Market Report: Healthcare Changes Could Affect Site Selection
With impending federal regulations set to drastically change the landscape of the healthcare industry, corporate site selection could see an impact as a result.
Steve Stackhouse-Kaelble (March 2011)

It's no secret that the healthcare game is changing in America. But it's far from clear what the new rules stemming from healthcare reform will be, much less how they'll affect the various players in the industry. For years, communities all over have wanted a piece of the life sciences R&D and manufacturing pie - but how will it be sliced in the future? And how will reform impact the development of hospitals and other provider facilities?
The 2010 reform law puts its biggest emphasis on insurance carriers and healthcare providers, notes Matt Szuhaj, director of Strategy and Operations for Deloitte Consulting LLP. "I think life sciences companies will be the last ones affected," he says.

Still, the business of creating and manufacturing medical products will eventually feel the effects of reform, directly or indirectly. For example, new grants and tax credits could influence R&D activity in the pharmaceutical world. Those who create original biologic drugs - drugs formed through biological rather than chemical processes - earned extended protection before competitors will be allowed to use their data to create similar versions of the drugs; the protection lasts at least 12 years. And the law calls for creation of a new regulatory pathway for so-called follow-on or biosimilar biologic drugs, which will impact pharmaceutical manufacturers.

Healthcare Reform's Effect on Facilities
The goal of reform, of course, is to increase access to healthcare services for America's many uninsured and underinsured people, and to get a handle on ever-escalating costs. The cost issue will drive significant changes in care delivery, which will have a big effect on facilities, according to Brett Hickman, partner at Pricewaterhouse-Coopers in Chicago and lead of the firm's capital projects and infrastructure practice. "Organizations are going to have to find ways to deliver healthcare in a much more cost-efficient way," he says. The volume of care needed in the United States is expected to rise substantially, as baby-boomers age and their healthcare needs grow. On the other hand, "the demand for beds is decreasing," Hickman says. That's been the trend for quite some time now, with outpatient procedures replacing more and more inpatient care. He notes that Detroit is facing a huge surplus of hospital beds, due in part to the move toward outpatient care, but also population shifts.

Across the country, health systems are consolidating and providers are determining which facilities need to stay and which ones can be phased out. "Each market is going to see it play out differently," Hickman says. Some places can support more facilities, "but I also think we're going to see the closing of a number of institutions."

A New Model of Care
As that occurs, reform is pushing the whole model of care toward prevention, with government and insurance reimbursement rewarding those efforts that reduce the need for hospitalization. "Hospitals are being not only encouraged, but their hands are being forced to become more efficient," says Doug Strout, principal and director of healthcare at KMD Architects in San Francisco.

How does that affect facilities? By pushing more care to ambulatory settings away from hospital campuses. "We're starting to see a trend of smaller project building booms," Strout says, "so that they can decant some outpatient services and focus their attention on the efficiency of the inpatient hospital."

In the earlier days of outpatient growth, the necessary facilities were often placed right on hospital campuses, frequently in existing buildings. That's becoming less practical, particularly in older hospital buildings. "They're not built or sized appropriately for new technology," Strout says. Sometimes the answer is a new building on campus, but many hospital campuses simply don't have enough room anymore.

As it happens, patients often prefer the convenience of closer-to-home ambulatory facilities, anyway. And opening new buildings also affords the opportunity to create more specialized facilities. One example involving Strout's firm is the new UCSF Osher Center for Integrative Medicine in San Francisco. It's a $37 million, five-floor, 48,000-square-foot facility where the focus is on blending traditional care with complementary and integrative medicine.

"Some of these trends are translating to international locations," he adds. He points to The Imperial College London Diabetes Center in Abu Dhabi, created to tackle the high incidence of diabetes in the Middle East, and The Chaum Center in Seoul - with six floors of integrative medicine services, fitness facilities, and a five-star restaurant offering meals nutritionally customized for each diner. As Strout notes, prevention is a big part of American health reform, but the concept is driving change in the development of healthcare facilities around the world.

Reform's Effect on Site Selection
Up the healthcare pipeline, where the products used by doctors and nurses are created, it'll be interesting to watch how the many facets of healthcare reform slowly change the way products are researched, created, and manufactured - and where these activities take place. Seemingly unrelated aspects of health reform could wind up affecting site selection activities.

For example, says Szuhaj, the law's focus on "comparative effectiveness" research to help determine which treatments are more cost-effective will have a hefty influence on what products thrive in the marketplace. He predicts the program will move the market to more of a generics-oriented model. That, in turn, will eventually have an effect on the manufacturing scene because blockbuster name-brand drugs are often made at large, one-product facilities, while generics are frequently produced in smaller plants designed to turn out a variety of products. "There will be a greater need for more flexible manufacturing - medium-size plants with more of a geographic spread than we have now," he notes. Health reform is just part of the story - the usual global economic forces are weighing in as well. As with so many other industries, "clearly there is a trend toward penetration of emerging markets," says Szuhaj.

"Everybody talks about the BRIC countries" - that would be Brazil, Russia, India and China - "but now it's especially Brazil, which is a large market in and of itself, about 200 million.Companies are in the process of analyzing how they will enter the country and with what products."

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