mission-driven access points in high-need communities where the hospital did not previously have a branded presence. It would be accurate to describe this as traditional clinic care reflecting multi-specialty group practice settings instead of the new ambulatory care. However, done right, this is more an extension and part of hospital-based service lines and not simply freestanding care.
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REFERENCES
1. 2. he first white paper, entitled Heading to the Mall for T Healthcare?, explores the connection between healthcare and retail, and can be downloaded at www.cushwakehealthcare.com. particularly alarming study cited in the landmark work of A the Institute of Medicine, To Err is Human, is that it took an average of 17 years for best practices to be fully embedded in healthcare practice patterns. his reflects the inherent conflict that the federal T government has as both the largest single buyer of care (through Medicare and Medicaid), as well as the regulator of the providers of such care. It can be argued that the role of the regulator was cleaner in the past. More recently, as costs have gone up, it appears that the federal role is more in the realm of the largest buyer, not just the regulator. Now the explicit intent is to increase the value of services provided to federal beneficiaries. ospitals and Health Networks Daily, Health Reform 2.0: What H to Expect, How to Prepare, November 4, 2013. he consulting firm BDC Advisors produced a persuasive T paper focused on this entitled, The End of the Third Bubble, by Neal Hogan, February 2009. Sometimes referred to as single payer. erzlinger, Regina, Consumer-Driven Healthcare, McGrawH Hill, 2004. A variation of which is called Health Savings Accounts. ason, Winn and McGrane, Heading to the Mall for M Healthcare?, Cushman & Wakefield, April 2013.
12. T he logic is not entirely clear on this from a healthcare perspective as small urban facilities have not done well over the years and many others have located from crowded inner city areas to less crowded and growing suburban locations. 13. B ased on a presentation, A New Approach to the Medical Mall: Mercys Community-Based Outpatient Delivery Model by Samuel E. Moskowitz, Executive Vice President & COO, at Building and Office Management Association, Medical Office Building Annual Meeting, Atlanta, GA, May 3, 2012. 14. A critical component of health reform that focuses more around a payment system where risk is shared by the provider to go at risk for all healthcare needs for a fixed payment, for a specific period of time. This is more in line with capitation and less oriented toward fee for service.
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10. A term coined by Clayton Christensen. See The Innovators Prescription, McGraw Hill, 2009. 11. S ee Japsen, More Health Clinics Pop up Inside Retailers, New York Times, January 9, 2012.
Scott A. Mason, D.P.A, FACHE Executive Managing Director Leader of Healthcare Practice Group, Americas (703) 286-3008 scott.mason@cushwake.com www.cushmanwakefield.com Cushman & Wakefield, Inc. 1290 Avenue of the Americas New York, NY 10019-6178
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