Prioritizing Healthcare @ JLL


After a career in designing healthcare facilities, a shift to the more strategic side provides a renewed perspective on the industry.


[dropcap]W[/dropcap]ill Loftis is vice president and leader of healthcare project and development services at Jones Lang LaSalle for the northwest region, which includes Northern California. He works out of the firm’s offices in San Francisco. Before coming the global real estate services firm, he had been a design principal and project manager at SmithGroupJJR in San Francisco. Over a career of more than 30 years, Loftis has worked across Northern California, Boston and London. Loftis has taught classes in architecture at Cambridge University in the United Kingdom as well as at Northeastern University in Boston.

Loftis also is one of seven Burlingame residents appointed to that city’s planning commission.

TR: What impact has the Affordable Healthcare Act had on healthcare development?

LOFTIS: Clearly, the impact of the ACA has yet to play itself out. A couple months ago we learned that in 2013 the cost of healthcare grew at its slowest rate in more than 50 years—some even say at the slowest since we started keeping track. While the ACA certainly played a part, it would be disingenuous to say that it’s even the primary cause. There are surely many factors at play. For example, we know that the cost of healthcare historically slows in a down economy. In any case, at the same time we learned that the Medicare costs that impact the public debt—the very thing we actually want to control—didn’t slow down.

Here’s the issue in a nutshell, as I understand it—and this is complicated stuff so I don’t want to overstate my understanding: Right now, the U.S. spends about 17 percent of GDP on healthcare, and if we do nothing it’s projected that percentage would rise to 30 percent of GDP around 2030. Since Medicare spending accounts for 20 percent to 25 percent of all healthcare spending, the increase in public debt due to healthcare spending would be onerous if not insurmountable.

So, this is the underlying reality that catalyzed the passage of the ACA and has had an enormous impact on the action of healthcare providers across the board. In general, Medicare revenues to providers are set to fall because of the ACA, so the cost side will have to be managed by every reasonable means, and providers have aggressively started to do that. It’s probably fair to say that the primary response has been a move from inpatient to outpatient services because it’s much cheaper to provide care outside a hospital.

TR: Who are the thought leaders of healthcare development in the United States? Is California on the forefront of that evolution?

LOFTIS: There’s no shortage of really smart thinking about healthcare across the country and some of it is certainly in California. To start, you really can’t have a discussion about innovation in healthcare at all without Kaiser Permanente’s name coming up. They have been providing high-quality coordinated care for a very long time. They seem prescient in our current situation.

With regard specifically to healthcare real estate, providers are looking first to deliver high-quality care without building at all, if that’s possible. Buildings are expensive, and purpose-built healthcare buildings can quickly become functionally obsolete as they lag fast-paced advancements in medical technology. Add to this [that] there are always the additional risks that those buildings might be in the wrong place—because the market was misjudged, or the provider fails to capture sufficient market share, or because the population served changes over time. The decision about location is a key component of the equation.

It has become increasingly difficult to talk about healthcare real estate without talking also about the innovative thinking that will impact real estate decisions. Advances in so-called “mHealth, “mobile health” and “telemedicine” will likely have huge repercussions on how much and what kind of healthcare real estate gets built. For example, I attended an AIA-sponsored tour a couple years ago at a Sutter Health e-ICU—electronic intensive care unit—where an “intensivist,” an ICU physician, supervised the care of several hundred ICU patients across the state from a nondescript office suite where nurses and technicians monitored patient vitals via impressive technology workstations. Some of these patients were in very remote locations with no immediate access to an intensivist.

Specifically with regard to innovation in healthcare real estate, you can’t help but think of the move in very recent years toward so-called hospitals without beds, sophisticated ambulatory care centers that provide everything you might need in one convenient and accessible location: urgent care, primary care doctors, specialists, diagnostic imaging, laboratories, outpatient surgery…everything but hospital beds. If you need a hospital bed, you would be referred and admitted, but if the need can be met without admission, the need to build and staff expensive hospitals is diminished

Kaiser built several of these on the east coast—they call them hubs, I think—and this also seems to be the Palo Alto Medical Foundation model, as I understand it.

TR: What are the general trends in hospital construction and development that are on everyone’s mind?

LOFTIS: If we’re speaking strictly about hospital construction, it’s size and cost: How do we not overbuild, and how do we build cost effectively? But, as I said previously, the focus in healthcare real estate right now is on outpatient rather than inpatient facilities. Since it’s very expensive to provide care in a hospital setting, and because hospitals are so expensive to build, there’s been a noticeable uptick in new medical office buildings and sophisticated ambulatory care facilities. This is especially true in California now that a lot of money has been spent building replacement hospitals built to comply with the state’s seismic mandate. These new facilities are being located very strategically in a rush to secure market share, but also very cautiously so that you don’t make a bet on the wrong location. Where and how much of what should I build? And if I am competing for market share, can I win? It’s a real chess match.

Another broad trend is consolidation. Mergers and acquisitions benefit both parties. Large healthcare systems with money can capture broader market share, and smaller independent systems without access to affordable capital can undertake modernization or expansion projects otherwise out of their reach.

TR: Are there some regions in the world that we could/should be emulating?

LOFTIS: The answer to that question should be painful for Americans, I think. I just read one annual assessment of healthcare systems in 11 developed nations, which noted that the U.S. spends nearly twice as much money per capita on healthcare while we were ranked fifth in overall quality of care and eleventh in infant mortality. I saw another ranking that placed the U.S. thirty-seventh among health care systems. How can that be? That makes no sense at all. Either all the rankings are wrong or we should be emulating several other countries. Clearly something needs to change.

TR: Is the industry (hospital development, healthcare management) innovating fast enough or is there much copying of what seems to work for one system or another?

LOFTIS: The industry is innovating as fast as it can, I think. Fast enough? That’s hard to say. With revenues set to become more constrained by healthcare reform, prioritization is key. There are plenty of things to be done still. There’s the rollout of electronic health records necessary to support coordinated care. That’s a very complicated and costly challenge. There’s the so-called “leaning” of caregiving processes—that’s the elimination of no- or low-value steps in the process of giving care to streamline the cost of care. There are mergers and acquisitions. It seems there’s no end to the things that might be pursued. But I would say that, for the most part, everyone seems to be working from the same playbook—evidenced by the fact you hear the same things said again and again at conferences and breakfasts—so that these many innovations are being broadly pursued.

TR: What worries you the most about the industry in 2015?

LOFTIS: I think we should all be most worried about the ability of government and industry to patiently and effectively make adjustments to the ACA to get where we need to be—that is, achieve the savings that absolutely have to be achieved. There was no question that something had to change. The course we were on was simply unsustainable. Did we do the right thing? Probably yes and no. It seems highly unlikely we got it just right, and it seems highly likely that we’ll be course-correcting for some time to come. The question arises whether or not we have the will and ability to do so.

TR: What are the industry’s biggest opportunities in the near future?

LOFTIS: There are still significant savings to be had in the construction and operation of healthcare facilities. In construction, many healthcare systems are already pursuing, or at least investigating, alternative project delivery systems. Design-build and lean construction methodologies are increasingly more common and will continue to be. On the operations side, we’ll continue to see an increase in the outsourcing of facilities management that became commonplace on the corporate/commercial side a decade or more ago. The really big opportunities to address the costs of healthcare though are related to technology, especially mobile technologies and telecommunications. A lot of time and money is being invested right now in enabling remote care so that consumers can get care where and when they need it. The biggest changes will be in the way healthcare is provided.

TR: You have recently transitioned from an architect role to lead JLL’s consulting efforts in this space across the Pacific Northwest. What surprised you the most about that transition?

LOFTIS: It’s a bit early to say. I’ve just started making the transition now. I can’t help but observe how much more it costs to build in California—especially hospitals. That’s an ongoing challenge.

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