Although they make up only about 30% of the U.S. population, people 55 and over are the biggest consumers of healthcare services in the United States. At the same time, the number of people who are 80 or older is expected to rise by nearly 50% in the next 10 years.
What does this mean? Only that the United States needs more healthcare facilities, and that many, if not most, of these will be outpatient buildings, treating patients away from sprawling hospital campuses.
We recently spoke with Jay Johnson, U.S. practice leader for healthcare with JLL, about the rising demand for outpatient healthcare facilities in the country. Johnson said that this demand isn’t about to slow, and that this means big changes for medical groups, hospital systems and developers.
Considering the rising demand for them, does the country have enough outpatient medical facilities?
Jay Johnson: That depends on what you mean by “enough.” But the short answer is “no.” We are going to continue to see growth in outpatient facility types and locations.
What are the reasons behind the rising demand for these facilities?
Johnson: The broad reason is that the population continues to grow and it continues to age. Then there’s the fact that patients have successful health results when they get treatment at outpatient facilities. And patients prefer these outpatient settings. Because of these reasons, my expectation is that we will continue to see growth in the number of these facilities.
There are some countervailing forces to this, though. The biggest is the growth of telehealth and home health. Can people take care of their medical needs via a virtual consultation with their doctors? We saw that dramatically shoot up during COVID. The popularity of that has come down since COVID has lessened. Behavioral health is a notable exception. Telehealth seems to work well in that space. The growth of telehealth, then, could dampen some of the need for outpatient facilities.
Do you think telehealth will slow the demand for outpatient facilities?
Johnson: The health systems and groups that I’ve talked to don’t seem to believe that telehealth will dramatically change their outpatient needs. The continued aging of the population and the preferences from patient consumers means that demand for outpatient facilities will continue to rise.
We did a survey last year at JLL geared toward patient consumer trends. It gauged these trends for the last six months of 2021 and we published the results in 2022. We surveyed more than 4,000 people who had a healthcare encounter during that six-month period. There was an impact from telehealth, but 74% of respondents said that they had received care at a physical location. And this was during two COVID surges. People were still going in for physical visits. A total of 62% of respondents had exclusively received care in a physical location.
What do patients like about the outpatient care model as opposed to receiving care at a central hospital campus?
Johnson: In that same survey, we asked patients about their feelings of convenience regarding that side of care. For about 70% of the respondents, the convenience of the location was important to them. That includes 35% who considered location extremely important. People have to drive longer distances to get to hospitals. It can be very congested with parking. Finding your way around the hospital campus can be stressful. Navigating the maze of the campus can be very challenging. The outpatient care side is much easier to get to and more convenient for patients. It is easier to park. It is easier to navigate once they get into the facility.
With the rise in outpatient facilities, what role will hospital campuses play today?
Johnson: We will never shift all the care away from the hospital campus. Hospitals will never go away. The trend is that outpatient facilities are moving farther and farther away from the hospital campuses and out into the neighborhoods in which patients live. The result has been that the care delivered at hospital campuses is of an increasing acuity. The highest type of care will not migrate away from the hospital to the outpatient setting.
The outpatient care portion is a very important component to the hospitals in terms of how they fund their businesses. Hospitals must think carefully: Do they let outpatient care be picked up by their competitors or do they engage in it themselves? If they are just focusing on higher-acuity inpatient services, that has the potential to throw off or harm their revenue streams. If they want to cover their costs and take care of their business, hospitals must invest in providing outpatient care.
As you can imagine, the facilities that exist on the campus of a hospital are the most expensive real estate in the whole healthcare system. The infrastructure is super strong in terms of being able to withstand natural disasters. They have redundant utility supplies. The buildings are usually multi-story. These are all the most expensive facilities. That is part of what has been driving the shift to outpatient facilities. Care can be delivered cheaper. That is appealing to both patient consumers and employers.
Not all care is suitable for outpatient facilities. But the care that these facilities provide is superior care. You see better health outcomes for patients. They are more convenient, cost less and deliver better results. It is hard to argue with this.
What are some of the more common type of outpatient facilities being built?
Johnson: The doctor’s office in the community has been around for a long time. The number of those continues to grow. You are also seeing more ambulatory surgery centers or outpatient surgery centers. They can do surgeries, but not procedures with as high an acuity as those you’d see done at a hospital. Those have proliferated. Companies have risen that specialize in that kind of service.
There are urgent care clinics and minute clinics, immediate care clinics. Those employ a kind of retail strategy, a retail feel. They are often located in retail settings such as strip shopping centers. The walk-up clinics that you can go into for minor medical needs, like colds and flus, have proliferated. We are also seeing a lot of freestanding emergency rooms. Unlike the urgent care clinics, they have a doctor on staff at all times. They deal with a higher acuity-type of emergency. They might take care of some issues that traditionally you might have gone to a hospital emergency room to treat.
A lot of these facilities are going in former retail space, right?
Johnson: There is definitely a retail vibe around all this. Retail has been at different times overbuilt in this country. There have been too many locations built. Supply surpassed demand. With tech changes, such as Amazon coming and pulling some retail away from physical locations and into the online environment, that has only exacerbated the problem. We have a lot of under-utilized retail across the country. It is ripe for alternative uses such as healthcare. These spaces are often located in a way that is convenient for consumers. They have lots of parking. They have good signage and easy accessibility.
Are there challenges in converting retail space to healthcare use?
Johnson: The way retail landlords lease their space creates challenges for healthcare users in terms of the way they construct their leases. You have to work with a retail landlord who is willing to think outside the box. That is increasingly happening. Sometimes retail landlords might think that alternative uses other than retail can hurt the value of the overall shopping center or facility. That is a trade-off that they have to figure out. How much vacant space can they tolerate before they look at alternative uses?
Do patients who go to healthcare facilities in retail settings spend time before or after doing other shopping nearby?
Johnson: If patients are going for a medical need do they combine that trip with another purpose? Do they go to the grocery store and then to the clinic? There has been some research done on that by the International Council of Shopping Centers. There is some kind of multi-purpose trip-making there. They are doing more than one thing when they go out for healthcare. They do other errands, some of which they complete at that same retail center.
