Healthcare Real Estate Demands Value Creation

IRVINE, CA-Healthcare is facing a financial and performance crisis that requires a dramatic change in thought and practice. Reform of America's healthcare system, or “Obama Care,” combined with a realization that the current system is unsustainable is giving focus to this radical transformation.

A major change is the shift in payments to providers being paid for outcomes or  “value” rather than the number of procedures performed. This shift will reward the best of care with lowered cost, improved overall health, and patient satisfaction. Employer demand for affordable and broader employee care is also driving a movement towards narrow networks of lower cost providers and population health, where the providers take on the risk of keeping people healthy. 

Front and center is the integration and coordination of care and the technology to facilitate it. Facilities have an important role to play in this new frontier. Since cost will drive the decision-making process, the design of these integrated centers will focus on “process and flow” concepts. Patients will pay a larger portion of the cost of care directly and will demand the highest value possible for their money. Pacific Medical Buildings (PMB), an integrated healthcare real estate partner for medical groups, hospitals and universities, notes that value creation is part of every conversation. They foresee massive consolidation as healthcare systems, medical groups and universities join as vertically- integrated systems to best succeed under the new reward and payment structure.

Limited access to capital is another factor PMB notes that is driving careful consideration by medical groups of what is spent and where it's invested. Typical real estate occupancy is 6% to 8% of overall cost. PMB works with groups to provide space that not only offsets new facility costs but helps to realize cost savings and increase patient satisfaction by reprocessing the three main flows: patient, provider, and information.

The typical 100,000-square-foot multi-tenant medical office building with 20 to 40 tenants each taking 2,500 to 5,000 square feet is now obsolete. PMB's St Jude Heritage Medical Plaza is an example of the new paradigm. It's a LEED-certified 88,000-square-foot ambulatory care center in a residential suburban community, occupied by the St Jude Heritage Medical Group and St Jude Medical Center. Design was driven by Lean principles to eliminate waste through continuous improvement processes and an on stage/off stage concept emphasizing a patient-centric approach. For example, exam rooms are grouped in pods adjacent to the team workspace to eliminate wasted steps for the health team and enhance communication. The progressive design and operational concepts delivered significant increases in provider efficiency based on a Relative Value Unit measurement.

Hoag completed a primary care clinic at its health center in Newport Beach also using Lean planning concepts. Social workers and nurse practitioners are integrated and nested amongst the nurses and physicians seeing patients. This way they interact with them as they practice telemedicine with patients at home, a fundamental building block to population health and medical homes. In the capitated risk model, the goal is to keep people healthy and eliminate visits to medical facilities except when necessary.

The real estate development and investment community will need to evolve rapidly as well. Developers and investors that simply provide buildings to house fragmented pieces of the delivery system will have a difficult time surviving. Instead, they will need to expand their thinking and capabilities in order to facilitate physician alignment and integrated care by providing services and practice management as required.

Stephen Jones is chairman and CEO of Snyder Langston in the corporate headquarter office of Irvine, CA. The views expressed in this column are the author's own.