CHARLOTTE, NC—Following a year of expansion in healthcare real estate, one which saw medical office buildings reach an all-time low for vacancy, 2017 is getting underway with challenges that are slowing the decision-making process. Chief among these, says Colliers International in a new report, is the likely repeal of the Affordable Care Act and the details of coverage to replace it.

“The impacts I'm seeing are on the healthcare provider side—just a real slowdown in decision-making,” Mary Beth Kuzmanovich, national director, healthcare services, tells GlobeSt.com. “There are a couple of projects I know of in the Northeast where lease negotiations were in progress and the organization said 'stop, we're not going to make a big investment until we hear what's happening to our reimbursements and what's happening to the industry.'

“We're seeing a series of organizations that are taking another look at their capital budgets on what's necessary or mandatory and what could perhaps be considered discretionary, and holding off on the discretionary things,” she continues. “In some cases, a real estate investment on a new location would be considered more discretionary than, say, a roof replacement or air conditioining system replacement.”

The uncertainty around healthcare systems' financial positions “really harkens back to the era of the ACA's first introduction, when the US Supreme Court was considering the legality,” says Kuzmanovich. “At that point, healthcare systems were in a 'pause' mode until they know, and this is a repeat of that experience. Now they're not sure what's happening at the federal level: who will be insured, but more importantly, what that is going to do to them on reimbursed care and debt burdens that they might take on” because 20 million-plus patients now covered under the ACA are at risk of losing their coverage.

The financial impact, Kuzmanovich says, is this: “if the patients who are covered by the ACA lose that coverage, then what? Who's going to pay for what, and how? The second part of that question is: what's the next wave? Among the proposals from the current Republican administration is the idea of a stipend or block grant: you can take pre-tax dollars and set those aside for savings, for other things. Well, if you're a family of four with a median income of $50,000 or $60,000, your pre-tax income may not be discretionary to set aside for healthcare. You may be thinking about rent or house payments, or college education. That creates the risk of uncompensated care.”

The ACA isn't the only hurdle, though. Colliers' report notes that providers are also attempting to get their arms around the latest updates to the site-neutral payment rule that limits the way off-campus facilities are reimbursed by Medicare. This could threaten the viability of future off-campus real estate projects and cause health care providers to reevaluate relocation or expansion opportunities, says the report.

The health care industry is also facing rising costs, in areas ranging from services to construction materials and labor. There's the aging of the US population, thus increasing the demand for care. On a per capita basis, healthcare expenditures exceeded $10,000 in 2016 and are forecast to grow at an average annual rate of 5.8% through 2025. At the same time, providers are seeing less insurance income and are under constant pressure to protect operating margins while continuing to innovate, improve and enhance services.

Will all of that being in play, says Kuzmanovich, “While the ACA is a huge component of how healthcare systems look at their reimbursements, there's a momentum around so many things that are already at play in healthcare.” That includes employers shifting more financial responsibility to employees via high-deductible health plans. There's also the movement toward “population health,” focused on “the whole continuum of care, and reimbursement along the continuum.”

From a real estate perspective, this momentum is pushing patients into “settings that are the lowest-cost possible, pushing care into locations that are as close to patient population centers as possible, and pushing care into settings that we don't think of as real estate, like the home or a tele-health visit,” she says. “That momentum is going to continue in the background while the platform is focused on what's going to happen with the repeal and replacement of the ACA.”

Instant Insights /

ACA Repeal Looms Over Healthcare Sector

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