Why’d your doctor move offices? It could be Obamacare.

March 11, 2013

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoons for the latest edition — and read all previous columns here.

When most health policy experts think about bending the cost curve, they think about reducing unnecessary testing and incentivizing cost-effective medicine.

When Scott Mason ponders the subject, he thinks about something completely different: Real estate.

In a way, that makes sense: Mason leads the health-care practice group at Cushman & Wakefield, the world's largest, privately held real estate firm. And from his vantage, there's a lot to be learned from how health-care real estate is changing right now — changes that ought to make us optimistic about the future of health-care spending.

"The key impact on real estate in the Affordable Care Act comes from the attempt to bend the cost curve," he told me when we spoke Friday afternoon. "One of the key ways to do that is to build a physical system that has more capacity and delivers services in a less expensive way."

Mason tells me to think about traditional medical office buildings. They often house dozens of what he describes as "docs in boxes," individual offices each with their own receptionist, waiting room and billing staff. You wouldn't know which doctors were inside unless you had specific plans to go to their office.

Demand for those kind of offices, he says, is on the decline. That's most likely due to two reasons. First, there's a wave of consolidation sweeping the health-care industry right now, with health-care systems buying up doctors' practices and building more integrated systems.

That means that health-care systems don't want many "docs in boxes" anymore. They want big boxes that can hold lots of doctors. For one health-care system, that meant retrofitting grocery stores as their new office buildings.

"When you think about the slab of the grocery store, it actually has a lot of what's important to a health-care practice," Mason says. "It's really visible retail and has a lot of parking. That's exactly what health care needs right now."

That second factor, visibility, is also becoming a more important for health-care providers. The health insurance market is becoming increasingly commercial as employers switch to plans where workers are expected to choose the most cost-effective doctor. This will become increasingly true next year, when the Affordable Care Act expands the individual market by 9 million people.

Mason saw one especially telling example of this in Albuquerque , where three dominant health-care systems had all built health-care facilities at the same busy intersection.

"That delivered a message to me that the future of health care is about branding," he said. "That applies to hospitals, too — they can no longer assume they will build a center and patients will come, when there are more visible options."

As to what this means for overall health-care costs, Mason is optimistic. More consolidation probably eliminates some of the inefficiencies of the "doc in a box" model. He sees hospitals leasing entire medical buildings rather than doctors paying for their individual space, likely getting a better rate on the space — and also eliminating the need for a receptionist and billing staff in each office.

"When you've got a situation where you've got 100 leases of small spaces in a building, that's not very efficient," he says. "That can certainly be replaced by a single tenant in a larger building. Not only is that more efficient from a leasing perspective, but it's also probably a better experience for the patient."

The desire for visibility may, however, cut the other way, as health-care systems look for better real estate locations where patients will notice their brand.

Hospitals are also grappling with another question that might make it difficult to reduce costs: What to do with the extra space they've acquired, as more urgent care centers pop up and Americans seek medicine in more outpatient settings.

From what Mason has seen, they don't generally shed square feet but instead repurpose the space they have.

"Where you have demand that's stable or shrinking, you're seeing hospitals convert semi-private rooms into private rooms," he says. "There is also some specialization occurring. They might add something like an LTAC [long-term acute care facility]."

Even as some of the health-care system gets more efficient, it doesn't look like its real estate footprint will shrink anytime soon.

KLIFF NOTES: Today's top health policy reads from around the Web.

Pharmaceutical giants dodged $7 billion in taxes last year by shifting profits overseas. "Last year, the six biggest drugmakers cut their effective rate by more than half, a record for the decade, according to a review of 10 years of filings by Bloomberg News. The filings also show that tax avoidance strategies make up a significant portion of the profits that investors use to assess drugmakers’ profitability." Drew Armstrong in Bloomberg News.

HHS has opened the door to greater flexibility on the Medicaid expansion. "In an unexpected move, Health and Human Services Secretary Kathleen Sebelius recently agreed to a proposal by Arkansas Gov. Mike Beebe (D) to reject the Medicaid expansion and instead use federal money to buy private health insurance for the 200,000 people who would have been covered under the expansion. That kind of arrangement could be appealing for other states in which expanding Medicaid, the health program for the poor and disabled, has been politically unpopular." Sandhya Somashekhar in The Washington Post

There's infighting among California Democrats over the best way to expand Medicaid. "The governor and legislators disagree over how the state should expand Medicaid to more than 1 million low-income Californians, a critical component of the federal Affordable Care Act. Under proposals passed by both houses of the legislature last week on mostly party-line votes, individuals earning up to 138% of the federal poverty level — or $15,415 a year — would be newly eligible for Medi-Cal, the state's version of Medicaid. Concerned about new costs, Brown wants to scale back some of the benefits the Legislature has proposed." Michael J. Mishak in the Los Angeles Times.

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Brad Plumer | March 11, 2013