Ambulatory Healthcare Real Estate Strategies

By Adrian Hagerty, AIA, LEED AP (printed in Medical Construction & Design, September 2013)

“Location, Location, Location.” For years, real estate moguls have uttered this phrase to express the most important factor in determining the value of any given property or business venture.

Increasingly, this same concept is resonating within the ambulatory healthcare market, as consumers demand convenient access and speed of service delivery when it comes to satisfying their basic healthcare needs.

Historically, organizations have taken an “if you build it, they will come” approach when developing new facilities – with a healthcare facility often forming the seed of new development for any given location. However, over the past several years, organizations have begun to adopt an approach of locating full-service ambulatory healthcare facilities in close proximity to established community service facilities, business centers, shopping centers, residential neighborhoods, long-term care facilities, schools and transportation hubs.

It should be no surprise that the major driver of this trend is the consumer.

With two income families as the norm, the age-old notion of “time equals money” may even be challengeable. We are living in a world where precious nature of time can often trump money. Both the baby boomers and generation X-ers now form the majority of healthcare users in the country, and the characteristics of these general populations are driving providers to re-think the strategies of healthcare delivery. These consumers see enormous value if able to bundle visits to a single/convenient location. They will seek out providers who allow them to take care of routine exams for all family members, lab work, diagnostic imaging, urgent (often nighttime) care and pharmaceutical needs – all in and at a single location. The good news is that the bundling of a critical mass of ambulatory care services in hub locations can also provide opportunities to save operational costs by consolidating and streamlining workflow processes.

While the advent of the satellite comprehensive ambulatory care facility does not foretell the demise of flagship healthcare facility development, this trend is a reality that merits some thought and discussion. For some systems, this is new territory, while others – like Kaiser Permanente – have been out of the gate for some time now. In any case, it is important for healthcare organizations to understand the unique aspects of this more distributed ambulatory care hub-and-spoke concept for healthcare delivery – especially in the “Affordable Health Care Act” environment that demands efficiency without sacrificing (but improving) quality. Here are some of the major factors to consider when developing a satellite ambulatory care facility:

Availability of Real Estate
By locating a service within an area already developed or in the midst of being developed, it is likely that available real estate acquisition options will be more limited. This condition could drive up the cost, so it is vital to exhibit proper due diligence when searching for property that can provide the right location – with the appropriate physical characteristics – without driving up the cost above what can be afforded. Also, by identifying potential deficiencies of a given property up front, certain properties can be ruled out from consideration, or the sale and/or lease terms can be negotiated to address the proper correction or accommodation of these deficiencies.

Access and Parking
When convenience is the key factor in a developed location, the importance of convenient access from a developed road network and public transit cannot be understated. It is important to understand the patterns of the patrons located in its targeted catchment area. While urban environments present more challenges for private automobile access, transit options and shuttle access should be considered. In suburban settings, the availability of separate and discreet parking for patients/visitors, staff and other healthcare professionals should be considered. If a convenient access plan for a given property cannot be envisioned or developed, the property should simply be dropped from consideration.

Paid parking is often a hotly debated topic when considering the development of facilities located near urban centers. This important business decision is most commonly based on local customs and market conditions. This decision is not unlike the decisions made by airlines to charge (or not charge) customers for checked luggage and/or food service. There are instances when an organization feels that it may lose a competitive advantage if a separate charge for parking is levied, but fiscal realities of offsetting overhead costs is often at odds with this notion. The most effective development should build-in necessary infrastructure to accommodate access control devices that would allow for paid parking without necessarily implementing the paid parking program on day one of operation. This provides the flexibility to implement such a plan in the future with minimal upfront cost.

Building New vs. Adaptive Reuse
Often opportunities of existing real estate assets can be readily adapted to suit the needs for ambulatory care environments. Over the course of the last three years, Kaiser Permanente has developed six ambulatory care facility development projects in its Mid-Atlantic region. Four of these six projects involved adaptive reuse of existing facilities to accommodate ambulatory care functions that include urgent care, clinical decision units, ambulatory surgery and a host of outpatient specialty services. After studying a variety of options, it was determined that adaptively reusing existing facilities provided an opportunity to deliver facilities to its members with greater speed, while also taking advantage of a particularly sluggish real estate market that offered excess inventory of prime and available real estate assets.

When taking advantage of this adaptive reuse approach, it important to understand the possible limitations of the existing infrastructure needed to support the more acute aspects of ambulatory healthcare. There likely will be a need to upgrade existing facilities to accommodate such features as:

  • Entrance and access features to accommodate a greater number of more physically challenged patrons
  • Elevators that can accommodate stretchers
  • Life safety features that address basic ambulatory care facility requirements
  • Possible enhancements of emergency power and HVAC systems to accommodate invasive procedures
  • Possible enhancements to accommodate additional plumbing and medical gas delivery systems, etc.

Long-term Lease vs. Ownership
Like most of the big decisions that need to be made when developing a satellite ambulatory care center, there is no one best approach between the concepts of ownership versus long-term lease. Since capital became scarce in the wake of the latest recession, organizations have become more open to alternate development strategies that preserve capital for strategic growth outside of facility development. Ambulatory care centers are perfect candidates for more innovative development and financing strategies. But there are many other factors that come into play when making such a strategic decision. The informed healthcare organization will seek the consultation of real estate advisors and design professionals to guide the decision-making process toward a successful outcome.

Compliance with Regulations and Local Customs
Compliance and licensing issues tied to insurance and reimbursement requirements of the Centers for Medicare & Medicaid Services need to be addressed upfront in the planning process. Also, the state and local regulatory environment is a major consideration. Zoning regulations and other land-use restrictions or covenants may require modification to accommodate a proposed healthcare use. Some states still require certification of need compliance for certain ambulatory care functions – such as ambulatory surgery – even when not physically connected to a hospital campus. One of the more surprising challenges that may be encountered is the occasional hesitance of a land owner or developer to welcome the development of healthcare functions within a building or complex that has been planned for office or retail. The incompatible mix of patrons has been cited as a reason not to allow medical development within the same building or complex that may have (say) high-end business offices that cater to a very different clientele when compared to the visitors of a healthcare provider. This can be overcome with proper planning/separation of access points, but is noted as a factor for planning consideration, based on historical evidence of challenges in past developments.

Parlaying Challenges to Opportunities
As healthcare organizations continue to face challenging strategic decisions to sustain and grow healthcare delivery systems in the “Affordable Health Care Act” enactment period, comprehensive ambulatory care center development will likely remain on the top of the menu for years to come. Once the decision is made to develop such a program, the key to success is careful planning and execution that utilizes the best resources available for the development. But, without a doubt, the “location” decision is unchangeable and of paramount importance. By applying appropriate due diligence to the site selection process, healthcare organizations will indeed create opportunities in the shadows of the many challenges that are presented, and will be well positioned for the successful delivery of services.