South Florida Hospital News
Monday June 17, 2019
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March 2019 - Volume 15 - Issue 9

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Baby Boomers Fuel Need for More Medical Facilities in South Florida

This article is comprised of trends to be covered at South Florida Hospital, Outpatient Facilities and Medical Office Buildings Summit held March 6 in Miami

The Silver Tsunami is reshaping healthcare. Demographic trends are causing Florida to face the nation’s largest increase in the volume of patient visits a year. South Florida accounts for 30% of state’s patient visits. This is fueling the demand for more medical facilities in the South Florida region.
 
From 2017 to 2045, South Florida’s population will grow 23% from 6.8 to 8.6 million based on projections from University of Florida’s Bureau of Economic and Business Research. As a result, doctor visits will rise 43% from 22.9 to 32.6 million visits a year. Aging Baby Boomers account for 76% of the added volume. The impact isn’t just in the doctor’s office – medical laboratories, ambulatory surgery centers, emergency rooms, and hospitals feel the pressure too.
 
The effect isn’t uniform across South Florida. Broward and Miami-Dade counties account for 70% of the growth; eight out of ten patient visits is by someone 65 and over. Palm Beach County adds another 20% to the region’s total; those over 65 make up 46% of visits. In Monroe County, a 19% increase in visits by those 65 and over offsets a 5% decline in visits by those 18 to 64. In every county in South Florida, those over 65 comprise the largest share of visits.
 
By 2045, South Florida’s healthcare providers will be straining to handle 9.8 million additional patient visits a year. Moving patients through a medical facility quickly and efficiently is a major issue facing medical and architectural professionals. Based on metrics for patient visits a day and space needs, South Florida needs to build at least 2 million square feet of outpatient facilities between now and 2045 – a financial commitment in the billions.
 
Demographics Isn’t the Only Driver
Reasons other than demographics are driving the demand for outpatient care facilities in South Florida.
• Changing payment patterns by private payers, more people covered by Medicare and Medicaid, and advances in medical technologies is driving services out of hospitals to lower cost off-campus facilities closer to the population served. While less costly to build than a hospital, they represent a significant capital outlay.
• Convenience is a deciding reason for where many people get their healthcare. For healthcare providers proximity to the right patient mix translates to better margins. In the contest for larger market share among healthcare providers, outpatient care facilities are now a competitive necessity.
• While often ignored, it’s estimated that one-third of existing medical buildings are or soon will be functionally obsolete. The reasons include location, size, age, layout, or construction quality.
 
Should Healthcare Systems Own or Lease?
There is no one answer to the question; should healthcare systems own or lease outpatient care facilities? Sometimes the right space is only available for lease, other times ownership is the best choice.
 
When a healthcare system has a choice, Sister Irene Kraus had a good metric: “No margin, no mission.” Sister Irene, founding chief executive of Daughters of Charity National Health System and the only woman to chair the American Hospital Association, felt strong fiscal management, not just charity is what nonprofits hospitals must do to fulfill their mission.
 
Historically, nonprofit hospitals enjoy a low-cost of borrowing. The decision now facing trustees is where to invest to maximize margins so they can fulfill their mission. Are people, systems, and technology or bricks and mortar the better way to improve hospital margins?
 
Consider this:
• The S&P municipal hospital bond index shows hospitals are paying investors 4.09% to use their money.
• According to Revista, medical real estate investors are receiving a return of 6.5% for the average medical facility and are willing to accept a return as low as 5.5% for top tier properties.
• Fitch Ratings reports the 2017 median EBITDA margin (earnings before interest, taxes, depreciation, and amortization) for nonprofit hospitals was 10.3%. For hospitals rated AA, AA-, and A+ it’s over 12%.
 
Baby Boomers are driving the demand for more outpatient care facilities, nonprofit hospitals need to maximize margins to fulfill their mission, and investors have a strong desire to own medical facilities.

Alan Whitson is President of Corporate Realty, Design & Management Institute and director of a regional series of healthcare educational summits conducted throughout major metropolitan areas of U.S. (posted at www.squarefootage.net). He can be reached at (971) 219-0561 or awhitson@squarefootage.net.

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