With hospital budgets relatively flat from last year for new construction, according to a Health Facilities Management/ASHE 2011 survey, healthcare reform is having a considerable impact on how hospitals are deciding to move forward with construction projects. Health and hospital systems are cautious and in a, “wait and see approach” with healthcare reform, but they aren’t backing down and the medical real estate construction market certainly hasn’t bottomed out.
If national healthcare reform follows a similar path to that of Massachusetts’ healthcare reform, passed in 2006, an increase in medical real estate should be expected. In a 2009 CoStar article, from 2006-2009, as a direct correlation to healthcare reform, an additional 1.8 million square feet of new medical office space was developed and absorbed in Massachusetts - a 14% overall increase. However currently, hospitals are working with reduced margins and focusing on new medical real estate construction that revolves around lower-cost, community based facilities.
Health systems are moving toward outpatient facilities as they have shown to generate a strong return on investment and bode better than inpatient care as government reimbursement rates fall. According to the ASHE 2011 Construction Survey, 16% of hospital executives indicate future projects for them are outpatient facilities in neighborhood settings. Urgent care clinics and free standing emergency departments, which I’ve talked much about in previous posts, are also popular construction projects as 14% and 7% of hospital executives indicated them as future projects respectively.
Following a similar line of thought as outpatient centers and marking a large increase from 2010 construction projects are medical office buildings. 16% of hospital executives noted that they plan to expand development of these types of facilities, nearly two thirds more than the ASHE 2010 Construction Survey. These facilities are helping hospitals progress as they try to get closer to their patients and better align with physicians in the “accountable care” era.
While uncertainty still remains a common theme among hospital executives as they head into the turbulent waters approaching the enacting of healthcare reform, 2012 will mark a modest year for new facility construction as hospitals make do with shrinking margins.
James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.
Aaron Razavi is Associate Marketing Director at Health Care Realty Development.
Visit their blog at http://www.hcrealty.com/medicalrealestatedevelopment/