CREJ - Healthcare Properties - January 2018
A significant trend in the health care industry is the migration of hospital service lines from inpatient to outpatient facilities, which is creating a churn in demand for outpatient facilities. Several key factors, including reimbursement requirements, regulatory requirements and design influences, will affect costs and leasable rates for these facilities and should be considered in the decision-making process when acquiring an existing building or constructing a new facility. • Reimbursement from Centers for Medicare and Medicaid Services. If a tenant is licensed through the hospital and receiving reimbursement from CMS, it is possible for that to drive up the cost to build or renovate an outpatient center. Recent rulings from CMS and The National Fire Protection Agency should be taken into account. •Freestanding emergency departments and ambulatory surgery centers. The increased patient acuity in freestanding EDs and ASCs drive stricter health care and building code requirements. This, in turn, affects the type of construction and structural system that may be used for the building. Retrofitting an existing multistory medical office building for these uses adds challenges and expense with the required upgrades, regulatory requirements and separation from non-reimbursed-based tenants. • Retail centers. Vacant retail centers and big-box stores are a great opportunity for hospitals to relocate outpatient services. They are frequently located close to the patients they are trying to attract, and the large, open floor plans allow for flexible, multidisciplinary centers. One caution is that mechanical, electrical and plumbing requirements may require upgrades to these systems. • “Right-sized” design. Today’s outpatient facilities have what is known as a “sweet spot” for size and height that enables the building to attract and keep reimbursed licensed hospital-based tenants. With the current inpatient to outpatient migration trend, we have seen or likely will see the following services migrate out: ambulatory surgery, oncology, digestive health, sports performance and cardiovascular services. Several of these services will alleviate the current inpatient burden on hospitals, which in turn will create a more cost-effective model for hospitals when done in an outpatient setting. CMS has finalized an increase in payments for hospital outpatient services and the trend is for hospitals to see an uptick in payment rates for outpatient services that are imaging services and nondrug related. Additional design considerations for efficient and effective outpatient facility design include: • Floor-to-floor height. Floor-to-floor heights are highly critical for many reimbursed licensed hospital-based practices, as well as non-reimbursed practices, such as imaging departments and freestanding emergency departments. Renovated multistory buildings may not be able to meet these required heights, which may drive large hospital tenants to new construction or former retail settings. • Tenant square footage. As hospitals move to provide an integrated model of outpatient care, their space requirements within a single lease can easily exceed 10,000 to 15,000 sf. The larger footprint allows for an improved patient experience by offering a mixture of services and a one-stop-shop for patients outside of the hospital. Smaller, less flexible spaces may go unleased for long periods of time or cause frequent turnover. • Depth of space. Depth of space and common areas should be designed to create the best square footage ratios for the tenants’ practices. Spaces that are too shallow or too deep will cause a suite size to be irregularly shaped, create life safety conflicts and small unleased spaces. The trend of inpatient service lines migrating to outpatient settings does not appear to be slowing down. “Right-sized” outpatient building design will become increasingly important, in addition to knowledge of the regulatory factors affecting licensed hospital based providers reimbursed by CMS and a solid understanding of which service lines are migrating out. Teams who have these at the forefront will be successful in meeting the increased demand and maintain long-term health care tenant leases.