Berkadia Medical & Life Sciences recently attended BOMA International’s 2023 Medical Office Buildings and Healthcare Real Estate Conference in Chicago, Illinois. Throughout the conference, we attended insightful sessions and spoke with industry thought leaders, sharing forward-thinking perspectives on trends impacting the healthcare commercial real estate industry.
Pictured from left to right: Eric Lee (Berkadia), Julian Evans (Knight Frank), Sabrina Solomiany (Berkadia), Chris Lashmet (Berkadia), George Desloge (Berkadia)
One major highlight from our time at BOMA was connecting with Julian Evans, Head of Healthcare at Knight Frank. In Julian’s words, “Healthcare IP and global capital flows are increasingly country agnostic. It’s all about connectivity.” Berkadia’s collaboration with Knight Frank deeply broadens our reach, market exposure, and relationships around the globe, spanning all key capital hubs. Together, we will be a dominant player in the marketplace and enable our clients to make more informed investment decisions in today’s environment.
Health insurance does not preclude the need for healthcare price transparency.
Healthcare price transparency is a major issue that Americans should be in favor of. However, as Dr. Van Horn of Vanderbilt University Medical Center shared in his opening keynote remarks, nearly half of Americans believe they do not have to shop around for medical care because they have health insurance.
Dr. Van Horn conducted a study and upon analyzing a large data set, found that cash prices average 40 percent below the rates that insurers pay. Prices for the same services and procedures can vary drastically from provider to provider or market to market, leading to a lack of transparency within the healthcare industry. The study also concluded that when armed with all information, consumers consider the price of healthcare the most important factor compared to quality, convenience, doctor/patient relationship, and time.
Artificial intelligence could transform the way we treat and cure diseases
Verge Genomics is a biotech company that developed a drug discovery platform powered by artificial intelligence. Verge Genomics uses artificial intelligence (AI) to develop better drugs at a faster rate for diseases like ALS, Parkinson’s Disease, and Alzheimer’s Disease.
According to the company’s Co-Founder and CEO, Alice Zhang, the cost to develop a new drug can run over $2 billion, a figure that is increasing each year. This cost could be significantly remediated by reducing clinical failures. AI helps pharmaceutical companies find and diagnose brain diseases, and develop treatments within four years, a process which has historically taken ten to 15 years.
Health systems are adapting real estate allocations in an uncertain operating environment
Health system senior management teams are focused on capital preservation given the increased cost of operations. Operating costs have dramatically increased, in some cases $5 to $25 per square foot with utilities rising as much as 15 percent year-over-year. As a result, margins are getting tighter, and operators are becoming more selective on projects.
Building operators are working with tenants on utilizing their space more efficiently. Some operators are using occupancy sensors to determine if a user needs to expand their footprint, but most of the time, the tenant needs to schedule more efficiently, and utilize their space better.
Lease term trade-offs for landlords and tenants continue to be in focus. The typical lease term for medical office users is five years, but some tenants are willing to extend their lease to seven or 10 years in exchange for lower rent.
Healthcare companies are turning to big data with questions on services and location
More often, analytics are driving healthcare companies’ decision-making when it comes to matters like site-selection and services offered. Data scientists can now predict where and what services should be offered, which is vital for health systems as they navigate a post-pandemic world, determining which trends were born out of necessity and which are here to stay.
For example, data tells us that 80-90 percent of medical billing ambulatory services came through telehealth during the COVID-19 pandemic. However, that percentage has already reverted back to the prior mean, which is closer to 15 percent. There is a significant unmet demand for behavioral health services. While behavioral health is a specialty that can be delivered virtually, many health systems are realizing they need to have a hybrid model of telehealth and in-person services, and they do not have sufficient outpatient facility space.