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What The Shift To Outpatient Care Means For The Orthopedic Industry

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Eight orthopedic surgeons connected with Becker’s to discuss what the shift to outpatient care means for the orthopedic industry.

James Abbott, MD. Orthopedic Surgeon at Best Surgery & Therapies (Cincinnati)

It means providing more complex surgeries like total joint replacements and spine fusions with an outpatient model that can still leave the patient feeling safe and supported in their recovery process. To better accomplish this, we need innovative ways to manage patients with virtual coaching and monitoring systems that allow patients to have questions answered quickly and also develop safety net protocols for post-op patients to avoid issues turning into unnecessary emergency department visits. This will allow patients to shop around for the best experience, technique, and technology advancements when selecting a center for surgery and then control their recovery environment at home.

Wael Barsoum, MD. President and Chief Transformation Officer at Healthcare Outcomes Performance Co.

Over the last few years, CMS has removed close to 300 MSK procedures from the inpatient-only list, thus allowing these procedures to be performed in ASCs, which are typically lower cost. Although ASCs play a significant role in value-based care, cost should not be the only factor and come at the expense of quality and outcomes. Whether the site of care is a hospital or ASC, the choice should ultimately come down to which setting will provide the best patient outcome. High-risk patients will always need access to high-quality hospitals, and orthopedic surgeons should ensure that they are stratifying their risk and choosing the right site of care for the right patient at the right time.

Subir Jossan, MD. Chief Transformation Officer at MedVanta

Historically, the majority of surgical procedures in orthopedics had been done in an inpatient setting. The shift to outpatient care began almost two decades ago and has accelerated significantly in the last four to five years. This shift is multifactorial. Minimally invasive surgical techniques were the major initial driver of this trend. Technological advances in the orthopedic implant space have also aided in the shift to outpatient care. Anesthesia post operative pain control has allowed for major joint and spine surgical cases to be feasible in an outpatient setting. Finally, surgeon comfort with performing major cases in an outpatient setting has drastically increased due to training programs adopting the shift for younger physicians, whereas for older surgeons in private practice, the shift has occurred with less of an accelerated pace. Using orthopedic specialty trained assistants and increased utilization of physician extenders has also aided in increasing surgeon comfort with more complex cases into the outpatient setting.

The shift to outpatient setting has improved outcomes, improved patient satisfaction and dramatically decreased the cost of orthopedic care. This has been seen in many studies. As a whole, the shift has more recently allowed orthopedic surgery groups to entertain different reimbursement models. Since surgeons choose the site of service and direct post operative rehabilitation, they realize that they can drastically affect the total cost of musculoskeletal care, while concomitantly increasing patient satisfaction and most importantly improving patient outcomes. The proactive orthopedic groups therefore will increasingly have the opportunity to capitalize on the shift to outpatient care from a financial perspective. Orthopedic groups with the foresight and the ability to create the infrastructure to capitalize on the shift from inpatient to outpatient care will be positioned to have significant financial impact to their organization.

Philip Louie, MD. Spine Surgeon at Virginia Mason Franciscan Health (Seattle)

The rise of value-based care is placing additional economic pressure on surgeons to deliver the highest standard of treatment for less cost. This is especially true in orthopedic surgery and the industry as a whole. As we are seeing a shift to value-based healthcare and reimbursement, we really need to re-evaluate how orthopedic surgical care is delivered and billed.

We have been able to demonstrate improved patient outcomes/satisfaction, efficiency, and cost savings when surgeries are performed in ASCs compared to the main hospitals and medical centers. Now we need to focus on expanding the surgeries that can be safely performed. This will likely be driven by enabling technologies (where industry plays a large role) and collaboration with our anesthesia colleagues. We also need to provide greater access to ASC opportunities. The upcoming growth of ASC access will also improve the overall quality, safety, efficiency, and value of surgeries being performed in ASCs.

Ultimately, an improved understanding of how ASCs fit into the value-based care equation that is dominating our healthcare landscape. Patient care and outcomes will always be the most important factor.

Emeka Nwodim, MD. Orthopedic Surgeon at the Centers for Advanced Orthopaedics (Bethesda, Md.)

There are numerous ways in which the orthopedic industry has been impacted by the shift to outpatient care.

The orthopedic industry, like any other industry in healthcare, is comprised of a myriad of components, entities, professionals and individuals. The shift to outpatient care inevitably impacts everyone; I believe, for the better.

Oftentimes, our focus is on the major players, such as payers, hospitals/health systems, and physicians/surgeons. In this regard, I believe the shift to outpatient care has appropriately reestablished a balance of powers. Before, the pendulum swung drastically in the favor of payers and hospitals/health systems. Now, orthopedic surgeons have a greater impact, more administrative influence, autonomy in patient care all while optimizing their entrepreneurship. This is not intended to disparage payers, hospitals or health systems as they face their own challenges, appropriately protecting and optimizing their interests. As in any other circumstance or industry, I sincerely believe that balance of power is necessary for optimal outcomes.

On a less visible impact, is the influence that it has had on other professionals and individuals within the orthopedic industry. This includes lower-level administrators, nurses and all other clinical and nonclinical staff. The shift to outpatient care provided everyone the opportunity to compete with the major players mentioned above. Whether they choose to remain in the inpatient setting or not, they have the leverage of being able to negotiate with an outside outpatient opportunity.

Paul Perry, MD. President of Tri-State Orthopaedic Surgeons (Evansville, Ind.)

The accelerating migration of orthopedic cases to the outpatient setting will facilitate and cement surgeon leadership in the delivery of surgical care. In many cases, surgeons exert considerably more control over care delivered in the ASC setting as opposed to the hospital setting. This care is delivered as a tremendous value proposition with higher quality and lower overall costs than similar inpatient care models. This is a win for patients, employers and third-party payers in systemic efforts to contain rising healthcare costs.

Thomas Schuler, MD. Founder and CEO of Virginia Spine Institute (Reston, VA)

A significant rise in outpatient surgery is transferring enormous numbers of surgical cases from hospital settings which is negatively affecting hospital revenue. Hospitals are trying to make up for this loss by building outpatient centers and pursuing complex cases that still need patient care. This is where complex spine surgeries can benefit hospitals and patients. As hospitals increase the complexity of spine surgery performed at their institution, more patients are able to receive the needed care that historically was difficult to find centers that performed such care. This does not mean that all hospitals and their physicians should provide such care, but it is a strategic opportunity for excellent spine surgeons to partner with their hospitals to elevate access to complex spine care for patients. Communities will benefit. Modern spine care significantly increases the quality of peoples’ lives when performed by talented surgeons aligned with a spine-focused hospital.

Anand Srinivasan, MD. Director of Anterior Hip Replacement Program at NorthShore Orthopaedic & Spine Institute (Gurnee and Glenview, Ill.)

The shift to outpatient care for the orthopedic industry, specifically in the setting of joint replacement surgery including anterior total hip arthroplasty, means that practices and institutions will have to employ tools and devices that allow for remote monitoring and care in a scalable fashion. This may involve smart implants, braces, or other equipment that allow for communication and most importantly, identification of patients that may have postoperative concerns.

 

Source: Becker’s Spine Review

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Why MOBs Offer Healthy Investor Appeal

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The health-care sector has largely rebounded from the lockdowns that halted all but the most necessary doctor’s visits and procedures in 2020.

Most health systems reported that they were within 5 percent of pre-pandemic utilization volumes last year, according to Cushman & Wakefield’s most recent healthcare and medical office report.

That’s good news for medical office real estate, as is the expected 7.3 percent growth in outpatient services through 2026, reported Cushman & Wakefield, citing data from the Advisory Board, a healthcare research and analytical organization based in Washington, D.C.

Additionally, medical office buildings have an average occupancy rate of 92 percent, which represents gradual improvement since occupancy dipped in 2020. It’s also clear that while the growth of telehealth fulfilled a need during the lockdown, many ailments and checkups still require an in-person visit. Investors expect MOBs to register 2 percent to 4 percent rent growth this year, according to a JLL survey released in February. That would be consistent with the past two years, which have produced average rent increases of about 2.3 percent, JLL notes, and compares favorably with the 1.9 percent uptick for office rents over the same stretch.

As a result, investors are viewing medical office as a safe haven in a disrupted environment. Not only have rising interest rates cast general uncertainty on property values, but the slow return of employees to the workplace is also raising questions about demand for the office sector as a whole.

“We’re receiving a lot of calls from office owners who are looking for ways to deploy capital into medical office,” said Andrew Milne, senior managing director for JLL Capital Markets. “It isn’t a new trend, but a lot more are rethinking their traditional office portfolios.”

As with most asset categories, higher capital costs have made it challenging to deploy capital into medical office. MOB investors pulled back in the second half of 2022 as the bid-ask spread emerged and lending largely dried up, noted Lorie Damon, an executive managing director with Cushman & Wakefield’s health-care advisory unit. Still, the market remains liquid for trusted borrowers who bring attractive deals to the table.

“The limited capacity for accessing debt right now has certainly impacted medical office as well as every other property sector, but deals are getting done,” said Damon. “Health-care performs really well in recessionary times, because people still get pregnant and still get sick.”

Pressure On Values

Some $19.3 billion in medical office buildings traded in 2022, a $1 billion increase over the prior year, according to New York-based MSCI Real Assets. However, it’s worth noting that a single deal, Healthcare Realty Trust’s acquisition of Healthcare Trust of America, accounted for nearly $8 billion of that total. In the second half of 2022, rising capital costs and recession fears cut MOB transaction volume sharply year-over-year.

Though that REIT deal was a dominant factor in investment volume, private buyers accounted for 72 percent of all transactions in 2022, reported MSCI Real Assets. Health-care REITs pulled out of the market early last year as stock prices fell, observers say. The REITs ended the year down more than 22 percent, according to NAREIT, although they generated total returns of nearly 13 percent in January.

Sources: Revista, CBRE Econometric Advisors, CBRE research

Sources: Revista, CBRE Econometric Advisors, CBRE Research

The dive in health-care REIT values further indicates that a repricing is underway and trickling down to the private market. The median cap rate for medical office ticked up to 5.9 percent by the end of the year, according to research by CBRE and Revista. Gauging true value change is difficult, however, because core asset owners who may have wanted to dispose of properties last year ended up holding onto them, limiting the dataset to value-add and core plus transactions, Cushman & Wakefield noted.

“But in San Francisco, cap rates for surgery centers with credit tenants have climbed to as much as 6.5 percent, or about 200 basis points higher than before the pandemic,” said Edward Del Beccaro, executive vice president and the San Francisco Bay Area regional manager with TRI Commercial/CORFAC International.

Many sellers still hope that interest rates will come down and that prior pricing power returns, he added, but he anticipates that the Federal Reserve will raise the benchmark federal funds an additional 100 basis points in 2023.

“Medical office cap rates will be under further pressure to move higher, and I don’t see them going down at all in 2023,” Del Becarro predicted. “But as inflation is tamed and the market settles out, I think medical office will be one of the winners.”

Stabilizing Market

Some observers anticipate a rebound in investment sales activity this year as debt markets stabilize. After some fluctuation during the fall and winter, the yield on the 10-year Treasury reached nearly 4 percent by the end of February. That has generally translated into interest rates between 5.5 percent and 7 percent or more for medical office. Some lenders had reached capacity as last year drew to a close, but lending has ticked up with new allocations for 2023, reported Warren Hitchcock, senior vice president & managing director with Northmarq.

At the same time, the amount of leverage available has dwindled. But some developers can still find favorable terms. A year ago, Hitchcock secured bank financing for 85 percent of cost for a project that was more than 80 percent preleased. Later in the year, a similar deal still managed to muster a loan for 75 percent of cost.

“Not every lender understands medical office,” Hitchcock added. “But the lenders that do know it and understand it are aggressive on it.”

Lender Interest Grows

“Indeed, just as medical office space is attracting a wider group in investors, more lenders are gravitating toward it,” said Lee Asher, vice chairman with CBRE’s Healthcare and Life Sciences Capital Markets. “Among other attractions, medical tenants deliver solid rent coverage thanks to strong earnings before rent costs and other expenses. What’s more, rent makes up only 5 percent of operating expenses for medical tenants, which is typically much lower than occupiers in other property categories. Because physicians want to remain near their patients, tenant retention also tends to be high.”

Meanwhile, on the equity side, medical office assets that come to the market are still fetching multiple offers even though some buyers are still on the sidelines, reported John Chun, a managing director on JLL’s Capital Markets team. But to those investors who are active, the retreat of treasury rates along with a decline in corporate bond spreads and SOFR swap rates (secured financing overnight rate) are providing more certainty to the market than was present just a few months ago.

“It’s still a very fluid and liquid market,” Chun said. “And we’re starting to see all-in interest rates decrease to a level that should benefit medical office deals this year.”

 

Source: Commercial Property Executive

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Newmark Facilitates $72.7 Million Sale Of Medical Office Building Portfolio Spanning Four States

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Newmark announces the $72.7 million sale of a five building, Class A medical office building portfolio.

The 179,000-square-foot portfolio comprising outpatient medical office buildings and surgery centers spans four states—Pennsylvania, Connecticut, Georgia and Texas. Newmark represented the seller in the sale to a state pension fund.

Newmark Senior Managing Director Jay Miele, Executive Managing Director Ben Appel, and Senior Managing Directors John Nero and Michael Greeley of Newmark’s Healthcare Capital Markets group led the transaction, in cooperation with local licensees.

“This sale marks an important milestone in our ongoing advisory work with this client,” said Miele. “The opportunity to invest in strong institutional-quality assets in the healthcare real estate sector was attractive to buyers, especially given that industry-leading providers anchor the portfolio.”

At the time of the sale, the institutional-quality portfolio of properties was 99% leased overall, with a weighted average remaining lease term of 5.5 years primarily to leading health systems, credit tenants and dominant physician networks. Since 2018, portfolio ownership has eticulously maintained each asset’s best-in-class, high-end medical office finishes through over $4.5 million in capital improvements.

“The properties are anchored by market-leading health systems, with strong track records of providing mission critical services to the community and are therefore poised for continued growth and long-term success,” said Appel.

 

Source: HREI