Big Boxes (April 2006)

Borrowing a page from retail




By Jessica Griffith


The Health & Wellness Center by Doylestown Hospital in Doylestown, Pa., combines medical services such as diagnostic imaging and rehabilitation with a fitness center, spa and multiple doctors’ offices.

It’s also a nice place to grab a bite to eat.

“There’s a garden and fountain in the center, and the UPS guy often stops there and has his lunch,” says Paula Crowley, CEO of Anchor Health Properties in Wilmington, Del. Anchor Health develops, builds and owns healthcare properties that are designed and marketed using principles borrowed from successful retail projects.

“Healthcare consumers value what all consumers value: convenience and customer services,” Ms. Crowley says. “We’re rethinking how hospitals put their products and services into the community.”

These types of projects answer to several names, including “big-box” healthcare and the “retailization” of healthcare. No matter what the term, the goal of such ambulatory facilities is to better attract physicians and patients through incorporating elements of retail development.

This is not limited to the occasional florist or cafe, although some of these complexes include shops and restaurants in the mix. Instead, the philosophy goes beyond storefronts to determine which assets will bring consumers to the front door.

The next step

Big-box healthcare is an offshoot of the ambulatory care trend that began in the 1980s, when urgent care centers began showing up in neighborhoods separate from acute-care hospitals, says Thomas O’Donahoe, executive managing director of Crimson Healthcare in Houston.

“That was the first sign that we were beginning to access our medical care in a different model, as opposed to going to the heart of the medical center,” Mr. O’Donohoe says.

In recent years, ambulatory surgery centers have appeared in many markets as technological advances allow procedures to take place outside hospital walls.

The big boxes are the next iteration, and they started to appear about 10 years ago, says Ron Smith, principal with Frauenshuh Healthcare Real Estate Solutions in Bloomington, Minn. Prior to that time, medical offices contained some specialty services but were not organized around patient convenience.

“You might have had a medical office building with a surgery center and another location housed the imaging center,” says Richard Wicka, principal with Frauenshuh. “The boxes aggregate all outpatient services in a single location, in a facility that is designed appropriately and is presented to the healthcare community in a retail way.” 

That presentation extends to marketing, adds Ms. Crowley of Anchor Health. Ten or 15 years ago, it was uncommon to see billboards advertising healthcare facilities. Now, those companies are reaching consumers through magazine ads and other traditional marketing tools.

Not your dad’s MOB

Medical office buildings (MOBs) long have housed doctors’ offices of all types. Big boxes expand on this concept by combining multiple types of medical care into one building. The services are integrated in a way that the patient does not perceive multiple medical practices but a single, convenient clinic.

“They are aggregations of high-dollar, per-square-foot specialty services,” says Daniel K. Zismer, executive vice president of Essentia Health and CEO of Essentia Health Consulting in Duluth, Minn. “They’re designed to draw patients directly; it is more of a direct-to-consumer approach.”

In Mr. Zismer’s definition, big boxes house few, if any, primary care physicians. Instead, the space is devoted to revenue-producing ambulatory care that can be lifted from the hospital setting, such as radiology and imaging, as well as certain types of surgery and rehabilitation services. Conveniences for the patient might include pharmacies, optical shops, even a gym or health education center.

Other big boxes bring family medicine and even urgent care into the mix, Mr. Smith says.

“It’s the difference between vertical and horizontal,” he says. “Hospitals deal with the horizontal patients and with a lot of outpatient services mixed in. That can create confusion. They are trying to create better separation between outpatient and inpatient.”

Most big boxes are located in a highly visible area with plenty of parking spaces and a valet parking service, Mr. Zismer says.

“The design is patient-friendly, much more so than at a hospital,” he says. “When you go inside, it all appears seamless to the patient, with one major reception area and unified billing.”

A stylized atmosphere is so important that Ms. Crowley starts her projects not with an architect’s drawing, but with a vision of a brand. She talks to her healthcare clients about what they want to achieve with each project, and what environment executives want to create for patients.

The right site

Site selection is a critical part of the plan.

“Healthcare projects often were put in the back of an office park or on a healthcare campus in an area that was hard to find,” Ms. Crowley says. “We think about location like a retailer, and we think of the project as a branch store. We want it to be as accessible and convenient as possible.”

Developers also are considering healthcare big boxes in their plans for certain commercial projects, Mr. Donahoe says. The driver is the number of rooftops, because consumers want healthcare services that are easily accessible. Big boxes tend to be built in areas with significant population density. Healthcare organizations also may build them in newer bedroom communities that do not yet have medical services available.

“You won’t see one in the middle of a Wal-Mart parking lot, but in time, more mixed-use developments will incorporate healthcare and consumers will continue to embrace that model,” he says.

Who pays?

Big-box developments usually are driven by the healthcare system, sometimes in partnership with physicians’ groups. Some healthcare companies finance the boxes while others seek off-balance-sheet financing, such as having a developer build and own the facility.

Investors also are more amenable to off-campus medical facilities than they were a decade ago.

“They are willing to invest in medical offices in neighborhoods, where in the past they would be concerned about the investment if it was not connected to a medical campus,” Mr. O’Donohoe says.

Whether the model affects the cost depends on the developer’s approach and perspective.

“If you put a traditional MOB on the left side of the spectrum and an inpatient hospital on the right side, then ambulatory care would fall in the middle in terms of cost,” Mr. Wicka says.

Mr. Zismer says facility costs are not particularly important because the services in the big boxes generate more revenue. Hospitals also view the boxes in terms of strategy.

“There are many more options for partnerships between not-for-profit hospitals and physicians in the big boxes than if they try to do them between the four walls of a hospital,” Mr. Zismer says. “You have more legal and regulatory flexibility.

“The alternative is to lose those services to physicians who will organize outside the hospital and do it themselves.”

Big boxes allow hospitals and doctors to collaborate rather than compete, Mr. Wicka adds.

A lack of capital in the healthcare industry is a significant driver for this type of project, Mr. Smith adds. Hospitals want to focus their financial resources on inpatient care and technology, and they are more strategic in the way they build capacity. Big boxes allow hospitals to move services outside the acute-care model, where it is less expensive to provide care.

“You’re taking the vertical patients off the campus,” Mr. Smith says.

Seamless service

When a patient visits a typical MOB, he or she checks a directory on the first floor, finds the doctor’s suite number and then takes the elevator and walks down a hallway to find the offices. Big boxes remove the hallways and many have a concierge service to direct patients to the right floor and practice.

“The underlying foundation of this new model is that it is integrated from the moment the consumer steps in the door,” Mr. O’Donohoe says.

“When the patient goes inside, everything appears seamless,” Mr. Zismer says. “While there might be multiple partnerships inside, that is invisible to the users. They see one brand, one major reception area and unified billing.”

Big boxes also take into account the mix of services, Ms. Crowley says.

“You want to group things together that make sense within a project,” she says. For example, an orthopedics practice might also want radiology and rehabilitation in the building, because orthopedics patients often need X-rays or physical therapy.

The buildings’ design also takes customer comfort and convenience into account. Clear signage and wayfinding help patients navigate the buildings and some projects even employ sign consultants. Privacy is paramount, and surgical and imaging and surgery areas are designed so patients do not have to wait in a public area while wearing a hospital gown.

Patients have more options now, with consumer-directed health plans and insurance that allows them to choose doctors and other healthcare providers, Ms. Crowley says.

“You want to give them a reason to choose you,” she says.

The future of the box


Big boxes are a natural evolution of healthcare development, Mr. O’Donohoe says.

He expects to see even more big boxes as medical technology allows doctors to perform additional procedures outside hospital walls.

No single region is embracing the concept, and Mr. Smith says some markets are a decade ahead of the norm, while others are ten years behind the ambulatory trend. Still, he expects all healthcare companies to increasingly focus on the strategy behind their new facilities, and to accede to patient demand.

“I think we are going to see hundreds of them,” Mr. Zismer says. “This is a good, competitive strategy and the big boxes can provide high-tech services at a lower price point than a hospital.” q

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