ULI Houston Monthly Luncheon

Marketing Coordinator Erica Weitzel of W.S. Bellows Construction and Project Manager Traci Koenig of Knudson, LP volunteering as part of the ULI Young Professionals.

ULI Houston hosted a panel discussion on “Development Strategies for a New Era of Healthcare” at the Junior League today, and the panelists presented some great information in a Q&A format.  Knudson was there and thought that we ought to share this information with you.

The over-arching themes of the discussion were:

1.  In the future, medical care will focus on quality rather than quantity of service (unlike the current fee-for-service system).

2.  The trend in medical development is to go to the patient rather than expecting the patient to come to the facility.  Thus, systems are expanding into the suburban communities, sometimes using retail properties as a home base to avoid ground-up development.

3.  PEARLAND! Every panelist mentioned their expansion into the Pearland market.  It makes sense when you consider Pearland’s demographics and proximity to the Downtown and Medical Center areas, but it still caught me by surprise how many times the name came up.  Good for you, Pearland.

Below is a paraphrased summary, for your consumption!


Marshall Heins – Memorial Hermann Healthcare System (MH)

Lisa Helfman – Texas Children’s Hospital (TC)

Tanner McGraw (Moderator) - Marcus & Millichap

Nick Ro – Kelsey-Seybold Clinic (KS)

What is happening in each of your systems?

TC: TC is opening a women’s pavilion and expanding into OB/Gyn services. Have also opened a new community clinic in Pearland.

KS: KS is 100% outpatient; no beds. Looking at getting out of older properties and campus facilities. Leaving the Medical Center and have 6k SF under design and construction. About to start new Pearland clinic and expanding into Clear Lake. New facility to house 800 admin staff in Pearland.

MH: 21k employees, 14 hospitals.

Can you give a 2 minute version of the potential effects of the Affordable Care Act?

KS: The legislation mirrors Massachusetts’ health care plan. KS has followed the development of the Massachusetts plan since it was implemented. Physician visits have increased because ppl who didn’t have insurance now do. Since the act, physician visits have increased 18%. ER visits have declined as well (although they have gone up in Texas in the same time period).  If the Affordable Care Act goes into effect, about 500k people in Houston will have insurance that did not have it prior to the act, which will serve to increase physician visits and be a boon to the KS model.

MH: About 3k hospital beds per day go unoccupied in Houston. This suggests an excess of beds, so there may not be a need to build new facilities. Concerned because the Affordable Health Care Act uses Medicare to fund through reduction of Medicare reimbursements; hospitals and physicians will make less on Medicare reimbursements, so they will make less money overall. Some physicians may decide to stop taking Medicare patients. In the future, the government will award quality and cost. Inpatient visits in Houston are currently flat. The passage of the Affordable Care Act may increase those visits, but it may not increase the bottom line. Hospitals and physicians have to be cognizant of costs; they can’t afford for expenses to increase if visits increase.

How is your organization focusing on efficiency?

TC: Reimbursement method changing from RBU to DRG. To reimbursement based on diagnosis rather than on the care that is given.

MH: Medicare Profitability Task Force. Studying how other hospitals are able to break even or make money on Medicare. Looking at ways of driving down costs. MH is self-insured. Hope to hire physicians on salary. Perhaps consolidate services to become more efficient; balance of convenience for patient with efficiency.

KS: Somewhat contrarian in their model. Their mission has always been efficiency. A fee-for-service basis results in an over-production of services that aren’t needed. KS already reduces that inefficiency everywhere possible. More and more payers are focusing on quality. Seeing a long-term trend where the provider assumes the risk for the end users (i.e. pay $350 a month directly to a provider and have care provided).

What will modern facilities look like moving forward?

MH: MH has 2.5 MM SF of medical/office buidlings (MOB). All full. There is a decline of physicians entering the market due to the uncertainty of the Affordable Care Act. In terms of design, new development of MH suburban MOB facilities or big box facilities are trending to tilt-wall. For medical facilities, the focus is on redeveloping/renewing existing properties. Suburban properties are in a constant state of renewal. Not a lot of new development. Using retail facilities on a lease basis- MH does not want to be in the real estate ownership and landlord business.

TC: No tenants in MOB. TC’s MOB are core assets since they are housing all of TC’s own people. TC uses retail facilities on a lease basis as well. They don’t want to own those community facilities; it doesn’t behoove TC to own a bunch of satellite properties in various communities. TC is focused on trying to find synergies between different departments and leverage their footprint so that they have bigger footprints in each location. For example, OB/Gyn and pediatric services are a great pairing. TC is taking over the Borders space at Kirby and W. Alabama with a combination OB/Gyn and pediatric facility. Marriage of services leads to faster appointment times, easier access, better parking, etc.

KS: KS has scrapped the old process of 100% consensus on design with all doctors in the space. All facilities have to be attractive and they are now uniform in size with a grid system and straight corridors. No more administrative suites because they waste space. Pods allow for ebb and flow.  The uniform design allows for easy replicability and lower architect fees!

Why the uptick in medical use of retail facilities?

TC: Use of retail spaces in suburban locations allows TC to offer the service without conducting ground-up development. Retail spaces (particularly parking) can be more expensive than MOB, but depends on location and services to be offered.

MH: MH has CCC (Convenient Care Centers). Big box centers will provide for physicians, radiology, ER, and PT. It is essentially providing a smaller version of a hospital. Use of retail space allows MH to be close to their customers. It is less expensive than building a hospital due to economies of scale and design. Tilt-wall is cost-efficient. You will see a lot of 10 yr terms w/5 yr renewal options. Large medical tenants want to be in the area 10-20 years; they don’t want to have to pick up and move.

Where do you see geographic growth for the med community?

TC: Woodlands and West Houston. Targeting young families. TC also has facilities coming online in Kingwood.

MH:  Agrees on Woodlands and West Houston.

KS:  Looking to expand in the Clear Lake area and eventually in Pearland.

How can you (vendors, developers, landlords) earn their business?

TC: TC is looking for partners who share TC’s values and ethics, first and foremost. Healthcare real estate is becoming more sophisticated. Lisa can be described as demanding but loyal. TC expects a high quality of service from their consultants and landlords.

KS: Efficiency is key. Cut out the waste so that the wheel is not constantly being reinvented. Minimize extra fees, reduce the need for outside counsel.

MH: MH likes to be recognized for its size and capacity to purchase in large quantities. MH maintains a close stable of vendors they prefer to work with.   They are looking for the best value- everything is a competitive bid through vendors in the stable. Openings in the stable occur if someone falls out due to problems.

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