1) The number one issue within healthcare real estate will be Control. The real estate function within a Health System must be centralized. A system of checks and balances must be put into place.
2) Health Systems, as they combine, will finally begin to understand that real estate compliance with Stark laws is one of their greatest risk management issues they face. They will finally begin to make compliance issues a major priority.
3) Health systems will begin to understand that their number one real estate compliance issue is not fair market value. The major issue is services they deliver to their buildings that they do not charge for. These issues range from engineering services to accounting and management services. Most Hospitals do not charge their costs to their buildings properly because they do not have the proper systems in place to allocate their time and related costs. Many providers do not even track the time they spend on their buildings.
4) Lease administration and abstracting systems will be adopted to inventory every real estate lease within the Health System. There will be significant challenges just finding the leases. The lease administration systems will become live systems that require significant attention. The management of the existing leases will create significant opportunities.
5) As Health Systems combine and become entities with revenues that exceed $ 1.5 billion annually, they will discover the incredible new platforms that have been created for the integration of their real estate portfolios. These platforms can deliver millions of dollars of annual savings.
6) Health Systems and physician practices will discover that the real estate brokers representing them are paid by the landlords. Therefore they will realize that they never know what their brokers get paid. They will discover the length of leases Hospitals execute that amortize costly fit out, create high lease rates and thus create significant commissions. Should a broker who leases 100,000 SF for a health system make more than the CEO of the Health System? Hospitals will begin to require a shared commission structure which could create up to $ 1.0 million or more in additional annual net income or capital for fit out needs.
7) Physician Practices and Hospitals who sign long term leases with third parties will begin to request equity in these transactions for no outlay of capital. The result will be many millions of future value- just because they asked.
8) The acquisition of medical practices combined with mergers with other Hospitals will create significant opportunities once a Health System gains control of its leases. Health System will begin plotting the location of their owned practices, as well as local private practices. In some instances, Hospitals will find that they are competing against themselves. Opportunities for consolidation will exist including creating new multi-specialty locations that will be well received by your patients.
9) The General Counsel’s office will recognize the importance of having an expertise in real estate and real estate lawyers will become important members of the General Counsel’s office. Standardization of all lease documents will reduce the cost of outside counsel, and assist with compliance issues.
10) One important change in control provisions will be providing notice of lease renewal 18 months prior to lease expiration. This important time consideration will allow a Health System to think through strategic issues as well as enough time to relocate the practice.
