Smaller, Closer, Modular: Philly Healthcare Needs More Flexible Outpatient Facilities

Medical office developers and health systems say it's vital to consider smaller outpatient facilities closer to where people live and new ways to finance them given a capital environment that has made funding new projects increasingly limited even as health outcomes worsen across the Philadelphia metro.  

Builders are getting creative to fund new medical facilities in Philadelphia and thinking smaller, more local and more flexible according to leaders at Bisnow’s Philadelphia Healthcare Summit held Thursday at The Westin Philadelphia.

Panelists at the event said the sector experienced a 50% decrease in transaction activity in 2023 compared to the year before and a tough lending environment for new development at a time need is greater than ever.

For that reason, facilities leaders should consider leasebacks, multi-health system partnerships and funding smaller or modular facilities in lieu of bigger projects to address growing patient needs and waning health system revenues.

Large hospital networks, including Penn Medicine, Jefferson Health and Tower Health, were forced to lay off staff last year, while cost increases and limited funding have hurt new projects across the region, according to the Philadelphia Business Journal.

“Because healthcare margins do not support where escalation has been going, is continuing to go, [we are going] to do things in a different way in that we're not building as much of that to inpatient space,” DPR Healthcare Market Strategy Leader Deb Sheehan said. “We are starting to really think of things and care settings differently.”

Funding leasebacks and partnerships could help the region’s community hospitals, in particular, with an infusion of cash. Only a few health systems in the region, including Penn Medicine and Children's Hospital, finished in the black for their most recent fiscal year amid a national squeeze brought on by labor shortages related to the pandemic and rising inflation.

In Philadelphia, that has meant different outcomes for patients.

The average life expectancy for Philadelphians increased slightly in 2021 to 74 years, according to the most recent city data. However, Latino and Black men continue to have the lowest life expectancy in the metro at just 65 years, the city reported last December. The infant mortality rate in suburban Chester County was 4.8 per 100,000 people, a full percentage point higher than in Philadelphia County in 2020, according to the city.

“Pennsylvania and Cuba have roughly the same size population. However Cuba has higher life expectancy [and] a lower infant mortality rate,” Michael Pearson, CEO for Public Health Management Corporation, also known as PHMC, said during a panel on investing in healthcare.

“So those aren't good signs, considering we have some of the most advanced healthcare in the country,” Pearson added.

On the leaseback front, Penn Medicine completed a project in West Philadelphia in 2021 with landlord PMHC that involved advancing its cash to help build the PHMC Public Health Campus on Cedar. The 450K facility offers primary and preventive care, behavioral health services, prenatal and postnatal care, substance use disorder treatment, chronic disease management and social services assistance. 

“Penn was very creative on how they could fund us the advanced rent so that we could afford the development costs,” Pearson said, adding more such projects could be on the way. 

Another solution to funding challenges and increasing access could come by building major campuses that incorporate live-in medical facilities, like Main Line Health System is attempting with a proposed 72-acre campus that includes a suite of residential units at the site of the former St. Charles Seminary. 

The center is meant to serve the large population of people older than 60 in the area as they age. The proposal includes an approximately 400K SF facility complemented by a senior living community that features 225 independent, assisted and memory care units, all in close proximity to Lankenau Medical Center, located across the street. 

The goal is to bring care near the patient, Main Line Senior Vice President of Real Estate Design and Construction JoAnn Magnatta said. “We're also trying to bring the patient and the communities closer to the hospital.”

Family of emergency patients could stay on the campus at a boutique hotel, she added.

But developers of that project are still convincing the local community about the benefits of the project, Magnatta said. After four years of hearings, the proposal still faces community discussion, Magnatta added.

One local opinion site stated that community groups oppose the project as a “for-profit” development.

Whatever the fate of the healthcare campus, delivering healthcare faster to those who need it, where they need it, in an unfriendly lending environment is a priority. Some panelists threw their weight behind going smaller and less expensive via quickly built prefabricated buildings.

Prefabricated operating rooms, for instance, could be up within three to four months instead of years. 

“They have to start feeding that machine as fast as they can,” DPR's Sheehan said. “Yes, the volume and patient demand is there. But it's not at no cost.”

Modular buildings can help lessen those costs and mitigate the impact of a waning workforce, she said.

Meanwhile, the future of healthcare also includes cost-saving and potentially revolutionary technology like telemedicine, robotics and even artificial solutions to expensive and time-consuming testing, panelists said.

Hospital robots could deliver everything from fluids to materials to food, roaming hospital corridors and elevators, according to David Moreno, a partner with AKF Group. 

Big facilities will develop that tech, panelists said. And in some cases, they are already doing so. Philadelphia's Thomas Jefferson University Hospital will expand the use of an artificial intelligence platform that creates a "digital twin" of a patient on which they can test operational scenarios, Beckers Hospital Review reported last fall.

Yet, despite tech growth at places like Jefferson Health, facilities will always be needed, panelists said.

“Patient experience is really focusing on being flexible and maintaining an environment that provides people to be as comfortable as possible,” Allison Wllson-Maher, the University of Pennsylvania Health System’s vice president of real estate, construction and design said.