The health care real estate industry has not been immune to the COVID-19 pandemic as evidenced by a lower volume of medical office building sales in the second quarter of 2020. Even so, many current trends in health care real estate existed prior to the COVID-19 outbreak. The outbreak largely amplified, rather than created, those trends. This article outlines three of those trends over the past few months, which will likely continue to change as the COVID-19 pandemic persists.
Growth in Telehealth
The growth of telehealth, and its effects on health care real estate, existed long before the COVID-19 outbreak. A study from the American Medical Association found a 53% increase in telehealth insurance claims from 2016 to 2017, and another report projects a 23.4% compound annual growth rate in the global telehealth market through 2026. This, in part, explains the decline of primary care provider visits, which fell 24.2% from 2008 to 2016.
Yet the pandemic substantially accelerated the pace of telehealth growth. For example, according to a Modern Healthcare report, one New Mexico health system saw a surge in telemedicine visits from 7% to 82% of primary care since the COVID-19 pandemic began. After the pandemic subsides, the system expects the number of telehealth visits to settle between 50% and 70% of total primary care visits.
Two drivers of this trend are likely costs and reimbursement. During the pandemic, providers reported spending more for in-person visits as they pay for extra cleaning and sufficient social distancing measures to accommodate patients to prevent the further spread of COVID-19. For example, the New Mexico health system mentioned above saw a 60% increase in costs associated with its in-person visits. Additionally, 43.5% of Medicare primary care visits in April occurred by telehealth, compared to 0.1% in February, possibly under CMS guidelines promulgated in response to the COVID-19 pandemic that allow provider reimbursement at the same rate as in-person visits. It is unclear if these reimbursement changes will remain following the COVID-19 pandemic.
The acceleration of providing health care by telehealth during the pandemic will continue the move away from providing inpatient services, and hospitals and health systems are likely to see fewer in-person visits. It is unclear whether that trend will have long-term negative consequences for the health care real estate industry, but providers and investors should expect some disruption as telehealth appears to be here to stay.
Investment in Medical Districts
Cities across the country continue to establish and grow medical districts. The Illinois Medical District on the west side of Chicago, for example, continues to grow, expanding access to health care and quality jobs in its community. This medical district consists of an approximately 560 acre area of land, which houses medical research facilities, labs, universities, a biotech business incubator and health care facilities. Hall Render recently spoke with Dr. Suzet McKinney, the CEO/Executive Director of the Illinois Medical District, on the Health Care Real Estate Advisor Podcast, which is available on the Apple Podcasts App.
Aurora, Colorado is following a similar path, building a “Medical City” that will connect the health science-related schools located at the University of Colorado with several hospitals on a former Army medical base. One goal of the project is to revamp the neglected Army base in the process of developing the Medical City. Similarly, in New Orleans, Louisiana, a “BioDistrict” seeks to revitalize parts of its downtown by connecting Louisiana State University medical students to the city and hopes to bring other revenue to the surrounding community. These districts aim not only to expand access to health care but to use health care facilities as the anchor for general economic development of areas surrounding those facilities. Expect continued growth in the creation and expansion of medical districts during the rest of the COVID-19 pandemic and for years thereafter.
Nursing Homes Continue to Struggle
Nursing homes continue to struggle during the COVID-19 outbreak. Their challenges began long before the COVID-19 pandemic both financially and operationally. A May 2020 New York Times (“NYT”) article highlighted staffing issues at nursing homes across the country. One facility the NYT reviewed in Illinois had only one nurse for every 19 residents some days before the pandemic. Nursing homes also faced increased competition from home health care and assisted‑living facilities offering competing services.
The COVID-19 outbreak worsened those existing issues, in part, because some facilities were inadequately prepared for the pandemic. A May 20, 2020 report from the U.S. Government Accountability Office found that 82% of facilities had infection prevention violations between 2013 and 2017. As a result, as of the date of this article, almost 50,000 residents of nursing homes died from COVID-19, with the number of confirmed COVID-19 cases approaching 200,000 at nursing homes nationwide. These issues may affect consumer perception of the safety and reliability of these facilities, encouraging consumers to look at alternatives when considering home health care options as an alternative to nursing homes.
There is still some hope for long‑term growth in the senior housing industry. The aging population in the U.S. continues to increase, and many will need the type of assistance offered by nursing homes and senior living communities. Moreover, some market analysts consider affordable senior living to be an underserved market with significant potential for growth. The short-term headwinds in the senior housing community will likely ease up once a vaccine or other remedy for COVID-19 becomes available.
If you have any questions or would like additional information, please contact:
- Addison Bradford at (317) 977-1403 or abradford@wp.hallrender.com;
- Andrew Dick at (317) 977-1491 or adick@wp.hallrender.com;
- Libby Park at (720) 282-2028 or lpark@wp.hallrender.com; or
- Your regular Hall Render attorney.
Special thanks to Ben Jamison for his assistance with preparing this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
