An Accountable Care Organization (ACO) is a type of health system in which physicians and hospitals are held accountable for the continuum of health for the patients in the health care network in which they serve. Instead of receiving pay for services which is the predominant current pay model, ACO’s receive a flat fee per patient from the patient’s insurer or employer for a number of health services. As part of the Affordable Care Act (to be fully implemented in 2014), an ACO would agree to manage all of the healthcare needs of a minimum of 5,000 Medicare patients for at least three years.
The ACO initiative which was launched in January of this year has physician’s practices, hospitals and insurers across the country announcing their plans to establish ACO’s, not only for Medicare patients but for patients with private insurance as well. The objective of an ACO is first and foremost to deliver seamless quality care to their patients. Second, increase physician communication across the different medical specialties, and third to provide these services in the most cost effective manner possible. It is a model that is designed to be much more proactive with respect to patient care with the intent of reducing hospital readmission rates. There was a good article in the New York Times on March 12, 2012 written by Bruce Japsen titled Small Picture Approach Flips Medical Economics. It does a great job of detailing the structure and the potential benefits of an ACO using an ACO in Chicago as an example.
What we are seeing in healthcare today is hospitals bulking up into huge healthcare systems, merging with other hospitals to build extensive networks. According to a December 12, 2011 article in the Wall St. Journal, the number of hospitals acquiring other hospitals in 2009 was between 55-60, 78 in 2010 and more than 80 at the end of 2011. Many of these mergers and acquisitions are the results of some hospitals pooling resources to remain economically viable, and for others it is a way to aggressively expand their network and capture a larger share of the healthcare market in their region.
It is clear that hospitals are hiring and/or partnering with more and more primary care physicians and large specialty medical groups to ensure that they have a network of patient care services. Primary care physicians are the access point for the ACO model. According the same Wall St. Journal article, in 2005 there were approximately 475,000 independent primary care physicians nationwide; that number dropped to 375,000 in 2009 and is projected to be 250,000 by 2013. Certainly the drop in independent physicians is happening for a number of reasons, but the continued contractual alignment by independent physician’s and hospitals is a significant factor.
So what does all this mean for healthcare real estate? What we are seeing in our own firm is the increasing demand from our physician clients for expanded tenant advisory services in the area of lease negotiations between them and the hospital. These services include structuring an acceptable financial agreement which takes into consideration their existing space lease and the proposed contractual arrangement for new space and all that includes. In addition, where our clients own their own medical building or are the majority owners, we are advising them on value considerations for the real estate and their partnership interest. As well as creating successful exist strategies that allow them to sell the real estate if/when appropriate.
I anticipate that the demand for quality healthcare advisory services will increase over the next 5 years as our current healthcare model evolves. We will continue to see community ambulatory care centers increase. In addition, as practice groups add doctors and hospital buy practices the trend will be to merge these smaller groups into larger or multi-specialty space, which means larger floor plates for medical office buildings.
“Experience, expertise and our commitment to excellence are what drive positive results for our clients.”
Mark H. Caulton is president and managing principal of Princeton Realty Advisors, LLC, a Charlotte, NC-based diversified commercial real estate company with an emphasis on healthcare real estate.
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About Princeton Realty Advisors, LLC
Princeton Realty Advisors, LLC (PRA) is a diversified commercial real estate company with an emphasis on healthcare real estate. PRA was founded in 2006 by Mark H. Caulton its president and managing principal; it has three primary lines of business, Tenant Advisory Services, Finance & Development, and Investments. The company is located in Charlotte, North Carolina and has client relationships in Virginia, the Carolinas, Georgia and Florida (www.princetonrealtyadvisors.com)
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