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Sunday, 26 October 2014 22:00

Medical office market capitalizes on trends to consolidate health services

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Health systems are increasingly consolidating services into large new medical office buildings clustered near population centers. The buildings feature a rich mix of technology that helps the systems quickly and cost effectively serve patients. Health systems are increasingly consolidating services into large new medical office buildings clustered near population centers. The buildings feature a rich mix of technology that helps the systems quickly and cost effectively serve patients. COURTESY PHOTO

Over the last five years, health systems across West Michigan and nationally have taken steps to correct a key problem they diagnosed within their footprint of medical office buildings.

Rather than send patients to facilities scattered over a wide region, local health care providers are finding that consolidating those dispersed offices under one large roof can go a long way in cutting down on costs while also providing a better patient experience.

The consolidation means that Spectrum Health’s campus along Michigan Street in downtown Grand Rapids or Metro Health’s new Wyoming campus will largely serve as the destination for patients who are very sick or who are in need of very specialized treatment, executives said.

A majority of doctor’s visits and procedures can be performed at new facilities where health systems are consolidating services in key areas in the metropolitan market near large centers of population. Health care providers say the move allows them to be more cost effective and more accessible for patients.

“Much of it is about being able to provide facilities that are very convenient for our patients,” said Rick Redetzke, vice president of facilities and real estate at Spectrum Health. “To pull up next to a facility close to your home is a completely different experience than trying to navigate a parking ramp downtown at our medical center.”

At Spectrum, the trend toward centralized facilities led to the construction of its Integrated Care building on the East Beltline Avenue northeast of Grand Rapids. The Integrated Care facility, or “Beltline Campus” as Redetzke called it, is the result of Spectrum closing about five of its scattered medical office buildings along the East Beltline corridor and bringing them under one roof with a larger footprint.

“Now it’s truly an integrated care campus where a patient sees his or her primary care physician and can get everything from labs to imaging to specialty consults right there and not have to navigate multiple buildings,” Redetzke said. “From a patient experience, it’s obviously tremendously better.”

In building the 120,000-square-foot Integrated Care facility, Holland-based Elzinga & Volkers Inc. sought to create a modern medical office building (MOB) that brought together cutting-edge technology that can simplify and streamline medical processes, said president and CEO Mike Novakoski. The facility was designed to have a bright, well-lit atmosphere that helps create a welcoming environment for patients, he added.

Patients check into the facility using digitally automated kiosks in the lobby that can quickly assist in getting them to their needed practitioners, Redetzke told MiBiz, noting that the cost-saving technology has been well-received by patients of all ages.

CONVENIENCE FACTOR

Redetzke’s point of trying to improve the patient experience corresponds with broader trends occurring in the medical office market, according to one West Michigan architect.

“(T)he philosophy these days is for larger facilities … that are more of a one-stop shop (that’s) trying to make it easier for patient access, patient care and patient experience,” said Bjorn Green, a principal at Grand Rapids-based architecture firm TowerPinkster who leads the firm’s medical division. “Patient-centered care is really what everyone is driving to.”

That’s led to a healthy market for medical office construction over the past couple of years, said Novakoski of Elzinga & Volkers.

“Health care in general is a reasonably strong market for us and it has been one of our primary markets,” he said, noting the contractor is working with most of the major health systems across the region.

The Spectrum project is far from an anomaly in West Michigan. Last year, Metro Health opened a similar “ambulatory facility” at Cascade Road and I-96. Likewise, Mercy Health Saint Mary’s worked with Rockford Construction, Highpoint Real Estate and Development and Integrated Architecture on the 70,000-square-foot Mercy Health Rockford Campus at Northland Drive and Seven Mile Road in Plainfield Township. The facility houses primary and specialty care physicians, plus urgent care, a diagnostic lab, and radiology services.

Lead Physician Dr. Jerry Durfee previously told MiBiz that the center is designed to improve access to care for Mercy Health patients in northern Kent County by deploying and providing an array of medical services at a single location.

“Patient convenience and patient access is probably the biggest driving factor there,” he said at the time the project was announced.

A NEW LANDSCAPE OF REFORM

A focus on the patient experience is just one of the drivers for the construction of new medical office buildings.

In its 2014 outlook, the national office of Colliers International highlighted that health care reform in general and the ramped-up implementation of the Affordable Care Act in particular serves to underscore a need on the part of large health care systems to innovate and consolidate.

The report noted that the ACA will insure an additional 32 million people as a short-term driver, and that by 2029, more than 20 percent of the population will be 65 or older and in need of more medical services. Nationally, medical buildings account for about 25 percent of all new office construction, Colliers stated in the report.

While the costs of complying with provisions in health care reform laws is also driving more doctors to join medical groups affiliated with major health systems, developers say there’s still a market for independent medical office buildings, like the one First Companies Inc. recently broke ground on at the corner of Burton Street and East Paris Avenue.

Once completed, the second phase of its Heritage Pointe development will consist of three new medical office buildings comprising 80,000 square feet of space intended for independent medical practitioners, said Craig Baker, vice president at First Companies, a Grand Rapids-based contractor and development firm.

The company believes Heritage Pointe’s location between the Forest Hills/Cascade area and East Grand Rapids offers a lot of advantages for some of the potential medical tenants, which will largely be specialized practices such as dental offices, Baker said.

“We’ve seen good absorption and growth,” Baker said of First Companies’ health care facilities. “A lot of it has to do with location. If you get the right location, there is still activity. We see the East Paris corridor near Cascade (as) a very active medical community.”

RENT OR OWN?

While health systems such as Spectrum work to consolidate facilities within their own networks, executives there say those moves are occurring in tandem with another key discussion.

Health systems in West Michigan and around the country must consider the question of whether they should own their real estate and buildings or rather lease space and be tenants.

The answer comes down to a case-by-case evaluation, sources said.

“In many cases, we will own and in many others where there’s a likely partner or a certain location with an existing building, we are open (to leasing),” said Mike Faas, president and CEO of Metro Health. “I honestly don’t think there is one right answer in any circumstance.”

In certain rare instances, real estate investment trusts (REITs) have gotten into the medical office building market in West Michigan. As MiBiz previously reported, Metro Health sold its Wyoming Cancer Center to New York City-based American Realty Capital Healthcare Trust Inc. for $6.2 million in 2013.

The REIT also acquired the building that housed Spectrum Health’s West Pavilion on Wilson Avenue in Wyoming last year. The health system never owned the facility and was just a tenant when it was sold to American Realty, Redetzke said.

Like Metro, Spectrum evaluates whether to own or lease a facility as each new project comes up, Redetzke said. Currently, West Michigan’s largest health system has been moving more toward the ownership model, he said.

COOLING PERIOD?

Despite positive growth in the medical office building space over recent years, sources now think the market for new construction may soon experience a plateau.

Many of the large health care providers have met their needs over the last couple of years, said Novakoski of Elzinga & Volkers. That could lead to the pipeline of medical office projects cooling off in the near term, with the exception of some basic renovations, he said.

“They’ve satisfied their immediate need, so things will probably slow down,” Novakoski said. “(Medical office building work) is slowing down a bit.”

Green of TowerPinkster agreed.

“There were more projects just a couple of years ago,” Green said. “A lot of capital dollars have to go into facility improvements and enhancements. We’ve seen a lot of those capital budgets get cut in half or more just because they are taking their dollars and moving them to other resources.”

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