Healthcare Wants To Need Real Estate Less

The healthcare industry is in a bind: Providers bear more of the cost of care than ever before, rendering them less able to keep up with the constant real estate demands of the industry.

“The incredible pressure that all of this is putting on facilities to maximize effectiveness, coupled with the environment we’re in now where construction cost is escalating again — we’re starting to see the fringes of a new era of house calls," Array Architects principal Kent Doss said. "Home care is starting to become more prevalent, and it puts even more pressure on the facilities we construct to be hyper-efficient.”

The problem is one Temple University Health System President and CEO Dr. Larry Kaiser knows all too well, running a system in dire need of a new outpatient care tower on its central campus, but with too much debt to build it.

If Temple's patient load were lessened by a decrease in inpatient care in favor of outpatient care — and less outpatient care in favor of more in-home care — the system would save considerable money, Kaiser said at Bisnow's State of Philadelphia Healthcare event at the Westin Philadelphia Aug. 16.

“Mount Sinai Hospital in New York has run a program [for post-surgery patients] where a physician or a nurse comes to the home even multiple times per day, and that has been proven to reduce costs,” Kaiser said.

Christiana Care Health System Chief Population Health Officer Sharon Anderson predicted to attendees that virtual healthcare, wherein doctors meet with patients through phone calls, online or video chats to save time and money, will become increasingly ubiquitous.

“I think we need broad approaches, because some populations will want in-person care, but a growing population will want virtual care," Anderson said. "They’re used to the Amazon experience. There are also a lot of businesses used to delivering things using virtual service like Amazon that are getting into healthcare.”

Anderson singled out millennials and Generation Z as the demographics more likely to use the emerging virtual care system, but that same population has been used to justify the fever pitch of urgent care center construction across the country.

Inspira Health Network Vice President of Facilities, Design and Construction Brandon Bardowsky expressed concern that the industry might have responded too vigorously to the urgent care trend.

“It seems there’s pretty major market saturation going on with urgent care centers right now; people are slowing down in building as a lot of centers go up," Bardowsky said. "There’s a lot of competition, and people are still trying to figure out the market viability for how long that trend will last.”

Urgent care centers and virtual care systems largely fulfill the same purpose: they are the first point of contact for patients and a one-stop shop for many minor maladies and injuries. But for specialists and more intensive care, physical space is still very much necessary — the challenge is to shrink the amount of space they need.

Virtua Health has been consolidating physician groups across its network in South Jersey into "mini-malls" of medical offices, Virtua Assistant Vice President of Facilities Development Julie Herb said. She said bringing disparate practices together can shorten trips for patients who may need multiple consultations or referrals to justify shrinking its number of locations.

"We’ve found [consolidation] to be very beneficial for the patient," Herb said. “Plus, if we want to move a certain practice out of the area and move something else in, we can do that, and we can have timeshares to have multiple specialists occupying the same space at different times in the week.”

No matter how efficient providers make their practices, the simple passage of time keeps development necessary. Some are building new hospitals because their current buildings are too old to renovate cost-effectively, Bardowksy said.

But even as Inspira and Virtua both plan new hospitals and care centers, they find themselves unable to leave their older buildings behind; too many patients and professionals depend on them. That leaves them constantly updating and tinkering to boost efficiency and modernize along the margins.

“We continue to make renovations to our aged facility in Mount Holly," Herb said. "When we look at our new hospital that’s still six years away, we recognize the consumer-driven environment we currently have. So we’re undergoing many renovations in our Mount Holly hospital, even though we’re pretty much [unable to expand]. We continue to reinvest in that property out of necessity.”

Some fixes can be relatively simple, like the installation of LED lights in parking lots. Herb said the cost of the switch was $250K, but she expects to make that money back within a year and a half on energy savings, and will pursue a similar switch in the hospital itself. Other fixes are more necessary, more challenging and more costly.

“What we’re running into a lot is how to integrate new patient experience technology with older infrastructure," AKF Group Director Michael Brumberg said. "Some of the biggest problems have been with wireless infrastructure and ceilings, to the point where you can’t expand the facility any longer.”

The rising cost of such repairs and the competition inherent in the Greater Philadelphia healthcare market has been a driving factor in increased merger and acquisition activity. Larger systems see acquiring existing networks as a quicker way to enter a region than building their own facilities, HFF Senior Director Ben Appel said. He cited Penn Medicine's purchase and subsequent renovation of a facility in Cherry Hill as an example.

"If you have the flexibility to build a hospital five years down the road, that’s great, but sometimes you need to be in a space right now," Appel said.

CORRECTION, AUG. 22, 9:15 A.M. ET:  A previous version of this article misstated Virtua Health's parking lots as garages. This article has been updated.

CORRECTION, AUG. 22, 11 A.M. ET: A previous version of this article mistattributed Michael Brumberg's statement about integrating old and new infrastructure. This article has been updated.