Retailization Of Healthcare Has Been Overdone In Some Parts Of Houston

The retailization of healthcare, the trend toward more convenient and consumer-driven healthcare, continues to roll forward, a seemingly unstoppable force. But amid the growth, industry participants say one of the poster children of this trend — free-standing emergency rooms — is overbuilt in Houston.

Convenience is king, and healthcare providers know it. A timely example is last week’s announcement from CVS Health, which intends to renovate and add its HealthHUB concept to 600 stores nationwide in 2020. CVS chose Houston to pilot HealthHUB at three stores toward the end of 2018, and then expanded the concept across 50 locations in four markets last year. By the end of 2021, the company aims to open 1,500 locations.

It is part of a wider paradigm shift focused on population health, which places the emphasis on keeping people healthy for longer, rather than just treating the sick. This shift means bringing health services to the people, in accessible locations like shopping centers, strip malls and free-standing facilities.

However, there are signs that retailization efforts have gone overboard. Some areas of the Houston market have become oversaturated with acute care and emergency room facilities, leading to more service providers than demand, according to Synergis Development co-founder and Managing Partner Michael Corey, a panelist at Bisnow's Healthcare South full-day event Feb. 13.

“I think there are probably still pockets in the Houston market that still don’t have the coverage, but the Houston market at this point in time is probably trying to find that equilibrium between the oversaturated pockets and the pockets that just don’t have any care to choose from,” Corey said.

The Texas Human Health and Services Commission has licensed 213 free-standing emergency rooms, with 36 of those in Houston’s Harris County — more than double any other county in the state. Bexar County, home of San Antonio, takes second place with 17 free-standing ERs.

“Since Texas is not a certificate-of-need state, and one does not need a hospital affiliation to open an ER, it has been the Wild West in terms of free-standing ERs,” said Andy Dow, co-chair of Winstead's Real Estate Industry Group.

As a result, facility owners tend to behave like retailers, looking to open in areas with the best demographics.

“There will be winners and losers, and the losers will close,” Dow said.

The scaling back of those free-standing ERs in Houston has already begun, according to Justin Brasell, executive vice president of Transwestern’s Healthcare Advisory Services Group. Brasell and Dow are also panelists at Healthcare South Feb. 13.

Two or three years ago, the ER space was a great opportunity, Brasell said. But then, ER facility owners began to overbuild. And while the bigger hospital systems took longer to catch on, they eventually began to build their own free-standing ERs all over Houston and the rest of the state.

“We represent many ERs out in the market, and their revenue got cut by 75%, in very short order, after their competitors, namely the Houston health systems, came into the submarket,” Brasell said.

The combination of brand recognition, quality of outcomes and continuity of care made it extremely difficult for private providers to compete.

Dow also noted that some free-standing ERs are converting, at least in part, to urgent care clinics, which allows them to see a broader array of patients, but the reimbursements are not as attractive.

In the past, patients were forced to travel to central locations to access care at major hospitals. This meant that those who lived in suburbia could find themselves putting aside hours of their day to travel and wait for treatment.

“The bigger-is-better mindset was a hurdle for a healthcare provider to add an access point for patients to receive care. It wasn’t feasible to put a large facility near where these parents lived,” Corey said.

Over time, this has evolved, as healthcare providers began to focus on filling market gaps. Major hospital chains, like Memorial Hermann, Houston Methodist and MD Anderson Cancer Center, have branched out from the Texas Medical Center and built satellite locations in major Houston submarkets like The Woodlands, Katy and Sugar Land.

Corey refers to these satellite branches as smart-sized hospitals, and said there is a demand for the everyday services that can be provided there. 

“I think those are part of the retailization of healthcare because they’re positioned where the patients live and work, and they’re set up for the more common cases that are presented,” Corey said.

These hospitals in suburban areas are convenient for treating lower-acuity cases, while more complicated cases will still travel to the main medical campus, usually within the Texas Medical Center. Along with other healthcare providers in community spaces, these facilities have improved the accessibility of treatment.

The retailization of healthcare is in large part defined by healthcare moving into retail real estate, and Dow said mixed-use developments are increasingly the beneficiary of this trend.

“Healthcare use is going into these mixed-use environments because then they can really embed themselves into the communities where the people live and the people work,” Dow said. 

Corey agrees, pointing out that a number of health systems are developing their own mixed-use projects, and that moving into these projects fulfills two objectives.

“First, making healthcare available where people live, play and shop makes it more convenient. But it also facilitates the system’s ability to try and meet their population health objectives through proactively promoting healthier living programs rather than simply reacting to illness and injury,” Corey said.

The challenge with a mixed-use space is selecting the right mix of tenants. The accessibility of a building or property will ultimately determine just how specialized a healthcare provider needs to be, in order to manage the flow of patients, Brasell said. 

Until now, the trend in mixed-use spaces has been office, retail and some kind of residential, with healthcare somewhat left out. But that may be changing, as retail landlords continue to cater to an aging population.

“I think in the next five years or so, that healthcare layer is going to start appearing more and more in these mixed-use developments,” Brasell said.

Beyond benefiting patients with increased convenience, the inclusion of healthcare in retail can help that struggling sector. Retail spaces are changing, as e-commerce has continued to erode the brick-and-mortar retail model. These days, landlords are seeking to backfill retail space, and are increasingly welcoming of healthcare providers.

“If you take the death of the brick-and-mortar retail, and combine it with the focus on accessibility and convenience — in the healthcare sector, it’s what I really call a marriage of convenience,” Dow said.

Dow said real estate developers desperately need the healthcare sector to fill the vacant space created by e-commerce, as the number of major retail tenants has fallen considerably. And, it offers healthcare providers an opportunity to tap into geographical areas that in the past may have been inaccessible.

“It’s a nice fit for both of them, because it allows them a low-cost way to go backfill some space in those communities,” Dow said.

Landlords are also thinking about how to create a resilient tenant mix in the event of a downturn.

Typically, retail centers aim to attract customers into a store, which in turn refers them to other stores in the center, lining the pockets of multiple businesses.

“You could argue that the medical tenant doesn’t really fit into that referral pattern in the shopping center as much as a different user,” Brasell said.

There are only a few specialized healthcare providers that tend to like retail centers, such as chiropractors and dentists. Those tenants see a higher number of patients, and have the opportunity for monument signage, Brasell said.

But while healthcare tenants may not add value from a retail referral perspective, they do from a landlord perspective.

“Healthcare tenants are more resilient in downturns, and it’s a little bit of a hedge on the rest of your tenant base and tough markets,” Brasell said.