In a recent analysis of the U.S. healthcare market, Colliers International identified four key trends that are directly impacting medical real estate. These trends are in addition to the impact of the Affordable Care Act (ACA) and the current attempts to revise, repair and improve it. In many cases these trends are being shaped by the effects of, as well as the uncertainty surrounding, the law. Each trend offers opportunities for commercial real estate owners and occupiers, while at the same time threatens to disrupt standard business models.
Healthcare’s Financial Health
Healthcare continues to make strides as an industry, capping the yearly revenue at $3.6 trillion with a year-over-year growth of 4.8 percent. As a share of GDP, healthcare spending accounted for 17.9 percent in 2016, and economists predict healthcare spending will increase over 20 percent by 2025, according to Modern Healthcare. Private insurer spending jumped 7.2 percent due to more and more people getting insured through the ACA and employers, and the cost of prescription drugs increased by 9 percent in 2015. These two factors, along with
high demand for care and the ever-changing healthcare policies, will continue to drive increased spending.
Throughout 2018, experts predict that a rise in general inflation will drive up wages and medical prices. Many providers are shifting focus to patient experience, as patients will begin to choose providers based on value and experience rather than cost. Healthcare providers will focus on taking on more risk and extending their specialties under one house. Health insurers’ main goal is to prove their value in the market by steering patients to the most effective treatment and help stabilize pricing, while pharmacies will focus on collaboration across all sectors for the most cost-effective price and strategies. With the recent mergers, these new focal points will be easier to achieve within the healthcare industry.
Mergers and Acquisitions
2017 was a year of mergers – regional, national, horizontal, large scale, small scale. The low cost of capital and interest rates paved a way for mergers and acquisitions to take place in the medical market. The point of a merger is a cost saving effort that gives a company financial and competitive advantage. Not all players are optimistic about mergers, however. Aside from possibility of not lowering cost, these mergers will lead to excess supply of facilities in markets, down-sizing in staff, and the potential of an overall non-competitive, monopolistic industry. Mergers lower cost for businesses, however, patients end up paying for it through higher premiums, co-pays, deductibles, and hospital bills. Within eight days, five major mergers were announced– the first being CVS’s planned purchase of Aetna. Following a day later, Advocate Healthcare and Aurora Health Care announced a merger that would create $10.7 billion across-state system. Next, the UnitedHealth Group agreed to purchase dialysis
provider, DaVita’s, medical unit for $4.9 billion, with plans to expand the national insurer’s outpatient care services. Catholic Health Initiatives and Dignity Health formed a deal that would create the largest not-for-profit hospital system to date. The new system would include 139 hospitals across 28 states for a total of $28.4 billion in revenue. However quickly after, Ascension Health-Providence St. Joseph Health planned a merger which would create the largest hospital system to date, including 191 hospitals in 27 states for a combined revenue of
$44.8 billion. If these mergers prove successful, the next phase will be hospitals looking to buy or create their own drug companies. Drug prices have skyrocketed over the years, but if this were to happen, it would create lower costs, ample and ready supply, and a drug system that wants to serve in the patients’ best interest.