BLOGS: Healthcare Real Estate

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Healthcare Real Estate Conference - NYC
Tuesday, April 8, 2014
7:30 a.m. - 3:30 p.m.
McGraw Hill Executive Suite
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New York, NY 10036
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Monday, March 9, 2015, 10:57 AM

Ticking time bomb in your office lease?

Benjamin Osgood, of the Tenant Advocate, brings up a good point that I've noticed becoming MUCH more of an issue lately -- restoration provisions obligating the tenant to return the space to the condition in which they received it.  Improve and alter your space carefully!

A Costly Time Bomb Could Be Hiding in Your Office Lease


The Restoration Clause is a seemingly harmless, fluffy little kitty that sleeps tucked away within an office lease… until you reach out to pet it and it jumps on your neck and claws your eyes out.
It is a legal obligation for a tenant to restore, at the landlord’s request, the premises back to the condition it was in before you moved in, and could be a very costly going away present to your landlord should they exercise their right.

Normally, a tenant can negotiate the teeth (or claws) out of this provision or have it deleted in its entirety, or many times the landlord won’t require the tenant to restore the space because the subsequent tenant will benefit from the leftover improvements.

So why are landlords now pushing harder for restoration in lease negotiations, and more frequently exercising this clause as leases expire?

Because there has been a 180° shift in how offices are being built out, and tenants are increasingly demanding “open plan” layouts rather than private office intensive build-outs.  Therefore, if the exiting tenant has landlord-centric restoration language in their lease and the new tenant wants an open office, you can be sure the landlord is going to stick that tenant with the cost of demolition.  That also means that if the incoming tenant desires an open plan and wants the landlord to tear down 30 perimeter private offices, the landlord is going to try its best to reserve their right to obligate that tenant to restore them at the end of their term if the new tenant doesn’t wants them back.

So what can a tenant do to protect themselves from this potential costly exposure?  First, fight hard in the initial lease negotiations to completely strike the restoration clause.  If the landlord won’t budge, then fall back on agreeing to restoration, but with the condition that the landlord must decide whether or not they’ll invoke their right BEFORE you conduct the work.

That way there, you’ll at least know before you spend the money whether or not you’ll be required to spend extra money (and effort) at the end of the term to restore your premises back to their original condition.  If the landlord won’t agree to those terms, then you’ll at least take out the guesswork and be in a better position to decide if this is still the right space for you and if the potential added expense is worth it.

If this little gem is already in your lease and you missed it because you weren’t represented by a real estate advisor, now’s a great time to call one up and have them conduct a lease review for you.  They’ll be able to provide you with their professional opinion of its implications, and may be able to provide a solution that could dampen or eliminate the exposure.

Friday, March 21, 2014, 10:52 AM

Affordable Care Act Good for Health Care REITs

It's been awhile since we've blogged anything, which must mean we're busy, right?  Maybe this is why ...

Obamacare is a good thing for health real estate trusts, executive says

March 18, 2014, 12:05 PM
 By Russ Britt
   
One of the side effects of the Affordable Care Act is that it’s forcing the medical community to become more efficient, and that’s a good thing for health care real estate investment trusts.
At least that’s the perspective from Scott Peters, chief executive of Healthcare Trust of America  /quotes/zigman/10379386/delayed /quotes/nls/hta HTA +1.12% , who says Obamacare is a “positive development” in a radio interview with MarketWatch’s Alisa Parenti. (The radio player is above, or you can follow the link to our MarketWatch radio page.)
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“I think it is a game changer,” Peters said, calling it a “huge macroeconomic driver.”
Peters points out that Obamacare emphasizes preventive medicine. Translation: more office visits to doctors and a higher rate of occupancy at medical plazas. His company is seeing a 91.6% occupancy rate at the properties it owns.
Healthcare Trust has been public since June 2012 and currently is trading in the $11 range. Shares were down marginally to $11.40 in recent action.

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Wednesday, November 27, 2013, 1:47 PM

Are ACO's Much Different than HMO's?


Greg Freeman, in Media Health Leaders, brings us up to speed on Accountable Care Organizations ...

Accountable care organizations are a "fad" and "not very different from the HMO model… [with] a few bells and whistles, but otherwise it's the same old incentive to do as little as possible and find the healthiest patients you can," says a director of the Association of American Physicians and Surgeons.


Accountable care organizations (ACO) aim to completely revamp how healthcare is delivered in the United States, promising better quality and lower costs. But physicians who have heard these promises before are wondering if ACOs are just the new version of HMOs, the same lofty concept dressed up in a new way.

ACOs are the just the latest fad, according to Richard Amerling, MD, associate director of clinical medicine at Albert Einstein College of Medicine in New York City, director of outpatient dialysis at Beth Israel Medical Center, and a director of the Association of American Physicians and Surgeons.

HMOs also were touted as the revolutionary way to save healthcare in America, Amerling says. In that model, the physician served as a gatekeeper for the insurance companies to control access to high-level care, tests, and hospitalizations. Under a capitation arrangement, the physician was paid a set amount per patient to coordinate care, which Amerling says provided a strong incentive to restrict patient access to care.
In addition, capitation provided a bonus to the physician if total spending on patients was kept below a certain amount. The plan worked well if the physician's patients were overwhelmingly healthy, which encouraged cherry picking of the most profitable patients. But eventually the very sick had to receive care, and that threw the whole system off, Amerling says.

The differences between the HMO and ACO models are purely cosmetic, he says. ACOs also will have strong incentives to cherry-pick the healthiest patients and limit access to expensive medical care, and eventually that strategy will fall apart just as it did with HMOs, he says.

"It is fundamentally not very different from the HMO model," Amerling says. "There are a few bells and whistles, but otherwise it's the same old incentive to do as little as possible and find the healthiest patients you can."

Amerling says his concerns are borne out by the experience of the Pioneer ACOs that recently reported their results. All of the 32 health systems in the Pioneer ACO program reported improved scores on quality measures such as cancer screenings and controlling blood pressure, but only 18 were able to lower costs for the Medicare patients they treated. Two hospitals reported losing money on the ACO program, and seven notified CMS that they will switch to a different ACO because of the monetary strain. Two said they will dump the ACO model and find another approach with less financial risk.

Some providers and insurers will be able to make the ACO system work for a few years, but eventually the financial pressures will force providers to opt out and many of the ACOs will fold, Amerling predicts.

"Companies are going to jump on board and hope to make money as long as they can, but ultimately things start to play against you," he says. "The fact that in the demonstration project several of the providers who tried it lost money, that is a warning sign. When you try to apply this generally it's going to be a money loser."
Even aside from the cost concerns, Amerling has no faith in the ACO model to improve quality of care. Seriously ill patients will still need care that keeps them from falling through the cracks and costing more than necessary down the line, he says.

"Nothing does a better job at that than a fee-for-service model," he says. "When I have a patient with unstable angina, I can get them cath-ed the same day. When that mechanism is not available in an ACO, we're going to be delivering late and untimely care, which is inevitably worse and more expensive."

Amerling recalls the recent effort to decrease costs for dialysis by bundling the costly hormone erythropoietin (EPO) into the reimbursement. For that reason, and because of clinical data supporting the reduction of EPO, dialysis providers started using less of the medication.

"So they were getting somewhat of a windfall until the government caught wind and wanted to cut the reimbursement for the bundled rate," he says. "It's the same sort of thing with ACOs. They're going to give a bundled payment to cover everything, creating a huge incentive to get only healthy people. When that cuts costs for that type of treatment, the government will say it only makes sense to lower the reimbursement."
The bottom line for physicians, Amerling says, is that they will not be able to increase revenue by doing a better job.

"They are essentially going to be salaried in a lot of these organizations, and they will have the incentive to do the minimum rather than the maximum," he says. "There's nothing in it for them to go the extra mile. They are going to be squeezed by the administrative staff at these ACOs, and there are going to be a lot of administrators necessary to run these things."

Others aren't as certain as Amerling that the road ahead for ACOs will be a rocky one. Even if they are not a complete success, ACOs won't be a retread of HMOs, says Ben Wanamaker, executive director of the healthcare program at the Clayton Christensen Institute, a nonprofit, nonpartisan think tank dedicated to improving the world through disruptive innovation, based in San Francisco.

"HMOs were a method of controlling costs with gatekeepers, and the mechanism for payment was almost exclusively fee-for-service," Wanamaker says. "ACOs seek to control costs and improve quality-something HMOs didn't claim to do-by changing the payment mechanism so that providers are going to be at risk for what they are calling quality. But most of the measures are not what I call quality measures, but process measures."

Wanamaker acknowledges that the move to ACOs is shaking up physician practices and could have some downside for doctors. The move to ACOs is bringing a rapid number of acquisitions because "he who has the largest number of members wins" in the ACO model, Wanamaker says. The income upside for a physician is less attractive to those physicians at the higher end of their experience and skill levels, he adds.

"I suspect ACOs are a bit disconcerting to some physicians who are concerned about maximizing their economic position," Wanamaker says. "We do not believe that ACOs as they are structured now will result in dramatic reductions in the cost of care, but we see ACOs doing a good job of better aligning provider and payer incentives for quality."

For the best chance at economic success within an ACO, Wanamaker says physicians should seek maximum transparency between fee-for-service and ACO patients so that they can develop clinical care processes that optimize the economic outcome. Know who is in which payment bucket, and develop clinical care protocols for both types of patient.

There might be more than one way to do the right thing for a patient, resulting in the same clinical outcome but a significantly different economic outcome for that patient, he says.

"That might sound insensitive in a way because, of course, the doctor should do the best possible thing for the patient no matter what," he explains. "But the doctor also has an incentive to make a living, and under a fee-for-service arrangement they likely will avoid some options if they can't be reimbursed for it. There are always judgments to be made."

A more optimistic assessment of ACOs comes from Joe Damore, vice president of population health management with the Premier healthcare alliance based in Charlotte, N.C., and a former hospital CEO. ACOs are entirely different from HMOs, he says, foremost because HMOs were driven by health plans and not providers.

"Utilization review was developed, implemented, and controlled by the insurance companies," Damore says. "In the accountable care model, it's driven by the providers. There are no preapproval processes. The providers are developing their own appropriateness criteria."

Almost all the ACOs currently in operation have only upside risk for the physician, he says, contrary to the HMO model that tried to shift much of the risk to the physician. The ACO model also includes 33 quality measures that determine pay rates, which Damore says is quite different than when HMOs talked a lot about quality but did little to measure it.

"In the HMO days they did not tie quality to our dollars," Damore says. "ACOs are built around that idea, and that is a fundamental difference."

Comparing HMOs and ACOs is difficult because there are different types of ACOs, notes Greg ­Chittim, director of analytics and performance improvement at Arcadia Solutions, a consulting company based in Burlington, Mass., that works with ACOs. Pioneer, shared savings, and commercial ACOs all vary in their structure, so comparing them to the historical experience with HMOs can be misleading, he says.

"Whereas one type of ACO might be very different from others and not at all like an ACO, you could say that some are more like an HMO," Chittim says. "It is still to be seen how accountable care will affect providers and patients alike."

But he points out that the designers of the ACOs are well aware of how the HMO experience ended and are intent on not repeating the same errors.

"They have put in very deliberate contractual measures to prohibit structurally the kind of rationing and denial of care that became apparent in the HMO years," Chittim says. "There are quality measures intended to make sure that while you're saving money you are not doing it at the expense of individual patients or any patient population."

Spending down but quality of care might not rise with ACOs

New research suggests that healthcare costs may decrease when hospitals and medical groups agree to an accountable care model with even one insurer, but the quality of care may stay the same.

One study indicates that progress on two primary aims of the 2010 health reform law has been uneven at best.1 The law's goals were to slow the runaway costs of healthcare and improve quality. The authors note that in a multi-payer system, new payment incentives implemented by one insurer for an accountable care organization (ACO) may also affect spending and quality of care for another insurer's enrollees served by the ACO. "Such spillover effects reflect the extent of organizational efforts to reform care delivery and can contribute to the net impact of ACOs," they write.

Specifically, the authors examined whether Blue Cross Blue Shield (BCBS) of Massachusetts' Alternative Quality Contract (AQC), an early commercial ACO initiative associated with reduced spending and improved quality for BCBS enrollees, was also associated with changes in spending and quality for Medicare beneficiaries, who were not covered by the AQC.

They also estimated changes in spending and quality for the intervention group in the first and second years of exposure to the AQC relative to concurrent changes for the control group. Regression and propensity score methods were used to adjust for differences in sociodemographic and clinical characteristics. The primary outcome was total quarterly medical spending per beneficiary. Secondary outcomes included spending by setting and type of service, five process measures of quality, potentially avoidable hospitalizations, and 30-day readmissions.

The researchers found that before entering the AQC, total quarterly spending per beneficiary for the intervention group was $150 higher than for the control group and increased at a similar rate. In year two of the intervention group's exposure to the AQC, this difference was reduced to $51, constituting a significant differential change of −$99 or a 3.4% savings relative to an expected quarterly mean of $2,895.

Savings in the first year were not significant, and second-year savings derived largely from lower spending on outpatient care, especially for beneficiaries with five or more conditions. The researchers concluded that the AQC was associated with lower spending for Medicare beneficiaries but not with consistently improved quality.
In another study, researchers found that in five markets around the country, ACOs were providing care to more than half the Medicare patients in the traditional FFS program.2 In addition, ACOs were more likely to be found in markets with greater consolidation by hospitals and doctors.

Researchers with Rand Corporation and Harvard University identified five markets where more than half the traditional Medicare beneficiaries were served by Medicare ACOs, either those participating in the Medicare Pioneer program or the Medicare Shared Savings program. In another 26 hospital markets, Medicare ACOs served up to half of seniors in traditional Medicare, the study found.

References
1. McWilliams, JM, Landon BE, Chernew ME. Changes in health care spending and quality for Medicare beneficiaries associated with a commercial ACO contract. JAMA 2013;310(8): 829-836.

2. Auerbach DI, Liu H, Hussey PS, et al. Accountable care organization formation is associated with integrated systems but not high medical spending. Health Aff 2013;32:1,781-1,788.

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Satellite Clinics and Health System Mergers

Here's an interesting short article from Jim Ellis' blog:

Two Reoccurring Medical Real Estate Themes | Satellite Clinics and Health System Mergers

I’ve been noticing two reoccurring themes in medical real estate: satellite care clinics and consolidation of health systems and physician practices. Both of these issues correlate with the unknown long term effects of healthcare reform as hospitals implement provisions and transform their organizations into more efficient care entities.
 
“When its doors are open, the new satellite emergency center will expedite the delivery of high-quality emergency services to patients from surrounding communities,” said Mark Adams, CEO at Ogden Regional Medical Center. Adams had a helping hand in deciding where MountainStar Healthcare was going to develop their second satellite emergency department (ED) location to serve the growing community in Northern Utah. MountainStar Healthcare’s parent system, HCA, tapped into the national trend of seeking treatment in primary care and outpatient clinics. After the success of their first satellite ED, they’re putting in another location to meet the increase in demand for emergency medical services.

Why a satellite ED and not another type of clinic? Satellite EDs can cater to a wide scope of patients’ emergency needs more so than urgent care and ambulatory surgery clinics. Staffed by board-certified emergency specialists, satellite EDs remain open 24 hours, 7 days a week, providing convenient and quality care to people in rural settings as well as urban. Other benefits of satellite EDs include:
  • Lessening demand on surrounding emergency departments.
  • Decreased wait times for patients.
  • Allows emergency crews to deliver patients and return to the field more quickly.
  • Better meet the communities growing emergency care needs.

The second theme that’s been dominating healthcare headlines is the growing number of health mergers and consolidations between health systems and physician groups. Health system mergers are taking place continually across the country such as Jewish Hospital & St. Mary’s HealthCare Inc. merging with Saint Joseph Health System Inc. in Kentucky, to the soon to be finalized consolidation of Catholic Health East and Trinity Health, two leading Catholic health systems. The latter merger will result in a health system embracing 82 hospitals and 89 continuing care facilities and home health and hospice programs with operating revenues of about $13.3 billion a year.
Mergers serve to enhance health systems’ ability to develop innovative methods of care, advancing quality measures throughout their now, much larger continuum of care. By pooling together resources, mergers allow for greater standardization, coordination and integration of wellness services. As reimbursement rates are expected to decrease 15-20% by 2014, creating a more efficient and cost effective patient experience will aid in managing population health and sustaining a health organization’s future.

Friday, August 9, 2013, 3:30 PM

Healthcare Real Estate Development: Sweat the Small Stuff

It’s easy to focus on the big healthcare real estate projects.  After all, they tend to receive the most press coverage.  And, as Phil Runkel earlier blogged, Size Matters.  That being said, I encourage you not forget about the not-so-large projects.  As pointed out in Medical Office Upswing, a great deal of healthcare real estate construction (both in development and in upfit) is in the arena of small and mid-sized projects. 

Of course we enjoy the large deals and developments, but there’s much to be said for the not-so-big projects as well.  For example, there’s much satisfaction to be had in helping a group of Doctors purchase and develop their own medical office building.  Often such projects not only help a practice group’s long term success, but also help increase patient access to healthcare.  Such projects can even help decrease healthcare costs, by moving certain services to lower cost square footage.

If you’re in healthcare real estate for the long haul, consider keeping in mind the small and mid-sized projects as well.  Many believe that we will see more and more of these developments (even for the large healthcare providers), as providers develop more off-campus and secondary and tertiary markets in their efforts lower costs and increase patient convenience.

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