How Age Groups Are Challenging the Health System Revenue Model

SEATTLE—As persistent challenges including financial scrutiny and profitability, demographic changes and demand for retail locations confront the healthcare industry and medical real estate, there are several factors that are coming to the forefront. Consumer demand for flexibility and convenience suggest that newer, better-located medical office and healthcare real estate should continue to generate stronger returns than older properties, particularly hospitals. And, technology is driving the increase in and demand for lower cost outpatient centers focusing on surgical procedures that formerly required a hospital stay.

One of the issues is that healthcare needs are growing as the US population continues to age. However, greater selectivity and a degree of caution are critical in determining the nature, type and location of assets. In this exclusive, Shawn Janus, national director of healthcare with Colliers International, recently discussed how different age groups are challenging the health system revenue model and how that is translating to types and locations of development.

GlobeSt.com:  How many different generations/age groups does the healthcare industry consider when designing facilities?

Janus: It’s incumbent on the healthcare industry to consider almost every age group when designing their facilities. Different age groups may drive certain design criteria. Obviously, if a site of care is focused on delivering healthcare services to a specific age group, i.e., pediatrics, geriatric, etc., the design features may incorporate more elements specific to that population. However, given the ever-changing climate of healthcare, technology, equipment, etc., it’s imperative that all facilities incorporate flexibility in their designs.

GlobeSt.com:  How will each group challenge the health system revenue model?

Janus: From a global healthcare perspective, the healthcare industry is constantly changing, which presents a myriad of challenges…challenges, however, present opportunities. Relative to the health system revenue model, there are several primary challenges. While not necessarily tied specifically to age groups, they are related to some degree. One challenge is the shift in payer mix from private to public reimbursement and the resulting cut of the reimbursement felt by providers, which may not be as directly influenced by age groups. However, the shift from procedural care to medical care is more directly influenced by age groups, and the health system revenue model is impacted in that a larger share of services are from lower margin business. A good example of this is the aging Baby Boomer and Generation X generations that follow them.

GlobeSt.com: What added burdens have aging Baby Boomers placed on the healthcare system?

Janus: Beyond the obvious impact on the entire senior housing industry and the proliferation of independent living/assisted living/memory care and skilled nursing facilities, the traditional health system revenue model has an added burden as well. As the Baby Boomer generation ages, the types of services they require change. This has a direct impact on the revenue model. As Baby Boomers move from their 60s to their 70s and into their 80s, the surgical procedures as a percentage of overall volumes decrease while at the same time, hospitalizations increase. Higher margin surgeries are effectively being replaced by lower margin services. Additionally, the next generation, Generation X, has a lower overall population, so the lost volume of higher margin services won’t be made up.

GlobeSt.com: What types of facilities have resulted in response to different age groups?

Janus: Beyond the specific senior-related facilities, we’ve seen a number of different types of facilities emerge. The younger, internet-driven demographic continues to demand more convenient and flexible healthcare delivery. Health systems are responding with an ambulatory strategy designed to address those market-driven concerns, as well as their own strategic goals. Common themes include convenient locations, consistent branding, ease of wayfinding, a pleasant environment, co-locating complementary services and flexible design. The type of facility encompassing those themes may vary. Some examples of facility types are medical office buildings (which have become larger and house higher acuity services), urgent care centers (often in retail locations), micro-hospitals and ambulatory surgery centers.  It’s not a one-size-fits-all facility approach…a particular type of facility may be more appropriate for a certain geographic location or a particular regulatory environment (i.e., CON or non-CON).

GlobeSt.com: What healthcare trends do you see in the future in order to streamline care and lower costs?

Janus: As I mentioned earlier, the healthcare industry is constantly changing. While this may cloud the crystal ball regarding what the future may look like, it also presents incredible opportunity for those who can adapt and respond. Some of the drivers are here to stay – particularly cost sensitivity and convenience. Two trends that will have an ever-growing impact on how we deal with those challenges, as well as the inevitable challenges that will emerge, are technology and data. The healthcare industry may be a bit behind other industries in adopting technology solutions, but it is now embracing it more than ever before, and the possibilities are intriguing. Relative to data, the industry has long had access to immense amounts of data. Historically, however, the data wasn’t necessarily mined and/or interpreted in a manner that allowed it to be used as a foundation for making decisions. That has been changing. Data harvesting will continue to grow as a foundational element to strategic decision-making.