Navigating the Healthcare Maelstrom

Cushman & Wakefield sees changes in healthcare driving changes in real estate.

THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN JANUARY 2014

[dropcap]S[/dropcap]cott Mason joined Cushman & Wakefield in May of 2012 to lead the firm’s multi-disciplinary healthcare team. Working out of offices in Washington, D.C., Mason oversees strategic planning, mergers, acquisitions and sales of health facilities, property/facilities management, project management, compliance appraisals and more. He had already been a well-known healthcare strategy consultant for 25 years, and had served as chairman of the American Association of Healthcare Consultants. He’s also a board-certified hospital administrator and frequent national speaker. His career has included services with Booz, Allen, & Hamilton, the American Hospital Association and Samaritan Health Service (now named Banner Health).

SAM picture with glasses
Scott Mason

Q: Perhaps nowhere else can the world “healthcare” be more polarizing than in Washington, D.C., where you live and work. Can you tell us what the political process has taught you about this industry, and how you apply those lessons in your daily work?

SM: Those of us who drink the Potomac water can lose a sense of reality easily. The most unfortunate thing is that the political process has hijacked reform, and it seems that the game and who wins it is sometimes more important than the outcome that it generates.

To me, one of the most important things is to separate Obamacare from healthcare reform. Healthcare reform is an ongoing process, and there are many good things happening there. It is generating new thinking about curbing costs, where care can be provided and by whom. Healthcare is going through a process of disruptive innovation. Some of it is very good, and it is coming from outside of the industry. Retail clinics are one of the best examples of that. The CVSs of the world have come to the realization that there is a whole segment of population that can be served in their stores, and this is expanding dramatically.

The lesson that I learned is that not every change has to be legislative or regulatory. There are lot of things already going on in the industry that will transform it dramatically.

Q: What do you see as the top drivers of change in healthcare real estate, and how will they manifest themselves?

SM: A key driver is the need to bend the cost curve. The annual rates of increase in healthcare costs from the past are simply unsustainable. Healthcare costs too much. One very simple way to accomplish that is to shift certain services away from hospitals. To illustrate, there are 16 major avoidable ambulatory conditions for which people continue to be hospitalized. The industry is starting to understand that from a service and practical standpoint, too. Admitting people can cost lives, because they can be exposed to things they would not have been had they been treated in an ambulatory environment.

So, as the industry starts to shift its thinking toward a distributed ambulatory delivery model, everything has to change. One cannot expect the same physical environment to function effectively as you had in a big hospital. Also, in medical office buildings we are moving from a multi-tenant setting to single tenant. With that, you can achieve more efficiency with the services you provide, better control costs and improve patient throughput and the patient experience. It is really manifesting itself through patient focused design and zeroing on their needs vs. a physician-focused design, which was the way of the past and based on a different methodology of hospital care. So, done right, the new ambulatory care is transforming physical space.

Second, the days of the solo practice or smaller regional systems are behind us. Large systems will dominate the landscape, which will bring greater sophistication in terms of organization. So, in some cases we will see repurposed retail centers serving the needs of a population in neighborhoods where they live and work as part of these larger systems.

Finally, mixed-use development and things like patient-centered medical homes are becoming very attractive in communities around the country. People are living longer and have a greater quality of life than they did in the past, even with chronic illnesses; they don’t have to be isolated from society. Baby boomers in particular are attracted to mixed-use developments that eliminate the need to travel by car everywhere. There is a paradigm shift in thinking how these people can be served in a non-hospital setting, and it’s a dramatically better and more cost-effective way to do these things in patient-centered medical homes. A primary care oriented approach to chronic illness is proving to be dramatically better than the traditional subspecialty care model.

All these changes have tremendous implications for healthcare real estate in the near future.

Q: How are services performed in hospitals today going to be delivered to us in the future?

SM: Hospital use rates, usually expressed as patient days per thousand population, have been declining somewhat dramatically. Fewer people in a given area need to be hospitalized on any given day, and the main reason for that has been innovation and our ability to treat patients in new ways. In the past, people with chronic illnesses had to be hospitalized and, as stated above, isolated from their families and loved ones. Technology and our ability to treat these illnesses has enabled these people to live not only longer lives but also to live lives with these illnesses in such a way that they are less of a burden to their normal, day-to-day activity.

People do not feel the need to be hospitalized, and they do not want to have to go to the hospital if it is not necessary. They want healthcare that is convenient and accessible where they live and work.

This will drive how these services will be performed. Increasingly, services that were previously offered in hospitals are offered in a non-hospital setting. And often, these services, such as retail clinics, are more nurse driven than physician driven.

Q: What does the future hold for hospitals? 

SM: We should be clear on one thing, hospitals are not going anywhere. However, more and more, they will be focused on three main, high-intensity areas: birthing, trauma and complicated circumstances, including some end-of-life issues.

The stand-alone hospital will be vulnerable. It needs to be part of a hospital system that will be able to offer many services, including wellness services. But a key area of intense attention by providers right now is the challenge of managing risk. This is the traditional insurance component increasingly being assumed by both patients and providers. Providers will be required to focus more on wellness and enabling people to live healthier lifestyles that they are willing to pay to attain. There will always be a facilities component in healthcare, whether that is a retail facility and ambulatory network or a hospital core that is part of a network of complementary service providers.

You will likely see an increase of investment in ambulatory services because the need for these services, in well-designed centers, will not decline. However, excess capacity in hospital beds will only continue to strain the system as those services shift to a more distributed ambulatory delivery model. This is the primary reason why almost no hospital today is increasing its bed capacity. Only in dramatically growing population centers are new beds being added. The typical freestanding community hospital that has been serving the needs of its population for the past few decades is going to be vulnerable in the future.

Q: We seem to be at the start of a massive consolidation effort in the industry. What will the landscape look like in five to 10 years, and who will be the winners and the losers? 

SM: Consolidation is indeed happening across the industry. However, it is important to underscore that it’s not just hospitals. Today, it also involves insurance companies and physician groups. And this is very important. Healthcare delivery is about all three. It’s increasingly an integrated delivery system. This is why we are seeing consolidation in all areas. This is the future of healthcare.

In the future you will see creation of bigger networks of related and complementary facilities services with a focus on managing costs, risk and wellness of patients. The winners will be those who quickly adapt to the new market demands and that measurably improve the patient experience.

Q: We often talk about demographics when we speak about healthcare, but rarely are the demographics of the service providers mentioned. Do we face a shortage of doctors, nurses and other qualified personnel in the coming decades, and how will we compensate for that?

SM: This a problem already today; there are acute shortages of physicians, notably in primary care. Just to illustrate, when the Massachusetts version of affordable care rolled out, people entering the system could not find physicians to serve them. That will only get worse in the future as a whole generation of physicians are trying to retire in the next 5 to 10 years.

Another aspect of this depletion of resources is that younger physicians have vastly differing values. They want to be home and have dinner with the family. We, in the industry estimate that for every physician that leaves the system, due to retirement, it takes 1.5 new physicians or so to replace him.

One may think that the obvious fix is to educate more physicians, but it is not that simple. We have a somewhat increasing supply of physicians now, but it takes many years to educate a physician. A key issue is that we have too many specialists and not enough primary care practitioners. Primary care physicians are significantly under-appreciated and under-paid in our system.

Perhaps an equally troubling issue to physician shortages is the shortage of nurses. The demand for advance nurse practitioners and physical extenders is growing at a pace that we cannot grow them fast enough. The problem is not lack of interest. One of the limitations is lack of nursing education programs and the shortage of nurse faculty. A related issue that is beginning to get more attention is regulatory; specifically around licensing and allowing nurses to do more things clinically.

Q: What are the healthcare industry’s top challenges in the next 12 to 18 months? How will the industry overcome them?

SM: Chaos of the current transition. The industry will simply have to adapt and be nimble as the environment changes and a new normal settles in.

Shifting to a different facility capacity and placing greater emphasis on freestanding ambulatory care facilities placed in strategic, retail locations.

Rethinking how they approach their communities and how they reposition themselves through branding, location strategy and accessibility; being closer to where their customers live and work, and doing all this during a time when their resources are being depleted by lower government payments (Medicare and Medicaid).

Real estate has to be part of the solution, we in the industry have to help them rationalize better their real estate needs and set clear objectives under the new delivery model of distributed ambulatory care networks.

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