While healthcare finds itself in the throes of a transformation towards value-based population health, executives are finding inspiration in an unlikely source: the retail industry. This inspiration is helping healthcare leaders bring more convenient and affordable care to patients. In an environment of continued transformation and uncertainty, health systems are learning from the retail industry about how to view patients as consumers and ensure their remote healthcare clinics are optimally located and provide the right mix of services.
Hospitals are sitting on significant amounts of underutilized real estate following intense M&A activity over the past several years. Adding off-campus clinics in retail settings makes their real estate portfolios even more complex. Real estate portfolios are indeed projected to become more complex as outpatient care and medical office real estate are primed for accelerated growth across nearly all U.S. markets, regardless of potential political and economic headwinds, according to our research. In fact, based on our research, outpatient visitation increased by 25% throughout the past decade and will continue to do so.
As healthcare providers look at 2020, the industry remains in a state of flux. We identified three trends for healthcare companies to stay on top of to enhance the patient experience, improve financial performance and unlock game-changing efficiencies.
The growth of the healthcare economy – and the need for healthcare real estate – is on the rise
The healthcare industry is an undeniable force in the U.S. economy – it is the largest U.S. employer as of 2018, employing more than 13% of the workforce. It is also one of the fastest-growing industries in the U.S. economy. But even as healthcare real estate has grown to more than $1.2 trillion in value and is more diversified than ever, new construction is not keeping pace. For many hospitals and health systems, reconfiguring their footprints to include more outpatient medical offices is the key to meeting new demand, delivering care to more patients safely, efficiently and conveniently.In 2017, healthcare spending grew to almost $3.5 trillion annually, and is anticipated to grow to $5.7 trillion by 2026 – an estimated growth rate of 5.5% each year. Further, the U.S. population is projected to grow by approximately 79 million people by the year 2060 – another factor for recent healthcare economic growth. By 2060, one in four people will be over the age of 65, increasing healthcare spending given the high population of seniors.
Tech pushes more care outside hospital walls
The evolution of healthcare away from traditional hospital campuses is gaining momentum as new technology has become a key driver in the shift to outpatient care. Healthcare delivery continues to evolve toward a more decentralized model away from inpatient care at hospitals. Healthcare consumers increasingly expect greater availability and a better experience when seeking care. In response, healthcare organizations have developed locations that are easier for patients to access.
Technology is a key driver in the shift to outpatient locations While patient preferences and financial incentives sparked the shift in procedures from high-cost hospital settings to more cost-effective outpatient locations, new innovations are adding momentum to the trend.
Many surgeries and medical or diagnostic procedures that once required an inpatient stay can now be performed safely in an outpatient setting, thanks to improvements including minimally invasive surgical procedures—such as laparoscopy and robotic surgery—and new anesthesia techniques that reduce complications and allow patients to return home sooner.
Payers are also driving the shift. Each year, the Centers for Medicare and Medicaid Services evaluates a list of approximately 1,700 procedures that are designated as inpatient-only. Improvements in medical technologies and surgical techniques are increasing the number of procedures being removed from the inpatient-only list and allowing them to be performed in outpatient settings, further increasing the shift to outpatient procedures. In 2018, six procedures were removed from the inpatient-only list, and in 2019 CMS expanded the list of procedures that can be performed and reimbursed in outpatient surgery centers to include 12 cardiac catherization diagnostic procedures and five ancillary procedures. As technology continues to improve and simplify once complex procedures, this trend is sure to continue.
Medical offices will continue to be the darling of health systems and investors
In this environment, it is easy to see why outpatient visitation increased by 25% over the past decade – and shows no signs of slowing down. While healthcare-related real estate has grown in general, medical office buildings (MOBs) have emerged as the most popular property type within the niche. With fundamentals that are more cycle-resistant than other more traditional property sectors, this class of buildings has seen investors doubling down, drawn to its stability and bright prospects for continuing strong performance.
All major healthcare constituents stand to benefit from the growth of medical office real estate, particularly as property investment is no longer dominated by specialty healthcare real estate investment trusts (REITs). In 2014, REITs drove 60% of medical real estate transactions, while hospitals and health systems drove only 16%. Today’s buyer pool is more diversified, with new investors attracted by the sector’s stable growth.
These MOBs account for approximately 10% of the U.S. office sector, but unlike typical offices which are often volatile and cyclical, MOBs offer more consistent and positive income growth compared to other property sectors, making it a more popular niche within the space.
Medical office sales totaled $10.4 billion in 2018, and today’s buyer pool is better distributed with new investors attracted to the stable growth. From large healthcare systems to small, independent physician practices, these high-credit quality tenants are fueling demand for this growing sector.
The future of healthcare in 2020 and beyond
As healthcare spending is expected to grow by more than nearly $2 trillion in the next decade and reach a projected 19.7% of GDP in 2026, it is even more critical to find and deliver safe, effective care as efficiently as possible. Real estate has an incredibly important role to play in re-imagining a more efficient, convenient, accessible health system
In short: we may not know what the political climate may bring, but one thing is for sure, trend reports are all pointing toward growth regardless of regulatory changes enacted.
Picture: Feodora Chiosea, Getty Images