By Camille Helou
Vice President/Director Healthcare Group
Kraus-Anderson Construction Company
The following article was published in the July-September 2014 BOMA Minneapolis newsletter.
Changing revenue structures, shifting models of patient care, changes in ownership and heightened emphasis on quality and efficiency are all part of the equation for healthcare providers adjusting to the new normal in the age of the Patient Protection and Affordable Care Act (PPACA).
Under PPACA requirements, healthcare revenues shift away from the fee for service model to a capitation model, in which health care service providers are reimbursed a set amount for each person enrolled or assigned to them, whether or not that person seeks care. The new standards also enact a reduction in reimbursables from the Centers for Medicare & Medicaid Services (CMS). To offset these revenue shifts, health care providers are strongly incentivized to find new ways to adapt to greater levels of operations efficiency, while upholding quality. For healthcare providers, it seems that “Efficiency plus Quality equals Cost Control.”
Three major trends loom on the healthcare real estate horizon.
1. Mergers and acquisitions will continue to leverage opportunities in the healthcare market.
2. As inpatient admissions continue to fall, visits to primary care and outpatient facilities are on the rise, spurred on by greater efficiencies, ease of access to care and the growing market of the newly insured. The industry faces a shortage of physicians that is expected to grow to 130,000 by 2025. However, the increased use of home health, technological advances and the expanding role of physician’s assistants and nurse practitioners will hopefully narrow this gap.
3. The industry continues to find ways to increase efficiency and quality, in part due to the utilization of Lean approaches to operations.
For the healthcare real estate market, expect a continuing dynamic environment. Ownership entities for outpatient clinics, Medical Office Buildings (MOB’s) and Ambulatory Surgery Centers (ASC’s) will continue to include third party developers such as public REITS and private investors, as health systems focus their capital on strategic initiatives such as mergers and acquisitions rather than real estate. Also, the recent tight bond market has positively influenced the growth of third party development as healthcare systems struggled to access this market.
For 2014, we believe we’ll continue to see an increase in outpatient healthcare development due to demand and favorable cap rates.
While the PPACA has shifted the playing field for some aspects of the healthcare industry, those willing to embrace change and adapt to new equations will find a healthy niche.
Kraus-Anderson is a leader in Healthcare construction, ranked 17th in the nation by Modern Healthcare magazine.