Reduced Reimbursement Rates Keep a Hold Down on Medical Real Estate Development

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Healthcare reform is by far the most dissected, discussed and debated topic in the medical industry.  Federally mandated healthcare legislation, and the yet to be determined detailed fine print, influences every decision a hospital executive considers on a daily basis. While some health systems are moving forward with planned projects, most hospital executives are planning to revise, review or possibly not go ahead with projects.

According to an ASHE 2012 Construction Survey published in Health Facilities Management Magazine, a combined 68% of hospital executives are either reevaluating, less likely to proceed or will definitely not proceed with future construction projects due to reduced reimbursement rates. There is a heightened focus on return on investment and scrutiny of all costs involved in order for medical real estate projects on the drawing board to be given approval.

Interestingly, due to the impact of reduced reimbursement rates under healthcare reform,19% of hospital executives said they will definitely proceed with planned construction projects while 13% will proceed with modifications according to the ASHE 2012 Construction Survey. An even larger percentage of hospital executives, 27%, will definitely move forward with infrastructure upgrades as capital is tight and the need for reduced operating costs and maintaining medical facilities’ energy requirements are of greater concern than medical office expansion and development.

While renovations are taking place, we are seeing a surge in specialty hospitals focusing on outpatient procedures. There is a movement away from lavish hospital lobbies and purely aesthetic hospital designs. Hospital construction is on par with technology demands and continues to move forward as the influx of baby boomers arrive and possibly the mass of newly insured Americans in 2014. Hospitals are staying the course with estimated budgets for new construction and facility upgrades the same as last year.

While the impact of healthcare reform is uncertain, reimbursements will continue to dwindle as hospitals and health systems wait for the far reaching effects of healthcare reform to unfold.

Your Medical Real Estate Adviser

Jim Ellis



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