Telehealth and the Medical Office Building

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Written by: Gordon Soderlund

Since the onset of the COVID-19 pandemic, healthcare providers scrambled to identify alternative solutions to continue serving patients. As cases and deaths mounted, healthcare providers suspended elective surgeries, altered their patient flow protocols in outpatient and inpatient environments, fell victim to rampant shortages of personal protective equipment (PPE) and ICU beds, and valiantly managed overworked and/or infected staff and inundated emergency rooms. Pre-pandemic demand for ventilators across the globe was 77,000. Last year, New York City alone needed 30,000 additional machines.

With all this dislocation, revenues plummeted as patients avoided personal contact with everyone, especially in healthcare settings such as hospitals, clinics, surgery centers and medical office buildings. Beyond the financial impact, however, there have been significant downstream issues related to patient health. Providers have seen a spike in late-stage diseases, i.e., cancer and heart ailments, due to lost opportunities to conduct routine screenings and treatments and in-person diagnoses.

Prior to the pandemic, telehealth services were primarily available to patients in rural locations and required them to have an existing relationship with a provider who had to be located at a hospital, clinic or medical office. Many providers were not authorized to render telehealth services and were ineligible for reimbursement. Also, payment was sub-par to that of an in-person visit.

Centers for Medicare and Medicaid Services (CMS) unleashed telehealth early in the pandemic, suspending many of these restrictions to encourage patients to receive care. Telehealth services became a revenue lifesaver, and though it has become a more widely accepted form of interaction between provider and patient, in-person care is still the primary interface. While telehealth has been used more frequently and the technology has its benefits, physicians do not want to lose doctor-to-patient intimacy. Primary care physicians work with the same patients year after year, forming longer-term bonds and a deeper understanding of each patient’s needs. Specialists, particularly when required to communicate unnerving complex and life-altering diagnoses, prefer face-to-face communications.

Despite its broader use, telehealth still faces headwinds. State licensure laws that were relaxed during the pandemic may resume to full force and effect. Par reimbursement may be diminished. At the Federal level, there have been discussions to permanently incorporate telehealth into our healthcare delivery system, but there is no guarantee that Congress or the Executive branch will deliver.

Will telehealth reduce the need for medical office space? There are stories of hospitals and health systems consolidating space or permanently implementing hybrid policies combining working from home and at the office. Most of these situations, however, involve non-clinical and administrative staff, not clinicians. Furthermore, providers continue to deliver more and more care in outpatient settings. The trend from inpatient to outpatient is indisputable as providers conduct more complex procedures in lower cost, outpatient settings thanks to advancements in procedures, medical technology and pharmacological solutions.

But not all medical buildings are created equal. Telehealth may threaten those with tenants whose patients do not require physical examinations, advanced technology or special equipment, as more services such as psychiatry and behavioral health, are conducted via the Internet on computers, tablets and phones.

One particular feature of the medical office building is being critically reconsidered: the waiting room. During the pandemic, the parking lot became the de facto place to await one’s appointment. Make an appointment and answer a pre-appointment questionnaire online, eliminating the need to do so in the waiting room. A phone app signals your approach by car, directs you to the nearest parking space and advises you on whether the doctor is running late. A computer kiosk, with the swipe of a card or app recognition, will identify you while a greeter accompanies or directs you to your physician’s office. With the use of technology and facility redesign, some conventional waiting room space will be converted to additional clinical uses, or creating “sick” and “well” separation areas.

In our lifetimes, we haven’t faced a national or international crisis more pervasive than the COVID-19 pandemic. Yet providers, despite the plummet in revenues and patient volumes by as much as 60%, for the most part continued to pay their rent. For example, publicly-traded REITs Healthpeak (NYSE: HCP) and Welltower (NYSE: WELL) collected 98% of contractual rent in July and the fourth quarter of 2020, respectively. In May 2020, Health Trust of America (NYSE: HTA) collected 94% of contractual rents. While commercial office sales volume dropped 32% in 2020 vs. 2019, medical office building sales decreased less than 7%, and activity accelerated during the fourth quarter of 2020. The trend for 2021 is picking up where 2019 left off.

Telehealth will not supplant face-to-face care by providers. Instead, it has proven to supplement that care. Telehealth will maximize productivity per square foot for healthcare providers. Physicians will adapt space within their suites to conduct in-person visits, then shift to a room outfitted with technology to conduct telehealth visits. Telehealth will increase touch points with patients and improve their access to providers, thereby increasing patient retention. In effect, the healthcare industry is implementing an omnichannel approach to serving their communities. Rather than serving as a threat, telehealth complements bricks-and-mortar healthcare real estate.

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