How Will Healthcare Facilities Evolve?

A healthcare facility can embody a large selection of property, from simple medical condominiums and clinics to large, more complex, time-consuming and costly teaching and research centers. Large hospitals tend to have all of the diverse health care types that are often found in free-standing facilities. So, it is important for smaller facilities to send the proper message to its visitors, vendors, patients and staff. It is commonly overlooked, but the appearance of a medical facility provides insight about the organization, as well as the level of care that is administered. Evidence about the level of care begins at the entrance of the facility, the unloading zone, parking areas and direction signs. In most situations, the message sent is one of compassion towards the people who enter. This, and most tend to forget, is also for the employees who service the patients as attitude and behavior will cater respect and goodwill.  As for particulars, to name just a few, the finish, signage, entrance and hallway adornments should be coordinated and security features, visible yet not intimidating. Collective, thoughtful design from third-party may help to ensure the proper first impression is created and sustained.

The design of health care facilities is governed by several regulations and special requirements. It is also affected by lesser publicized circumstances and pressures. The most common of these are workforce shortages, reimbursements, malpractice insurance, physician-hospital relations, capacity, care for the uninsured, patient safety, advances in technology, and patient satisfaction.

Currently, the entire health care system is under enormous pressure to reduce costs AND become more responsive to its patients. The aging population consumes the greatest use of health care services, and, it is well documented that the percentage of the aging population is increasing significantly. At the same time, rapid technological advances, often involving very sophisticated electronic platforms and equipment, make more diagnostic and treatment procedures available to the public, more rapidly than in the not-so-distant past. From a layman’s perspective, information alone should assist to decrease health care costs, yet it is not.  Thus, medical facility designers are under pressure to reduce both construction costs and the costs of their design services, while compressing construction schedules AND still meet the highest quality standards. Not an easy job by any stretch of the imagination.

As cost pressures continue, health care facilities will find themselves in increasing competition for both patients and staff primarily due to a leaner budget. Yet, and it is widely recognized, the facility is one of the top requirements when attracting and retaining the best doctors and nurses, the most successful HMOs and insurance plans, and the most patients. Consumer buying decisions are based on cost, accessibility, quality of service, and, in terms of healthcare, quality of care provided. An aesthetically pleasing facility is a key aspect of the perceived quality of care.

Health care is a labor-intensive industry, and much of its labor is highly skilled and highly paid. Since 60 to 75% of a hospital’s expenses are from labor costs, a design that increases operational productivity or efficiency and reduces staffing needs can have a major impact on the bottom line.

Now, more than ever, the flexibility within a facility is key to keeping it from functional obsolescence in the face of changing needs and technologies. Healthcare facility needs are evolving rapidly, and the direction is difficult to forecast with any certainty. New equipment technologies, new treatment methodologies, changes in diseases, and changes in the patient population base all impact the facilities that house them. Inpatient care is steadily being reduced while outpatient services are growing. There is increasing emphasis on specialize care units and smaller satellite facilities rather than large, centralized facilities.

In the past, communicable diseases were the major health problem, and sanitation or cleanliness was the main characteristic of a healing or therapeutic environment. Cleanliness remains extremely important, but there is increasing recognition of the value of a pleasant, easily-understood, and non-threatening environment for patient recovery.  Good design in the health care setting starts by recognizing the basic functional needs, but does not end there—it must also meet the emotional needs of those who use such facilities at times of uncertainty, dependency, and stress.

The HIPAA regulations address security and privacy of “protected health information” (PHI). These regulations put emphasis on acoustic and visual privacy. While HIPAA does not regulate facilities design, its implications for healthcare facilities may affect location and layout of workstations that handle medical records and other patient information, paper and electronic, as well as patient accommodations. As of April 2012, a cardiology practice agreed to a settlement of $100,000 for HIPAA violation for posting patient scheduling on a public internet calendar (more info here).

As the movement continues from hospital-based acute care to outpatient care that embodies more holistic, preventative, and continuous care items for health and wellness, MREA is uniquely positioned to offer professional, experienced guidance for healthcare providers and lend its vast network of working relationships and real estate opportunities for administrative and investment interest.

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Investing in Medical Real Estate

Most serious commercial property investors are well aware that multifamily apartment buildings are leading the commercial sector recovery.

Right now, multifamily transactions are well on pace to eclipse the 2009 and 2010 by the first half of 2011.  Remember though, medical offices are the best commercial investment for the future.  Hedge funds, insurance companies, pension funds, and other highly capitalized investment groups have been moving into large medical centers for several years.  Smaller investors, have made similar moves into single office practices and small medical complexes.

There are several reasons that medical real estate is on the short list of commercial investments to be closely analyzed. It’s difficult to single out an individual reason, as there are many.  However, the fact that a growing number of baby boomers will be entering their 60′s cannot be denied.  The medical needs of baby boomers are about to explode.

On average, 7,000 new beneficiaries will be added to Medicare every day during 2011. That adds up to 2.5 million in a single year.  Over the next 20 years, the Medicare program will expand to cover approximately 70 million people, compared to 42.5 million in 2008 (source: AARP).  As baby boomers continue to age, the senior care market will also expand into assisted living and nursing home care until 2030 and beyond.

Another reason that medical facilities would make a solid addition to your commercial property portfolio is the Obama administration’s Health Care Reform package.  Whether you agree with it or not, when fully implemented, the program is expected to provide medical coverage to an additional 32 million people as well as improve coverage for those with limited coverage or those that have reached their life term limit, which has been abolished.  The 32 million becoming eligible for health insurance will no longer have to be treated at hospital emergency rooms for non-emergency conditions.  They will receive preventive medical services and other treatments from private practitioners operating out of private medical offices.

Finally, I would like to the caliber of tenants that lease medical facilities.  These are not a couple of high school hot rod enthusiasts partnering up to start an automotive performance parts store without any business background. The kind of tenants that go out of business as soon as their SBA loans run dry.  Instead, doctors are highly trained and educated individuals.  These motivated tenants attend university and intern programs for between 11 and 16 years before beginning their medical practice.  That shows serious tenacity and dedication towards their profession.  Once they start their medical practice, they lease or buy hundreds of thousands of dollars of expensive and specialized equipment.  These are not people that are going to give up their practice on a whim and leave you with a difficult to fill vacancy.

The bottom line is that if you don’t want to be a landlord of a multifamily apartment building and you don’t want to deal with overflowing toilets or a noisy neighbors in the middle of the night, there are quite attractive investment opportunities in medical real estate.  I would encourage you to understand how health care functions and make medical facilities part of your ongoing investment interest.