Thought Leaders: (Re)tailoring Care (Avison Young)

The consumerization of care will drive healthcare real estate for the next decade

The healthcare industry was thrown into turmoil by the COVID-19 pandemic, which interrupted years of steady growth. While many hospitals faced seasons of overwhelming strain as they treated infected patients, demand for unrelated services (and especially non-urgent care) plummeted as consumers postponed preventive care and elective procedures. According to the US Census Bureau’s Quarterly Services Survey, revenue for ambulatory services declined by 15% year-over-year during Q2.

But by the end of 2020, the revenue trendline shifted back to normal, and most of the jobs shed during the spring and summer returned—faster than in most others that suffered losses. The fundamental demographic drivers of healthcare are still strong. The US Census Bureau projects that 20 percent of the population will be aged 65 or older by 2028, helping to push national healthcare expenditure (NHE) to an estimated 20 percent of GDP the same year according to the Center for Medicare and Medicaid Services (CMS).

But if the quick bounceback underscored a positive long-term outlook for healthcare, the short-term blip accelerated the impact of market forces that will change the industry even as it expands. The consumerization sweeping the sector will impact healthcare real estate as it modernizes both its stock and strategy in the next 10 years.

The Forces of Consumerization

Coverage
The first major force is the increase in healthcare consumers who both desire care and have the insurance coverage to pay for it. Since 2010, the Affordable Care Act has added an estimated 20 million Americans to insurance rolls, reducing the percentage of uninsured from around 15 percent in 2010 to under 10 percent today, according to the Kaiser Family Foundation. And the Congressional Budget Office (CBO) projects that recently passed American Rescue Plan will add 2.5 million more by 2023.

The legislative requirement of first-dollar coverage for preventive care will keep bringing new consumers come into the system. These new consumers shop not so much on price (yet—see below), but on other factors, like convenience and experience. The COVID-19 pandemic accentuated a reality that is likely to persist far into the future: Nobody wants to go to the hospital, particularly for ambulatory care. A convenient location will thus be a crucial element of customer acquisition going forward.

Interoperability
Data interoperability is another factor driving healthcare providers to be more consumer-oriented. As defined by the 21st Century Cures Act and denoted on HealthIT.gov, the term “interoperability” refers to technology that supports secure information sharing among healthcare providers on behalf of patients, with their consent and without any special effort on their part. In the last several years, patient portals and standardized electronic health records (EHR) systems have become far more prevalent, laying the groundwork for faster, more accurate information exchanges. During the pandemic, many additional consumers were forced to adopt digital and other “contactless” data sharing in all aspects of their lives, including healthcare. The primary purpose of data interoperability is, of course, better health outcomes. But a greater comfort level with authorizing information sharing will also push providers to deliver a seamless care experience for consumers.

Transparency
The third consumerizing force now impacting healthcare is pricing transparency. As of January 1, 2021, CMS requires hospitals in the US to publish digital pricing information for a standardized set of healthcare services. This is an important step toward the kind of transparency that empowers consumers to make educated choices that account for quality and cost. It will also add competitive pressure to providers in their negotiations with payors (both private insurance companies and Medicare/Medicaid), even as they seek to grow their customer bases.

How Healthcare Real Estate Adapts

As the healthcare industry adjusts to consumer preferences, real estate will play a major role. According to IFMA, 85 percent of the current stock of healthcare facilities was built during the second half of the 20th century. This was at a time when the convenience of providers was more important than that of patients in location selection: Hospitals and their attending physicians wanted to stay close to each other. But as existing healthcare buildings approach the end of their useful lives, consumerization has turned this paradigm on its head.

Location
As already noted, convenience is a vital competitive factor in the fight for market share. More and more, healthcare consumers want to access preventive and other ambulatory care near where they live, work, and play. Healthcare practices striving to be closer to their customers can look to retailers for inspiration in their approach to location strategy. For decades, retailers have examined factors like demographics, traffic patterns, and tenant mix in order to maximize their reach. Healthcare providers must now do the same.

With certain real estate segments struggling mightily in the wake of the COVID-19 pandemic, some providers will look at retail-to-healthcare and office-to-healthcare conversions. Many retail sites that currently sit empty are nevertheless well located in convenient, high-traffic areas with ample parking that are surrounded by attractive demographics. Similarly, under-utilized offices tend to be in highly accessible locations near retail and other amenities. Such conversions have challenges, but they merit consideration.

Experience
As the trend in retail has moved toward customer experience, so will the trend in healthcare. One implication is the presence of amenities. Whether by virtue of a location amidst preexisting shopping and dining options or due to onsite development, an amenitized experience will be table stakes for many healthcare consumers.

Another aspect of both convenience and experience is the combination of services available at a single location. No consumer wants to make multiple stops around town to visit a primary care provider, a specialist, an imaging center, and a pharmacy. Colocation of related services—supported by seamless sharing of interoperable data—will be another dimension of competition. This could be accelerated further if and when more healthcare systems adopt a capitated reimbursement model, as opposed to the traditional per-provider fee-for-service model.

The most important part of the experience, of course, is what happens within the building. High-quality buildouts, intuitive wayfinding, and short wait times will be imperative. A logical progression from reception to examination, aided by digital and touchless technology, will also be important. And then there is the enablement of telehealth visits, which might be the best consumer experience of all…

Telehealth
According to McKinsey, nearly half of follow-up physician “visits” were accomplished via telehealth during the pandemic. Other types of telehealth (such as new patient meetings and pre- and post-op consults) increased by 10x or more. Surveyed physicians expect telehealth to account for 10-20 percent of visits in the future, compared to less than 5 percent prior to COVID-19.

Telehealth appears to have staying power. The consultancy Frost & Sullivan predicts that global telehealth interactions will account for $50 billion in market value in 2021. But its impacts on healthcare real estate are uncertain. Clearly, some practice types (such as mental health services) and visit types (such as post-op follow-ups) are more conducive than others to telehealth. Meeting and monitoring technology can extend this further. But most patients will still need to be physically present for at least a portion of their care journey.

If telehealth mitigates the demand for space at all, it seems likely to do so only to a small extent. If anything, it may allow physicians the opportunity to expand their customer bases and increase their efficiency while still maximizing their existing space. It is also possible that telehealth could increase demand, especially if providers need dedicated “studio” space to enable comfortable, secure telehealth visits. The best prognosis is that telehealth will be another item in the competitive toolkit for providers.

A Healthy Outlook

Though the global pandemic presented healthcare professionals with a host of unexpected challenges, the long-term outlook for the industry is very positive. Demographic and technological trends are moving the industry toward new ways of generating both healthy outcomes and economic value.

Accelerated consumerization in the industry means that providers have exciting new choices to make as they grow their practices and serve their communities. With the dimensions of convenience and experience playing so important a role in attracting consumers, real estate will be a crucial part of the competitive landscape. The time is ripe in the next 10 years to transform an aging healthcare real estate infrastructure into one that serves the marketplace for this generation and the ones to come.

Phil Mobley
US Occupier Research
Research
Boston
200 State Street
Floor 15
Boston, MA 02109
Main Line 617.250.7600
Direct Line 617.250.7596
Mobile 404.202.9316
Email phil.mobley@avisonyoung.com

Phil has served the commercial real estate (CRE) industry as a researcher, consultant, and product innovator for over 15 years. He specializes in providing analyses that help the industry deliver high-value workplaces for tenants, a need that continues to accelerate.

As Director of US Occupier Research at Avison Young, Phil shapes and leads the firm’s approach to understanding occupiers’ businesses and their dynamic need for commercial space. His work supports multiple business lines by identifying new ways to serve both landlord and occupier clients.

Prior to joining Avison Young, Phil was Head of Research at Building Engines, a CRE operations software provider. His thought leadership uncovered new tenant expectations that will continue to revolutionize the way office workers interact with commercial buildings. He also led the team that developed Bengie™, the CRE industry’s first customer service chatbot for tenants.

Phil’s earlier career includes stints at Kingsley Associates, the industry’s leading provider of insights into tenant satisfaction; Deloitte Consulting; and Koine Communications, an independent consultancy he founded in 2014.

An active member in the Building Owners and Managers Association (BOMA), Phil is a frequent speaker CRE events and a regular contributor to industry trade publications. He holds an MBA and a BA in political science, both from the University of South Carolina.