The healthcare industry has been undergoing major consolidation over the past decade, with large health systems acquiring physician practices, ambulatory surgery centers, and other outpatient facilities at a rapid pace. This consolidation presents both challenges and opportunities for healthcare leaders when determining where to locate new medical office space.
Key Factors to Consider
When deciding where to open a new medical office facility, there are several key factors to take into account in the modern environment of consolidation, including:
- Accessibility to patients and proximity to other system locations
- Competition in the local marketplace
- Provider recruitment considerations
- Operational efficiency and cost reduction opportunities
- Alignment with system strategy and service line goals
Accessibility and Proximity
Convenient access and proximity to other facilities in the health system network are two of the most important considerations. As large health systems control more market share, they can strategize to locate offices in a coordinated way to maximize patient access and referral flows between locations.
Evaluate patient demographics and growth areas to position offices close to where people live and work. Leverage proximity to affiliated hospitals, ambulatory centers, and other network locations that receive and provide referrals. Convenient access and proximity promote continuity of care within the system.
Local Competitive Landscape
Despite significant consolidation, healthcare remains a highly competitive industry. The local competitive landscape is still crucial to assess when engaging in medical office site selection.
Analyze factors like where competitors are located, what services they offer, regional reimbursement rates, and competitive response scenarios. This informs decisions about geographic areas of need, service lines to provide, facility size and scope requirements, and investment justifications.
Provider Recruitment
The ongoing physician shortage makes provider recruitment an increasingly prominent consideration as well. Clinical staff shortages can determine the viability of opening a new practice location.
Health systems are acquiring physician groups not just for patient volume but also for the medical staff to service additional offices. The best locations will be places that physicians and other provider types actually want to work at, considering professional needs and lifestyle preferences.
Operational Efficiency
By owning more access points and locations across the continuum of care, consolidated health systems can better coordinate operational processes between offices and facilities to enhance efficiency.
Shared administrative services, billing systems, electronic health records, and provider credentialing exemplify processes that consolidated systems can develop economies of scale around. Additionally, large multi-site organizations generally have access to better financing options to fund capital projects, which facilitates operational effectiveness through facility development.
Strategic Alignment
Ultimately, medical office locations should fulfill the strategic imperatives of the parent health system. Key priorities may include expanding geographic reach, capturing market share, or supporting particular service lines like cancer care, cardiology, orthopedics, women’s health, etc.
Consolidators can strategically locate offices to complement the existing physician network, capture referrals, follow patients across the care continuum, and maximize reimbursements.
Here is an additional section I have written for the article in a helpful, informative tone regarding the key considerations for hospitals and health systems exploring joint ventures with private equity firms:
Key Considerations for Exploring Joint Ventures
As hospitals and health systems weigh potential joint ventures with private equity groups, there are several key considerations to evaluate regarding alignment, governance, operations, finance, and risk:
Strategic Alignment
Assess compatibility between the hospital/health system’s mission, vision, values and the private equity firm’s investment priorities and approach to healthcare delivery. Seek alignment on issues like access to care, community benefit, reinvestment of profits, etc.
Governance Involvement
Negotiate governance involvement for the hospital/health system within the joint venture entity. Push for board seats and structural involvement in decision-making.
Clinical Integration
Evaluate how the joint venture will intersect with clinical care delivery across the hospital/health system. Consider data sharing, physician engagement, patient experience, and care coordination.
Operational Control
Clearly define decision rights over key operational areas like staffing, service mix, capital allocation, technology platforms, etc. Hospital/health system leaders should fight to retain control over mission-critical operations.
Financial Modeling
Pressure test multiple scenarios reflecting different reimbursement landscapes, patient volumes, cost trajectories, regulatory changes, etc. to fully stress test the financial viability of the proposed joint venture.
Risk Assessment & Mitigation Strategies
Thoroughly assess areas of clinical, operational, regulatory, reputational and financial risk and develop mitigation strategies accordingly through governance mechanisms, processes, and contractual provisions.
If structured thoughtfully with the considerations above in mind, joint ventures with private equity have the potential to provide needed capital and expertise to hospitals and health systems seeking to transform their clinical delivery infrastructure amidst a dynamic healthcare marketplace. But these partnerships also carry risks if not properly calibrated and governed. By focusing on alignment, governance, operations, finance and risk mitigation, healthcare providers can best position themselves for successful collaborations with private equity groups.
Implications and Outlook
This era of healthcare consolidation provides consolidated health systems with much greater influence to coordinate medical office locations in ways that both optimize operations and patient access. However, the dynamics of provider shortages, changing market conditions, competitor responses, and regulatory shifts still challenge even the savviest medical real estate planning initiatives.
As consolidation continues accelerating into 2024, healthcare leaders must remain nimble and open to new locations and partnerships that keep their health system competitive and strategically positioned to capitalize on their growing regional scale and emerging value-based reimbursement models that incentivize patient retention and reduce costs.
Those who thrive in this new environment will combine data-driven planning with the ability to act swiftly when market opportunities appear. The winners will, over time, build medical office networks that offer the convenience, choice, and care coordination that both patients and providers demand.
