A Seat at the Table for Health Care Real Estate
The important role of physical infrastructure for accelerating value-based care
Welltower is one of the world’s largest owners of health care real estate. The company has a ~$ 40 billion enterprise value and owns interest in 1,400 properties in the U. S., U. K. and Canada including senior living communities (independent living, assisted living and memory care), outpatient medical office buildings and post-acute centers. Welltower recently announced a strategic relationship with Johns Hopkins Medicine to drive collaboration between health systems and senior care providers with a focus on wellness and delivering better care at a lower cost for aging adults. In this interview, DeRosa discusses the intersection of real estate and health care delivery.
What role does real estate play in the delivery of health care?
TD: The health care real estate footprint in the U.S. is massive. The monetary value of acute care and the outpatient medical building real estate market is valued at $1 trillion today, according to Revista. But a fair amount of it is obsolete. It’s not well aligned with the future of health care delivery. Hospitals historically were standalone buildings: buildings where people were born, buildings where people endured disease and buildings where many people died. In the past 20 years, we have seen a revolution in outpatient procedures and a shift in patient care to outpatient medical centers. Now, as we move to a value-based model, health providers are increasingly measured on how effectively they are able to deliver health care. To transition to a value-based system, we need more efficient health care delivery settings — so increasingly real estate needs a seat at the table.
How is the state of health care real estate today impacting the move to a value-based model?
TD: Of the $1 trillion real estate market that exists today, ~$600 billion is in acute care real estate. That real estate will limit the speed at which we can transition to value-based care because it includes a lot of antiquated infrastructure that cannot support modern technologies. For example, there are hospitals today without a reliable Wi-Fi signal, and in many cases, the investment needed to modernize these buildings is Herculean. Antiquated real estate is forcing health care to do the job with one hand tied behind its back. So, the old real estate can be an obstacle for what needs to happen in our health care system, but, conversely, modern real estate can help accelerate the transition to value-based care.
Why would a health system be interested in partnering with Welltower?
TD: The frail elderly are the highest risk population for a health system to manage, and by far the costliest. We actually don’t start by talking about real estate. We start from the perspective that we are a wellness delivery model for the most at-risk population. If we can keep people eating properly, if we can keep people exercising and keep their minds acute, we can address many health care issues. Wellness is so important. Welltower communities are home to a population of more than 200,000 elderly residents. One thing they have in common is they pay out of pocket to get wellness care (including nutrition, hydration, social and cognitive engagement and safety) from the country’s best assisted living and memory care operators. Unfortunately, in many other cases, the frail elderly and people with dementia are living in real estate that puts them at risk. For example, a two-story suburban house with four bedrooms and three bathrooms presents a major risk to an 88-year-old woman who has had her joints replaced and also has macular degeneration. Her home becomes an environment filled with landmines. When she falls down the stairs, she will land in a hospital bed with a number of acute issues that will make it very challenging for that hospital to treat her in the number of days for which they will be reimbursed. Health systems want to manage this population in a more effective way and we are their partner in meeting that challenge. We are a $40 billion enterprise with extraordinary access to capital at a time when health systems have a profound need to evolve. Health systems are focusing their limited capital investments on technologies that cost billions of dollars. And, while historically hospitals have owned 98% of their real estate, that is changing and they are looking to companies like Welltower that bring a platform of value to helping them manage their own businesses more effectively.
What changes do health systems need to make as this population continues to age?
TD: Hospitals will always be a critical link in the health care delivery chain, but they cannot address all of the aging population’s needs. Many health systems are prepared for meeting physical challenges faced by these patients, but not the complexities of treating dementia and other diseases of aging they will face on a vastly growing scale. To prepare for a more physically and cognitively impaired patient population, we need to re-think the environments in which care is delivered. Acute care and senior care providers need to work together. Real estate can be an important link that brings them together. The over-65 population will increase by nearly 50% over the next 25 years. No one entity can face the challenges of the elderly population alone, but we can do it together.