Guest Column: Healthcare Reform Becomes a Reality
No question – this was the summer of healthcare. In one of the most significant rulings in recent memory (perhaps since the awarding of the Presidency to George W. Bush in 2000), the Supreme Court upheld President Obama‘s healthcare law in a nuanced interpretation of federal versus states’ rights. This will go down in the history books as comparable to the passage of Medicare in 1965 because the historic 5-4 decision will affect the way 30 million uninsured Americans receive and pay for their personal medical care.
Chief Justice John Roberts cast the deciding vote (another surprise, since most expected it to be Justice Kennedy if the law passed) and wrote the opinion. The key factor was classifying the penalty for not abiding by the individual mandate — the requirement that all Americans have health insurance or pay a fine — as a tax and therefore constitutional. One thing that most commentators missed was the second part of the ruling: that the expansion of the federal-state Medicaid program was unconstitutional. Half of the new people insured were to come through a larger Medicaid program that the Fed would fund until 2016, at which point the states would start to foot more of the bill. With this struck down, it will mean fewer new outpatient and acute-care facilities in lower-income areas.
So what do we need to know about all this? Passed by Congress in 2010, the Affordable Care Act (ACA) will cost $938 billion and will reduce healthcare spending by $138 billon, according to the independent Congressional Budget Office. It is a restructuring of our system that will have a long-term effect on healthcare providers and their balance sheets. One impact will be that scale will matter in the future. The new value-based purchasing and bundled payments that Medicare will make to providers will make it imperative for them to be part of more efficient, larger systems and groups. Smaller hospitals will merge or be acquired, and small physician practices will join larger groups. The same will happen to small insurance companies, which will need scale in order to compete on the insurance exchanges where people will buy coverage. So we are less likely to see new construction by small, independent systems (say, with one or two hospitals or medical office buildings) and more likely to see growth by large providers, including academic systems.
Enter, the ACO
While the fate of Obamacare hung in the balance, the acronym “ACO” became the voluntary dance where nobody wanted to show up too early. Defined by the Centers for Medicare and Medicaid Services (CMS) as “an organization of healthcare providers that agrees to be accountable for the quality, cost and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program (and) are assigned to it,” ACOs, or accountable care organizations, were essentially consortiums promoted as a bigger, better model that managed health at the population level across a broader swath of the healthcare spectrum. An ACO might include a hospital, various specialty groups, a surgery center, imaging, an emergency department, even nursing homes, with all payments made to the head of the ACO (usually the hospital), which would then disburse to the rest of the group. But ACOs were tough—they required greater accountability, with providers having to report on 33 different performance measures to ensure they were not skimping on care.
Despite the contingencies, the ACO has arrived. In July 2012, 89 participants joined the 27 existing ACOs collectively serving more than 2.4 million beneficiaries. Four hundred more organizations have already submitted a notice of intent (applying between Aug. 1 and Sept. 6, 2012) to join an ACO in 2013. What ACOs epitomize is the new philosophy of care: bundled payments and shared savings pegged to outcomes rather than fee-for-service, communication and integration between providers, and a strong focus on primary care.
ACOs aside, the new post-reform world is still taking shape, but we can draw some conclusions about the look of healthcare going forward:
- Cost and outcomes will be king: Medicare, which will comprise 75 percent of all spending by 2030, will be cut; hospitals will be penalized for high readmission rates; and providers will need to trim their operating expenses by 20 percent to stay solvent.
- In light of consolidation, standard leases within medical office buildings will be larger, averaging 5,000 to 8,000 square feet to accommodate larger physician practices, up from the more traditional 1,000 to 3,000 square feet.
- The real estate investment community—including the REITs, pension funds and private equity groups—will continue to hold medical real estate as a favored product class, along with multi-family and industrial.
- Primary-care physicians will increasingly be at a premium as tenants because they will act as gatekeepers in the post-reform world.
- Since the biggest healthcare user group is people with chronic conditions (mostly members of the 80 million-strong Baby Boom generation), snow-bird states will show the highest percentage of growth.
Donna F. Jarmusz is a senior vice president at Alter+Care.