Building  Owners  and  Managers  Association  International

Building Owners and Managers Association International

BOMA’s MOB Conference Takes on Healthcare Reform, Capital Constraints and Regulatory Challenges

​More than 650 healthcare executives and owners, developers, managers of healthcare real estate gathered recently in Dallas for BOMA’s 2011 Medical Office Buildings and Healthcare Facilities Conference. Attendees networked, shared insight and heard from a wide range of experts on such diverse issues as healthcare reform and physician employment trends to the capital markets and regulatory compliance.

Baylor Building Tour
The program started with a tour of Baylor University Medical Center’s Charles A. Sammons Cancer Center, giving attendees a first-hand look at how healthcare developer  Duke Realty worked with Baylor through complex strategic, financial, operational and regulatory issues to create a state-of-the-art cancer treatment center, that is designed to be a center of excellence. The 10-story, 460,000-square foot outpatient building was part of a $154 million expansion at Baylor and features four linear accelerators, MRI, PET, CT, a rehabilitation center, a women’s breast center, a dedicated chemotherapy area, a specialized pharmacy and areas to provide services such as high-dose radiation treatments, clinical trials and transplant patient review.

The Healthcare Evolution
Healthcare reform was at the heart of the discussion in most sessions as industry leaders tried to predict how the implementation of the 2010 Affordable Care Act will affect real estate strategies. Most speakers agreed that healthcare reform is here to stay in one form or another and will generate demand for outpatient facilities like medical office buildings and ambulatory care centers. During the panel “Healthcare Evolution: Scoping the Latest Trends,” Stephen Jones, chairman of the board at Hoag Hospital and CEO of Snyder Langston noted: “Everything that can be done outside of the hospital should be done outside the hospital. The more that the real estate community understands the trends and challenges of providing care, the more we can make our [MOB] spaces to be like hospitals in the amenities and services they provide.

During another general session “Anatomy of a Trend: Assessing Future Demand for In and Outpatient Facilities,” Dr. Connie Curran, RN, Ed.D., FAAN, president, Curran Associates, noted a marked shift in the use of hospitals. “We may have experienced the last generation to be born and die in hospitals,” she said, citing the advent of birthing centers and hospice care. “In time, the hospital could evolve to be used for little more than emergency and critical care and major surgery.”  All other procedures, she noted, likely will occur in outpatient facilities like Ambulatory Surgery Center and MOBs. Other types of facilities, such as Skilled Nursing Facilities (SNFs) and Long-Term Acute Care (LTAC) hospitals, will address chronically critically ill patients and provide care in a lower cost setting than a traditional hospital

Throughout the conference, much of the discussion centered on diagnosing the demand for new outpatient facilities. In the wake of the passage of the Affordable Care Act last year, predictions that as much as 64 million square feet of new MOB space would be required to meet the demand of the newly insured were prevalent. But, at this year’s conference, most experts acknowledged that gauging the demand for new MOB space will be more complicated. P.J. Camp, managing director, Morgan Keegan, discussed the rise in off-campus outpatient facilities. “Destinations and retail locations will be increasingly important to delivering healthcare. The name of the game will be effectiveness and efficiency,” he noted. As an example, he cited a project by Vanderbilt University Medical Center, which recently converted the top floor of Thousand Oaks shopping mall into and off-campus facility to great success. Camp noted that off-campus facilities are convenient for patients—they are often closer to where they live, there is plenty of parking, they can avoid traveling to a downtown hospital campus. And other speakers noted that building out existing space is often less expensive than developing new space, and the soft leasing market for retail space is creating opportunities for healthcare systems that are exploring these venues

Most speakers acknowledged that one of the most significant changes that will emerge from healthcare reform is the way that procedures are paid for.  Medicare and Medicaid reimbursements will shift from a pay-for-volume system to a pay-for-quality system. A main component of the new model is the establishment of accountable care organizations (ACOs), networks of doctors and hospitals that would collaborate and are incentivized to keep Medicare patients healthier. While the details of ACOs are being ironed out by the healthcare industry and the Obama Administration, some health systems are already readying their doctors—and shifting the way they use space—to reflect the changes prescribed by healthcare reform

Karen Kennedy, P.A., CEO, Impel Management Services and chief administrative officer, Medical Clinic of North Texas, explained how her clinics have implemented a “medical home” model, which focuses on patient-centered care. “We are redesigning medical offices to facilitate a team approach to primary care, which includes psychologists, social workers, health coaches and pharmacists,” said Kennedy. “To eliminate personnel costs, we have implemented online appointment scheduling, prescription refill requests, test results reporting and payment kiosks.” She also explained that facilities have colored markings on the carpet and additional signage so patients can navigate the clinic without the help of additional personnel, as well as larger nursing stations and a conference room with teleconference technology

The Impact on Physicians
Healthcare reform is also affecting physician employment models, making hospital employment more attractive for many doctors. With changes like the establishment of ACOs, increasingly complicated regulations, insurance complexities, the technology infrastructure required to implement and support electronic health records (EHRs) and the personal debt required to start a private practice, some experts predicted a decrease in privately-employed physicians. Dr. Stephen Mansfield, Ph.D., FACHE, president and CEO, Methodist Dallas Medical Center, commented: “Well-run physician private practices are one of the most successful entrepreneurial models in our society, and I would hate for them to go by the wayside, but the odds are stacked against them.”

With a rise in demand for healthcare services and an increase in the number of baby boomer doctors retiring, the industry will likely face physician shortages, experts predicted. The healthcare reform bill did not include incentives to increase the number of physicians and many experts noted that the shortages may be more severe than predicted, because many new doctors want to work shorter hours. Several healthcare experts cited a recent study noting that it will take one-and-a-half doctors coming into the field to replace every retiring doctor to achieve similar productivity in patient volumes. Because of these trends, Mansfield predicts a big cultural shift in how physicians practice medicine: “The future of the American healthcare system will be ensuring that our physicians are performing to the peak of their training and licensure.” He added that mid-level practitioners such as physicians’ assistants and nurse practitioners will increasingly diagnose and treat common ailments like sore throats and that those mid-level practitioners will help to address and resolve the physician shortages.

Compliance and the M & A Uptick
Regulatory compliance was addressed in the session “STARK Compliance: New Developments and Common Issues Generated by Healthcare Reform,” where healthcare law experts briefed attendees on the challenges of owning and managing healthcare real estate under the new regulations. The new STARK Laws and Anti-Kickback Statutes regulate physician self-referral under Medicare and Medicaid and underscore the need for highly-professional property management staff who can ensure compliance. The regulatory environment—and the steep fines that accompany non-compliance—makes the use of third-party developers even more attractive for hospitals. As hospitals look to monetize their real estate assets to focus on their core mission of providing care, regulatory compliance concerns can also be addressed.

The recent uptick in mergers and acquisitions in the healthcare real estate industry was also the subject of much discussion. Mergers and acquisitions activity among healthcare REITs increased in 2010 to the highest level since the peak of the market in 2006, leaving three big public healthcare REITS: HCPI, Ventas/Nationwide Health Partners and Healthcare REIT. Jim Maloney, managing director and head of real estate, co-head of Mergers and Acquisitions, Cain Brothers and Company, LLC, noted that healthcare reform and stabilizing economic conditions are the reason for the uptick: “Healthcare reform is a catalyst for M & A activity and hospitals are concerned about whether they’ll be successful in the long-term. The economic meltdown meant that capital was sidelined, but now that money is getting back in the mix.” Many experts expect to see an uptick in merger and activity acquisitions among hospital healthcare systems.

In the final general session, “Implementing Healthcare Reform: Next Steps,” experts from a for profit healthcare system, a large not-for-profit system, and a smaller, rural system shared their perspectives on the steps they’re taking now to address the requirements of reform. The panelists included Howard T. Wall, III, senior vice president, general counsel and secretary, Capella Healthcare, Inc.; Fred T. Brown, Jr., FACHE, group vice president for Eastern Division, Carolinas Medical Center; and David Frum, president and CEO, Bridgton Hospital in Maine. Not surprisingly, their implementation plans varied considerably, particularly with respect to becoming ACOs. However, all agreed that healthcare reform has laid the ground work for them to deploy their real estate (both their inpatient, critical care sites as well as their outpatient facilities) far more strategically perhaps than they have used it in the past. Whether to address capital constraints, create or protect market share, or to achieve their quality goals, all agreed that real estate is a vital element in these plans. The panelists also noted that there will continue to be opportunities as long as real estate professionals understand the shifting dynamics and emerging trends in healthcare.