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Two medical office buildings sporting 
six-figure square footage include a four-story facility attached to Baylor Medical Center at McKinney (Texas), above, and the facility at St. Joseph Regional Medical Center in Mishawaka, Ind., below.
Two medical office buildings sporting six-figure square footage include a four-story facility attached to Baylor Medical Center at McKinney (Texas), above, and the facility at St. Joseph Regional Medical Center in Mishawaka, Ind., below.

XXL MOBs

Medical office buildings grow in girth


By Ashok Selvam
Posted: September 15, 2012 - 12:01 am ET
Tags:

While new medical office buildings have been added to the landscape across the country, the ongoing trend toward larger multispecialty practices is driving the need for supersized physician spaces.

These new facilities need to be big enough to house far more than a single physician group, yet still inviting enough to make patients feel comfortable, and functional enough for clinicians and staff. Poorly designed space can discourage the very collaboration necessary in the post-reform environment of patient-centered care, observers say.

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Northwestern Memorial Healthcare is among the systems pushing the trend. The Chicago-based system last year purchased a 130,000-square-foot office building in the northern suburb of Glenview, Ill., with plans to convert it into medical offices. The facility, slated to open in March, represents Northwestern's commitment to better coordinate care, says Dr. Daniel Derman, president of Northwestern Memorial Physicians Group. He sees having everything under one roof as advantageous, offering “the most efficient way” to take care of a patient population.

Derman says he's not surprised by the escalation in medical office building size, given the increasing focus on ambulatory care. Outpatient care continues to account for a larger portion of hospital revenue, surging from about 10% in the early 1990s to currently about 60%. Older, smaller facilities typically can't accommodate the growing number of services offered on an outpatient basis, especially an expanding menu of surgical procedures and diagnostic imaging such as CT and MRI. Renovation or retrofitting such space often is cost-prohibitive, experts say.

And still larger facilities are being developed. For example, the Capital Health Medical Center-Hopewell, Pennington, N.J., includes a 329,200-square-foot medical office facility. The building opened in November 2011 and features imaging services, an oncology center and a center for digestive health.

“You're seeing a lot more centers built around specialties,” says Andrew Quirk, senior vice president and national director at Skanska USA, the construction management firm for the Capital Health facility. “You're going to start seeing more dedicated outpatient treatment centers for cancer that are huge into proton therapy.”

Quirk also expects to see more free-standing emergency departments. “I think it's a good way for hospitals to introduce themselves into the community and to take immediate care of the people they are serving,” he says.

Some of Skanska's larger medical office projects include Carilion Clinic's 210,000-square-foot Riverside Center in Roanoke, Va., which had its latest wing open in 2009. It includes internal medicine, orthopedic and neurology practices.

“I can tell you that our average size of MOB that we have seen more often than not is in the 30,000- to 60,000-square-foot range,” Quirk says. “We are now seeing them routinely greater than 100,000 square feet.”

Another project is the 60,000-square-foot University of North Carolina Health System's physician's office building in Hillsborough, which is expected to open in the spring of 2013. The number of physician practices has yet to be determined, officials say, but services are likely to include oncology, urgent care and diagnostic imaging.

Another factor leading to the need for expanded medical practice spaces is the surge in physician employment by hospitals and health systems. And those providers are likely to continue to hire more doctors, says Keith Konkoli, a senior vice president for healthcare at Indianapolis-based developer Duke Realty. Given the growing numbers, bigger office buildings just make sense, he says.

“They need places to work and they need to get all the physicians together,” Konkoli says. “You need the services behind them to support their practices.”

Duke Realty's projects include the 114,000-square-foot physician office building that is connected to the Baylor Medical Center at McKinney (Texas). The new medical office building opened in July and houses more than 10 physician practices.

Konkoli also cites St. Joseph Regional Medical Center in Mishawaka, Ind., which includes a four-story, 205,600-square-foot multispecialty facility that features an MRI facility, wound-care center and a pediatric clinic. The medical office building, which Duke developed and built, opened in 2009 and houses five of St. Joseph's physician practices.

St. Joseph Regional Medical Center in Mishawaka, Ind.
St. Joseph Regional Medical Center in Mishawaka, Ind.
These larger buildings are going up across the county, not confined to specific regions where strong population growth might be a major factor. “With all of the CEOs and CFOs that I've talked to about this across the country, it's neat to see it's not just a regional thing, it's a national response.” Quirk says.

Konkoli says it has taken some time, but during the past decade, physician integration has continued to improve with a increased focus on collaboration. The patient experience also improves through the convenience of having multiple specialties in the same building, which often provides more cost-effective settings. That's especially important with shrinking reimbursements, he says.

Even though buildings are trending larger, it's often the case that the work spaces are getting smaller as providers push for efficiency. Physicians from different practices share more waiting rooms, back-office space and nursing stations: “It just operates more efficiently. It's an open collaboration,” Konkoli says.

Building larger offices also represents a more efficient way of spending money, since the cost of managing real estate continues to rank as a major expense for hospitals. Based on data from Chicago-based real estate management firm Jones Lang LaSalle, real estate represents 40% to 50% of hospital systems' assets, making it the third-largest expense, behind payroll and supplies.

The combination of a decline in provider reimbursement and rising demand for capital makes strategic planning more important for hospitals and health systems, says Shawn Janus, the firm's managing director. Larger medical office buildings are typically more cost-effective versus construction of new full-service hospitals, he says.

One way construction costs differ between types of facilities is with HVAC systems, as hospital filtration requirements are more stringent compared with office buildings, Janus says. Medical office buildings don't have to adhere to those higher standards, which means lowered costs, he says.

Hospitals and health systems are also employing the new “one-stop shopping” medical office venues to cater to patients' on-demand lifestyles.

“As a consumer, I would much rather be able to see my doctor, have my ambulatory surgery and have my rehab—everything—at one facility very close to where I live,” Janus says.

Those interviewed for this story struggled to come up with negatives to the larger medical office space. Konkoli believes that eventually building size could be capped once they approach the size of larger hospitals. Some medical office buildings are already eclipsing the size of smaller hospitals.

“You could say that with being big you lose efficiency, and you look much like a hospital again,” Konkoli says. “Typically, you're not going to have any bed component. I just think it's a matter of what's being delivered and the number of physicians and what can be efficient in the space.”

The availability of capital also dictates fewer hospitals and more office buildings, Janus says, pointing to an increase in the number of mergers and acquisitions. Smaller hospitals are seeking the stability and increased capital of larger systems.

Declining reimbursements mean physicians are also affected by the availability of capital. It's more difficult to find financing to build their own office facilities versus working in a larger spaces owned and operated by hospitals and health systems, Skanska's Quirk says.

Building in flexibility has always been key to designing offices, and the larger buildings offer even more adaptability, Quirk says. Compared with building a hospital, larger outpatient office space is a cheaper alternative that's more inviting for patients, he adds.

And they might offer amenities not found at your typical community hospital. Quirk says more office buildings will include health clubs or spas, citing one example of a retail component that's also becoming more familiar in medical offices to keep the customers happy.

While it's easy to see the trend toward larger buildings, the focus shouldn't just be on size, Derman says. The fate of the patient experience lies with how building designers use the space to help clinicians deliver a higher quality of care and services. “The size of the building, the size of the hospital does not dictate the experience,” he says.


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