CREJ - Healthcare Properties - July 2017
Health care is in a state of extraordinary change; as a result patients, providers and payers alike face a serious problem, uncertainty. In this period of macro-instability, our nation’s providers and health care executives have little concrete information to rely upon when guiding their strategic decisions. Lease terms, strategic relocations, operational cash flows, hospital alignment and more are all victims of this uncertainty. The ability to accurately forecast the future of health care is tough.
Considering how difficult the next few weeks are to predict, how can even the most informed physician or CEO make reliable decisions? Furthermore, how can health care developers, financiers and innovators bring services to the community when the very definition of health care revenue is a topic of debate? In our effort to strategize more effectively, we’ve begun to see immense value in big data and physician-based data. Data helps physicians make more informed decisions, because they rely upon the two most reliable foundations of health care: demand for services and the production trends of providers themselves. Ultimately, these two core datasets enable health care decisions to transition from thoughtful speculation to reliable calculation. Regardless of the Medicare Access and CHIP Reauthorization Act, Better Care Reconciliation Act or the future of Medicare and Medicaid, demand for services provides a reliable and predictable forecast for future growth. The inelastic nature of health care demand serves as one of its primary value points for investors and providers alike, yet the threat to reimbursements drives uncertainty for any strategic decision. Utilizing access to big data, we have found a basis of certainty for our tenants, asset owners and capital markets players alike. The approach to underwriting a tenant’s ability to fulfill its obligation, or to its margin considerations, is an understanding of how many procedures may be in demand for the term of its occupancy. Now, decision makers who are capable of drawing calculated conclusions regarding the number of procedures needed for five and 10 years into the future for any specific location are well-situated for success. Any range of specialties, inpatient and outpatient procedures alike, are now calculated forecasts, which may give practices a head start in the race for value-based care. In turn, providers may be able to justify long-term leases and investors to justify compressed cap rates in today’s market. That, in conjunction with physician data, enables reliable and calculated decision-making. The demand for health care is a reliable benchmark from which we can guide strategic decisions. However, the performance of practices and their individual physicians ultimately drives revenue for any party invested in health care. Demand estimation data in conjunction with the full breakdown of every U.S. physician’s Medicare volume from the past three years allows us and health care providers to dramatically improve one’s ability to underwrite risk. Data such as a physician’s Medicare payments, charges, hospital and ambulatory surgery center affiliations, and more are an invaluable component in enabling calculated decisions. Physician tenants, health systems and medical office building owners alike may understand their competition, their patient base and themselves far better than before. Tenants can strategically locate within any market knowing that the security of their revenue is upheld by calculated metrics instead of thoughtful speculation. Building owners can now mitigate risk via the understanding of every tenant physician and their immediate patient access. Investors are capable of underwriting opportunities across the entire nation with never-before-seen precision. All the while, health care participants, providers and patients alike are exposed to unprecedented turmoil via health care legislation. Despite that uncertainty, investors and providers are still forced to make lasting decisions, which may only be optimized by the use of effective data and market knowledge. Does this all boil down to analyzing data? We think so. Ultimately, health care legislation is only accountable to the people and communities it impacts. Until we all have a clear vision of what lies ahead, our capacity as health care real estate brokers to guide effective strategy decisions will default to the two core principles of our industry: demand for services and physician volume. These guiding principles and the data that unlocks their potential may be some of the only reliable factors in guiding health care’s future. In the end, the capacity to make calculated decisions enables the well being of our communities as a whole.