Outpatient Projects: MOB to grow into outpatient campus

In growing Howell, Mich., MedCraft and partner Welltower open facility for Ascension Health

By John B. Mugford

While the grand opening of a 60,000 square foot medical office building (MOB) in the exurbs of a large metropolitan area is certainly big news locally, such an event is not likely to garner national headlines or attention.

However, in the case of the recent completion of construction and the subsequent opening of Ascension Medical Center, a $13.5 million MOB just off the Latson Road exit of U.S. Interstate 96, there are at least a couple of reasons why the event is big news in the healthcare real estate (HRE) sector and for the organizations involved.

First, the opening of the MOB represents a big move by Novi, Mich.-based St. John Providence Health System, whose nearest hospital, Providence Park, is about 20 miles away, into growing Livingston County, where about 183,000 residents live and Howell is the county seat.

Second, the new MOB, which is home to a number of primary care physicians and services, is just the start of what is expected to grow into a larger outpatient campus on the 15-acre parcel, with the second and third phases expected to include, according to a master plan for the site, an ambulatory surgery center and space for a variety of specialty services.

In addition, the new facility is the first facility in Michigan to be branded with the Ascension name. Edmundson, Mo.-based Ascension is the country’s largest not-for-profit health system and the world’s largest Catholic health system, with more than 36,000 providers at 2,500 sites nationwide, including 141 hospitals and more than 30 senior living facilities.

In late 2016, Ascension announced that it will begin rebranding all of its hospitals as well as all of its outpatient and senior housing facilities on a market-by-market basis over the next several years. Many of those hospitals and MOBs currently carry the name of the local Ascension health system, such as St. John Providence.

The opening of the new MOB in Howell was also big news, of course, for the firm that helped Ascension create the master plan for the site and led the development process: Minneapolis-based MedCraft Healthcare Real Estate LLC, which worked on the project with its longtime financial partner, Toledo, Ohio-based Welltower Inc. (NYSE: HCN). The developer owns the land for the MOB while the health systems has retained the remaining portion.

MedCraft is one of Ascension’s approved development partners, giving it the opportunity to take part in what was a competitive request for proposals (RFP) process to win the development deal. In addition to helping Ascension finalize the master plan for the site, MedCraft will also get an opportunity to develop the remaining two phases of the healthcare portion for the property, which could add another 70,000 or so square feet of space, Eric Carmichael, a principal with MedCraft, tells Healthcare Real Estate Insights^™.

“The rest of the site would be developed with complementary retail and other commercial uses, in large part because it is such a visible, high-traffic location,” he says of an area rife with office buildings, restaurants, a Walmart Supercenter, a Lowe’s Home Improvement store and other commercial businesses.

The newly opened MOB is fully leased, Mr. Carmichael notes, with the providers in the building including a combination of employed and independent doctors or groups. MedCraft’s in-house leasing effort was led by Mike Fleetham, senior VP of development and leasing.

“We have a leasing team that is part of our group, as we think that is important to have that in-house as that team has been doing this a long time and really understands the sector,” he says. “One of the things that we did on this project to attract and recruit physicians to the building was to offer them equity ownership in the building. And it worked out well and really led to the success of the building, as a number of the independent physicians took advantage of that offering and are part owners.”

As far as MedCraft is concerned, offering physicians a chance to acquire ownership stakes in healthcare facilities is one of the advantages that developers can offer to health systems looking at building new buildings.

“Because we’re not a health system, we can offer ownership stakes to physicians and avoid compliance issues,” he says. “Developers are able to make sure that the hospital system is fully protected from such issues related to Stark laws that could be related to physician ownership.”

The new outpatient center mostly offers primary care services, including family practice, internal medicine, obstetrics/gynecology, and pediatrics. It is also home to an urgent care center, diagnostic imaging, a lab, physical therapy, and occupational health. Other specialties offered include cardiology, pulmonology, and audiology.

“Once they establish the primary care practices there, it will drive a lot of specialty care services and physicians to that site,” Mr. Carmichael notes. “And the second phase could include an ambulatory surgery center, and then after that the addition of even more of the hospital-based specialty clinics.”

Thinking strategically

In today’s world of healthcare development, professionals in the sector, as well as health systems executives, say developers need to do more than just build buildings for their clients; they need to provide expertise and advice to help systems strategically grow their brands in the right locations while providing services in cost-efficient, effective ways.

Mr. Carmichael says that’s what Ascension expected from MedCraft in developing the site in Howell, noting that he and the development team worked closely with Joseph Hurshe, president of Providence Park Hospitals.

“What I love about Ascension is that right when we were hired they told us they wanted us to challenge them to new ways of thinking instead of the way they’ve always done things,” he recalls. “We’d told them that we’ve work clients of all sizes all across the country and have our own portfolio and that we would bring to them some best practices that we know how to put in place.”

Among some of those best practices that MedCraft brought to the table included appropriately sizing and scaling the services offered in the building.

“For example, with the urgent care facility we made sure to locate diagnostics, lab services and physical therapy immediately adjacent to it so that as patients checked in and registered, they could go immediately to get their CT exam,” Mr. Carmichael says. “Another example is that the physical therapy center is adjacent to the urgent care facility. We thought strategically about how to organize services with the patients in mind and how to make it easier for them to navigate the building and where they would need to go. We also made sure that as the current services grow on the site and they add ambulatory surgery and other services and facilities that the master plan will work out smoothly.”

Also on the development team were a pair of firms based in Kalamazoo, Mich.: CSM Group Inc. as the general contractor and Diekema Hamann as the architect and engineering firm.

Plenty of competition

The market near Howell, even though it is still relatively small but growing, is quite competitive when it comes to healthcare, according to Mr. Carmichael.

“There are a number of competing health systems there, with at least a couple of hospitals within five miles or so, and several independent physician groups have developed their own projects in that area,” he notes. “So, because there is a track record of physicians developing their own MOB projects, the Ascension and Providence Park evaluated that aspect of it and thought it would be good to bring in an experienced development firm because they knew that they were not only competing against other health systems but also against other independent specialty groups that have developed their own MOB projects within that vicinity.”

Even with the competition, the local community let St. John Providence know that its services would be welcomed.

“More than 250 people showed up at the grand opening,” Mr. Carmichael said. “From what I can tell, the community is really excited to have those services, as well as a future comprehensive outpatient campus, close to where they live.”

For MedCraft, the facility is actually the second it has developed that carries the new Ascension brand. Earlier this year, the company completed and opened the 48,000 square foot Ascension Medical Group at Westwood facility in Wausau, Wis., within a few blocks of a competing hospital. The new MOB will provide services offered by Ascension’s Ministry St. Clare’s Hospital, which is just outside of Wausau in the Village of Weston.

“The new MOB is the first Ascension-branded facility in the entire state of Michigan, and earlier in the year we opened the first branded Ascension facility in Wisconsin as well, which was actually the first Ascension-branded facility in the country,” Mr. Carmichael says. “

“And, we’re developing another Ascension facility, the third in the country, in Derby, Kan., outside of Wichita.”

That facility, a 15,000 square foot clinic for Wichita-based Via Christi Health, part of Ascension, is scheduled to open in fall 2017. The 2.1-acre site includes room for potential growth.