IRVINE, CA—The US Supreme Court's recent upholding of the Affordable Care Act will mean continued demand for healthcare space in low-cost retail settings, and fiercer competition for medical real estate among investors, Colliers International's national director of healthcare services Mary Beth Kuzmanovich tells GlobeSt.com.

According to the Advisory Board Co., the ACA, formally known as the Patient Protection and Affordable Care Act, is a comprehensive healthcare reform bill passed by Congress in March 2010 that reshapes the way healthcare is delivered and financed by transitioning providers from a volume-based fee-for-service system toward value-based care. Through a series of new programs, regulations, fees and subsidies, the Act seeks to achieve a triple aim of better population health, lower per-capita costs and elevated patient experience.

The constitutionality of the act was recently put before the US Supreme Court, which ruled that the ACA would remain intact, providing funding for subsidies for those who cannot afford healthcare plans via the exchange system, says Kuzmanovich. “This is a huge financial outcome for healthcare as an industry because health systems' revenue stream remains intact. The decision gives providers confidence that the funds remain intact and will not be tied up in court.”

Without the subsidies provided by the ACA, health systems would be left in an exposed financial position, Kuzmanovich explains. What's also compelling about the ruling is that justices on both sides of the political aisle—not just liberals—were in support of the Act, with even conservative justices weighing in with position papers to support it. “It was not only upheld, but very strongly supported by the Supreme Court, which is a key underlying component.”

Had the ruling gone the other way, subsidies to states opting not to use the federal plan for exchanges would have been called into question, jeopardizing the financial reimbursement structure for healthcare and creating further uncertainty among health systems about real estate decisions. “It would have put the financial-reimbursement structure for healthcare into turmoil and put individuals into a situation where they might have avoided care or gone to emergency rooms for treatment, which is very expensive. It would have been a topsy-turvy situation and a loss of healthcare coverage for 9.3 million people in 34 states—a $28.8-billion loss to healthcare,” says Kuzmanovich.

So how does the ruling affect healthcare real estate? Healthcare systems will now be willing to make long-term decisions and commit funds to real estate whereas before they were uncertain if the money would be there to support those initiatives. “This has a calming effect of opening the dam a little and helping to actualize those plans,” says Kuzmanovich. Since the ruling is national, it affects healthcare decisions throughout the country.

As a result of the ruling, demand will continue for space in low-cost retail settings consistently across markets where population levels are growing, such as Houston, Dallas, Phoenix and Denver, Kuzmanovich says. Also, the demand for outpatient healthcare facilities in suburban markets will grow.

On the investor side, because of low interest rates healthcare real estate is in very high demand, but there's a scarcity of product on the market. “We're seeing small or single-asset transactions and very few large portfolio monetization plays of new product hitting the market,” says Kuzmanovich. According to Kuzmanovich, health systems achieve a financial benefit by owning their own real estate since they are exempt from property taxes. As a result, systems have been reluctant to monetize their assets despite a great desire in the investment community to purchase medical real estate.

Another way the ACA is impacting real estate is via a shift in the point of care, especially on the retail level. CVS/pharmacy's acquisition of Target's pharmacy operations is expanding the point of care from CVS stores to Target, says Kuzmanovich. Walmart is also offering primary and urgent care in stores, and dialysis companies are adding primary care to their services, establishing a different mix of players in the market. “This is providing patients access in an existing retail setting that doesn't require new space so there is no opportunity for lease or real estate transactions."

In light of all these shifts, Kuzmanovich says Colliers International is advising its medical real estate clients on strategies to be more proactive in evaluating their real estate holdings, by looking at the buildings and leases in the portfolios they've accumulated and to offer ways for them to be more effective in deploying their real estate in some of these nontraditional markets.

Instant Insights /

What Does the ACA Ruling Mean for Real Estate?

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