Impact on Independent Practices
We have been studying provider consolidation for some time, and it is no secret that the “disappearing private practice doctor” is an active trend. Smaller practices not affiliated with large systems are likely to feel additional pressure from the COVID-19 pandemic. Already operating on thin margins, these practices are more likely to succumb to the pressures being placed on the market. With some practices seeing no-show rates jump from 5% to 75%, smaller groups have had to resort to laying off staff members to keep the doors open.
Direct from the Doctors: Current Challenges for Private Practice of Medicine
“Private practice medicine is the entry to the U.S. health care system. With a few exceptions, all the problems one hears about in the media regarding the crisis in the hospitals is also occurring in the small to mid-size private practices. Yet, caring for sick patients must continue. As this crisis started, we recognized early that not only were we at risk of illness from asymptomatic patients carrying COVID-19 as were our technicians and office staff. Testing was not available except at hospitals and obtaining results was very slow (over a week). Yet, we lacked the necessary safety gear (gloves, masks, gowns, etc.) to conduct business as usual. We quickly pivoted (before mandated by the government) to limit care to emergency patients only, furlough our staff (both to reduce infection risks and reduce our overhead), and cut and/or eliminate salaries of the doctors. This will likely continue through April and perhaps longer, which raises real concern about the viability of the practice without loans or financial help.
On the positive side, there is tremendous pent up demand for surgery and other services. The health care system has much to do with the hindsight of the pandemic. When life returns to normal, we will have fresh challenges including rehiring the staff, rescheduling all the patients and catching up. The challenges in small Practice medicine have been building for years. We represent the last vestige of the mom and pop store in U.S. business. It will be interesting to see how this pandemic changes the marketplace in the years ahead.”
Richard A. Lewis, MD
Co-Founder, Sacramento Eye Consultants
As providers and healthcare systems seek out solutions to combat the burdens of this pandemic, virtual care has jumped to the top of the list. According to a recent article from the Healthcare Dive, the Trump administration has eased regulatory barriers to use virtual care, the Centers for Medicare & Medicaid Services (CMS) temporarily expanded traditional Medicare to reimburse telehealth visits and some private payers have increased their reimbursement for virtual care too. While reimbursements on virtual care is at the top of physicians concerns, 66% of medical consumers are willing to make the switch. While we are still far from being able to rely on telehealth to fill the needs gap, this pandemic has exposed an opportunity for a shift in technology.
Direct from the Doctors: Private Practice of Medicine in the Post COVID-19 Era
“COVID-19 is officially now termed SARS-COV2 (Severe acute respiratory syndrome-Corona virus type 2). I have practiced neurotology, a subspecialty of Otolaryngology/Head and Neck Surgery, for 34 years in Sacramento, California. Nothing has changed the practice of medicine like the COVID-19 pandemic; nothing is even close. The impact on our country’s health, economy and culture will reverberate for decades in the future. What will be the impact on the private practice of medicine? What will be the impact of the pandemic on independent medical practice business?
Practicing medicine involves making important and often emotional decisions with a patient. For the past hundred years physicians have pacified the emotional aspects of these medical decisions with face-to-face contact. As humans we value the face-to-face contact. It establishes the setting to convey accurate medical information and allay unnecessary fears. Many other businesses routinely conduct activities via video conferencing. The computer industry has embraced video conferencing for many years. Many educational classes are now conducted with video conferencing. These more efficient techniques of conducting business are routine in many other occupations. The medical field has been slow to adopt these modern techniques of communication for various reasons. The tradition of face-to-face consultation is deeply ingrained in both American physician and patient culture. Medicare and most health insurance providers have been resistant to compensating physicians for non-office consultations.
The COVID-19 pandemic has changed day to day medical practice dramatically. With calls to “shelter in place” echoing across the country the office visit has been forced into telemedicine. For many reasons this is a more efficient method of physician-patient interaction. Since our medical offices are not able to see patients in the office telemedicine rapidly evolved. The change is here to stay. Many postoperative checkups or office visits to discuss test results will now take place via telemedicine. Many physicians are starting to allocate significant time to “virtual visits” via telemedicine. How will this significant reduction in office utilization effect medical office needs?
There is no doubt that significantly fewer office visits will occur. Smaller waiting rooms, and fewer exam rooms will reduce office space requirements. The only question is how much and how rapid the decrease will occur.”
Kevin X. McKennan, M.D.
Sacramento Ears, Nose and Throat
What’s the Bottom Line for Medical Real Estate?
There are many different opinions as to how long this pandemic will last, if it will be seasonal and what the data will say when we look back. When it comes to the impact on medical real estate, our thoughts too are just an opinion, but hopefully one that can help you, our reader, assess the medical office market.
Over the past years we have seen the number of private practices decline. Through regulation and changing dynamics, we have seen the large healthcare providers absorb many smaller practices. The additional pressures placed on private practice by the pandemic will undoubtedly promote the continuation of this transition. Additionally, we feel this may also force those independent doctors close to retirement, to make the move perhaps earlier than originally planned. Medium sized practices and specialty practices, such as those of Dr. Lewis and Dr. McKennan, will resist the overtures of the large providers but will, as stated in their comments, change.
Perhaps the biggest impact will be on those large providers themselves. Hospital systems are already dealing with issues of capital allocation such as replacing outdated facilities. Now, they are dealing with the pandemic, and when this first battle is over, its aftermath. This will further exacerbate those capital allocation issues.
Despite the above issues, we feel when it comes to healthcare real estate, although each opportunity will take more analysis, overall, it will continue to be a stable, long-term investment. Baby boomers are still growing older and will continue to need care, obesity is still a huge problem bringing with it many related health issues and millennials will adopt telemedicine allowing doctors to increase patient loads. Yes, there may be some short-term disruption, but medical real estate is still in demand. As in any investment, understanding and mitigating risk is key. If you are looking to buy or sell medical office, let us help you navigate the hurdles. Our team will be monitoring medical office stability in our markets and we will continue to send updates in this ever-changing environment.
This article was authored by the Northern California Healthcare Advisory Group consisting of Bill Swettenham, Eric Ortiz, Blake Bouldin, Tyler Nielsen and Bre Cusick.