Impact of the Affordable Care Act (ACA) and the Recent USA Presidential Election
A common theme during the recent Summer Leadership Summit of the American College of Healthcare Architects and throughout the recent Interface Medical Office seminar is that no matter what the outcome of the presidential and congressional races was going to be, healthcare reform is not going away. One of the basic tenets of ACA is a shift away from payment for services rendered to a performance based payment system. This shift, along with the reduction in margins is also creating a movement away from a “not-for-profit” status to a “for-profit” status, a closer alignment of physicians with a specific hospital or system and an increase in hospital mergers and acquisitions as larger systems absorb smaller facilities.
Schizophrenic as New Overtakes Old
• Operate in both market conditions
• Continued shift toward outpatient
While all of the focus is on what ACA and the recent presidential election means for the future of healthcare delivery, one point that cannot be overlooked is the fact that the current system is not going to simply go away with a flip of a switch. What this means for most organizations is a period of confusion and duplication as they continue to receive payments based on the “payment for services” system and begin the internal process of billing based on performance. This will most likely coincide with the ongoing increase in outpatient services. Technologies and procedures have been moving toward being less invasive and more outpatient focused for quite some time. The change in the payment structure will further reinforce this shift as concepts such as a “life coach” and wellness are folded into the performance based payment model. With the emphasis on outpatient services, there is also an increased need for flexible, standardized space as in Medical Office Buildings (MOB). There has been a market shift away from “specialty” MOB space and a move toward multi-practice “mega-clinic” space. These mega-clinic spaces facilitate shared common functions between multiple practices, an alignment of specialty services based on market conditions/patient demographics and flexibility to adapt as ACA and new market conditions evolve.
Technology Outpacing the System
• Electronic Medical Records
• Internet Information and Self-Diagnosis
Compounding this shift in payment is the fact that technological advancements are far ahead of current practice and business models. While electronic medical records have done a lot to reduce paper usage and improve efficiency and accuracy, it is only the beginning. Current smartphone applications are allowing for real-time, in-home, self diagnostics to be performed. In conjunction with approved, billable electronic physician consultation, this brings the concept of “Home Health” to an entirely new level. This also further enhances concepts such as “distance healthcare” or “tele-medicine,” allowing physicians to network and leverage even further market shares. The Veterans Administration (VA) in particular is looking at ways to utilize telemedicine as a way to provide care, especially long-term care, for those veterans who live at great distance from VA care facilities. With more access to diagnosis information available through the internet, a proliferation of sophisticated, easy to use self-diagnostic applications and physician access via tele-medicine approaches, as well as “life coaches” through a community wellness center, there will be an increased need for economical, flexible and standardized medical clinic space.
Cash-on-Hand and the Real Estate Market
• Uncertainty in financial market and lending requirements
• Third party real estate partnerships
• Medical services as a multi-tenant lease
An additional constraint on recent healthcare expansions or renovations is a more stringent view of lending procedures. With the economic recession, lending facilities and bond ratings began requiring healthcare systems to have more “cash-on-hand” to ensure continued operating margins. This meant that hospitals that would typically borrow capital to finance expansion or renovation plans were either paying for these from available capital or simply placing these plans on hold. One of the approaches to alleviating the financial constraint and relieving the pent up demand for new services is the 3rd party real estate partnership. In this model, a developer will build or fit-out space for a healthcare system and lease the space to them for a specific period of time. This model works well for hospitals that have a proven service line and a consistent patient basis. Where this becomes risky for developers is when a healthcare system or hospital wants to create a new service line or a new presence in a market they have not served. In these instances, the developer may be left with a lease space that is setup for a healthcare tenant and is not conducive to a typical office tenant. In addition, there can be challenges when incorporating a healthcare tenant into a multi-tenant office building.
Consumerism and a National Healthcare Network Approach
• Consumers more aware of medical information and options
• Increase in out-of-pocket costs
• Mergers and acquisitions creating larger healthcare networks
With the shift toward a payment-for-outcome approach to paying for healthcare services, there is an expectation of an increase in out-of-pocket costs for care. This, along with the open-book requirements for hospitals to clearly show what it costs for services, further allows for the healthcare consumer to “comparison shop” and is forcing hospitals to compete based on price in addition to service. The ability to comparison-shop is leading healthcare systems to begin looking at “population health management” approaches to better understand the services that their market share are looking for and is in turn driving the mergers and acquisitions environment among healthcare competitors. In addition to simple demographics analysis, the population health management approach analyzes what services their market share population is searching for and then seeks to provide only those services, often acquiring the expertise to provide that service either through physician recruitment or competitor merger and acquisitions. The outcome of these mergers and acquisitions is the creation of large healthcare organizations that have also proven to be more profitable because they can control costs more effectively. As noted in a recent Building Design + Construction article, “megasystems of $5 billion or more in revenue produced operating margins of 4.7%, compared to 2.0% for hospital systems with less than $1 billion in revenue.”
What it All Means
For healthcare systems and individual hospitals, there is a very delicate balancing act underway. On the heels of the recent economic recession, most facilities have postponed a number of their expansion, renovation and upgrade projects and are experiencing increased pressure to keep up with advancements in patient care. While some of these projects are ready to move forward, there is the ongoing shift of services away from Inpatient and toward outpatient services. This is in addition to the concept in ACA of establishing payment criteria around health & wellness and successful outcomes as opposed to payment for providing services. A by-product of the shift to payment based on performance is a fundamental change from predominantly not-for-profit, community/regional based hospitals to for-profit, highly integrated megasystems, which do a better job of cost management and operating margins. Those facilities poised to make the proper investments in highly effective, consumer-oriented outpatient services that respond to the demographics needs should be highly successful throughout the transition. This is not in lieu of, or at the expense of, proper investments and service line alignment on the higher acuity inpatient services. We have certainly seen a growth in higher acuity, specialty procedural needs which demand the latest and greatest technologies in medical equipment as well as highly specialized physicians and clinicians.
As healthcare specialty architects, we have the unique opportunity to understand the past facility conditions, understand the pulse of the current condition and guide our clients toward the most rationale course of action based on the broadest spectrum of current thought leadership. The complex nature of healthcare projects and number of influential variables require a highly collaborative, specialized team with unparallel focus on the best outcomes for each client.