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VOL. 127 | NO. 128 | Monday, July 2, 2012

Health Care Reform to Affect CRE Industry

By Aisling Maki

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Members of the local real estate and health care industries gathered at the Doubletree Hotel, 5069 Sanderlin Ave., on Thursday, June 28, for a luncheon and panel presentation called “The Changing Face of Health Care Real Estate.”

The event, sponsored by The Daily News, was hosted by CREW (Commercial Real Estate Women) Memphis, an organization offering educational, professional, philanthropy and networking opportunities for women in the local real estate industry.

Panelists for the event were Larry Jensen, CEO of Commercial Advisors LLC; Jane Clark, president of Wolf River Management LLC; and Dr. George Mayzell, CEO of Health Choice LLC.

The discussion, which centered on real estate challenges and opportunities driven by changes in the health care system, occurred just hours after the Supreme Court announced it would uphold individual insurance mandate that’s the centerpiece of President Barack Obama’s historic health care overhaul.

The court’s judgment allows the law to move forward with its aim of covering more than 30 million currently uninsured Americans, and will proceed and pick up momentum over the next few years, affecting the way countless Americans receive health care.

The panel, however, pointed out that changes in how physicians and hospitals use their physical spaces have already been impacting the real estate industry since Obama signed the Affordable Care Act in 2010.

“I frankly think health care reform has been going on already,” Jensen said. “The folks that we work with realize that the model we’ve got is broken, it won’t work, and it’s too costly.”

He said the new health care delivery model based on patient outcomes has already replaced the former volume-based health care system, which in turn has changed health care real estate.

And as changes in the health care system continue to unfold over the next few years, it will create numerous opportunities in the real estate sector.

“And it’s not just going out and getting another site; it’s looking inside the operation and saying how can we be more efficient or create an optimal facility?” Jensen said.

And with millions of newly insured individuals, access to health care will improve, which will mean an increased need for amenities such as parking spaces.

“One of the problems with existing real estate is that medical (facilities) requires much more parking than a typical office building or shopping center. … There are some issues around that are going to have to be dealt with,” Jensen said.

Mayzell answered audience questions about one of the biggest trends in health care real estate in recent years: physician-hospital alignments.

Private practice is fast becoming a thing of the past, as physicians groups across the country scramble to align with large health care systems in a move largely driven by national health care reform.

Rising costs, changes in reimbursement, heightened accountability and an emphasis on patient outcomes are among the many factors contributing to the structural organizing taking shape with physician-hospital alignments.

“You buy a practice, you basically buy the referrals, the admissions and the diagnostics … the hospital now owns that whole vertical level of care – all the pieces of that – and can then do it more efficiently,” Mayzell said.

He said physician-hospital alignment make better use of space and ultimately save revenue for all parties involved.

“It’s about creating efficiencies of care in a vertical integrated system that can accept new payment models,” he said.

Meanwhile, Clark was candid about the health care real estate challenges her business has faced in recent years.

“Health care real estate is not today what it was yesterday or what it was last year,” she said.

When the economy took a nosedive several years ago, many in the real estate industry jumped into health care real estate because they saw it as a recession-proof sector.

But the model changed rapidly, with physicians aligning with hospital groups. With no doctors building new facilities of their own, the opportunities now lie mainly in expanding on already existing properties.

In addition, Clark said landlords negotiating with practices can’t get medical groups to sign long-term leases, which create problems for both landlords and lenders.

“They don’t know what’s happening in the next three years,” she said. “They’re afraid to commit to a five-year lease.”

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