Class A National Medical Office Portfolio Located In 12 Metro Markets Sells For $400M

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JLL Healthcare Capital Markets experts have completed the $400 million sale of the Hammes Medical Office Portfolio, a 979,000-square-foot, geographically-diverse collection of 23 Class A medical outpatient properties affiliated with top health systems and other providers in nine states.

Managing Directors Mindy Berman and Steve Leathers handled the sale on behalf of the seller, Milwaukee-based Hammes Partners, a highly respected institutional private equity firm exclusively focused on healthcare real estate. Welltower, a leading global provider of health care infrastructure, acquired the portfolio.

“Prospective investors were attracted to this carefully curated portfolio of high-quality outpatient assets,” said Berman. “Selling points include the portfolio’s alignment with major health systems, durable income and locations in strong metro markets.”

The properties are located in 12 metro markets in the following states: Virginia, Washington, North Carolina, Illinois, New York, New Jersey, Pennsylvania, Alabama and Texas.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution.

JLL Healthcare Capital Markets is the only national full-service healthcare capital markets team in the real estate industry focused on medical office, hospitals, seniors housing and post-acute care. The team consistently transacts over $1 billion annually with unrivaled expertise and experience in investment sales, monetization, development debt and equity capital raise and advisory services for investor and provider clients.

 

Source: HREI

Dallas-Fort Worth Hospitals Keep Racking Up The Big Bucks

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Hospitals are facing more financial pressure as inpatient stays get shorter, the number of uninsured ticks up and payers push for more value-based care.

More than a dozen rural hospitals in Texas have closed since 2010, according to a recent report. But hold the tears for Dallas-Fort Worth hospitals because some are racking up huge profits.

HCA Healthcare, the country’s largest hospital system, earned 24 percent profit margins in D-FW in 2017, according to the latest Texas Health Market Review by analyst Allan Baumgarten. That was HCA’s best year ever in North Texas, the report said, and its largest local hospital, Medical City Dallas, earned almost $337 million on a profit margin of 36.6 percent. You read that right — 36.6 percent profit.

Two other large hospital systems in the region, Baylor Scott & White Health and Texas Health Resources, also earned double-digit profit margins in 2017.

“These averages are among the highest” in the states that he tracks,” Baumgarten said.

What does that say about the balance of power among health care providers, insurers, employers and regulators?

“In Dallas-Fort Worth, the providers have the upper hand in market power,” Baumgarten said.

How Profitable Are Big D-FW Hospitals?

Profit margins at select hospitals in Dallas-Fort Worth, 2017:

HCA Medical City Dallas – 36.6%<
HCA Medical City Plano – 25.8%
Baylor University Medical (Dallas) -18.6%
Cook Children’s (Fort Worth) – 15.4%
Children’s (Dallas) – 13.8%
Texas Health Presbyterian (Dallas) – 7.4%
Texas Health Harris (Fort Worth) – 6.2%
UT Southwestern (Dallas) – 3.5%
John Peter Smith (Fort Worth) – 1.2%
Parkland Memorial (Dallas) – 0.6%

Note: Profit margins include investment gains, philanthropy and government grants
Source: Texas Health Market Review 2018 – Mitchell Schnurman/DMN

Baumgarten regularly publishes reports on hospital and health insurance markets in eight states, and he’s been producing a Texas report since 1998. In a few metro regions, such as Denver and Columbus, Ohio, hospitals earned higher average margins than here, but they were exceptions.

All D-FW hospitals combined had an average profit margin of 12.7 percent. That surpassed margins in many other regions, including Minneapolis (4.3 percent), Detroit (5.5 percent), Cleveland (7.3 percent) and Miami (7.5 percent).

Investment income, philanthropy and government grants are included in his profit margin calculation, and they can make a big difference. These “other revenues” total hundreds of millions of dollars for Baylor and for two county hospitals that treat many of the region’s low-income and uninsured patients: Parkland Memorial in Dallas and John Peter Smith in Fort Worth.

“IParkland and Smith had large operating losses but broke even from the extra sources of income,” Baumgarten wrote.

In Texas, 17.3 percent of residents didn’t have health insurance in 2017, ranking worst in the U.S. In Dallas County, 23 percent of people under age 65 had no insurance coverage, and most were from working families, he reported.

After improving for several years, the share of uninsured Texans increased slightly from 2015 to 2017. An estimated 4.8 million statewide don’t have health coverage. Despite that headwind, local hospital profits have grown sharply in the past decade. In 2005, D-FW hospitals topped $1 billion in combined net income for the first time. By 2017, they earned a combined $2.54 billion.

One trend contributing to higher returns: The big players keep getting bigger. In 2011, three hospital systems — Baylor, Texas Health and HCA — accounted for almost 46 percent of net patient revenue in D-FW. In 2017, the same trio had a local market share of over 61 percent.

The Big Get Bigger

Combined market share in D-FW for Baylor Scott & White, HCA Healthcare and Texas Health Resources:
2011 – 45.9%
2013 – 55.5%
2015 – 58%
2017 – 61.1%
Note: Measured as share of net patient revenue.
Sources: Texas Health Market Review 2018, Texas Department of State Health Services

Higher market share often translates into greater leverage in contract negotiations with insurance companies. That can go beyond higher prices, too.

Blue Cross Blue Shield of Texas, which has over 5 million members, got in a contract fight with a major hospital system last year. Many assumed it was over reimbursements, but it was actually over “a single paragraph” to prevent Blue Cross from steering patients to lower-cost providers, an official said a few months ago.

“Under the terms, the hospital system could have imposed higher charges for Blue Cross members “every time someone walks in the door,” said Dr. Paul Hain, president of the insurer’s North Texas market. “Blue Cross has drawn a big, bright line in the sand. We will never sign that contract,” Hain told the Dallas-Fort Worth Business Group on Health.

Hain said this was happening around the country and he urged employers to stand with their insurance companies during contract negotiations.

“That’s likely a hard sell, even if it’s in the employers’ interest. Workers generally dislike changes to their health coverage, especially if they may have to change providers,” Baumgarten said.

In a booming economy like Dallas, the fear of upsetting workers — and maybe losing them over a benefits change — is greater than the fear of rising health costs. Companies still cover a majority of the costs for their employees’ health insurance, although the workers’ share has been growing fast. Higher deductibles and copayments, along with rising premiums, are eating up more of the family budget.

Over half of Texans said it was difficult for them to afford health care in a 2018 survey by the Kaiser Family Foundation. More worried about covering health costs than paying rent, utilities and transportation and buying food, the survey found.

In Texas, 38 percent of respondents said they had problems paying medical bills in the previous year; in the U.S., the share was 27 percent, the survey said.

“By switching to a narrow network of providers — and perhaps excluding one of the large hospital systems — a company health plan could get lower prices. But those deals have been available for years,” Baumgarten said. “For the most part, employers have been very reluctant to do that — and providers know it.”

How Metros Compare

Average profit margin for all hospitals in select regions

Denver – 15.2%
Austin – 13%
Dallas-Fort Worth – 12.7%
Milwaukee – 10.5%
San Antonio – 9.5%
Houston – 8.4%
Miami – 7.5%
Cleveland – 7.3%
Detroit – 5.5%
Minneapolis – 4.3%

Note: Texas results are for 2017 and others are for 2016.
Source: Allan Baumgarten’s Health Market Reviews

 

Source: Dallas News

Moving Away From The Mothership: Satellite Healthcare Campuses Embrace Multimillion-Dollar Expansion, Specialized Services

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When Texas Medical Center-headquartered healthcare systems began acquiring land outside of the Inner Loop, most secured more land than they initially built up.

Many of those satellite campuses are now under multimillion-dollar expansions as they increasingly stand on their own for specialized care rather than as feeder hospitals for the TMC.

Methodist West Campus (Photo Credit: Houston Methodist Houston)

“You cannot innovate from a space perspective in the Medical Center like you can in some of the new hospitals that are located away from the urban core,” Wolff Cos. Executive Vice President Carolyn Wolff Dorros said. “The suburban hospital expansion is transforming these facilities into mini medical centers.”

Swelling Up In The Suburbs

Nearing space capacity at the Texas Medical Center, hospitals turned to Houston’s booming submarkets — Sugar Land, The Woodlands and Katy — for expansion.

 Demand spiked due to the influx in residents, who increasingly prefer healthcare providers and services, from regular checkups to more complex concerns, closer to their home,” Colliers Senior Vice President Coy Davidson said. “There are no longer just feeder campuses for the mothership — the suburban campuses provide top-notch specialized care.”

Most healthcare procedures, excluding services like heart and organ transplants, will be offered at these centers. All of the expansions share one common thread: a desire to offer the same advanced quality service as the flagship hospitals in the Texas Medical Center.

Tracking The Expansion

Houston Methodist System is under construction on two hospital expansions in Sugar Land and The Woodlands. The Sugar Land hospital launched a $60M expansion project to improve its women’s health services in April. The plan includes constructing a three-story, 30,500 SF building and renovating the existing Sweetwater Pavilion. The facility has experienced an increase in patients from communities outside of Fort Bend County, including Waller, Austin, Brazoria, Wharton and Victoria, according to Houston Methodist Sugar Land Hospital CEO Chris Siebenaler.

“Fort Bend continues to be one of the fastest-growing counties in the U.S., which drives the demand for women’s health services,” Siebenaler said.

A rendering of the The University of Texas MD Anderson Cancer Center (Photo Credit: Courtesy of MD Anderson)

The University of Texas MD Anderson Cancer Center is opening a three-story, 208K SF building in The Woodlands. Serving as an extension of MD Anderson in The Woodlands, the outpatient clinic will feature similar treatment and supportive services, plus new diagnostic and screening services.

It is expected to welcome patients in the spring.  What specialized services are being built out is determined by the needs of the area. In Katy, the home of an eight-time state champion high school football team, Memorial Hermann is investing $15M to construct a 50K SF sports and medicine and human performance facility. The project will be on the Memorial Hermann Katy Hospital campus and provide targeted medical care and athletic training for professionals athletes, youth athletes and active adults.

“Another hospital expansion in Katy is providing a cost-saving solution for patients,” Dorros said.

Texas Children’s Hospital West Campus, the first community hospital designed exclusively for children, opened Texas Children’s Urgent Center adjacent to its emergency room in September. Of the 12 clinics for TCH, this is the second to open steps away from one of its hospitals.

“Patients are allowed to come to either facility and be directed to the appropriate facility depending on the severity of the visit,” Dorros said. “Having both options can lower unnecessarily high hospital bills, shorten wait times and increase use of the appropriate healthcare options. That is such a better patient experience, Patients are getting the right care at the right time.”

Learn more about healthcare-related development opportunities at Bisnow’s National Healthcare South event at the InterContinental Houston Medical Center Feb. 27.

 

Source: Bisnow