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Healthcare Trend Update: The Shift to Outpatient Settings

One of the hottest trends shaping healthcare real estate is the shift to delivering medical care in outpatient settings. Ultimately, this trend is being driven by three factors: an emphasis on driving down costs, the rise of the healthcare consumer, and an aging population.

In this excerpt from our report titled Healthcare Real Estate: A U.S. Market Update, we explore each of the factors further to better understand the outpatient facility trend.

Factor #1: Emphasis on Lowering Costs

Much has been written about high healthcare costs in the United States. In response to these rising costs, industry leaders and even non-traditional players are seeking ways to drive down costs and make healthcare services more affordable.

The industry is seeing vertical integration of managed care companies with primary care providers, home health companies, and payers looking to lower their cost by delivering care in patients’ homes and in their communities rather than through inpatient hospital and emergency room settings. The reason is simple: “Outpatient centers are often less expensive to construct and operate than traditional hospitals,” notes JLL.

The emphasis on lower costs and the rise of new non-traditional competitors creates a difficult environment for health systems. The national occupancy rate for hospitals has declined from 77 percent in 1980 to 61 percent today, putting pressure on margins.

Furthermore, in response to real and anticipated regulatory and fiscal challenges, health systems are consolidating within markets and increasingly across markets. Mergers and acquisitions between healthcare providers have led to larger and stronger competitors – compounding the issue and making cost reduction even more imperative. Once again, outpatient facilities are seen as the key to lowering costs and maintaining market share in the face of strong, new competitors.

Factor #2: Rise of the Healthcare Consumer

The second factor driving the increased demand for outpatient real estate is the rise of the “healthcare consumer” – patients who seek the type of experience common in retail and other industries. They want convenience. They want to know up front what the cost of services will be.

Outpatient facilities are one of the ways organizations are responding to new consumer demands. Because of their relatively small size, outpatient facilities can be strategically located throughout a service area to improve ease of access and convenience. Furthermore, as discussed previously, outpatient facilities typically have lower costs, which is a win for cost-conscious consumers.

Non-system healthcare providers have been quick to capitalize on this trend. Building networks of small, branded facilities that offer specific services – from dentistry and vision care to imaging and physical therapy – is an increasingly popular strategy.

While specialty health providers are thriving in the new environment, health systems once again face challenges. As Davis explains:

“Today there are more options for the consumer than ever before. More players are raising capital to build and expand the footprint of higher margin services as opposed to building out infrastructure for a primary care, specialty, and hospital hub-and-spoke model. Large systems will need to continue to invest in areas such as urgent care, freestanding emergency, and imaging to keep patients within their networks.”

Factor #3: Aging Population

Consider these facts:

  • The U.S. population of those age 65 or older is projected to nearly double by 2050.
  • Seventy-three percent of healthcare spending comes from people ages 50 and up.

Since healthcare spending is strongly correlated with age and the U.S. senior population is growing rapidly, demand for healthcare is also rising. Once again, outpatient facilities are expected to be an important part of the solution.

In an interview with Forbes contributor Brad Thomas, Scott Peters, CEO of Healthcare Trust of America (HTA) shared his prediction for how the healthcare industry will rise to the challenge of caring for an aging population. He stated, "I believe much of this increased care will take place in lower cost outpatient settings, which should continue to support MOB demand in the long term on an absolute basis, as well as relative to other health care properties. But not all medical office buildings will be located in the best places to take advantage of the economic benefits over the next 20 years.”

In other words, the placement of outpatient facilities will become even more important than the facilities themselves as America’s population ages. This trend will favor healthcare organizations who leverage site selection tactics common in consumer-oriented industries. 

The Bottom Line

The rise of outpatient facilities is a healthcare trend that’s here to stay. Does your organization have the insights you need to execute a successful outpatient expansion plan?

Gain more market insights and learn site selection best practices for a new era by downloading Buxton’s complete healthcare real estate report.

Journey Awareness Persona C-Suite/Finance Real Estate Healthcare