What are some of the biggest factors impacting the medical real estate market in 2012? I wanted to provide a year review of what I feel will be some of the biggest issues that will define the medical real estate market in 2012. In part 1 I’ll discuss how Medicare reimbursements, accountable care, and an aging population shift will all play a role in shaping 2012 and years to come.
Overview:
Medical real estate development is not what it used to be as hospital budgets remain relatively flat from last year for new construction, according to a Health Facilities Management/ASHE 2011 survey. However, coupled with rising space demand there is a strong correlation for occupancy gains in 2012.
3 Influencing Factors:
Medicare Reimbursements:
Not only are dwindling Medicare reimbursements changing the timeline and type of facilities constructed, but where physicians are practicing. The majority of hospital executives are either reevaluating, less likely to proceed or will definitely not proceed with future construction projects due to reduced reimbursement rates. There is a heightened focus on return on investment and scrutiny of all costs involved which is why the hospital executives that are moving forward with planned projects are focusing on outpatient centered and ambulatory-care facilities.
Medicare and Medicaid reimbursement rates are also making it more difficult for private practices to stay in business. Standard leases within a medical office building typically used to be in the 1,000-3,000 square feet range which compensates for a small physician group practice. Today, the average lease space is between 5,000-8,000 square feet and holds larger physician practices. As hospitals continue acquiring physician groups, they are also acquiring medical office space. Physician groups, many of whom have their own leased space, are vacating for the preferred route of hospital owned space.
The Era of Accountable Care:
As a way to mitigate reduced Medicare reimbursements and increase patient quality of care and satisfaction, hospitals are moving toward a state of accountability. From finding methods to reduce readmissions to being rewarded Medicaid and Medicare incentives, or in some cases penalties, for patients’ hospital experience, accountability equates to value of care.
According to the ASHE 2011 Construction Survey, 16% of hospital executives indicate future projects for them are outpatient facilities in neighborhood settings while urgent care clinics and free standing emergency departments were noted as future projects by 14% and 7% of hospital executives respectively. As hospitals are progressing toward this patient-centric delivery model, a greater access to ambulatory settings will be involved providing a more convenient and accessible environment of care.
Demographic Trends:
A shining light on the medical real estate horizon is the aging Baby Boomer market. Over the next decade the 65-plus age segment will expand around 36% as Baby Boomers transition toward retirement. This age group has a tendency to incur more medical expenditures driving healthcare demand and development. While quality, long-term, mission driven planned development requires diligent foresight into the universal needs of healthcare recipients beyond targeted demographics, I do foresee Baby Boomers contributing to the need for medical office development especially in the form of cardiology, orthopedics and oncology.
Stay tuned for part 2 in my trend report of 2012’s medical real estate market!
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/