Marcus Welby M.D. wouldn’t know what to make of it.
The once familiar look and feel of medical facilities are undergoing significant metamorphoses as competition, consolidation, cost containment and new technology reshape the spaces and places where health care is rendered.
Like corporate America, the health-care industry is having to revamp its real estate to cope with fundamental social and economic changes.
“It used to be the hospital was the center of all health care-except for physicians’ offices,” said Michael Hemmes, editor of Health Facilities Management magazine in Chicago.
Today it’s a different diagnosis.
Hospitals are reducing the number of inpatient beds and reaching out beyond central campuses with primary care facilities, specialty clinics, surgicenters and walk-in testing labs.
Fueling many of these new facilities is the outpatient revolution. Hospital stays are shorter, partially due to managed care and decreased insurance benefits, but also because new medical procedures are less invasive. Thus inpatient revenues-once the bread-and-butter business of hospitals-are shrinking.
“As their traditional quantity of inpatient services declines, hospitals are looking for other ways to bring patients to them,” said Jeffrey S. Mark, managing associate at Herman Smith Associates, a hospital and health-care consulting firm in Chicago.
“There will be a time when the community hospital does not exist as we know it,” he adds.
These profound changes in health-care delivery are good news for real estate professionals, especially commercial players in search of new arenas.
“Whenever there is a change in facility needs, it creates real estate opportunities,” said Larry Helman, partner at NBBJ, an architectural, planning and design company based in Columbus, Ohio.
Experts say more real estate acumen is needed today on health-care development teams, for facilities have become increasingly more complicated to plan, fund and execute.
In addition, staff downsizing has taken a toll on in-house facility departments, thus creating greater outsourcing opportunities for real estate firms-especially in program management.
Health-care providers “need people to come in and quarterback (projects) for them,” said Fred D. Campobasso, president of the American Medical Design Corp, a Chicago-based development firm that specializes in health care.
“In the past, hospitals just hired an architect and contractor,” said Nancy Halik, senior vice president at Stein & Co., a Chicago real estate firm. Today, health-care providers are looking to the real estate industry for a broader range of services.
Stein & Co. served as program manager for LaGrange Memorial Hospital’s new 85,000-square-foot medical office building. Stein also handled leasing, marketing and property management.
For some providers, the specter of health-care reform has perpetuated a “wait-and-see” attitude on new or revamped facilities, experts report.
Yet others are going ahead with major projects, which reflect the wide range of activity in health-care real estate today:
– Northwestern Memorial Hospital breaks ground this fall for a 2 million square foot, $580 million medical complex in the Streeterville neighborhood on Chicago’s Near North Side.
– University of Chicago Hospitals broke ground this summer for a new 520,000-square-foot outpatient facility with an $89 million price tag, slated to open in 1996 in the South Side Hyde Park neighborhood.
– Loyola University Medical Center just opened its 125,000-square-foot, $30 million cancer outpatient and research clinic in the western suburbs.
– Mt. Sinai Hospital and Medical Center is planning to spend some $36 million for renovation and new construction at its existing campus at Ogden and California Avenues in Chicago.
– Columbus Cabrini Health Systems is building a $17 million, 62,500-square-foot professional office building with 140 parking spaces adjacent to its Lincoln Park facility.
– Palos Community Hospital in Palos Heights is building an 82,600-square-foot outpatient addition, a $35 million project slated for completion in early 1996.
– Northern Illinois Medical Center is building a 48,000-square-foot office building on its McHenry campus. The $6.5 million project is slated to open in January 1995.
– Cook County/Rush Health Center is in planning stages for a 89,000-square-foot outpatient clinic for persons with HIV/AIDS or other communicable diseases. The $30 million specialty clinic is slated to open in 1997.
– Cook County Hospital is moving ahead with plans for its 464-bed replacement facility. If approved by state authorities, the $570 million project would take about seven years to complete.
Regardless of what reform legislation emerges from Capitol Hill, experts say trends for future health-care facilities are already in place. Among them, flexibility is a key concern.
“Hospitals used to be very rigid in space use,” explains Frank Zank, an architect with the American Hospital Association. Today, rather than creating highly specialized space, room design is more generic, allowing different medical disciplines to share space.
Besides getting maximum use out of facilities today, flexibility helps “futureproof” buildings, experts say.
“You don’t know from year to year what demographic trends you have to deal with or what technology you’ll have,” Hemmes said.
“It used to be we could do 10-year masterplanning . . . Now we’re lucky if we can get through five years (without updating plans),” said Joe DeVoss, a principal and project director at Hansen Lind Meyer, an Iowa City-based architectural and engineering planning firm with offices in Chicago.
The goal then, is to create facilities that can go with the flow.
Northwestern Memorial Hospital’s new replacement facility, slated to open in 1999, will position central diagnostic and treatment services on a bridge between its inpatient and outpatient pavillions. Currently inpatient and outpatient services are about even, but if the ratio changes, “we can make a shift from inpatient to outpatient like that,” said John A. Westcott, vice president of the redevelopment project, snapping his fingers.
Widespread consolidation in the health-care industry is also sparking new construction. Delnor Commmunity Hospital, which opened a new facility three years ago in west suburban Geneva, was the result of a merger of two hospitals. Neither of the two existing campuses was suitable for the new organization, planners said.
Building a new facility is often cheaper than renovating an existing one, experts say.
Case in point: construction costs for Copley Memorial Hospital’s new replacement facility in Aurora are about $52 million. This compares to an estimated $80 million cost of renovating the existing facility, which would have taken far longer to execute, said executives at O’Donnell, Wicklund, Pigozzi and Peterson Architects Inc., designers for the new Rush-Copley Medical Center.
Renovation of an existing facility can be a “nightmare” experts say, pointing out that a hospital operates 24 hours a day. Staggering work without disrupting activities is difficult at best.
Renovation wasn’t even a possibility for Northwestern Memorial Hospital.”You could not physically make it work,” Westcott said, referring to the configuration of the hospital’s existing facility, comprised of two separate hospitals, which had merged in 1972.
Decisions like those made by Copley, Delnor and Northwestern are evidence that health-care providers are starting to view property in a new light, experts say.
“Hospitals never looked at their real estate as a major source of revenues,” said Lori Brown, senior vice president at Stein & Co. “They weren’t really concerned about their occupancy costs.”
That’s changing as health-care organizations come under tremendous pressure to lower costs and upgrade quality.
Indeed, in recent years, there has been an “unprecedented” number of hospital closings, experts said, reflecting players who could not stay in the race.
The new focus on operational efficiency includes not only staff but facilities “which need to be as lean and mean as possible,” said Chris Liakakos, senior health-care planner at OWP&P in north suburban Deerfield. A more efficient facility means services can be provided at a lower cost, Liakakos says.
The competitive edge is altering health-care geography as well as design. Hospitals are opening more off-site facilities, making it easier for patients to access health care near their homes or jobs.
Beyond the customer service issues, these satellite facilities strengthen marketing muscle for hospitals by raising visibility and serving as a source of referrals.
Lutheran General Medical Group operates more than a dozen satellite facilities located “all the way from Naperville to Libertyville,” said Keith Wehr, a Lutheran General administrator in Park Ridge. The satellites “meet strategic needs by allowing us to enter new markets.”
For Ingalls Memorial Hospital, satellites have helped protect market share. The Harvey-based community hospital began branching out in the mid-’80s and now operates three family health-care centers in Tinley Park, Matteson and Calumet City; a diagnostic center in Homewood; an outpatient rehab center in Calumet City; and a surgical center in Chicago.
“The focus on ambulatory (outpatient) care is that much more important because we’re not affilated with anyone else,” said Mike Roy, project support coordinator at Ingalls.
It is the increase in these outpatient services that is straining the seams of many health-care facilities.
“Transition into the outpatient market requires a significantly different approach to facilities,” said Tim Peglow, president-elect of the American Society for Hospital Engineering. “It’s very difficult to take an older building and position these services conveniently for the patient.”
“Patient-focused care” is also reshaping health-care spaces. Under patient-focused care, equipment and services are brought to the patient’s bedside rather than wheeling the individual away to diagnostic and treatment departments in another area of the hospital. “It’s changing total layout of rooms and floors,” said Friedl Bohm, chief executive at NBBJ in Columbus.
Copley’s new medical complex, designed to reflect patient-focused philosophy, will resemble a retail shopping center. The 347,000-square-foot facility is only two levels high with several different entrances and a ring road, simplifying traffic both to and through the building.
“Information systems is the key to making it decentralized,” said Campobosso, whose firm is handling program management for the facility.
Indeed, hospitals are just starting to enter the information age, say experts, who predict tomorrow’s building will be both paperless and filmless.
Although improved communications will be the biggest benefit in going electronic, experts say it also translates into space savings.
Also, computerization and consolidation enables entire departments to move off campus for better real estate values. “Medical labs are great for empty Class A or B office space,” said Steve Spillman, head of Pacifica Companies, a real estate investment and consulting firm in Mission Viejo, Calif.
And space left behind, whether a result of downsizing or relocated departments, creates new real estate opportunities.
Often vacated space is used for storage or offices; however, this is “inefficient use of very expensive space,” Mark pointed out.
Some hospitals are converting abandoned space to other uses such as rehab centers or skilled nursing.
LaPorte Hospital in LaPorte, Ind., which downsized its acute care beds from 227 to 172, transformed the extra space into long-term care for seniors, including both skilled nursing and assisted living.
“We’ve taken areas that weren’t producing acute care revenues and produced other revenues,” said Peglow, senior vice president of engineering and operations at LaPorte Hospital.
Other innovative approaches to real estate: Some health-care providers are getting into the fitness business, either establishing their own fitness centers or affiliating with nearby ones.
Ingalls Memorial Hospital has entered a partnership with the Homewood-Flossmoor Park District to help fund expansion of its Racquet and Fitness Club, with construction beginning this fall. In the new addition, Ingalls will offer physical therapy, cardiac rehabilitation and wellness education.
And Northern Illinois Medical Center is building a 56,000-square-foot health and fitness center in Crystal Lake. The $5 million project is slated to open in January 1995.
From a philosophical standpoint, moving into the community via fitness and wellness centers integrates health care with everyday activities, experts said, making health-care facilities less intimidating. From a fiscal standpoint, this alternative real estate can contribute to hospital coffers-either as a new profit center or a source of referrals.
In either case, “we’re breaking out of the container ways of doing things,” Helman said.
Alternative use of space is an arena where developers can really get involved, said David Kuffner, a senior principal at OWP&P. Expertise is needed in determining net-to-gross ratios, rentability, use of public space, and analysis of land values and building costs.
This also applies to medical office buildings, where there has been a great deal of new construction activity lately, as more health-care providers buy physician practices.
Real estate professionals help by keeping relationships separate. “Developers bring a sensitivity to the healthcare scene,” Kuffner said. “They bring hard facts and people skills.”
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Next week: Reorienting interiors for a patient focus
