Medical Office Buildings: The Strategic Asset for Healthcare Systems

In the distant rear-view mirror are the days of hospital systems serving as the sole players in the healthcare business sector. Advances in technology, the impact and after-effect of the pandemic, shifting consumer demand, legislative gridlock, and the rising cost of healthcare have created a perfect context for healthcare consumer competition. Competition is the name of the game in healthcare and healthcare real estate when properly leveraged by healthcare systems acts as a conduit to satisfying the demands of healthcare consumers. Large centrally located inpatient health centers were once viewed as destination centers for healthcare services. Today, healthcare systems are faced with a new reality; the need to shift away from large centrally located inpatient health centers to decentralized outpatient facilities. The medical office building will play a vital role in the delivery of healthcare services to consumers as healthcare systems remain focused upon delivering care to patients in outpatient settings.

The state of healthcare in the U.S. is not without ample discussion and concern among Americans, and for good reason. Federal spending on major healthcare programs is growing faster than the GDP according to the U.S. Government Accountability Office. By 2030, the federal spend on Medicaid is projected to be above $700 billion. Among persons with healthcare expenditures in the U.S., private health insurance is the largest source of funding followed by Medicare and Medicaid. From 2009 to 2019, hospital care was the largest expense category for personal health care trailed by physician and clinical services (outpatient services), and prescription drugs. Kaufman Hall reports outpatient revenue outpaces inpatient revenue making up 60 percent of healthcare system operating revenue compared to inpatient revenue which makes up 40 percent of operating revenue; nearly 85 percent of the U.S. population completes at least 1 physician office visit per year; ED visits have declined sharply with little foreseeable incline on the horizon; and the U.S. population completes 883 million physician office visits annually compared to 36 million hospitalizations. These mega-trends suggest physician and clinical services are central to health system growth and competition for healthcare consumers.

As health system leaders consider growth strategies the role of the medical office building should rise to the top of the surface as a multi-purpose strategic asset to aid in the growth of healthcare systems in local and regional markets. Medical office buildings afford healthcare systems to bundle outpatient service lines with physician services in their efforts to address consumer demand for outpatient services, convenience, specialized care, and accessible care. The question is not: should healthcare systems continue to own or monetize real estate assets?  The true question is: how should healthcare systems utilize real estate assets to drive strategy, realignment, and meet operational needs? In a world of innovation, disruption, and continuous change, healthcare systems must utilize medical office buildings as an innovation asset. Where growth is foundational to the goal of providing accessible care to patients, healthcare system leaders and healthcare real estate leaders will need to develop and operate medical office buildings that create value for the healthcare consumer, community, physician(s), and healthcare system. Creative approaches to incentivizing occupancy of medical office buildings for stronger partnerships and affiliations with physicians lend way to innovative solutions to deliver medical office buildings that satisfy the leasing or ownership needs of healthcare systems and physicians. Planning efforts should include assessments of space utilization, local markets, and mega-trends to arrive at efficient and right-sized medical office buildings for a given market. The need for healthcare systems to partner with architects, engineers, technology experts and developers is paramount to the successful process of developing medical office buildings of the future. Not only are medical office buildings to be right-sized and located in the correct market; there is a real need for medical office buildings of the future to take advantage of advances in construction methodologies that reduce cost, lower operating expense, and increase speed to market.

Medical office buildings when utilized as strategic assets help healthcare systems maximize their efforts in deliver of care to healthcare consumers in the marketplace. Strategic use of medical office buildings creates opportunities to deliver real estate assets to local communities that solve for a host of needs. Future demand for convenient outpatient and physician services along with continued healthcare system realignments will prove to be major drivers in the innovative use of medical office buildings by healthcare systems. When viewed through a consumer-centric lens, medical office buildings will prove to be strategic assets that support expansion for healthcare systems.