C&W WHITE PAPER

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

C&W Healthcare Practice Group MARCH 2014

INTRODUCING THE NEW RULES OF HEALTHCARE REAL ESTATE

Reform is on the mind of healthcare professionals. Almost daily, the question arises for Cushman & Wakefields Healthcare Practice Group about how reform will impact healthcare real estate. The short answer is that it will have an enormous impact. The rules have changed and the entire industry will have to adjust.
To understand these changes, we must explore the many nuances of key trends in healthcare and their corresponding implications for healthcare real estate. Health reform demands that we re-examine past assumptions about future trends. Nothing underlines this more than the way real estate has historically been positioned in the healthcare industry. Not only is the healthcare industry in need of radical change, but the real estate industry must also adjust if we are to work in sync to bend the cost curve and respond to a more demanding customer. Leaving the politics of the Affordable Care Act (ACA) aside, health reform is happening. It is no longer optional - it is an economic imperative and has been for some time now. Exactly what form it takes is perhaps less important than the substantial challenges that can reasonably be discerned.

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

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

HOW THE RULES OF HEALTHCARE REAL ESTATE ARE CHANGING

Full service ambulatory care is not your typical medical office building or hospital-based ambulatory care department. Rather, it represents a more efficient and reoriented experience for patients and their families. Generally, this means offering services in larger, more efficient and attractive buildings that more closely adhere to retail rules for location. In short, these new facilities represent a critical response to the new rules of real estate, as noted below.

RULE 1: FROM CAMPUS-BASED TO DISTRIBUTED MODEL

Right now, health systems and investors alike continue to emphasize on-campus space. Yet this has changed dramatically as primary care physicians have embraced hospitalists and have less need to spend time at the hospital. The result is that a more distributed network of off-campus, branded facilities is the new imperative for reaching patients.

RULE 2: FROM INDIVIDUAL TO GROUP PRACTICE SITES

The healthcare system is moving away from individual practices to group practice sites and, yes, accountable care organizations (ACOs) are all about that. An ACO cant be about a doc-in-the-box urgent care center not connected to anything else. It requires data sharing and clinical handoffs. Mayo Clinic solved this issue a long time ago where the patient and the patients record reach the same place at the same time and the health system of the future will embrace similar multi-specialty, multi-modality centers.

RULE 3: FROM OPPORTUNISTIC LEASING TO ENSURING A PROPER PHYSICIAN MIX

Ambulatory care models are moving away from opportunistic leasing (renting space to anyone who is interested) toward a design that includes the proper mix of services. Metrics tend to be collected about leased or owned space. But additional metrics are important for clinical space and medical office building space. For example, what is the mix of primary care physicians to specialists? Kaiser understands this when they build their hubs. Kaisers ambulatory care strategy is driven by primary care and what specialists are then needed to support the specific needs of a specific panel of patients seen at each distributed location.

RULE 4: FROM FRAGMENTED DISTRIBUTION TO ONE-STOP CARE

Convenience is the new driver of ambulatory care design think prime retail locations with street visibility and adequate parking (sound like a mall?). The idea is to be able to reduce what often takes three weeks and eight phone calls to accomplish into a single visit, which would include a medical exam; imaging, blood work, and other services ordered by the physician; and the filling of prescriptions. While it seems simple enough, coordinating this in such a way that the prototypical mother with two children in her arms is able to come into an ambulatory center, get all this done, and be on her way two hours later continues to be a challenge.

RULE 5: MULTI-TENANT / SMALL TO SINGLE TENANT / LARGER

Developers and leasing agents have begun to experience a dramatic change in market behavior. Perhaps this is best represented in the new breed of clients and their shifting requests. As physicians are more and more becoming employed, either by hospitals and health systems or by larger multi-specialty medical groups, their demands for space are changing as well. This reflects the realization that integrated clinical care is more of a team sport demanding greater integration of basic functions (e.g. registration) and multidisciplinary care (reflective of chronic conditions less amenable to single specialty care).

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

WHY HAVE THE RULES CHANGED? REFORM HAS HAPPENED

Despite representations to the contrary, reform is happening in healthcare, in some cases rapidly. For many of us who have been involved in healthcare for a few decades, reform has been too slow in many ways. But recent successes, notably in quality control areas (e.g. hospital-based infection rates) suggest that significant progress can be made at a more rapid pace than in the past, especially with more active use of new media.2 This foretells a changed culture in healthcare that is slowly but surely weaning itself from often oppressive federal legislation and regulations3 and realizing that each organization can truly set their own pace of change and reform, at least to some extent. The key is leadership. No less than the business guru Peter Drucker suggested many years ago that The hospital is altogether the most complex human organization ever devised. He goes on to offer Healthcare is the most difficult, chaotic and complex industry to manage today. And this was written well before the ACA. So lets move beyond legislative reform and not get hung up on the overwhelming complexity and controversy of the ACA (which may ultimately spell its doom) but rather focus on clear changes that a more demanding consumer is now requiring.This is what Paul Keckley refers to as Health Reform 2.0.4 Many agree that this will be even more disruptive than Health Reform 1.0. Arguably, it is no coincidence that these changes are occurring at a time when the rebellious baby boomers are entering their later stages of life.

Healthcare is the most difficult, chaotic and complex industry to manage today.
-Peter Drucker

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

THE NEW NORMAL IN HEALTHCARE

So what then can we say about specific reforms that are expected? In terms of impact, nothing seems more relevant than the realization that healthcare is about to experience a black swan event5, something that people think could never exist. Just as it turned out that black swans do exist (in New Zealand), there is merit in analyzing the implications of such events, previously thought to be impossible. In healthcare, for example, there was a belief that payments to providers would always go up. It now seems clear that a black swan event is appearing as healthcare organizations will eventually be paid less than they have historically, at least on a unit (per patient) basis. In the past, policy changes in healthcare have been represented by a reduction in the rate of increase in payments (e.g. Medicare). Thats unlikely to be the case in the future. It will actually be a nominal decline in what is being paid. The timing of this change in payment is anyones guess but it may well coincide with the timing related to the Federal Reserve Bank allowing interest rates to float higher. In recognition of this revenue decline, many experts have been suggesting in the past few years that advisors should use Medicare rates as the basis for future revenue planning versus the current financial profile for hospitals that includes a component of commercial or private pay patients. In essence, healthcare already has some of the characteristics of a single-payer industry driven by the federal government.6 Clearly, more risk is being shifted from the insurer to the provider and not just for government beneficiaries, but also for commercially insured patients where insurers use Medicare changes as a bellwether for their reforms. A corollary, if more subtle, element of reform is shifting financial risk to the consumer or user of healthcare services. Regina Herzlinger published the definitive work7 on consumer-driven healthcare. She states in the book I waited to publish this book until the time for the consumer-driven healthcare revolution to occur was right. The time is now. What is less well known is that the industry has been actively shifting in this direction. After many years of delay when insurance companies were not incentivized to development more innovative plans, high deductible plans are now the fastest growing component in private health insurance. Under this approach, a combination of high deductible (i.e. lower priced) plans8 are combined with the ability to defer tax payments on monies set aside for future cash healthcare expenses. The theory holds that setting aside monies while people are young and relatively healthy is a more sound economic approach to managing medical risk for ailments that more commonly occur later in life after these savings have been allowed to accumulate over the years. For the employer, such plans cap their exposure while still providing employees access to coverage. While distorted somewhat, it can be argued that this concept has made its way into many of the state insurance exchanges.

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

Just as the pundits of Washington refer to the new normal in our economy, there will be a new normal in healthcare. In addition to the more at-risk consumer and provider, as discussed previously, successful providers in the future will offer a better experience than has been the case in the past. A true customer orientation will develop similar to what is typically demanded by a retail customer including convenience, low price, customer service and customized options. What is often inappropriately referred to as improved patient experience must really be an improved family experience as the older patient may often be less involved in making critical clinical decisions than a family member or guardian. Thus the total experience must be taken into consideration and it is no longer sufficient to merely factor in the needs of the patient. Patient needs remain paramount but not sufficient to satisfy healthcare needs under the new normal. Perhaps the best representation of the new normal in healthcare is represented by the Triple Aim advanced in 2010 by the Institute for Health Improvement. It should be noted that the then head of the Centers for Medicare & Medicaid Services, Dr. Don Berwick, essentially came into his position with the Triple Aim as his vision. Improve the health of the population; Enhance the patient experience of care (including quality, access and reliability); and Reduce, or at least control, the per capita cost of care. The Triple Aim paints the vision for the future health system. While there appears to be consensus acceptance of this vision, less clear is how to get from here to there in terms of health reform. It can be argued that real estate is at the heart of health reform. How so? A key transformation in healthcare is a shift toward lower cost care that can be better offered in outpatient venues more of a retail mindset9, the subject of our last white paper. Clearly, the emphasis on value and improving the health experience is critical. The simple observation is that buildings can affect this experience. Shifting away from carved up medical office buildings with their small waiting rooms in their small offices into more inviting spaces can be key to reforming the healthcare experience. Common waiting areas with process improvements that significantly reduce waiting times and in buildings that are inviting and located in highly visible and safe areas can be a significant enhancement to the typical medical office visit. Health systems in highly competitive areas that are starting to pay attention to branding and the power of distribution are actively shifting ambulatory services to larger, open buildings, which prominently display their names along with the services available on a one-stop shop basis. These buildings feature their names prominently displayed along with the services available on a one-stop shop basis. In the end, shifting patient care into these attractive one-stop retail facilities will not only enhance the healthcare experience but will do so at less cost. Having to fight traffic and look for a parking space on crowded hospital campuses, while favored by investors, is not preferred by patients or their families. The new generation of patients is more interested in something located near where they work, live or shop. and where they can efficiently see a physician and pick up related things like prescriptions, physical therapy, eye glasses, lab work and imaging.

A corollary, if more subtle, element of reform is shifting financial risk to the consumer or user of healthcare services.

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

BRINGING REAL ESTATE OUT OF THE CLOSET

Weve seen from an actual case study that real estate is in the closet of many healthcare organizations. Some of our most experienced people were visiting with a healthcare system for the first time and discussing what the Cushman & Wakefield integrated healthcare platform could do for them. This was a preliminary, if timely, visit. While they were visiting with the Director of Real Estate, the discussion proceeded toward leases and how they were being managed. The team was promptly led to a closet where the Director pointed to a group of boxes that contained more than 300 leases executed over the past few years, which no one had the time to really analyze. This case study has become a metaphor for where real estate has tended to reside in the myriad of priorities that have to be supported today by an overworked management team in healthcare organizations. Too often, real estate has been relegated to the closet. 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). Where does strategy fit in? Trying to keep up with thousands of pages of new regulations relegates strategy to a potentially trivial role. And yet failure to do so keeps organizations in a strictly reactive state. A key point of the case study is that people are just trying to get through each day with leases signed, rent collected, space built out, lights operating properly, doctors happy (good luck with that), etc. Only infrequently is there any think time devoted to the question of what, where, how much and when, which should be the key drivers of real estate strategy. I was fond of saying, as a healthcare strategy consultant, that we got better each year at doing the wrong things. This was a reference primarily to our illness-oriented system that did not take adequate stock of upstream issues (e.g. prevention). But if one subscribes to the new normal in healthcare, then it stands to reason that real estate becomes a driver. However, more of the same will do nothing to bend the cost curve. It is imperative that the real estate of the future factor in innovations in healthcare delivery and the nuances of an empowered healthcare consumer. This is where disruptive innovation comes into view.

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).

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

DISRUPTIVE INNOVATION: MOVING POLICY INTO OPERATIONS

It can be argued that shifting healthcare more toward a retail environment is an example of disruptive innovation10. It meets the criteria of coming from outside the industry, has been largely panned in past efforts by traditional healthcare and now may well represent a more cost-effective approach to deliver care to large segments of the population (including the cost to the consumer of getting to the care). A more recent example of this is the growth of so-called retail clinics by the likes of CVS Caremark11, one of the fastest growing components of healthcare that is only recently beginning to involve partnerships with traditional healthcare providers (e.g. Sharp Health). While these innovations may seem somewhat routine, they address challenges that have existed in healthcare for many years. It is important to recognize that not all of these innovations have fully been realized as of this point in time. DISRUPTIVE INNOVATIONS IN HEALTHCARE INNOVATION
Hospitalists

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

Retail clinics/urgent care

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

Readmissions and poor chronic care management

Patient Centered Medical Home/ Concierge Care/ Physician extenders

Lack of access to primary care

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.

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

Observation Days. For many years now, people have sought ways to keep patients out of the hospital. A distorted way to do this has evolved as observation days. The reality is that these patients do occupy a hospital bed. However, the designation now allows payers to pay far less for the care of these patients. It does not alter the number of beds needed in a hospital but it does alter the bed allocation and the revenue stream. Observation patients tend to be distributed in existing inpatient units, even though they may have different staffing rules. Only rarely do they have dedicated units. The result is that it becomes merely one more complication on an inpatient unit from the standpoint of patient management. However, it becomes a much bigger challenge financially. These patients, that occupy a bed up to 47 hours (Medicare) generate far less in payments than true admissions. The result is that they continue to consume substantial resources but the payment covers far less than would be the case under a diagnosis-related group-based admission. For obstetrics, cardiac and selective other patients, this has become a new classification that represents some unique capacity considerations. Exactly how this will sort out remains to be seen but it has had an enormous impact on calculations of hospital-based use rates (e.g. patient days/1,000 population) and average daily census (patient days/365) for some hospitals. This, in turn, has facility capacity planning implications. Patient Centered Medical Home. Lack of access to primary care is a key concern for the future. The growth of retail clinics is one response to this that emphasizes nurse management. But a deeper look at primary care surfaces even more significant issues. Not only has primary care not been an attractive alternative to many aspiring physicians in comparison to more lucrative medical specialties, but the payment for primary care has been too low and continues to lag significantly. One key innovation in this regard is the focus on patient centered medical homes (PCMH). This is an important innovation that represents the integration of some critical concepts. A full explanation exceeds the purpose of this paper but suffice it to say that a more prominent role for primary care practices in chronic care management and with more focus on wellness, use of new technologies (e.g. email) and team health (including physician extenders) can result in key efficiency gains. As physicians are becoming more an employed component in the system, primary care space is shifting more toward visible and accessible retail space. Done right, PCMH also involves some type of retainer or coordination fee (concierge is a variation of this) that also starts to get around the requirement for an office visit to receive payment. PCMH is an essential concept for population health as it creates the right incentives to keep people healthy and to share some accountability for improving their health. North Carolina has successfully implemented this for the Medicaid population and early studies from a number of settings suggest better control over admissions, ER use and related issues that can lower the cost curve. These disruptive innovations have enormous implications for healthcare real estate. Taking a provider perspective, a simple way to capture these implications is to focus on the new full service ambulatory care center.
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HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

REAL ESTATE AS A NEW CORE COMPETENCY

Expanding healthcare delivery to embrace full service ambulatory care will give rise to strategic assessments and new real estate arrangements. Some of the larger health systems today have dozens of buildings (some off-campus) and hundreds of leases. Some of the buildings are single purpose (for imaging only, for example) while others serve multiple purposes. By designing and locating ambulatory care facilities more correctly, a healthcare system can dramatically reduce the number of facilities it owns or maintains. This can improve access while enhacing the experience. It can also represent substantial reductions in operating costs. Take for example a large group of 65 medical facilities that has been cobbled together opportunistically over many years by one large healthcare system. These many buildings could potentially be replaced with perhaps six larger, branded multipurpose facilities placed in the right locations. This would not only represent significant efficiency gains, but would also be a great opportunity to improve the experience over what it generally is today. But such a dramatic conversion would represent substantial risk and take a long time to bring to fruition.

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.

HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

THE NEW AMBULATORY CARE

There is an argument that even the term Medical Office Building should eventually go away. To be blunt, this name and what it implies for most people is of a by-gone era when solo and small group practices dominated the landscape. And this old model will be even less relevant in the future. Two seemingly contradictory trends are noted. On the one hand, single purpose urgent care centers have sprung up everywhere and seem to be succeeding, at least at some level. They clearly meet the need for convenience but it is worth noting that this is a true disruptive innovation as relatively few traditional health systems have really been in this game in comparison to private entrepreneurs. The second trend is toward larger, full service ambulatory care centers. This is a more complicated subject that requires some explanation. Two examples will help illustrate full service ambulatory care. The Tully Health Center in Stamford, Conn., opened in 2002. Named for a major donor, the Center now sits as a 225,000 square foot freestanding building on the campus of the old St. Josephs Hospital, which closed some years before. What failed as a hospital location has succeeded wildly as a branded full service ambulatory care center destination. With a 40,000 square foot medical fitness center (outsourced) and a large atrium, it is a signature building that is as attractive and inviting as a wellness site as it is as a medical site. It also provides ambulatory surgery, a cyber caf, imaging center, integrative medicine, immediate care/urgent care and a pharmacy. Additional services, including physician office space, round out the building. This kind of setting displaces what, under old rules, might have been 10 to 15 separate buildings or leases in other buildings. Notably, people in the region seem willing to travel as far to receive care at the Tully Health Center as they do for inpatient care at the regional Stamford Hospital. While Tully was certainly not perfect when it opened, applying some retail concepts to the space such as placing more profitable services on the ground floor, which has more foot traffic than upper floors has allowed for reallocating space over time to its most valued use. It is also worth noting that Tully is technically an extension of Stamford Hospital under Medicare reimbursement rules, and thus able to charge hospital-based rates, even though it is three miles away from the main hospital campus. Not all full service ambulatory care requires new green pasture construction, as shown by a second example. Mercy Medical Center13 in urban Baltimore, Md., has generated significant patient growth through expansion into suburban locations by retrofitting a few shuttered grocery stores. This is a particularly important strategy for Mercy given the lack of a residential community around its downtown facility.

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.

REAL ESTATE BECOMES STRATEGIC

Looking to the future, it is not hard to see where the focus on population health14 leads to competition among distributed health systems that have similar facilities located throughout the market. Some mature markets - Albuquerque, N.M., for example - already have at least one intersection where the major competing health systems each have major branded ambulatory buildings on three of the four street corners. As healthcare organizations attend to new challenges and ambulatory care demands under healthcare reform, real estate will increasingly be recognized as more of a strategic function rather than a back office financial function. This will include upgrades to meet retail rules of location and be more visible and attractive as destination facilities that augment a competitive brand. Population health will involve successful branding of facilities in competition with others that also provide market coverage to the well informed consumer. The shift to population health will not happen overnight but odds are it will happen at least for many patients. Understanding the new normal in healthcare, the new ambulatory care and observing the new rules for healthcare real estate will be an essential part of that shift.

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HEALTH REFORM & THE NEW NORMAL IN REAL ESTATE

A Cushman & Wakefield Heathcare Practice Group White Paper

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.

3.

4. 5. 6. 7. 8. 9.

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

Cushman & Wakefield (C&W) is known the world-over as an industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends, markets around the world and business issues of the day, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position. In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis, C&W also provides customized studies to meet specific information needs of owners, occupiers and investors. C&W is the worlds largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the worlds major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and management assignments. Founded in 1917, it has approximately 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has nearly $4 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge. This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by the Healthcare Practice Group. 2014 Cushman & Wakefield, Inc. All rights reserved.

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