By leveraging the expertise and capital of a trusted real estate partner.
A tradition of coordinating care
Today, health system executives face a challenging “tug of war” just to stay afloat against the strong current of the complexities and mandates associated with the 2010 Patient Protection and Affordable Care Act. In addition to their usual duties that range from planning and setting policies and procedures to overseeing clinical outcomes and quality assurance, executives must also contend with the PPACA. This means that providers face both rising costs and reduced revenues. All of this is causing providers to look for every possible way to improve efficiency and reduce costs while improving the quality of care.
For decades, provider groups like Kelsey have successfully reduced unnecessary services by actively coordinating care among primary care physicians, specialists and patients. The result has been fewer emergency room visits, lower lengths of stay, greater adherence rates among chronic patients, and an overall healthier patient population.
Why not collaborate with a real estate partner?
So why not consider coordinating care in other areas such as real estate? Though many providers might not consider real estate one of their top priorities, it plays an integral role in the delivery of care. To remain competitive, increase market share, and achieve desired clinical outcomes, providers must continue serving their patients in high-quality, conveniently located, and technologically-advanced facilities. In today’s healthcare reform environment, how can providers cost-effectively build new facilities and renovate existing, aging facilities? How can they provide expert, professional property management and leasing services in a way that supports care delivery?
Partnering with a knowledgeable real estate firm can provide many benefits, including bringing new facilities to market faster, which can significantly improve profitability. A strong real estate partner can enable providers to gain a competitive advantage by cost effectively leveraging creative programs for real estate development, financing, acquisitions, leasing and property management.
A real estate partnership model: Health Care REIT & Kelsey-Seybold
Since 2012, Health Care REIT and Kelsey have partnered to bring numerous new outpatient facilities to the Houston market. The relationship serves as a notable example of a successful healthcare real estate partnership. Kelsey has become one of the nation’s premier multi-specialty physician organizations. Today, Kelsey has more than 400 physicians providing primary specialty care at 21 Houston-area locations. In 2012, Kelsey was the first U.S healthcare organization in the nation to receive accreditation as an accountable care organization and is a leading innovator in accountable care.
In 1999, Kelsey opened its flagship 267,000-square-foot main campus, which is strategically located just outside the Texas Medical Center. The campus has proved to be popular with patients as it provides a convenient, one-stop location where they can receive all of their health care services in a single facility. As its anchor location and through its partnership with Health Care REIT, Kelsey continues to improve upon the success of the campus as it is currently in the midst of a 50,000-square-foot cancer center expansion project.
The challenge
In the past, to meet the growing demand for its services and replace aging facilities, Kelsey began constructing several comprehensive outpatient medical facilities in growing areas, usually with a separate development firm and landlord for each project. However, some landlords did not have the capital to fund needed expansions, while others sought higher rents in exchange for funding. It was a cumbersome process.
“It was a very disjointed, fragmented process that wasted a lot of our time and took time away from what we should be doing — taking care of patients,” says Nicholas Ro, Kelsey-Seybold vice president of legal and strategic planning. “We realized that we needed a ‘primary care provider’ from a real estate perspective to manage the entire process, eliminate duplication and waste, and bring new facilities to market faster.”
The solution
After an extensive evaluation process, Kelsey selected Health Care REIT to be its exclusive partner. This partnership has allowed Kelsey to develop, design, construct and lease new facilities without having to negotiate leases or financing proposals with numerous parties. Kelsey identifies a needed project in a strategically significant location, and Health Care REIT negotiates the land purchase, supplies the capital, develops and constructs the building and takes ownership of the completed facility. Kelsey and Health Care REIT then work in close collaboration to deliver a quality final project.
Kelsey and Health Care REIT have developed a multi-specialty care center template design that is attractive, offers patient-friendly, improved workflows to enhance efficiency and collaboration, and that requires 15 percent less space per provider by eliminating space inefficiencies.
“Our architectural and contractor fees are way down since we developed the template because the construction team knows exactly how much building materials to order, what their labor costs will be and how long the process will take,” says Mr. Ro. “We also eliminated legal fees by developing a standard lease form. It’s really important to maintain a low cost structure for physician groups that need to be accountable for the quality and cost of healthcare.”
The results
This real estate partnership has enabled Kelsey to open eight new facilities in just a two-year span. This rapid roll-out of new clinics has resulted in a significant increase in the number of healthcare services Kelsey can offer consumers. In addition, by conveniently locating these new facilities in suburban communities where people (and Kelsey physicians) reside, Kelsey is able to reach many more current and prospective patients while improving consumer access to healthcare.
The new facilities also met Kelsey’s speed-to-market goal. The entire design process now takes one to two months versus the previous time of four to six months. And using a standard lease form, lease negotiations now take 15 minutes compared to the previous two to three months. Incredibly, the 80,000-square-foot project in the Woodlands, Texas took just 16 months from the time Health Care REIT contacted the land seller to the time of opening.
Kelsey also has realized significant cost savings. In total, new facilities are achieving numerous synergies that have resulted in cost savings of approximately 10 percent in the areas of legal fees, subcontractor cost increases, project management fees, and architectural and engineering fees, which has the added benefit of below-market rents for Kelsey.
Most importantly, Kelsey’s expanded network of facilities is driving significant increases in revenues and patient volumes. For example, since opening its highly visible clinic in Pasadena, Texas in June 2013, Kelsey has seen a 41 percent increase in patient visits compared to its prior Pasadena-based facility.
Mr. Ro noted, “We’ve been extremely pleased with our new healthcare facilities. They have an improved workflow, they’re patient-friendly, they went to market quickly and they’re beautiful.”
Tips for finding a real estate partner
So what should providers look for in selecting a real estate partner? Most importantly, the firm should have a long track record of working with providers and successfully bringing new healthcare properties to market. It should also have efficient and effective access to capital.
The firm should be willing to take the time to thoroughly understand the provider’s business plan, goals and mission along with offering flexible solutions that will meet its needs. The firm should have comprehensive knowledge of healthcare trends and issues, be able to help health system’s executives think long-term about their real estate needs and know how to streamline the process to reduce costs.
The bottom line is that the real estate firm should know how to help its clients increase profitability through creative real estate solutions. And according to Mr. Ro, those creative real estate solutions are paying off for Kelsey.
“In addition to all of the other positive results we’ve experienced, we’ve also eliminated inefficiencies, duplications and unnecessary services. This has enabled us to reduce the overall cost while increasing the quality and convenience of patient care. Everyone wins.”
Health Care REIT, an S&P 500 company with headquarters in Toledo, Ohio, is a real estate investment trust that invests across the full spectrum of seniors housing and healthcare real estate. As of September 30, 2014, Health Care REIT’s broadly diversified portfolio consists of 1,246 properties in 46 states, the United Kingdom, and Canada.
Dan Klein serves as Senior Vice President — Medical Facilities Group. He is responsible for the leadership, strategy and execution of business development and relationships for the medical facilities group.
Justin Hill serves as Vice President — Investments and is responsible for evaluating, structuring, and closing medical office investments.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker’s Hospital Review/Becker’s Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
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