Health Care Real Estate Advisor

Demonstrating Hospital Community Benefits

April 20, 2020 Joel Swider Health Care Real Estate Advisor 0:40:07 Comments Off on Demonstrating Hospital Community Benefits

Demonstrating Hospital Community Benefits 

Providing charity care and community benefits is important for hospitals because it affects the way they’re viewed in the eyes of the public and is a requirement for property tax exemption and income tax exemption. Increasing we’ve seen pressure at the federal level and in numerous states to challenge hospital tax exemptions. This episode is designed to help hospitals devise innovative ways to demonstrate charity care and community benefits in preparation for and in response to governmental and third-party scrutiny.

Podcast Participants

Joel Swider

Attorney at Hall Render

Kerry McKean Kelly

Vice President of Communications & Member Services, New Jersey Hospital Association

Neil Eicher

Vice President of Government Affairs, New Jersey Hospital Association

John Palmer

Director of Media and Public Relations, Ohio Hospital Association

Joel Swider: Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Joel Swider, an attorney with Hall Render, the largest healthcare focused law firm in the country. And today we’re going to be discussing hospital community benefits and sharing some ideas for how hospitals can demonstrate the good work they’re doing in the community. I’m excited to have three guests with me today. The first is Kerry McKean. Kelly. Kerry, welcome to the show.

Kerry McKean Kelly: Yeah, thanks Joel. My name’s Kerry. I’m the vice president of communications and member services for the New Jersey Hospital Association. And some of what I do here is take issues like community benefit that we’re talking about today and make sure our external stakeholders hear about it, whether that’s community members or legislators or members of the media.

Joel Swider: Great. Well Kerry, welcome. And our next guest is Neil Eicher. Neil, can you tell us a little about what you do?

Neil Eicher: Sure. So I’m vice president of government relations and policy at the New Jersey Hospital Association. I run the advocacy department both on the state side and the federal side. I’ve been at NJHA for 12 years now. Prior to NJHA I was chief of staff to a local state Senator. So came up from the political route and look forward to the discussion today.

Joel Swider: Great. And last but not least, we have John Palmer. John, welcome.

John Palmer: Hi Joel. Thank you for having me. I’ve been with the Ohio Hospital Association for eight years, working in our advocacy department, focusing primarily on media relations and community outreach initiatives and the community benefit program and initiative has been one of my areas for the last eight years at OHA and I’m happy to be on to talk a little bit more about that and its role in community health.

Joel Swider: Great. Well thank you all for being here and being willing to share your knowledge. We’re talking about demonstrating hospital community benefits. So why is this important? Well, providing charity care and community benefits is important for hospitals for one thing because it affects the way they’re viewed in the eyes of the public. Not only that, but also demonstrating charitable purposes or community benefits is a requirement for tax exemption at the federal level and in almost every state at the state and local levels. We’re talking here about exemption from federal income tax, property tax exemption at the state and local level is a big one as well as exemption from state income tax and sales and use tax. But increasingly we’ve seen, we at Hall Render have seen at the federal level as well as at the state level in numerous States, challenges to hospital property tax and other types of tax exemption.

So today we’ll try to help hospitals come up with some innovative ways to demonstrate levels of charity care and community benefits in order to respond to and hopefully even preempt some of these governmental and third party attacks. So the first question I have, and this is really directed to both, Ohio Hospital Association and New Jersey Hospital Association. Both of you in, in addition to several other state hospital associations have been calculating and publishing a report for several years, which is a community benefits report. Could you tell us a little bit about what the impetus was in putting together that report?

John Palmer: Hi Joel. I think I’ll take this one from OHA’s perspective. Probably about nearly 20 years ago, we were working internally with one of our committees and there was a desire to have a document that really captured the statewide kind of figures and numbers to really look at as a whole, as a state. How are we implementing community benefit. At the time, charity care, the financial assistance services that hospitals have provided was getting growing that was causing some concern about the amount of uninsured Ohioans and what opportunities we had to help address that because it was putting some strain on hospitals. So eventually OHA spearheaded and led a collection process capturing all of our members community benefits, our charity care, Medicare losses, Medicaid losses, community benefit activities, bad debt, kind of compiling that into a report. Instead of creating those parameters, we followed the national Catholic Health Associations guidelines for community benefit reporting.

And those categories that I mentioned come from that national standard there. And so we put together a report and ever since then we’ve been issuing that. It’s taken some different forms over the years, whether it was an online webpage, a printed report, a fact sheet, brochure and any of those things. It took different form to meet the audience needs or to really focus on the story that we wanted to tell.

Joel Swider: Sure. So could you tell me, and I don’t know if the NJHA folks want to weigh in on that, do you have any other impetus and why you decided to put the report together?

Kerry McKean Kelly: Our experience is similar to that that John described, but just speaking very simply, I would say that our goal is to make sure that stakeholders are aware of the depth and breadth of the contributions our hospitals make. It becomes a very good tool in telling that story in your community, but also for use in policy development and advocacy. It’s important that everyone sees not only that data and how impressive that number is when you count it all up across the state, but also the community stories that are behind that data. Hospitals are such important anchors of their communities and I think there can be a tendency for people to take that for granted. But it’s such an important reminder for us to see that the dollars and support reaches into the billions. And that’s not just in delivering healthcare services and jobs, but also those value added programs in their communities.

Joel Swider: That makes sense. And so you’ve talked a little bit about where the data comes from in terms of schedule, age. I guess, could you tell me a little bit about how the reports are set up and what types of metrics are included?

Kerry McKean Kelly: There is a pretty standard reporting structure in these community benefit reports. The categories and definitions are established by the Catholic Health Association and they cover four main areas and they are free and discounted care, community health improvement services, health professions education, and kind of a catchall category called other community benefit programs. So the idea I think is to have any organization across the state, or I’m sorry, across the nation adhering to these standard definitions and categories so we can get a pretty good picture and comparison across the nation. But I would say that with that said, we here at NJHA have had some discussions about whether the standard categories that were developed, I don’t even know how long ago, whether they’re really capturing all of the work that hospitals are doing today in their communities. With so much growing focus on social determinants of health, for example, hospitals are investing in programs like housing and transportation quite apart from traditional healthcare. And we’re not sure that we’re really capturing that in all of these community benefit reports.

Joel Swider: And so let’s drill down a little bit into what these reports show and what the advice is for hospitals. I guess we’ll start with New Jersey. The 2019 New Jersey community benefit report indicated that New Jersey’s nonprofit hospitals contributed 2.83 billion dollars, and that’s billion with a B, in community benefit support within their local communities in 2017 what does that consist of?

Kerry McKean Kelly: The largest chunk of those dollars and New Jersey’s report is in free and discounted care. And that total is 1.9 billion. And that includes charity care for those people without health insurance. And it also includes the shortfalls that hospitals incur when they care for a Medicare and Medicaid beneficiary. Because, of course, we know that both of those programs reimburse hospitals at rates that are less than the actual costs of providing the care. And that total also includes uncollectible patient care costs, which is more commonly called bad debt. It’s basically quite simply care that the hospitals provide, but for which they never recouped payments. New Jersey’s total also includes 247 million in health professions education. That includes graduate medical education and again that’s an area that people might not really think about, but it’s so important for developing the next generation of physicians and other healthcare professionals.

Our total also includes 60 million in community health improvement services, and those are the things that you would normally think about when you hear the term community benefit. So that would include services like health screening, support groups, health classes, fitness classes, those sorts of things. And finally, our other category total $620 million. And that includes a lot of those overlooked areas. One of those important ones that people may not think about are service lines that a hospital may operate at a loss, but they continue to provide that service because they’ve identified a need in the community. Another area that would be included in that are payments in lieu of taxes or other contributions that hospitals make to their host municipalities.

Joel Swider: So for OHA, I’m looking at your report here and the latest OHA report shows a couple of interesting things to me. One of which is that Ohio hospitals provided 7.5 billion dollars in total uncompensated care in 2016 which I assume is the latest year that we have data for and this was up from 4.9 billion in 2013 which was pre expansion of Medicaid eligibility. It seems to me wasn’t one of the stated goals of Medicaid expansion that more people would be covered by insurance and therefore costs to the system would go down as there would be less uncompensated care? If that’s the case, how is it that the total uncompensated care figure has risen about 65% it looks like over that three year period post Medicaid expansion? I don’t know John, if you have any thoughts on that.

John Palmer: Yeah, thanks Joe for bringing that up because you know it’s one of those things as we develop our community benefit reports, another aspect, or another term that’s often affiliated is our total uncompensated care. So when you look at community benefits, you’re looking at your charity care, your community benefit activities, the Medicaid loss, and then any reimbursements from the Federal DSH Program. And then that’s where you get your net community benefit. And then to go a step further to calculate the uncompensated care, you also look at the Medicare losses and then the bad debt that the hospital has incurred. When we report out our data, we have community benefit, but we also report out on uncompensated care. And the situation with Medicaid expansion that came through with the affordable care act, Ohio implemented that in 2014 with covering more Ohioans low income onto the Medicaid program.

And so in that year of 2013 we had a decent amount of uninsured after an expansion happened in 2014 we saw the uninsured population decrease significantly and all of a sudden now you’re shifting that population from uninsured over to government payer. And so you saw that drop in charity care. What happened also in that time is we saw a pretty decent uptick in hospital’s community benefit activities. So there are efforts around research, health education, community health services, subsidized health services to what Kerry was referenced earlier, community building, financial aid and kind contributions. So we saw a huge uptick, about 1.5 billion dollars of that with 2016 data. We saw Medicaid and Medicare losses also increased as well. And so you shifted from one major category because before expansion, charity care did occupy a pretty big allocation of our community benefit.

And so once that decreased then you saw increases in hospitals making investments in their community benefit activities. But they were also taking some greater losses when it came to the Medicaid and Medicare program during that time. We will have 2017 data out here. We’re kind of putting some final touches on our 2019 report, which focuses on 2017 data that we would have out before the end of the year. And I will say that we are seeing increases in all those areas of charity care, community benefit activities as well as Medicaid and Medicare losses. So it continues to be kind of volatile when it comes to these numbers reporting and trying to get some trend analysis going on there too. But I think it’s responsive to the communities that we’re seeing and a lot of utilization of services or a lack of utilization of services around in some areas. So I think we’ll continue to see some of those fluctuations. [crosstalk 00:14:59]

Joel Swider: Well John, that’s interesting. And I know you said the report isn’t out yet, but have you, just in your preliminary look at the 2017 data, have you seen those trends continuing?

John Palmer: Yeah, we’re seeing increases in charity care, community benefit activities, as well as Medicaid and Medicare losses are gone up as well. Bad debt has increased a little bit, but overall we’re seeing, we’ll be reporting out a total community benefit increase from 2016 data and then a total uncompensated care increased as well. For the end of the year.

Joel Swider: So it sounds like, as I’m listening to you and reading these reports, there are a couple of elements. It seems to this concept of community benefit or contributions generally to the community. There’s the uncompensated or charity care side. And then there’s also this concept of community building or outreach activities. According to both of your reports, hospitals are engaging really in both of these activities. Could you talk about what’s driving this kind of multi pronged approach?

Kerry McKean Kelly: I think it’s really part of the growing recognition that what happens in your home and in your community has a greater influence on your health than what happens within the four walls of the hospital. Hospitals have always made these commitments and community benefit, but I think it’s becoming much more of a strategic approach under healthcare reform and the focus on population health. Hospital investments and healthy communities simply make good sense for improved patient outcomes, lower healthcare costs, and a much more sustainable healthcare delivery system.

Joel Swider: Well, the numbers that are cited in these reports seem to indicate that not only are your member hospitals providing huge amounts of charity care, but the amount of charity care and community benefits and community development funds has actually been increasing steadily. I want to switch gears and start looking from benefits to costs, because there was a report that was put out in September of this year, September, 2019 by an economics professor at Ball State University here in Indiana, and his report asserted that the increasing cost of healthcare is largely attributable to what he calls monopolization of the not for profit healthcare sector. In other words, nonprofit health systems, which by the way comprise over half of the hospitals in the United States are acute care hospitals with the remaining 44% split fairly evenly between for profit and governmental. These nonprofits have grown in size and in market concentration by purchasing and aligning with independent hospitals to such an extent that they have the ability to unilaterally push prices up in a given market, at least that’s the argument.

Joel Swider: And while the data that professor Hicks used to support his conclusions was largely correlational, I mean in my eyes it did make for some splashy headlines here in Indiana. It also made some national trade publications as well. And his proposed solution was more taxes on revenue, more taxes on real estate. And more taxes on asset holdings by these not-for-profit healthcare providers. I think if you peel back the onion on some of these arguments, at the root of it is a perception that hospitals, particularly nonprofit hospitals are just not providing enough charity care to justify their exemptions. And it seems to me and part of the reason why I am excited to have you on the show is that what OHA and NJHA and other hospital associations are doing is really creating a snapshot of what good that these hospitals truly do in our communities. How do you, OHA, NJHA, respond to these types of challenges and how do you advise your member hospitals to respond?

John Palmer: Well, this is John. I would just comment that, and in fact that yes, charity care has gone down just in response to this great achievement that we’ve had with being able to offer coverage options to many Ohioans that wouldn’t be eligible to if it wasn’t under the affordable care act with Medicaid expansion. The affordable care act was a significant piece of legislation. It is a law of the land. There’s been attempts to repeal it and replace it and I think there’s always going to be efforts. We should always be focused on improving and making improvements and reforms appropriately to build upon successes and look at impacts because the ACA was significant, but they still have some flaws and areas that needed to be addressed. One of those in particular was Medicaid expansion was offered in response to a cut and a reduction that hospitals were going to take with our supplemental programs through the DSH initiative.

John Palmer: And that’s forthcoming as far as what the latest reports are out of Washington is that those cuts are going to be coming to as well. And so even though it might’ve seemed like the affordable care act handed hospitals, providers, a lot of resources at the same time, it came at a cost to kind of balance things out. I think on top of that, you’re seeing hospitals and healthcare beyond what is happening with these healthcare reforms and healthcare laws. Hospitals continuing to make significant contributions with community benefit activities. When you saw when expansion was implemented, charity care dropped, but we saw an increase in community benefit activities. Hospitals making strong efforts and making investments in their communities, looking at clinics, establishing community health initiatives through clinics, looking at population health issues like diabetes and obesity and smoking, some of these areas that really have an impact in helping to turn around a community’s health.

John Palmer: So I think overall we’re going to continue to focus on our community benefit programming because numbers are important. Numbers tell a pretty big story, but it really needs to have a narrative. It really needs to start doing snapshots. And we’re seeing a lot of our hospitals make that effort in their reporting of community benefits and really telling that story about those programs that they’ve initiated, those partnerships that they’ve established to really advance healthcare and wellness in the community. So I think you’ll see that moving forward [crosstalk 00:22:10] your report.

Joel Swider: Neil, anything you missed?

Neil Eicher: Sure I’ll just… John outlined it very well. It’s easy to look at the expansion of Medicaid and the reforms in the ACA in a vacuum and not understand that hospitals were significant contributors financially and still are, still after the expansion. But it was something that we had supported as an industry nationwide because we recognize the financial and the healthcare quality benefits of providing insurance to people ahead of time so that they can access the care, hopefully not even in the hospital and not getting to that point. So it’s important to remember that hospitals were a partner in actually funding a lot of these reforms. And the ACA doesn’t get talked a lot about, but the way that they’ve changed the value based programs and how the federal government is now reimbursing for outcomes instead of actual procedures and services in a way.

Neil Eicher: And a fee for service model that we were all used to. And it’s really driven the changes that John alluded to about providing more care in the community, A, because it’s the right thing to do and it’s part of our mission. But B, as payment models change hospitals have to adjust and recognize that they are going to benefit from keeping patients healthy and out of the hospitals. And then getting to professor Hick’s point, every state is different. I can speak for New Jersey. About 10 years ago we had a significant hospital closures because a lot of these community hospitals could not keep up with the growing uninsured and charity care and other issues that they were facing. And so what we’ve seen is a consolidation has actually saved a lot of hospitals in New Jersey and then instead of hospitals closing, they’re getting acquired or working on partnerships with larger systems.

And this has created efficiencies in technology, investment of capital, bulk purchasing, better coordinated care throughout the community. It’s not just nonprofit hospitals getting with other nonprofit hospitals, they’re acquiring urgent care centers, home care agencies, nursing homes, and recognizing that helping the patient through the continuum of care makes the most sense for the community. Just the last thing I’ll add is that I think, again, taking this out of the vacuum at one issue at a time, recognizing the economic benefits that hospitals provide to the state and to its local community through individual income taxes through sales and use taxes through other taxes that hospitals pay. Sometimes it gets lost in a discussion that there’s this assumption that as nonprofits we pay no taxes, which is absolutely false.

So we contribute greatly to the economy. I think that needs to be seen. And it was mentioned a couple of times about a snapshot and we talk about this all the time is how can we tell the story and how can we help each hospital tell its story and showing the community involvement and having it relate, and not just be numbers, but recognizing that hospitals here are safety nets for those who absolutely need us. We’re telling our story and why we’re important and why we take our missions very, very seriously.

Joel Swider: Sure, well and continuing in that theme of telling the story. I believe it was commissioned by the American Hospital Association, but in May 2019, put out two reports analyzing community benefits in tax exempt hospitals, and they compared those benefits to the forgone income tax revenues that the government loses by nature of granting exemption to these hospitals. In the reports they looked at tax returns, forms 990 from tax exempt hospitals and they also looked at CMS cost report data and they found some interesting things. One was the amount of forgone federal income tax revenue due to the tax exempt status of us nonprofit general hospitals in 2016 was $9 billion in the aggregate. That’s a lot of money, but the amount of community benefit provided by these hospitals the same year was $95 billion, so that’s about 11 times more than the foregone revenues.

Another finding I thought was interesting is that almost $44 billion of community benefits that were provided by these hospitals came from financial assistance, unreimbursed Medicaid and other unreimbursed costs from means tested government programs. So these programs really are not filling the gaps. It’s the hospitals themselves, at least it appears to me that these hospitals are really being forced to fill those gaps. So to me these numbers are pretty compelling evidence of the value add that nonprofit and tax exempt hospitals provide. Is this consistent, and John, I guess I’ll ask you specifically at OHA, is this consistent with what you found in Ohio and how do you make sure that state and local officials are aware of these, the good things that these hospitals are doing?

John Palmer: Yeah, I think that was an important study and that one aspect that you pointed out about $44 billion of community benefits from financial assistance and un-reimbursed Medicaid and those are important factors. Charity care is always the focal point and always that go to historically. But I think as we’re coming into a new era of healthcare delivery. Areas around the community benefit programs, those are the stories that I think when you go into those individual communities, that’s where you really see that work come to light. Particularly when you look at subsidized healthcare services, emergency and trauma services, these are 24/7 operations that have a lot of requirements for accreditation, recognition and staffing and equipment and training and outpatient services, behavioral health services under this subsidized healthcare.

A lot of these don’t get at cost for Medicaid and Medicare, but hospitals are providing a lot of that care through different delivery channels. And so I think that’s an important factor there. When you look at this kind of tax exempt and looking at charity care, you really need to look at that greater picture of the total community benefit because there’s a lot of elements in there where you would go into respective communities and talk to the local mayor, city council members, the principal at the local school, any other social services. And you’ll start hearing that story of how the hospital is working to make some of those improvements. The opioid crisis has hit a lot of States and has hit our country significantly and Ohio is one of them. And I can tell you that has had a detrimental impact on a lot of communities and our state. But hospitals are working to try to turn that around and get those numbers to where they need to be. So I think you’ll see a lot more of that spelled out in these reports moving forward.

Joel Swider: We’ll end with this question. Senator Chuck Grassley, chair of the Senate finance committee, sent a letter in October 2019, to UVA Health System about its collections practices being too aggressive and also about the high costs of medical bills in general. And I personally, I’m guessing that we’re going to see some legislative and or administrative posturing on this issue in the near future. Question to both, what are your legislative priorities in the coming year or so regarding hospital exemptions and community benefits?

Neil Eicher: Sure. So a comment from the federal side and a comment from the state side on the federal side, not directly relating to exemptions, but we do see a fight on surprise out of network medical bills. And it’s comments like the senator’s and others that are looking to create a dispute resolution system or a cap on what hospitals and doctors can receive as far as out-of-network payments, which will significantly reduce payments to providers for in-network services. So I think there are multiple legislative initiatives afoot to try to address this and of course looking at things through a vacuum, not completely understanding how costs get calculated. I think that’s pretty much our next biggest threat on the federal level.

On the state side, directly related to your question, Joel, is that we’ve been fighting in New Jersey for over three years for a legislative solution from a court case back in 2015 with one of our nonprofit hospitals who had been in a battle with its town over its nonprofit property tax exemption, which our law currently allows for, and I assume most, if not all States also allow for, but the judge made a decision in tax court, not superior court, that the hospital should be paying property taxes.

We obviously disagreed with this court opinion, but since then had feared that our towns would start coming after hospitals, nonprofit hospitals, and trying to subject them to property taxes. We have 59 nonprofit hospitals in the state. 71 total acute care of the 59 over 40, four, zero, had been engaged in litigation with their towns over their property tax exemption. We’ve had about 12 or 14 have settled with their towns for a period of three to five years with a payment in lieu of taxes in order to not be put on the tax rolls. But we have been pushing strongly for a legislative solution so that we’re not wasting resources and spending money just going after protecting our property tax exemption and paying lawyers and legal fees to defend it. Instead, the money would be best served putting it back into the care that we deliver to the community.

So our legislative solution generally is to, again codify more clearly in statute our property tax exemption. But recognizing that nonprofit hospitals have changed over the last few decades, recognizing that hospitals have and do utilize municipal resources like fire, ambulance, emergency services, et cetera, that we would pay a community contribution fee to our local town. And for us, we came up with a number of $2.50 per bed per day, the nonprofit hospital with calculate, make it publicly available, what that number is and then on a quarterly basis make that payment directly to the municipalities. Then in exchange, they cannot come after us for property taxes the way that they’re doing now. It’s not the ideal solution, it’s about $20 million statewide that we are voluntarily raising our hands and saying that we want to contribute, but it beats having to go through the legal process and having to justify why we deserve our property tax exemption.

And so this is, NJHA’s number one priority to try to solve over the next couple of years. It’s been very difficult because as you can imagine, each town wants to maximize how much money they can get out of the hospital industry. And unfortunately in some instances it has created bad blood between the towns and the hospitals who originally had a good relationship. And it’s also making hospitals kind of fill the budget gaps that municipalities are facing, and instead seeing it as a legitimate healthcare or community contribution, they’re looking at us for dollars to fill their budget gaps. And that is completely out of the intent of what the hospital’s mission is to the community. And as we were talking about today, the economic benefits and community benefits that we provide.

And that’s why the community benefits report is so important because it really drives that narrative so that the legislature, the governor’s office, the policymakers understand that there is a value in having this property tax exemption and having a hospital in the community and all of the resources and all of the contributions they provide, not to just the local municipality, but the surrounding area. So that’s a big issue for NJHA and we’re hoping to get some legislative solution soon.

Joel Swider: So Neil, you and I talked about this issue in the past. I think a lot of us around the country really are looking at New Jersey just because of the sort of public nature of the Morristown case and the resulting posturing and are you any closer do you think to a legislative fix at this point than you were a couple of years ago?

Neil Eicher: We are, and again, thanks to the good work of this community contribution report or community benefits report, we did a good job at laying the groundwork and educating policy makers. But just like in every state there’s local politics you have to deal with and when you’re faced in a state with municipalities facing budget shortfalls and mayors being very influential, you always hit these local roadblocks. And for us, we got the leadership and our legislature and the leadership in the governor’s office fully on board. It’s just hammering out a few details for a couple of local issues that we have to try to navigate through. So hopefully we can break that log jam and get it done quickly.

Joel Swider: And John, what about you? What are your legislative priorities this coming year?

John Palmer: Well, it’s never a dull moment. I mean, legislative issues are abundant. We have a new governor that just is rounding out his first year administration, but we’ll be pressing forward. I think the big one is the price transparency efforts that have happened at the federal level. But there’s also been a lot of activity here in Ohio around that. Consumers are looking for health care information and trying to make the best decisions for them and their families. And so we need to be working on that collectively payers, providers, policy makers to find a solution that’s going to meet those consumer needs.

So we’ll continue to focus on that. As far as community benefit for 2020 we’re going to be incorporating some more repositories on our own respective website of our hospitals, and really doing a showcase and featurettes of what some of those community benefit activities look like around the state. So we’ll be deploying that probably second quarter going into hospital week in May 2020, to really kind of hallmark what hospitals are doing in their communities. So we’re going to be focusing on that kind of report for 2020 and really kind of leveraging that with policy makers and community leaders to really tell that that story more effectively.

Joel Swider: Great. Well thank you all for being here, John. I guess I’ll for OHA, how can our listeners learn more about either the community benefits reports or becoming a member of OHA, who can they reach out to you or look on your website?

John Palmer: Yeah, we’re happy to take any inquiries or any questions. Feel free to reach out to me. Our website is www.ohiohospitals.org and we have a webpage there with a community benefit and our contact information is also there under staff directory. And we’re happy to take any questions or help with any efforts that might be going on out there.

Joel Swider: Great. And Neil, what about for New Jersey?

Neil Eicher: Yeah, NJHA.com and again we have a public resources available and Kerry manages that and of course you’ll have our staff directory, so if anyone has any questions about legislative stuff, please feel free to reach out to me or to Kerry on any community benefits related issues.

Joel Swider: Well Kerry, Neil, John, thank you all for joining me and thanks to our audience for listening today. If you liked this podcast, please subscribe and leave feedback for us using your Apple or Android device. If you’re interested in more content on Healthcare Real Estate, we also publish a newsletter called the Healthcare Real Estate Advisor. And to be added to the list, just send an email to me at jswider@hallrender.com.

How Can Hospitals Better Protect Their Property Tax Exemptions? With Mark Adams (Webinar)

November 12, 2019 Joel Swider Health Care Real Estate Advisor 0:31:51 Comments Off on How Can Hospitals Better Protect Their Property Tax Exemptions? With Mark Adams (Webinar)

How Can Hospitals Better Protect Their Property Tax Exemptions

Hospital property tax exemptions are increasingly at risk. We discuss which hospitals could be in the crosshairs next and how nonprofit hospitals can protect themselves.

Podcast Participants

Joel Swider

Attorney with Hall Render.

Mark Adams

Attorney with Hall Render.

-Transcript Coming Soon-

An Interview with Shawn Janus, Colliers National Director of Healthcare

October 21, 2019 Andrew Dick Health Care Real Estate Advisor 30:52 Comments Off on An Interview with Shawn Janus, Colliers National Director of Healthcare

An Interview with Shawn Janus, Colliers National Director of Healthcare

An interview with Shawn Janus at the Colliers Indianapolis office. In this interview, Andrew Dick interviews Shawn Janus, the newly appointed National Director of Healthcare. Colliers is an international real estate firm that provides real estate brokerage, property management, transaction management and strategic advisory services.

Podcast Participants

Andrew Dick

Attorney with Hall Render.

Shawn Janus

National Director of Healthcare for Colliers.

-Transcript Coming Soon-

Andrew Dick:  Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render the largest health care-focused law firm in the country. Today, I am in Indianapolis at the Colliers office and I am going to interview Shawn Janus, who is the newly appointed national director of health care at Colliers. Shawn is an industry veteran and we thought it would be interesting to sit down with Shawn to hear his story and his vision for the Colliers health care platform. We’ll also talk about the state of health care real estate and where Shawn sees opportunities in the future. Shawn, thanks for joining me.

Shawn Janus:  Thank you. Andrew. Good to be here.

Andrew Dick: Shawn, before we talk about your current role at Colliers, let’s talk about your background. Tell us where you’re from, where you went to college, and what you aspired to be at a younger age.

Shawn Janus:  What I aspired to be. That’s interesting. So actually I grew up, I’m Chicago bred, born and raised in the Chicago area. I actually grew up in the far southwestern, excuse me, far south suburbs of Chicago, a town called Chicago Heights, very blue-collar. The Ford Stamping Plant was down there through all rail cars. So it was again, very, very blue-collar area that I grew up in, but I loved it down there and it sets the foundation of who I became today. So that’s where I’m originally from.

Andrew Dick: And after you went to college, Shawn, what was your first job? What did you end up doing?

Shawn Janus:  Well, essentially, actually college was a complicated journey for me to some extent. So I played football in college. I think, Andrew, we talked about this a little bit when we last saw each other, but so I was recruited to play college football and I was overwhelmed by the process my parents didn’t go to college. They didn’t really have a perspective. My high school football coach was a first time football coach. Actually, it was a great experience and it was a long way of getting to where I work. Your question is more specifically, but I actually signed my national letter of intent to play at Iowa State. Got enthralled with the big eight and Earle Bruce went on to coach at Ohio State, was the head coach there. Actually broke my letter of intent, never matriculated there and the reason being I continued to be recruited by the Ivy leagues at the time.

Shawn Janus:  So I actually matriculated to Yale for my freshman year. But just found that I didn’t really fit into the Yale culture if you will. Again, being blue collar, some of the values that I had grown up with a little bit different than what was on the East coast. So I ended up transferring to University of Illinois. Absolutely loved it, played football there and I always had an interest in accounting, like the fact that there were answers, specific answers. When you’re young in your career made some sense. So I became an accounting major. I got my CPA coming out of school and that led to my work experience. I actually interviewed for jobs coming out of school and took a job with, which was then, this is my age, Peat Marwick and Mitchell and now KPMG and just so happened that I got thrown on the JMB audit account.

Shawn Janus:  JMB for those who don’t know is one, was one of the largest syndicators in the world at that point in time. So I spent nine months of the year, nine and a half months of the year on the JMB audit, really got to understand real estate and really had an affinity for it. I really enjoyed the business and liked what it did. Interestingly, in the summer months when we weren’t on the JMB account, I happened to get thrown into health care. So it came full circle later in my career. I didn’t actually focus on health care at that point, but started with the DuPage hospital, way back when it said DuPage hospital. So that’s how I got into the business if you will.

Andrew Dick: So fast forward, Shawn, at one point you worked with Todd Lillibridge when he was starting his business and building up his MOB portfolio. Talk a little bit about that.

Shawn Janus:  Yeah, so interestingly, so I was actually in investment banking. At the- around that time with Continental Bank in Chicago and like a lot of big, big investment banks, commercial banks, we have training sessions, et cetera. We’re in this big auditorium theater and the gal giving the presentation announces herself as Lynn Lillibridge. So I went up to her afterward and said, “Wait, any relationship to Todd? Well, I had gone to school with Todd little bridge, we were fraternity brothers.” Turns out that was her husband and she goes, “Oh my God, how do you know Todd?” So Todd actually put me onto his advisory board, you know, during his formative years. This was when he was still a little virgin company I believe. And he was really doing property management consulting. He actually tried to bring me onboard a couple of times. But my background had been really on the deal side of the business, capital markets acquisition and development.

Shawn Janus:  So when, we would get together two, three times a year, they usually come to Chicago, just meet for coffee or breakfast, stayed in touch. And then when he made the strategic decision to hire Lehman brothers when they were still around to begin the roadshow to raise the capital, the first to bring that capital solution to health care institutions. So he again approached me and said, “Hey, you say you love the business, you love real estate, you love health care. I need someone now on the deal side, we don’t have that capability in house.” So I was one of the initial five senior executives who formed and ran the first Lillibridge REIT if you will. So initially I was in charge of acquisition and development and the consulting practice. After a couple of years, we brought someone in who are specifically focused on the consulting side. So that I could focus on acquisition and development because that’s really where the meat of the organization was going.

Andrew Dick: So that had to be a pretty dynamic time to be in health care real estate. Todd’s a pretty dynamic guy, built a very successful business. It sounds like you were along for the ride and were you there when Lillibridge spun out and sold some of its assets to Ventas?

Shawn Janus:  So actually, so I was there through the iteration of the first two REITs, the first REIT, which was Lillibridge Health Trust, actually ends up being sold to CalSTRS. We were- Lillibridge was owned at that point in time by Prudential AEW and JP Morgan Chase along with managements. Those are the four entities we owned. The REIT itself, that was sold to CalSTRS. They wanted to buy the entire entity for tax reasons and other things and then Prudential wanted to stay in the business as did obviously the management folks.

Shawn Janus:  We bought back the management company and the development platform and then we raised capital through Prudential and formed a venture at the property level with Heitman for some of their funds. Yeah, so I was there really through the- and then we formed the second REIT, which was Health Care Lillibridge or a Lillibridge Health Care Real Estate Trust was the name of the second one. So I was there through the first two iterations and then actually got recruited away to join JLL right at the time or right before actually the Ventas transaction. So I was right there at the cusp of when that change occurred.

Andrew Dick: Okay, very interesting. So talk about that transition to JLL, big national firm. What were you doing for JLL?

Shawn Janus:  So JLL had made the … I’ve known that folks going back to those South Partner’s days, which is the predecessor entity to JLL. Jones Lang Wootton and they merged and they had several iterations, but I’d known the LaSalle partners guys having been in commercial real estate in Chicago for ages. Earl Webb, one of the gentlemen there actually is now, he ran capital markets in the Americas for JLL at the time. He is now the CEO of the Americas for Avison Young actually, no one leaves the industry we just move the pieces around a little bit, but I had known Earl for awhile.

Shawn Janus:  We got to talk, I think it was a barbecue if I’m not mistaken. And he had mentioned, they’re looking at, expanding their businesses and they either do it with bringing new products and services to existing clientele or they go into a new industry and they had focused on health care as a industry that which is becoming much more institutionalized, which they’d go- there was a lot of synergy to do that. Their research group internally had come up with some waive papers that made sense for that. So he would bounce things off me then with the, over the course of time in terms of how they should approach the business, what was driving the industry and they ended up getting that approved and to start a health care platform effectively.

Shawn Janus:  They actually hired a guy who came out of a different background. Initially, it didn’t work out and after a short period of time, Earl approached me and said, “Hey, would you be interested? You helped write this business plan if you will anyway,” so that’s when I joined JLL. So I really went there to basically put the entire strategy, the organization together and then to drive a growth platform for JLL across the service industry for health care real estate.

Andrew Dick: Okay. And after JLL you’ve also worked for some other prominent health care real estate firms, specific medical buildings, and then I think is it more recently Catus?

Shawn Janus:  Correct.

Andrew Dick: So talk a little bit about those opportunities and then we’ll jump into what’s going on here at Colliers.

Shawn Janus:  Yeah, so interesting. So my- Pacific Medical buildings, which is based out of San Diego, probably the preeminent health care real estate development company in California and the Western region of the country at that time and still today when we were at Lillibridge and going back, that’s my first interaction with them. One of the things that- I made the decision that we needed to rather than just grow organically on the development side of the business, we were doing, we did when I was there in excess of $1 billion of acquisition transactions through the course of several REITs. But the development side was growing rap- more and more rapidly as it went forward and so growing it organically, it was just tough to keep up with the demand in the industry. So we made the strategic decision to buy a developer, actually hired John Winer, another icon in the industry.

Shawn Janus:  John was with the NY at the time. One of the partners there, they identified, I think it was like 98 distinct entities, development entities across the country and either John, Todd or myself talked to every one of those. My first choice was to buy Pacific Medical buildings. We had approached them. They were maybe smart enough not to move forward with us at the time. We got to know those guys well. Entering the California is always, always tough. There’s a lot of different regulations there as well, but culturally, everything just fit with them. That didn’t work out. We ended up end of the day buying Mediplex Medical Building Corporation, MMBC out of Plano, Texas, outside of Dallas. But long story short, when I was with JLL, one of the things I saw an opportunity was to really bring some solutions into the ambulatory environment, which really was on the development side as well.

Shawn Janus:  So approached Mark Toothacre who is the, still the CEO out at Pacific Medical Buildings. We’ve known each other and stayed in touch all those years and just so happened, timing being everything. They were at a point where they were strategically looking at diversifying geographically and they were struggling with, well we don’t want to take on a bunch of overhead to start offices in other areas of the country. So ended up, we put together a venture of JLL and PMB whereby they had the expertise, the 40-year track record, the pretty pictures, the capital, all those things. JLL had an army of folks I had set up health care offices in most of the major and mid-major cities around the country. So JLL became the intake valve, if you will, from a business development perspective. And then also the execution arm.

Shawn Janus:  So we would get our service fees. We were a service organization, they would get more products, putting it to work and then building their portfolio. So we would do that, we would do the zoning and we would do the project management, we would do the leasing, so all those local type activities. Then they would bring the capital, the oversight and everything else. So that’s how I ended up getting involved with PMB and then eventually ended up joining PMB directly and effectively with the same function. So based in Chicago and was really taking their footprint, trying to expand it from the Rockies to East coast, if you will.

Andrew Dick: Very interesting. So your last stop was at Caddis. Tell us briefly about what you were doing there.

Shawn Janus:  Caddis, is very similar actually. I know Jud Jacobs, who is one of- the development partner at Caddis, he’s an old Trammell Crow guy. I actually worked at Trammell Crow in my commercial days and not that I knew Jud back then, but we’d known each other in the industry for quite some time. Similarly, they were actually looking to expand their platform geographically. They were growing in a much bigger way. They haven’t been around for 40 years. And so it’s a newer firm relative to the industry if you will, was an intriguing opportunity really to do the same thing.

Shawn Janus:  So effectively I was responsible for expanding their platform in the midwest in business development perspective and then for executive leadership for any and all projects in the midwest and that was- there are  acquisitions, there was development, they were involved in the senior housing arena through their hardest platform had not been as involved in the senior side of the business. But it was a great learning curve for me to actually bring that into my quiver in another area, if you will.

Andrew Dick: And how did the opportunity with Colliers present itself?

Shawn Janus:  Yeah, that’s interesting. So as we all do, as we get later in our career, obviously business development and relationships are always important. But particularly, once you’ve been in your career for quite some time. One of the things that I make a point of doing is reaching out to people in the industry and trying to stay in touch with them. A guy by the name of Ted McKenna in Chicago. I’d known Ted for, I don’t know how long, known Ted forever. So we would periodically try to get together just to catch up on what was going on. Just so happened we had arranged to have coffee up in the Northern suburbs of Chicago. We were sitting down and it just so happened that that week it was announced that Mary Beth Kuzmanovich, who was my predecessor here at Colliers, I’ve known Mary Beth for 12 years.

Shawn Janus:  Going back to when she was at Carolina’s Health Care that she had left the Colliers organization and had joined the Lillibridge organization in the small world category, which I’d get into that story. But anyway, we were just talking and catching up. I had mentioned an- what was going on with Mary Beth, and we were talking about the strikes they’ve made over the last four years. And then all of a sudden he stopped and looked at me and said, “Well I know you like your job and what you’re doing, but well you’d be perfect for this, any interest in potentially, thinking about joining the Colliers team?”

Shawn Janus:  So I said, “Well, love to hear more about it. It was right before BOMA. So he actually set up a meeting at BOMA with the internal executives who were running their search process. So that was in the April timeframe. And then over the course of, I guess I started there in September. So over the course of time I’ve got more and more intrigue in the opportunities and with Colliers it was about potential of the health care platform and really the value add that I could bring to the organization and made the decision to join the Colliers team.

Andrew Dick: And so what attracted you to the Colliers platform? When I think of Colliers, I think of an international brokers firm. They have a great health care group I’ve worked with personally over the years and always had good experiences. So what really drew you into the Colliers opportunity?

Shawn Janus:  A couple different things. One, obviously I had, I had built an organization very similar to JLL in terms of starting from scratch, if you will, and kind of building a health care capability. I mean they had some, even at JLL had some capabilities, but really moved that forward in a big way. That has always intrigued me. I really, I love real estate and enjoy the health care component of that. One of other things is I do enjoy the entrepreneurial nature of growing an organization. This was the, Colliers was a bit different in that Mary Beth had been here four plus years, so she had some had done some of the foundational elements in terms of putting their arms around the true health care platform. So those things really intrigued me. But I would tell you the thing that of put it over the top is just the culture of the organization.

Shawn Janus:  That’s very, very important to me has been since I mean going back to my soliloquy about choosing colleges and finding the right fit, if you will. So that’s always been important to me. So as I got to know the folks at the Colliers team across the country and their leadership, their vision, where they were going and just the comfort level in terms of how I could be a part of that team. So it was those things, it was the potential of the platform where they were and where we could take it, the entrepreneurial nature and just that culture.

Andrew Dick: So as the newly appointed national director, what are some of your goals and objectives?

Shawn Janus:  So it’s interesting. At Colliers, it’s set up a little bit differently than we had it at JLL. But, so my role is to really support, give vision, a strategy and drive the growth of the platform. Colliers is regionally based organization. So the health care folks in the organization are based through their regional presidents, if you will. So I look at my job and kind of, I put it in the four buckets, if you will. One of those, as we talked about, is always business development. Having been in the industry for 20 years specifically in health care, I’m talking about, have relationships across the country. So I can not only introduce Colliers into those relationships, ideally at least make those introductions, but can also be involved in pitches to help all those various teams as they try to win business.

Shawn Janus:  The second would be just in recruiting. I think that’s the second bucket. So helping the regions bring in the right type of individuals. Number one, help recruit them, understanding the nuances of the health care environment. They understand the Colliers platform obviously better than I do at this point in time, but identifying those types of candidates as having been in the industry for so long. The third would be just the tools that they use. So arming all those, all the brokers and the property managers and the consultants all across the country on the health care side, do they have the right tools? How can we organizationally support them to be successful, if you will. And then the last would be, and probably one of the most important is branding. In any organization obviously you need to be branded in terms of recognition and how you’re perceived in the industry.

Shawn Janus:  I would give kudos to Mary Beth Kuzmanovich because when I- I didn’t really know much about Colliers Heathcare in the business at a time I’d call it 15 years and I’d never really come across Colliers Health Care at any big way. But when they did make that decision to try to have a leader come forward with that Mary Beth’s leadership, she really did put them on the map a little bit and we began that entire process. But that’s a living, breathing organization- organism, if you will. So that whole branding concept would be my coming forth year.

Andrew Dick: So Shawn, when I think of working with a firm like Colliers, there’s often a couple of different service lines that I think about. There’s the brokerage, there’s the property management, sometimes there’s transaction management and then sometimes there’s investment sales. Are you going to be focusing on all of those within the health care platform or is there one that’s going to take priority over the other?

Shawn Janus:  So the easy answer to that Andrew, is actually we would focus on, we’ll focus on all of those and building all of those out. I think we- my vision is to be the best in classed health care, real estate service provider in the country. Obviously there’s great competition with some of the other larger firms we compete with every day. We’re friendly competitors with them, but I think we have the, the underpinnings and the foundation to be able to do that. Having said that, I mean Colliers is that entrepreneurial nature is, has been historically a broker led organization and much to your point. So I think we will first work through the brokerage side of the business on how can we better grow that piece of the business. But then also the other pieces you mentioned, the strategic consulting.

Shawn Janus:  I think that’s a big piece of what this industry needs and from a real estate perspective we can obviously bring that in a big way. You mentioned property management. I think project management is another area, project program management. So I think being able to bring that solution, like a lot of the big firms, you have the brokerage side of the house and you also have the corporate solutions side of the house. So also just marrying how those two work together. I’ve had experience with that. Obviously JLL had the same two type of platforms. So really looking to bring all those services to the industry.

Andrew Dick: So looking forward, where do you see the health care industry going? We hear a lot about the retailization of health care and the push for ambulatory care. I mean that’s been going on for years. But where do you think the industry is going?

Shawn Janus:  Yeah. I wish that crystal ball was clear. I would tell you. So essentially I always tell people that one of the things that’s intriguing about this industry is that it is constantly changing. And a big piece of that obviously is the fact that it’s so reliant on what the government is doing, through reimbursements, Medicare, Medicaid, all of those payees, if you will, into the health care system drive that. And that changes when we have elections and we’re obviously in that cycle right now. So irrespective of where you are on the political spectrum, it’s going to bring change at some point in time. And when you have that type of change, it creates challenges in the industry. But whenever you have challenges, there’s an opportunity to provide solutions. So I think that really allows an organization who can be nimble, who is strategic in their thinking, truly help their clients look at those things.

Shawn Janus:  You mentioned a couple of things and I think those are, those are probably first and foremost cost and convenience right now are probably two of the larger issues which have been driving health care decisions. The health care revenue model for hospitals and health systems has been under immense pressure. There’s been shifts in the payer mix as we talked about a little bit. Going from the private to the public. We’ve seen that, that affects reimbursements in a big way for hospitals. The case mix shift, that there’s a shift that’s going on there as well, which has implications.

Shawn Janus:  And then to your last point that you mentioned in terms of the convenience and the retailization, that shift of site of care, we’ve gone from this 20 years ago, this inpatient model to a much more diversified outpatient centric and ambulatory centers and whether that be larger MOBs, whether that be urgent care clinics, whether that be freestanding EDs, micro hospitals the buzz word in the industry, which should, depending on which states you’re in there’s quite a bit driving that as well. So, but I think those are two things that are really at this point in time right now we have the election coming up and then you have this issue relative to costs which everyone is dealing with and then the convenience factor which is really being driven by the consumer.

Andrew Dick: Shawn, in the past there was always the discussion about on-campus versus off campus medical office buildings. At one point investors really focused on the on campus assets. A couple of years ago there was a number of investors shifted their focus to looking at the off campus assets and then there’s always a discussion about cap rates spreads between on campus and off campus. What do you think- what’s your opinion, on campus, off campus assets? Where do you see investors going? Talk about some trends. I get that question all the time. I see a lot of activity on both fronts. I still see on campus buildings being constructed, we still are working on a lot of off-campus projects.

Shawn Janus:  Yeah, it’s, it’s interesting. So that … distinguishing between the on campus and the off campus has, as as you mentioned, has been, I would say a point of contention, but the differentiator if you will in terms of distinguishing how investors look at the market. When I first got into the business, it was as you said, just it was really wanted to be on campus. Then it was wanting it near campus and then that wasn’t quite off campus yet. But, it was across the street it would- but it was still around the major hospital. That has changed drastically. I don’t think the drivers of why investors are looking at that- not asset class, but that locational difference why they’re looking at that as a better investment opportunity is the fact that previously in the off campus location was the doc in the box.

Shawn Janus:  It had- it was a true medical office building, 40,000 square foot, two floors, 20,000 square foot floor plates and it really was the doctor’s office, if you will. We still refer to them as medical office building. It’s probably a misnomer. It’s just a general term that’s used now. They really are ambulatory care centers, so the driving factor for investors has been that higher and higher acuity delivery of care is now happening in those locations. It’s ambulatory surgery centers, it’s imaging centers. Now we’re moving into a whole wellness component which is, which is new to our industry, fairly new to our industry as well. So I think some of those factors are really what has driven investors to look at it and say, “What are we really underwriting?” Yeah, it’s real estate, but really underwriting the hospital, the provider, physician group, whatever it might be and what’s the driver for their business? It’s really the procedural side of things and where those occur in the fact that those higher acuities are now at a different location, it just made it easier for them to underwrite that.

Andrew Dick: Where do you see the most opportunities today in the health care real estate industry? I often get that question. I’m curious about, you’ve been in the business for many years. Where are the opportunities and I think you could say opportunities for Colliers or you could say opportunities for really anyone developing health care, real estate assets.

Shawn Janus:  It’s interesting, I answer that question similarly to the question when you asked why did I come to Colliers? The reason I did come here is because I do think there’s so many opportunities in the industry currently. And I think part of that is what I talked about. There’s so much change happening, it’s happening faster, just given technology and what’s going on in the industry and consumers are much more involved in their health care.

Shawn Janus:  So I think given all of that, hospitals and health systems and physician groups, through merger and acquisition activities, everything else that’s occurring, they become overwhelmed to some extent and pretty easily. And one of the things that I think the opportunity is, is to really bring them that trusted advisor. Some people think that’s an overused term, but I actually do believe that. I think if you can bring a specific expertise, again, we’re real estate experts in health care, but for us to be good at what we do, we will need to understand health care, what’s driving their industry, what’s keeping them up at night.

Shawn Janus:  And we always say that real estate will never be on the top issue for hospital or health system executives, but it never used to even be on the top 10 now what’s on the top 10 and it keeps going up and up and up into maybe number five on the list you make. It’ll probably never get higher than that. To use- just got to use an example because something else more relative to the health care. But I think the recognition of the importance of health care and how help app- excuse me, points of real estate and how real estate can from a tactical perspective, help them achieve what they’re trying to do from a mission critical and strategic perspective. So I think those opportunities to really have a seat at the table and really be that trusted advisor and offer that full breadth of services that they might need.

Andrew Dick: Shawn, during your tenure in the industry, what’s the biggest change that you’ve experienced working with health care providers?

Shawn Janus:  That’s a difficult question only because if so many things you could pick and choose from if I guess, just to pick one of those, and we talked about what happened, about elections and the affordable care act. I’m getting my tenure now, so that was a big transformational change in our industry. Even going back to the institutionalization of the class, when I first got into it, it really wasn’t an institutional asset class. It was the angel investors who would look at it and now it’s an accepted, their reach and their billions of dollars in REITs out there, et cetera. The shift to the ambulatory sector and what’s going on there. If I had to say one in that, most people wouldn’t think that would be the main one. But maybe it’s just because the recency of it is really this, this current shift in the delivery of care.

Shawn Janus:  And it’s driven by some of the other things. Obviously we just, that I just mentioned. But it’s really that shift to that ambulatory environment where you went from, as we were talking about early, this on-campus inpatient centric environment to really being responsive to consumers and delivering care in ambulatory settings. And that’s driven obviously in a couple of different ways. The fact, that technology, from the wearables to, how people … you go into your doctor’s office if you’re like me or anyone else. Now if you’re going in that you feel like you’re the expert, you’re- you’ve Googled stuff and you’re going to tell your doctor what you have and so the pressure on physicians and them is much greater as well.

Shawn Janus:  But I think all of those things have really driven the need to provide, not a different care, but a different sensitivity relative to the consumer. And what that is, so that whole ambulatory piece, irrespective if you had to affordable care act and some of these seismic shifts, but I think that is a systemic change to our business. They’ll foundationally be there. The affordable care act will it stay? Will it be repealed? Will it be tweaked? Those things are going to be changed, but I think this particular shift as it relates to controlling costs, convenience of care, that’s going to be a foundational elements it’s going to continue.

Andrew Dick: Shawn, you have a built a great reputation in the industry. There are a lot of young folks getting into the business, whether on the brokerage side, the development side. What advice would you have for someone who’s starting out in the health care real estate business?

Shawn Janus:  Well, I’ll tell you, it’s a great business to be in. Not to be repetitive, but it’s very dynamic. There is constant change in these challenges, creating opportunities. So if you’re someone who wants to provide real value to your clients, to your constituency, it’s a great place to not only learn but to make a career out of … health care is not going away. Whether it’s technology or big data or some of the other things that are now transforming our industry, there’s always going to be something that that creates those opportunities, if you will. The other thing I would tell young people though, and I go back to when I was talking about my recruiting efforts a little bit and then even how I got into into this crazy business is I think it’s really important to pursue your passion.

Shawn Janus:  So if you have a passion for something, I absolutely love real estate. When I got exposed to it and back in my Peat Marwick days and got thrown happenstance into real estate and I really had a love for real estate. The one thing I always thought was missing, and here I’m a south side blue collar Catholic boy growing up wanting to give something back and it always felt like there’s, it sounds trite. I realized that in terms of something else I could bring to the industry.

Shawn Janus:  Then when I had gotten a little bit more involved in health care and start thinking back to that first job when I had some health care experience as well, it was a way to say, “Hey, it’s not just bricks and mortar but we’re bringing a solution that helps people.” So for me that was the passion. It’s marrying the real estate side of things I love to do with the health care side, which more altruistically is in my background. So that’s just me personally. But I think importantly if you can have a passion and health care real estate is a great venue and a foundational place to build a career that can really make something.

Andrew Dick: Shawn, I’ve really enjoyed our conversation and getting to know you over the past few days. Where can our audience learn more about you and the Colliers Health Care platform?

Shawn Janus:  You can obviously go to our website, but I would encourage anyone who would like to learn more just to reach out to me directly, and I’m very approachable and my email is Shawn.Janus@Colliers.com.  Feel free to reach out to me with questions, thoughts, et cetera, and we’d be happy to respond to those.

Andrew Dick: Thanks again, Shawn. Thanks to our audience for listening to the podcast on your Apple or Android device. Please subscribe to the podcast and leave feedback for us. We also publish a newsletter called the Health Care Real Estate Advisor to be added to the list. Please email me at adick@hallrender.com.

Understanding the Process & Issues in Real Estate Compliance Actions with Addison Bradford, Lauren Rodriguez and Justin Olson

October 15, 2019 Addison Bradford Health Care Real Estate Advisor 44:34 Comments Off on Understanding the Process & Issues in Real Estate Compliance Actions with Addison Bradford, Lauren Rodriguez and Justin Olson

Understanding the Process & Issues in Real Estate Compliance Actions:  A Conversation with Assistant US Attorney Justin Olson

Hall Render attorneys Addison Bradford and Lauren Rodriguez sit down with Justin Olson, an Assistant United States Attorney for the US Attorney’s Office for the Southern District of Indiana who serves as the office’s Civil Health Care Fraud Coordinator, about his experience litigating civil health care compliance actions arising out of or related to real estate arrangements, specifically leasing arrangements subject to the Stark Law and the Anti-Kickback Statute.

The conversation focuses on both the substance and the process for litigating these actions with particular emphasis on common real estate issues implicated in these actions and the relationship between DOJ, CMS and OIG in litigating these cases. The webinar is intended to give health care providers greater understanding of both Stark and Anti-Kickback and encourage them to consider these application of these statutes in their leasing arrangements.

Podcast Participants

Addison Bradford

Attorney with Hall Render.

Lauren Rodriguez

Attorney with Hall Render.

Justin Olson

Assistant United States Attorney for the US Attorney’s Office for the Southern District of Indiana who serves as the office’s Civil Health Care Fraud Coordinator.

Addison Bradford:  Hello and welcome to the Hall Render Real Estate Podcast. My name is Addison Bradford and I’m an attorney with Hall Render, which is the nation’s largest healthcare focus law firm in the country. You’re about to listen to a recent webinar that Hall Render conducted about Understanding the Process and Issues in Real Estate Compliance Actions. A conversation with assistant US Attorney Justin Olson. Who’s joined in the webinar with my colleague Lauren Rodriguez, who is an attorney at Hall Render as well within our litigation section. This podcast does not constitute legal advice for any of the parties but is intended to give parties it’s greater insight into real estate compliance issues from the DOJ perspective. If you have any questions about this webinar or this podcast, feel free to email me at abradfordd@hallrender.com.

If you’re interested in more materials, related to today’s topic, Hall Render puts out a real estate newsletter and has additional podcasts, which are available on iTunes. Thank you for listening and we hope you enjoy. Hello and welcome to this Hall Render webinar Understanding the Process and Issues and Real Estate Compliance Actions. A conversation with assistant US Attorney Justin Olson. I’m Addison Bradford with Hall Render and we are the nation’s largest healthcare-focused law firm in the country. Joining me today is my colleague Lauren Rodriguez, who will be my co-moderator for today’s discussion with Justin, who serves as his office’s Civil Health Care Fraud Coordinator.

Lauren Rodriguez:  The goal of today’s webinar is intended to give you a greater insight into the process by which health care compliance actions involving real estate issues are processed and litigated, as well as discuss some of the common issues that arise in these compliance actions.

Addison Bradford:  Also, if you’re interested in the content of today’s webinar, our webinar, Hall Render publishes a monthly newsletter and podcasts regarding health care real estate issues, which includes many compliance matters. Please feel free to email me directly after this webinar at aBradfordd@hallrender.com. If you would like to be added to that newsletter or like a link to that podcast, the podcast is also available on iTunes. Justin, thanks for joining us today.

Justin Olson:  Thanks for having me.

Lauren Rodriguez:  Alright, Justin, start off. Can you please tell us about your role as an AUSA specifically with regards to the health care issues?

Justin Olson:  Sure, I’m an Assistant US Attorney and in that position, I serve in the Civil Division. So first and foremost, I’m a litigator on behalf of the United States in the Southern District, Indiana. Our office has designated someone to handle or be the primary point of contact for health care fraud-related matters. And I fulfill that role. In that role. I work alongside our support staff. We have an amazing support staff at the US Attorney’s office we have a health care auditor and health care paralegal. Then obviously other AUSAs to assist as necessary. But maybe most importantly for purpose, this conversation I also work alongside and with the Criminal Health Care Fraud Coordinator, we have completely separate independent roles as a Civil AUSA, I cannot comment on any criminal matter nor do I have any discretion or say on the decisions that our offices makes on criminal matters, but we do like to work together and coordinate to the extent that is necessary.

 So health care fraud is a broad term, but practically speaking for office purposes, that is primarily enforcement of the Federal False Claims Act, which I’m sure most of you are familiar with. In that shell, deals with any claim presented to the government that was done with the not knowing that it was fraudulent. So we take that very seriously and False Claims Act cases can involve health care. They can involve other government programs, but to the extent that they involve federal dollars for health care programs, that’s what I like to work on.

Addison Bradford:  You mentioned that there are different people within your office, they’re handling civil claims and criminal claims. Are there offices around the country, similarly structured that way?

Justin Olson:  Yes, every office should have a Civil Health Care Fraud Coordinator and a Criminal Health Care Fraud Coordinator. Some of AUSAs were multiple hats, but that’s usually how the division of labor is set up. And I should have said this right when I started. All my comments today are made in my personal capacity and not as the Civil Health Care Fraud Coordinator. Nothing that I say should be binding or represent necessarily what the DOJ policy is, or what it’s going to do in a particular matter. So with that said, I can talk about my experience and my personal views. But just to… So we’re clear on that front.

Addison Bradford:  Absolutely. We appreciate your expertise and your knowledge of the process here. And we want to start with some questions about the process of beginning with kind of how something gets to you, tell us a little bit about the process by which a tip or complaint from CMS or OIG reaches your desk.

Justin Olson:  So if we get a complaint directly from HHS, it’s going to come to us usually through one of the special agents or case agents and that usually comes in the form of phone call, or could come in the form of an email, say, “Hey, we want to come to your office and we want to chat about something that we think you might be interested in.” They’ll then by that time, if it’s coming from them, they’ll have already done a preliminary investigation, but they want to get our input pretty early on because they want to know if what they have has legs to it. And if it makes sense to continue to invest government resources.

Addison Bradford:  Then what are the process? I mean, obviously, a lot of the actions you see are self-disclosures. How does a health system or hospital or other provider looking to self-disclose maybe a possible violation of Anti-kickback or Stark, how do they reach you?

Justin Olson:  Sure, self-disclosure can be to our office as you mentioned, it can also be directly to HHS to the extent that it comes to our office. The initial contact can be very informal. You can call me. You can call our civil chief, and you can just talk through the problem. At that point, we will say thank you and we will probably ask for a written disclosure of any self-report you’d like to make. But the initial point of contact can be as simple as an email or a phone call. That written self-disclosure is very important. You really want to make sure you’re thorough and exhaustive in what you put in that self-disclosure, anything that you think would be helpful, and we can talk about this more in this hour, but the point of self-disclosure is self-disclosure, and by self-disclosure, I mean full disclosure. So thoroughness is the point.

Addison Bradford:  And as Lauren mentioned at the outset of this webinar, we have a few questions to gauge in your feedback on some of the issues where we talking about. We have our first poll question that’s listed should appear on the right side of your screen, which asks about your understanding of self-disclose your actions. So, if you care for the… All the responses are anonymous and are viewable by… Even us here on the other side of the screen, but we just love to hear back from you and get your feedback on these issues throughout the webinar.

Lauren Rodriguez:  All right Justin. Moving on self-disclosures, so as a litigator with the Hall Render litigation practice group, we know that sometimes cases come through whistleblowers. Can you please describe the process for determining whether that case that’s brought by the whistleblower actually has some merit to it?

Justin Olson:  Yeah. So these whistleblower actions are what are also referred to as qui tam action, it’s probably the most common way that actions come across my desk. These actions are initiated by the whistleblower also called the Relator under the statute and this person will file a complaint under seal in federal court. And they will allege the content of the fraud, and how it violates the False Claims Act. They’ll also have to file or serve on us a disclosure statement, pretty much the same type of disclosure statement I referenced in the context of self-disclosure. And then they have to serve that our office in the US Attorney General, when that comes across our desk, first thing we want to do is schedule an interview with the whistleblower or with the Relator and just confirm that we fully understand what this person is disclosing and the nature of the allegations they’re making, and then also, essentially pick up where they left off to make a good faith, disclosure and False Claims Act complaint.

I have some idea of the nature of the fraud, and so we want to know what they know because once they file that self-disclosure and complaint, we instruct Relators to stop investigating, the case is now in the hands of the federal government. At that point, we will do our due diligence to try to confirm first, all the allegations in the complaint and in the self-disclosure statement, make sure that it’s accurate and what they’re reporting is true, and then we will continue the investigation. And the point of the investigation is just to satisfy all the elements of the False Claims Act violation.

Not only there has to be some kind of misrepresentation or material omission, there has to be an actual claim presented, and there have to be federal dollars that issue under a health care program and then there also has to be was probably often the most difficult prong to satisfy the center requirement. Getting at you have a Cheerio false statement. You have a claim. You have federal dollars an issue but if there’s no intent to defraud, then technically, it’s just a mistake. And it’s not fraud. And as I’m sure you know, as folks who are very well versed in the Federal Rules of Civil Procedure as real estate attorneys, you have to plead fraud with particularities under Rule of Civil Procedure nine and that’s hard to do. And you have to know the who, what, when, where why of the fraud and so that ends up being probably the area where our investigation is very helpful for Relators who hope to proceed to have the case fully litigated, but it also becomes often difficult to prove.

Lauren Rodriguez:  So you mentioned in the beginning that they fall under seal.

Justin Olson:  Yes.

Lauren Rodriguez:  So our audience is not just made up of attorneys. We have attorneys that are transactional attorneys. We also have people that work in the health systems. The goal of this is to explain a little bit in detail. I know as a litigator that sometimes the process is a little bit slower and uncomfortable with that. Some people aren’t. Can you describe or can you give us a typical length of time from when the case comes to you from a whistleblower until it’s unsealed?

Justin Olson:  Right. Sometimes they never get unsealed. Sometimes we investigate, and there’s nothing to the complaint, we declined to intervene. We do our best to inform the Relator of why we declined to intervene? And ideally, they would agree with us and voluntarily dismissed their complaint and the target of the complaint would never know that they were the subject of a qui tam lawsuit. Those can wrap up as soon as six months, if not a shorter amount of time. Some cases can go on for several years. I’m involved in some cases that have gone on… Are still unsealed and they’ve gone for 45 years. And that might sound odd. Our jurisdiction is pretty lenient on the time, the number of motions for extension of time that we file in some of these very complicated cases. Our jurisdictions are not as patient, other jurisdictions, the judges want to see these cases before more quickly.

So in our district in the Southern District of Indiana, to answer your question, six months to five years, we don’t want to go that long, but some of them are just extremely complicated and they just take a long time to really investigate. Our jurisdiction you got one shot after six months, maybe a year, they’re saying, “All right, I’m denying any motions for extension, we are on seal in this case, government if you don’t have your ducks in a row, too bad. Get your act together. These cases going forward.” So thankfully, our judges are… We have great judges in our district, but at the same time, there are benefits I can see for getting these cases moving along faster. Evidence never gets better, the staler it becomes. And so I can appreciate judges who want to see these cases move quickly.

Addison Bradford:  So one of the things we’ve noticed as we track Stark communicate back-related federal complaints action specifically those related to real estate. Sometimes we see or say frequent flyers, people who bring multiple whistleblower claims, whether they’d be successful or not. Do you guys keep track of frequent flyers? And does that impact your decision as to whether to bring a case?

Justin Olson:  Yes, the frequent flyers are known in our district. And as you said, we also compare notes with the Northern District of Indiana. Sometimes we’ll get Relators who filed cases in our district, and they’ve been rebuffed and file very similar cases in our district hoping to get another bite at the apple. At the same time, though, we take every case very seriously. And just because someone is a frequent flyer, and we know that they’re very interested in bringing these types of claims doesn’t mean that they don’t have something to say, and they don’t have concerns that they want to dress. So while it’s noted, and we appreciate that it does not affect at the end of the day our assessment of the merits of the case.

Lauren Rodriguez:  So when you first started out, you described the process of civil and criminal being separate where you work. So with the AKAs Anti-kickback statute, can you describe to us how these cases are distributed the timing around them? How do we know that it’s going to be a criminal matter? When do you execute that against?

Justin Olson:  Sure, there’s no understanding the line between civil and criminal… Again, I just want to say I’m never involved as a Civil AUSA and for experience is no Civil AUSA, there should be in our justice manual, prohibits it from making a determination on criminal. It depends on the evidence all at the end of the day.

Lauren Rodriguez:  Okay.

Justin Olson:  In a qui tam context, it comes to us as a civil matter. And as we depending on the extent of the investigation and what’s called forth we need to, for example, subpoena emails from the target or conducted depositions if in the course of those depositions, something extremely nefarious, that’s material to the fraud comes to light. And we have not just a matter, reckless disregard for the falsity of the claim, but there’s willful intentionality to the fraud, we would probably just make a referral to criminal and then they would take it from there. We wouldn’t tell them one way or another to treat it as criminal. They would make that determination on their own.

I’ll also say that sometimes it happens in reverse. Sometimes there’s a criminal investigation going on into an alleged fraud scheme. And I’m brought in just to observe, whether it’s a witness interview or strategic planning meeting among the case agents, and six months later, the criminal investigation wraps up, there’s nothing comes of it. But there’s been enough evidence collected that can be simply prosecuted. And so within comes in my desk and I would take over the investigation. As with any criminal case, there are certain things that civil can’t see, we’re not privy to any grand jury testimony or anything that’s been produced in response to a grand jury subpoena, we have to get a special order to see that. But we can share resources in that regard. So, bottom line, it’s the interplay between the two changes based on the nature of the evidence that comes in during the course of the investigation.

Lauren Rodriguez:  And you said that it comes to your desk, do you have a lot of autonomy to decide, “Oh, I believe that this is going to be a civil action that I want to pursue?” Or do you have to go up the ranks? How does that work?

Justin Olson:  I have to get sign off from the civil chief, for any case that I open, but there’s a lot of trust in our office, in particular, other offices, depending on how big they are, Southern District of New York or Eastern District of Pennsylvania, these very large offices, there’s a more formality to the decision to open a civil case or close a civil case. But at the end of the day, my supervisor trusts me and will often defer to the calls that I want to make.

Addison Bradford:  And we have our next poll question, which leads to our next topic. And something you indicated previously with regards to referrals from the civil side to the criminal side, what types of factors influence the decision to referral case to the Criminal Division? Is it based on intent? Or some of the factors that play into that?

Justin Olson:  Yeah, so just know that the question on the poll is, what are the factors for filing criminal charges? I can’t answer that question, but I can answer the referral question. For me, a referral to criminal involves two things, one patient harm is a big factor for criminal AUSA state. That’s a big factor that, the other factor is just kind of the high handedness of the violation the intentionality of the action. When something moves from a reckless disregard putting your head in the sand over to and clear intentionality, that might prompt me to ask for criminal to take a look.

Addison Bradford:  So let’s say that there is a, both the criminal and the civil side have decided that the allegations or the alleged violation of Anti-kickback are worth buying a lawsuit. How much coordination and what coordination is there between the entities in following an action or following actions? Excuse me.

Justin Olson:  Right. So to maybe change the question a little bit and just continue with the qui tam context. The qui tams are pretty much presumed to stay in the civil context. It’s fairly unusual for criminal to be involved in any qui tam investigation that goes before a decision for us to decline to intervene. In a case, that’s been referred to us by HHS directly, or that comes through another investigative agency, the coordination among criminal and civil in our office, I can only speak to our offices, the coordination is very robust. We will try to attend the same meetings to the extent that we’re talking to case agents, we’d like to talk to them together. Again, reaching our own lane, as criminal and civil AUSAs where we’re assessing it for different reasons and from different perspectives.

I have no ultimate say and what the criminal counterpart does, and they don’t ultimately determine what the civil does, but to the extent that we’re just not trying to duplicate efforts with regards to the information that we can legally share with one another, we don’t want to duplicate efforts. And we find that this not only benefits us, but it also makes the jobs of our case agents easier. They don’t have to explain things multiple times when they pitch a case to criminal but also to civil. And ultimately, at the end of the day, the public’s better serve, we’re more efficient. We were able to wrap up matters more quickly because we’re able to get to the heart of the matter at the same time.

  That said there are certain circumstances where civil will usually have to be put on hold, the case goes criminal, we essentially kind of hit the pause button, let them finish what they’re doing, once that wraps up and civil can jump back in or the opposite based on how the evidence comes in from the case agents and what they’ve seen criminal might say, “Hey, there’s nothing… I don’t see anything that’s worth criminals time here. So go forth and litigate Justin and if you get concerned about… If the facts change, and your investigation takes a different turn, come back and see me but they might check out.”

Lauren Rodriguez:  So civil actions, you’ll see a lot… I know when the DOJ posts things on our website through emails, I get alerts. There are multiple parties involved in these actions. And sometimes we have a party, one provider, or one entity providing a benefit to another entity. How do you determine, which entities are the ones that you go after? Sometimes it’s only one entity, sometimes it’s multiple.

Justin Olson:  Right.

Addison Bradford:  Yeah. And I’d like to just add on to that. And so where you have potentially like a real estate leasing arrangement where you have a physician and you have a hospital entity, however the decision made as to which party to file the civil action against.

Justin Olson:  Right. Well, when it comes time to file an action. Understand that our office to feel comfortable filing in good faith. There has to be an investigation, at least a couple of years in the making before we get to that filing decision.

Lauren Rodriguez:  And that includes the whistleblower or the other entities that come to you.

Justin Olson:  Exactly. Yeah, your self-disclosure, whistleblower, qui tam, or a referral directly from the agency. And by the time of filing the decision of what entities to name in the case caption when we filed a civil complaint really boils down to what’s the nature of the evidence that we have at the time.

Lauren Rodriguez:  Okay.

Justin Olson:  That’s different from who was investigating at the front end. At the front end, I think it’s safe to say every person who’s named on the lease, every person involved is going to be a subject of investigation. But as the case develops, as the evidence becomes clear, you’ll see certain entities likely drop out just because there’s not enough evidence to support a claim. There are not enough witnesses available that will be on call as the litigation develops to support the claim. And that will be a factor. The other factor is resources. The federal government cannot pursue every single possible claim. And as I’m sure some of your clients well know, DOJ declines to intervene in most qui tam cases. But that does not mean that most qui tam cases are frivolous or malicious.

The public is well served by helpful Relators who see a case to conclusion even without the direct assistance of the Department of Justice during the actual litigation. So it is a matter of priority, priority for the current Attorney General the priority for the US Attorney in our office and also the needs of the communities in which these cases are brought. So all those factors play a part in who is ultimately named in the case caption when it comes time to bring a lawsuit. And I would also say, most of our cases do settle before we have to file a complaint. And so naturally, if you already settled, you’re not going to be named of the complaint.

Addison Bradford:  Based on your experience with settlements. Is there many variations in settlements based on how the action started? So, our settlements typically from what you’ve seen lower when they arise at a self-disclosure, like if somebody self discloses in a… self-disclosure as a Stark, self-disclosure a Stark violation in a lease, is that typically the settlement amount lower than what you see if for instance, arises from either DOJ or a qui tam action?

Justin Olson:  It should be lower. And I’d refer our listeners to title four of our justice manual, which talks about the self-disclosure, framework and the cooperation credit that we give… Those guidelines are very clear about… The expectation is that they will be… The penalties and damages will be reduced. That said if there is truly… Even if there’s no fraud, even if they self-disclose, and there’s no fraud, but there was an actual mistake, claims were paid that shouldn’t have been paid, the disclosing party would be expected to repay what they shouldn’t have received. And if there is fraud and they self-disclose it.

It should be, and we would expect it to be less than double damages. Obviously, you can get up to triple damages for fraud under the False Claims Act. Many cases settle for… They can’t settled for triples, I’ve seen that they settled for doubles. But we would expect that a self-disclosure would result in settlement less than that.

Lauren Rodriguez:  So I kind of want to narrow the focus on real estate questions. How many Stark and AKAS cases you handle on a regular basis that deal with real estate?

Justin Olson:  Sure, I would say at our office at any given time, we have between, five to 10 cases, it can be less than that it can be more than that at any given time. We’re a medium-sized district. And there are ebbs and flows to it. But I think five to 10 is probably a good rough estimate.

Lauren Rodriguez:  And do you know how many are Stark only or how many you know that you had civil and criminal AKAS or is it just a mix at all times?

Justin Olson:  I think it’s a good mix. It’s really hard to put numbers on it. I don’t have a great sense of what criminals caseload is like right now. But on the civil side, I mean, most qui tams and referrals that come to us that are real estate related are probably going to involve both Stark and Anti-kickback just because when they first come to us, the facts are not as well developed. And so, the assumption is there’s probably going to be elements of both of those statutes that play here, and the picture becomes clear as the investigation continues.

Lauren Rodriguez:  And how many do you handle personally?

Justin Olson:  Personally…

Lauren Rodriguez:  Or do you work in teams? How does that work?

Justin Olson:  Yeah, we work in… I’ll be touching every healthcare case. That’s on a civil side in our office.

Lauren Rodriguez:  Okay.

Justin Olson:  But I may not be the lead. We’re a family-friendly office. So I’m expecting my third kid, so I will be on unbelief for a little bit for that and so someone else will momentarily step in, and we’ve had people… So I’ll be aware of at least every case, and my involvement will vary based on a variety of factors.

Addison Bradford:  Yeah, and these cases, specifically, real estate leases and other real estate arrangements. What are the most common issues you see in these from a compliance perspective?

Justin Olson:  So real estate cases, the most common issue will be fair market value. If you have a situation where someone is leasing property, and it involves health care entities, and there’s no lease in place or no agreement written down. That’s a pretty clear violation. I would hope that no entity would be so high handed in that. So there’s going to be some lease, there’s going to be some arrangement that on its face probably looks legitimate. And so the issue becomes, is that reflecting the ordinary course of business for entities that are engaged in these transactions? And so that ultimately comes down to the fair market value? And is there something baked into this transaction that’s being artificially affected based on the interest in referrals or trying to gain an advantage from a relationship that the federal statutes don’t allow?

Addison Bradford:  Yeah. So when you’re doing a fair market value analysis of a lease, what parts of a lease are you typically looking at? Obviously, the base grant would be one, but are you looking also for other factors in the lease?

Justin Olson:  Sure, I mean, we want to see that every part of the Safe Harbor is complied with. And so the terms of the lease become important. The use of the facility, if it’s a facility or premises. The use of the equipment if it’s equipment involved, there are specific factors that are very clearly spelled out in the Safe Harbor for space rental and a cooling rental. And so we want to see all parts of the lease that are going to impact those factors will be we looked at, I should say when we look at the fair market value we and that it will involve experts and so I’m not a valuation expert. I’m a litigator. So we do rely heavily on third-party experts when we conduct these analyses.

Addison Bradford:  Who typically do hire to do… I mean, are you looking at appraisal experts to perform these types of evaluations for leases?

Justin Olson:  Yeah, we want people that are well respected in the industry as with any expert, they have to stand up in court. They got to survive Adelbert challenge and so we want folks who were legit.

Lauren Rodriguez:  Alright, Justin, I love litigating, I think I was born to do. And you keep mentioning that you’re a litigator. So you also mentioned that these cases settle a lot. How many do you actually take to trial?

Justin Olson:  Not as many as I personally would like to take the trial.

Lauren Rodriguez:  Yes.

Justin Olson:  But I’m sure far too many than your clients that want to take the trial.

Lauren Rodriguez:  I agree.

Justin Olson:  A False Claims Act trial is very rare. You will read about every single one of them on law 360.

Lauren Rodriguez:  Right.

Justin Olson:  And everyone will be aware of them when they happen. I cannot recall the last time a Civil Health Care Fraud Trial happened in our district. So it’s very rare, but it does happen. It can happen.

Lauren Rodriguez:  And if they happen in the Northern District, can you do help out there, or do they not have been there either?

Justin Olson:  I really don’t know. I didn’t call Wayne [Nolte 00:32:53] who’s the AUSA counterpart in the Northern District to get that number.

Addison Bradford:  Are there any compliance actions, which you’re unwilling to settle? Let’s say you have a particularly egregious lease that, had two factors that you’re looking for and charges decisions with are charging stations for civil action versus patient with patient harm and the intentionality of the action?

Justin Olson:  Sure, there’s unwilling to settle… It just comes down to do we agree on the number and does the number reflect the egregiousness of the violation. And if our office and the other stakeholders involved in the federal government are not convinced that the number is what it should be, then that’s how a civil complaint gets filed. It’s if we can’t agree on the number. So basically, the complaint is unsealed. And we’ve intervened, it’s very safe assumption to say that we are unwilling to settle for the amount that was offered.

Lauren Rodriguez:  So you’ve been with the Office for how long?

Justin Olson:  I started pretty recently, earlier this year. So I am fairly new to this office. Yeah.

Lauren Rodriguez:  And before I see that we have some questions before we ask this question really quick. Can you describe the most notable case you’ve handled?

Justin Olson:  I cannot because-

Lauren Rodriguez:  Because you’re limited.

Justin Olson:  They’re still under seal.

Lauren Rodriguez:  Oh, okay. So any that you have handled that have been unsealed? Can you describe anything for us that you were just…

Justin Olson:  I don’t think we have any cases in our office that are unsealed.

Lauren Rodriguez:  Oh, wow.

Justin Olson:  Right now. I think that’s accurate. Like I said before this is ebbs and flows. I mean, it changes for a variety of reasons.

Lauren Rodriguez:  And they can say sealed from six months to five years.

Justin Olson:  Or they’ve settled Bob remain under seal and that sort of thing. I want to get away from this ‘five to six years.’ Don’t describe your seal. We don’t want cases to last that long.

Lauren Rodriguez:  No, I agree. I agree. It’s nice to hear. I know some of the listeners will probably feel a little bit better. I’m fine waiting. And most litigators are but non-litigators get a little antsy.

Justin Olson:  And I would think your clients, they should not know whether… If they know there’s an investigation, they should not know whether the investigation is a qui tam or a referral from our agency.

Lauren Rodriguez:  Okay.

Justin Olson:  If they know it’s a qui tam, it won’t be because we said anything.

Lauren Rodriguez:  Okay.

Justin Olson:  It’s under seal means it’s under seal and we can’t confirm or deny one way or another its existence, that’s what it means to be under seal. So, I understand that can be uncomfortable in the ambiguity of it all can be unsettling. But it is what it is.

Addison Bradford:  More I mentioned, we have a few questions and one of them deals with the timeliness of fair market valuation. So how much weight do you give the timeliness of an appraisal or broker opinion of value and establishing the fair market value of the proposed leasing arrangement?

Justin Olson:  Sure, well, I really can’t say for sure. It will depend on the terms of the lease. There are so many factors. Best advice, personally, I would give is just what would you do if this were not a health care… If this lease did not involve healthcare, did not involve anything related to doctors. What would you do under the normal business operations? That’s the language of the statute. And that’s the legal tests that we’re looking to deal with. And so, there are valuation experts who are much more qualified to understand what that statute means in the context of your particular practice, your particular region, and your particular lease.

Addison Bradford:  And so with appraisals in cases where there a hospital or a leasing arrangement that’s under investigation for possibly fair market value issues. If appraisal has been obtained, we will also obtained a third party expert to review that appraisal and what way do you give an appraisal that is received by a party under investigation?

Justin Olson:  In my experience, we always get a third party to weigh in. If it gets to the point where we are investigating the fair market value, we need that third party opinion. Now that said, you just be perfectly frank, we’re not assuming that every appraisal or assessment that the target has received before the investigation started is automatically a sham. Quite to the contrary, we assume that whatever due diligence they did before entering the lease is legitimate. But we want to know two things. How does that appraisal fit with our third-party opinion? And second, what were the facts and the assumptions that the target fed to their own appraiser or their own valuation expert? And I’ve seen cases where we have reason to suspect that the assumptions that the target fed to their own appraiser were false or misleading.

  And so in that situation, it’s not the initial appraiser’s fault that they may have come up with a figure that doesn’t match what our experts said it’s a function of them having the wrong information. So we want to look at both angles of it. What are the targets of the appraiser know? What were the assumptions they were operating under when they made their assessment? One, and then how does their conclusion assuming that they did get the right information fit with our independent expert?

Addison Bradford:  You mentioned doing due diligence. Assuming that it’s legitimate that the work that parties will do before signing the lease. Do you give more deference or more way or look at is more legitimate and appraisal versus a broker opinion a value? Or are you looking just for some type of support for the fair market value evaluation?

Justin Olson:  Yeah, I mean again these are complicated cases that do turn on the intent of the parties. And so again, back to industry standard, what would your clients do if this were in the normal course of business if they were trying to be above board? And that’s what we want to see as well. I don’t think it’s cookie cutter. We just want to see what did the target do to try to in good faith, assure that what they were doing was aboveboard and compliant with the law.

Lauren Rodriguez:  So we had another question in regards to HHS’s launching the regulatory spring to coordinated care. Do you think that the current Safe Harbors and exceptions under AKS and Stark are sufficient to allow for coordinated care models?

Justin Olson:  Sadly, I am not familiar with this initiative. So with that qualifier, I can’t fully answer the question, but I will say and this is purely my… Again, personal capacity. Stepping back looking at the health care industry from a 30,000-foot view, I think the assumption in this question that trying to do what is best for the patient can sometimes seem like it’s at odds with the spirit of the regulations, health care is extremely complicated in this country. We understand that. And we understand that often greater coordination, greater sharing of resources, is in some cases in the patient’s best interest, however, where there’s increased coordination, increased information sharing increased efficiencies, the solutions that your clients come up with, may not comply with the Safe Harbors.

So all that to say, I think, our office and I truly appreciate that the tension that arises at the end of the day, I think the purpose of the statutes is to do the best that Congress can in recognizing some low hanging fruit that by any standard is not going to harm patients, is not going to waste government resources. But as health care evolves, it can expose maybe some things that the regulation doesn’t take account of. And I think that’s probably the spirit behind the regulatory sprint that CMSs is engaged in. So that’s my attitude, I think, to that general landscape that you see, which I don’t think is exclusive to health care, I think any highly regulated industry is going to have the same types of tensions.

As the industry evolves and develops, presumably in an attempt to satisfy consumers and be for the good of the public. There’s always going to be tension with whether what’s best for the patient is really accounted for by the regulation. So that said, as an employee of a law enforcement agency, essentially, we have to go with what the statute says. And so I would think that CMS is aware of these things as well. And if you ever get them on one of these webinars, they can say more.

Lauren Rodriguez:  So in your time at the AUSA’s office, I’m sure you’ve dealt with some defendants, or potential defendants that you are like, “Oh my gosh, if you just would have done X, it would have been fine.” What is X? What do you suggest to providers, to physicians entities that would maybe save you some time, and them some time?

Justin Olson:  I would say listen to your general counsel.

Lauren Rodriguez:  Can you say that one more time?

Justin Olson:  Listen to your general counsel. That’s right. So I’m sure your clients can relate. You have a case where the business side of the brain, of the client so to speak has a great solution to increase revenue and increase patient demand and meet all sorts of good needs that make complete business sense. They say, “Oh, yeah, we got to get legal involved, hey Legal, what do you think?” And then Legal puts the kibosh on it all and then the CEO pilot forward. And then five years later, we’re deposing the CEO and saying, “Hey, you got this email from your general counsel, it said, we can’t do this? We got to change some things.” And you replied, “Who cares?” I would say that… You don’t want that. So, if there’s anything, I think most physician groups, hospitals, medical providers in Indiana are very sophisticated and very thoughtful. And I know the general counsel’s in those organizations want to do what’s right. And so that’s good for us. That’s good for our state. That’s good for Treasury, I hope that your clients just listen to their GCS and-

Lauren Rodriguez:  The attorneys.

Justin Olson:  Yeah.

Addison Bradford:  Well, Justin, we really appreciate you taking the time to talk to us today and sharing your insight on this issue. If there are any questions you have that weren’t addressed today, to our webinar participants, feel free to email me, Addison, at abradford@hallrender.com or Lauren at lrodriguez@hallrender.com. As mentioned earlier, we do have additional health care compliance resources related to real estate with our newsletter and podcasts, which would be happy to share. We thank you all for joining today and appreciate your time.

Using Data Analytics for Site Selection with Bill Stinneford

October 8, 2019 Andrew Dick Health Care Real Estate Advisor 00:45:43 Comments Off on Using Data Analytics for Site Selection with Bill Stinneford

Using Data Analytics for Site Selection with Bill Stinneford

An interview with Bill Stinneford from Buxton.  In this episode, Andrew Dick interviews Bill Stinneford, a Senior Vice President with Buxton. Buxton is a data analytics company based in Fort Worth, Texas.

Podcast Participants

Andrew Dick

Attorney with Hall Render.

Bill Stinneford

Senior Vice President with Buxton.

Andrew Dick:  Hello and welcome to the Healthcare Real Estate podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice.

Today we’ll be talking about how hospitals and healthcare systems can use data analytics for site selection purposes. Buxton is a data company that helps a broad range of industry groups from retailers to healthcare providers make smart decisions when selecting the right location to do business. Today, we will be talking with Bill Stinneford, senior vice president with Buxton, about how healthcare providers can benefit from the use of customer data when developing an ambulatory network. Bill, thanks for joining me today.

Bill Stinneford: Thanks for having me.

Andrew Dick: Bill, before we talk about Buxton’s healthcare expertise, let’s talk about your background. You’re a Texas native with an interesting background in business and journalism. Tell us about your career experience before you joined Buxton.

Bill Stinneford: Yeah, well I studied business and English at college, and I got out of Texas A&M, and I was a financial analyst for a year, and I wasn’t really ready to grow up, and I’d always been a big sports fan and so I actually went back to graduate school to study journalism, and with the focus of really getting into sports, and ended up working with ESPN for about four years. So really, I got to be on the radio in Dallas Fort Worth and hosted pre- and post-game Mavericks shows. The Dallas Mavericks shows are still on the station, and were able to cover Super Bowls and spring training and training camps and just a fantastic education to study sports and study journalism, and did that for a long time. Hosted the afternoon show here in Dallas Fort Worth, and it was a blast, but you know, eventually, I didn’t want to … I guess I didn’t want to do that for the rest of my life, as fun as it was in the moment, and was ready to get back into quote-unquote “business.” So that led me to make a change.

Andrew Dick: So how did you make the transition from your broadcasting career to Buxton?

Bill Stinneford: Well, it was interesting. When I was going through graduate school, I was putting away through graduate school and so I had an internship at the ABC radio station here in town, and that internship was a great experience, but that was a free internship. I had to make a little money, obviously. Going to school, doing the free internship doing morning drives. So through friends, I had heard of this company called Buxton, which I didn’t know about at the time. I got an internship in the marketing department that paid me a little bit while I went to school, and I fell in love with this company. About that time that I was at ESPN, Moneyball had come out, by Michael Lewis and that became a sort of the rage and obviously they made a movie about it.

I remember reading that when it first came out, cover to cover, and I just loved that story. I think it’s important for data analytics today because I think that story gets bastardized at times about what it really was. I think sometimes people said, you know, that that was about the story about baseball and the Oakland As and being a very successful organization with one of the lowest payrolls in major league baseball, and doing it consistently over a long period of time. But with that story, what some people said was, “Oh, they just had a bunch of stats guys made decisions and you didn’t need scouts or baseball expertise.”

It was really, what the story was saying, was you do need expertise. You do need great scouts and gut, but you also need science and data as part of your decision-making process. When you can marry those two together, you can make much better decisions. Decisions that will produce the best return on investment for ballplayers. You’re investing millions of dollars into a ballplayer that you sign as a free agent or you draft, you want to go off more than just eyeballs.

So I loved that story, and in a way, that’s what Buxton was really doing for businesses, and what we do for businesses. It was really providing the science and the data to compliment the already strong decision-making processes of a company, to help them make better real estate decisions and better customer decisions. That always stuck with me, that fascinated me. That was fascinating to me while I was an intern for them, and then got into ESPN and did that, threw myself into that for four years. But again, I studied business in college and I was always wanting to kind of think about getting back into that world.

Buxton had always stayed in touch with me, and it came to the point in my career with broadcasting where you either need to kind of move markets, or really throw yourself into the next stage and I really didn’t want to move, and I didn’t want to do those types of things and I found a great home in Buxton. That was 14 years ago now, over 14 years ago. I have not looked back, and it’s been a tremendous professional decision, and to see how we’ve grown and advanced and helped companies with those investment decisions over time. So that’s kind of how I transitioned into Buxton.

Andrew Dick: So Bill, tell us a little bit about what you started off doing at Buxton and then what you’re doing today.

Bill Stinneford: Yeah, so I started out in our retail vertical, and Buxton is a consumer analytics company helping build predictive solutions that help people make great investment decisions, be there for new locations or relocations, market optimizations, targeted marketing, helping understand how their consumers behave beyond just demographics. So there’s a couple of different verticals that we have, but our historical vertical where we started was retail. So I started in our retail vertical in sort of a business development role, calling on majority retailers and restaurants throughout, when I first started, the southwestern portion of the United States, and helping in that. Quickly rose in our retail vertical, and then oversaw that and then also over the years took over our growing healthcare vertical and so now sort of oversee all client development, both making sure that our existing client relationships are strong and fruitful as well as helping coordinate our marketing message and our sales efforts to continue to bring new clients into Buxton.

Andrew Dick: That’s a great summary and Bill, how did Buxton get into the healthcare space? Because the audience listening to this podcast, they’re real estate investors, they’re hospital and healthcare executives looking to make smart decisions when they open up a new clinic location or a new hospital, and they’ll say, “Gosh, we’ve heard of Buxton, but primarily in the retail space.” But in reality, Buxton has done quite a bit of work in the healthcare space. Tell us about Buxton’s healthcare expertise and how Buxton moved from the retail vertical into the healthcare vertical.

Bill Stinneford: Yeah, so we still have a very strong retail vertical, but yeah. We’ve been around 25 years as a company, and we started in retail but yeah, over the years we’ve grown into a restaurant, we’ve grown into city government, private equity, and as you mentioned, healthcare. Basically, any type of business, if you have a customer or a patient or a consumer, and you want to find people that look just like that and grow your business with real estate or marketing or get more out of your existing investments, we can certainly help with that.

Our core verticals are those that I just mentioned but you know, we work with Marriott and we work with Fidelity Investments and insurance companies. So yeah, basically we can apply these types of approaches to all those different types of businesses, but specifically with healthcare, which is our fastest-growing vertical and pretty soon will end up being our largest overall vertical. It’s pretty close already. It is exciting to see, and it started probably 12, 13 years ago now. One of our retail clients actually sat on the board of Florida Hospital and they were looking to roll out their Centra Care line, their urgent care line. They were like, “Hey, this is kind of like retail, this type of healthcare business, and I think that you guys can help us with that.”

At the time, we said, “Well you know, we don’t know anything about healthcare, but we’ll try.” And it worked, and in fact, they’re still a client to this day. It’s been a really successful obviously rollout, Centra Care, over the years. They still use it for that. But we’ve branched into other different service lines for them and we realized, hey, there’s something here with where healthcare is going.

Then over the last sort of five, six years as there’s been a huge growth in ambulatory facilities or outpatient facilities, that’s really been the biggest boon to our healthcare business because the things that make an outpatient or an ambulatory location successful are somewhat different and in many cases very different than what makes an inpatient healthcare facility successful. In many cases, in an inpatient standpoint, it is still a bit of: if you build it, they will come. But in outpatient, there are so many choices and there’s so much competition that the difference between success or failure of an outpatient facility maybe a quarter of a mile apart from where you pick, right? So the things that make successful ambulatory location strategies work today are still a combination of some traditional healthcare metrics. You know, certain outpatient and inpatient utilization data, insurance data, competition provider data. Those types of things.

But just as much, if not more, it is an understanding of the consumer and not just based on demographics, but how they live their lives, how they spend their money, how they behave as consumers. Their attitudes toward different things, and also retail metrics. Things like co-tenancy or area draw, visibility. Sometimes people don’t realize that a lot of times your most successful marketing vehicle in a healthcare situation or a retail situation is your facility itself. You know? And how visible are you, and are you located near things that people are driving by all the time on their way to work, on their way home, when they run errands on the weekends. That impression frequency can build up and allow people to understand you’re there. Certainly for things like urgent care that’s vital, but what we’re seeing is even in things like orthopedics and sports medicine, things that were predominantly referral-based, while there’s still a huge component of that more and more you’re seeing healthcare companies go straight to the consumer to advertise their specialty services and location strategy is extremely important in that being successful.

That was just as much to do with understanding consumers and retail metrics as it does healthcare metrics, so when you can combine all those and bring them together, which we’ve done, because now we know a lot about healthcare, it allows our clients to have … or just companies in general that employ these strategies, to have a significant leg up on the ever-growing competition.

Andrew Dick: So Bill, if a healthcare provider came to you and said, “We’re thinking of rolling out an ambulatory care network or outpatient clinic network,” depending on what you call it, what could Buxton provide to that healthcare provider in terms of finding the right location? What type of metrics would you look at, what type of services would you offer?

Bill Stinneford: Yeah, well what we would do, I mean every case is a little bit different. We would want to build a customized solution for each one of those specific clients and what they’re trying to achieve, but you would build a forecasting solution, that is a combination of understanding the ideal patient/consumer profile for that particular service, and also the payer mix that you would like to optimize: is it all-payer, is it, commercial payer? You know, what are you trying to go achieve? Then what are the competitive variables? What are the positive correlating factors that need to be there? Then the traditional utilization data and provider data, and understand what makes successful locations successful and what makes ones that don’t succeed in an outpatient environment for that particular service unsuccessful? And build that solution that then allows the client to be able to forecast any intersection across their service areas or the whole country if they wanted, you know?

They can use the models to say: find me all the locations that will do greater than X in performance and will cannibalize my existing locations by more than a specific percentage that they set. So you help understand how many locations you can support in a market, where those locations should be optimally, how to evaluate your existing portfolio for that if you offer that service line. Which ones are not doing well but they’re underperforming their potential, which ones are not doing well but frankly they’re doing as well as they could be doing and they’re in the wrong spots, or that trade area has changed over time so they need to be consolidated or relocated and then they can use the solution to do that.

So those are a lot of the output that we provide, and we actually provide that into a very easy to use but powerful mapping and analytics platform that they can access on their phones or their tablets or their laptops, wherever they have an internet connection and visualize all the things that we’re talking about: where is their competition, where are their patients coming from, where are their potential patients coming from? Where are those recommended points? If there’s availability that pops up that you want to investigate, you can click a button and get a forecast on that potential site in about two minutes. Store files, run just regular utilization reports, insurance reports, demographic, behavioral reports. All those different types of things at their fingertips, but most imply from a real estate strategy standpoint, understand where their home runs will be and how to avoid expensiveness as well.

Andrew Dick: So Bill, we talked about a new outpatient clinical strategy. What about a health system that has an existing network that wants to analyze how that existing network is performing? Is that something that Buxton could help with?

Bill Stinneford: Yeah, you know, absolutely. I think one of the things that when you build those forecasting solutions and you’re studying their data, what makes them… For instance, you do this a lot with primary care, where they have many, many locations within a market if you’re a system. It’s identifying what’s the DNA of your best locations in suburban markets in your service areas? What are the things that are always present in those trade areas that are sort of present in the okay locations trade areas, that are hardly ever-present in the poor performing trade areas? You know, what are those factors?

Then that model that is built can again forecast future performance like we just talked about. But you can also take it and score the existing locations and compare actual performance to forecast performance. This becomes very valuable for our health system clients because it helps break down what I sort of like to call is the log jam of opinion that can develop.

So for instance, if leadership of the system comes in to evaluate the primary care facilities and their performance and they look at the low performing locations, the question that the CEO asks, she may say, “Why do we have these low performing locations?” Typically, what you’ll have is people pointing fingers at each other in the boardroom, you know? The people that picked the sites will blame the operators and the physicians within the site. The physicians and the operators of the site will blame whoever picked the site. Then eventually, everybody will get around to blaming marketing. They can all agree on that; it’s marketing’s fault.

But you know, in reality, sometimes is it the location that was a miss. Should have never been selected. Or, just as frequently, it was a great location for 20 years for primary care but that trade area has changed over time significantly and that’s not necessarily the most optimal spot for those services today. But the analytics, in an unbiased way, is informing to say, you know what? No matter what you do, no matter how many physicians you put in, no matter how often you change out the front office, no matter how much money you dump in from a marketing standpoint or a huge remodel, you’re wasting dollars. The analytics are showing that for that particular service line if you want it to produce at a certain level, the trade area potential is no longer there. So let’s use the models to understand how to best consolidate that site and where should that be transferred to, or, where should you best locate that site?

But that’s very different than another location that you may have that’s doing the same actual volume, which is below par, but when we look at that with the model the forecasts are saying it should be doing 40% better because this site looks like 10 other sites you have in these types of markets that they have the same type of potential patients in the same volumes, they have the same level of competition, the same area draw factors, the same utilization and insurance metrics. All these things are the same as all these other locations that all do 40% better but this one’s not: why?

Sometimes that can be that it does need to be remodeled or it needs to be moved just a little bit down the street to a more visible area because that piece of the street is no longer where people are drawn. Or it could be that you need to add physicians. A lot of times we see that. The wait times in those facilities end up being longer and it’s tougher to get an appointment because you don’t have the proper staff, or the front office isn’t … You know, the front office help is not as nice as they need to be. Or maybe we do need to do more marketing. But you know that that trade area should be performing better than it is.

That opens up a lot of possibilities because now what you’re doing is not only finding the best places to invest in new locations to the degree that you’re opening up locations for primary care or urgent care or specialty, but you’re also improving the performance of the existing portfolio of investments by knowing which ones to not invest in any more, and then which ones have potential and you should invest in. The overall return on investment on all of your real estate becomes that much better. There’s just a lot of waste in healthcare today because people are making decisions based on opinion, and people that make decisions based on data for the actual healthcare of their business, sometimes they’re not making the best decisions based on data for where they invest dollars.

Andrew Dick: That was a great summary, and it seems to me, Bill, that there are a lot of different companies that claim to offer site selection. A number of our healthcare clients get pitched all the time, but Buxton seems to have maybe the more comprehensive platform for this service. What do you think makes Buxton unique when compared to its competitors?

Bill Stinneford: Well you know, it’s interesting. I think we take a very different approach than the traditional players, I guess, in healthcare, with regard to these types of decisions. I think that that comes from our consumer analytics and retail site selection background. There’s a lot of good companies, but I think one of the things that I tend to see that people are still relying on or offering as a way to select sites is more macro-level traditional healthcare data. So certainly outpatient and inpatient utilization data, but at a county level or a city level. The output may say you have a need for three additional orthopedic surgeons within this market. Okay, great. Where? That’s a big county. That’s a big geography. Again, as we talked about in an outpatient environment, the difference between a successful location or an expensive miss might be only a half a mile down the road, one spot versus another.

So if you’re talking about macro level, county-level data that shows demand for a particular service, great. Where are you going to service that? Because especially as you have so much more competition, both system competition as well as, you know, private companies that are focusing on a specialty or two, many of them, backed by private equity that can choose where they operate, choose the type of payer, the type of patient that they want to go after. They’re employing a lot of these quote-unquote “consumer research strategies” and if you make it much more convenient, if somebody is in need of a service and you make it much more convenient, if your primary care doctor is telling you to go 40 minutes across town but there’s a specialist that you drive by all the time and you’re seeing their billboards and their advertisements on TV and those types of things, well, can I just check them out? And so it’s really important to understand where to be at an intersection level, at a micro-level.

That’s where we grew up and where we still excel today with retail and restaurant, and weaving in a lot of that traditional healthcare data and weaving in over a decade now of really strong ambulatory site selection healthcare experience with our consumer analytic experience and our retail experience really allows us to produce a unique solution that again can help our healthcare clients have a tool that the people that they’re competing against might not have to help them be successful in a very evolving healthcare environment.

Andrew Dick: Bill, let’s switch gears at this point and talk about ICSC or the International Council of Shopping Centers. They host an annual event called Recon. This year was significant from my perspective because there was quite a bit of effort and showcasing health and wellness programs and how retailers can collaborate with healthcare providers. Why do you think there was such a strong push this year to talk about health and wellness at ICSC Recon?

Bill Stinneford: Well, there’s a number of different reasons and I’ll try to knock out a few of them. I mean, first off, I was really excited that ICSC did that because it is such a strong push from a “retail center” standpoint, quote-unquote, obviously, it’s no secret that there are certain retail concepts that are struggling. Some are going out of business. There are vacancies in a lot of these centers. Now, I don’t think that retail is dying. I think that retail is evolving just like healthcare is evolving, but one of the things that you’ll see thriving right now are things like fitness facilities, gyms, restaurants. Things that are focused on a healthy type of environment. Urgent care, different healthcare specialties. So from an ICSC, an International Council of Shopping Centers perspective, to focus on a sector that can help fill vacancies and help create great foot traffic and those types of things, obviously that’s a no brainer.

But I also think you’re seeing the demand on that side, but I think also you’re seeing the demand on the healthcare and the health and wellness side of understanding that healthcare cannot exist in the old traditional way. That it has to be out in the neighborhoods, and it’s not just … You know this is something that we talk about all the time with our clients, with the health system. People need to think about their health system as a brand, and some people within those systems may be thinking about that as a brand, but not enough.

I think sometimes health systems think that people in the market, just regular Joe America, understand the difference between health system A and health system B in a market, but for the most part, they really don’t. So how do you distinguish your brand and how do you make people want to stay with you in sort of a cradle to grave relationship? Not just, “Hey, come to us. We’ll treat you when you’re sick.” But, “Come to us. We’ll keep you from getting sick. We’ll keep you healthy.” That’s really I think the future of healthcare and no amount of healthcare legislation or type of healthcare legislation is going to help us as a country if we don’t start getting healthier and start making better decisions.

Part of that is education. Part of that is taking that education and those types of offerings and types of ways to stay healthy, both with food and with education and with fitness, into the communities. Into neighborhoods. And that’s a retail strategy, right? So the things that will help people be successful in healthcare, offering these types of services, not just health and wellness but healthcare, you’re going to have to be out in the neighborhoods, and to do that you’re going to have to understand a real estate strategy beyond the old, if you build it, they will come.

In our presentations, we talk about how healthcare is evolving. Clearly there are regulatory hurdles and uncertainty with regard to healthcare regulation and certainly, Buxton can’t help with any of that. But the other things that are making healthcare evolve are the evolving consumer, and how people make decisions and choices about the healthcare services that they provide. Their smartphones and where they go and look at things as they go shopping for other things, you know? That you have an evolving consumer and the type of expectation that they have, but also you have, as we talked about earlier, an extremely competitive environment. Extremely competitive.

There is so much money being spent in healthcare, and any time you have that much money being spent and some of the traditional players by taking a traditional healthcare approach are investing those dollars inefficiently and leave themselves open to competitors, you’re going to have a bunch of people jump into that market. Any time there’s a bunch of money to be had and there’s a perceived inefficiency in the market, you’re going to have a lot of players jumping into that space and so you’ve got that. Private equity is in it in a huge way. You’ve got, obviously, you’re looking at the growth of CVS and Walgreens and Walmart and you know, just what is going on with all of that. You’ve got a lot of different players in the space and what are they doing? They’re understanding consumers. They’re understanding a retail strategy. They’re going into neighborhoods and being more convenient and more visible to provide these offerings.

If you’re sitting out there on the free land that the church gave you behind an industrial park that no one can see, you can’t see in from the highway and those types of things, you’re going to get slaughtered. So that’s part of why it’s important to not only have these conversations like you and I are having but why ICSC and retail are getting involved as well.

You know, sorry to keep blabbing here but the last piece on this is in our presentations we talk about Blockbuster. Blockbuster, I think there’s one Blockbuster still in business in Bend, Oregon. Right? But if you and I were having this conversation 13, 14 years ago and I told you Blockbuster would be completely out of business in 2019, you’d have told me I was crazy. But that happened. It wasn’t that Blockbuster didn’t have a lot of really smart people and did a lot of really smart things, but A, they didn’t pay enough attention, or enough people didn’t pay enough attention or pay enough respect to how the consumer was evolving and how they wanted to make choices, and they also didn’t pay attention or give enough respect to the new competitors in the market. “They can’t do what we do,” and that type of thing.

They’re completely out of business. That’s mind-blowing when you think about how big they were and how many smart people that they had, and they did a lot of things right. But it doesn’t take that many bad decisions, or that much not paying attention or giving enough respect to your competitors to let it bite you in the rear, so to speak.

So think about today. You’ve got CVS, right? What is CVS, there are 9000 CVS locations, most of them in the United States. There are 1100 plus MinuteClinic locations. They’re starting to offer other types of services. Obviously Aetna, with the affiliation there. You know, I mean there’s all kinds of innovation that can come from that, and they’re in every neighborhood in the United States. They can be the ones. They’re not there yet, but they could absolutely be the ones that have the ongoing conversation with the people in their trade areas and develop cradle to grave type relationships with those types of people across a variety of different healthcare services and wellness.

That is pretty interesting but should be pretty scary to a lot of traditional players in the space. But what is CVS but a retailer who understands consumers? All of these things are sort of blending together into this world, and so I was glad to see ICSC jump on that. So sorry if I’m talking too long about that, but that’s just near and dear to my heart and I’ve just seen that evolution over the last few years.

Andrew Dick: No, I appreciate the conversation, Bill, and in fact, the one reason I wanted you to talk about ICSC is that I know that Buxton has had a presence within the organization for some time, and that’s really where some of Buxton’s roots started, in the retail space. I also enjoyed our conversation offline about CVS and Walgreens and what those organizations are doing, because they have a powerful footprint. They have a network that’s hard to compete with, and I know they’ve partnered with some of the local healthcare providers to staff their clinics, but you’re right in that CVS and Walgreens are looking to expand healthcare operations and local healthcare providers should be watching what they’re doing, and be concerned in some cases because of the network that they have.

Bill Stinneford: Yeah, you know, and … Yeah, sorry, Andrew. I was just going to say real quick on that, but there are strategies to take if you are those systems to make sure that you don’t get swallowed up by that. You know, but it is taking a neighborhood by neighborhood approach and not a one size fits all approach to your marketing or to the services that you offer. It’s really catering your offerings in each of the neighborhoods that you serve to the population of that neighborhood and their needs and their desires and the services that they may need, and how to educate that population to have better outcomes over time, and think, you know, there’s no one size fits all approach to that.

The way that you achieve those localized, local store marketing if you will, neighborhood customization of your offerings, is to use data and analytics and understand people as consumers, not just demographics in those neighborhoods and understand their behaviors and their attitudes and how often do they exercise or not exercise, how are they eating, poorly or well? How are they aging? What are the different types of things? You could have two houses that demographically are the same, but how they live their lives, how active one is versus another, you know, one could be 65 and hikes three times a week and eats well and is always very active, and the other living right across the street that’s 65 that has the same net worth is a couch potato. You know, one guy needs an orthopedic surgeon, the other guy needs a cardiologist.

If I’m just looking at them demographically, I’m not going to be able to tell the difference, so implementing consumer-level data, understanding people’s attitudes and behaviors in combination with other things, can help people forecast what will be needed and how to change outcomes not on a market level basis, but on a location by location or a trade area by trade area basis. Not every CVS trade area is the same, but they’re using data and analytics to optimize their offerings and their messaging in those local communities to be as successful as possible, and that is possible for healthcare companies outside of those big guys, but you’ve got to implement some of the things we’ve been talking about today.

Andrew Dick: Great point, and I enjoyed that part of our discussion. Bill, switching gears, I know that Buxton recently developed a strategic relationship with CoStar, which is a huge player in the real estate space. What does that strategic relationship look like, and how will it benefit your clients?

Bill Stinneford: Yeah, we’re really excited about the relationship. It is a game-changer in real estate investment. For those that don’t know, CoStar is a very large data and research and analytics company in their own right, and publicly traded and they have amazing information on real estate. What’s available in the markets for sale, for lease, of what type of real estate, what are the asking rents, what’s the asks price for land, what are things being leased for around it, what’s the tenant mix, who are the tenants in particular facilities? It’s just, I’m not even doing it justice, the vast amounts of wonderful data market comps. The vast amount of data and research that goes into their offering. So for the first time, what we’re able to do is combine our two offerings in one platform for the benefit of our clients.

If you think about some of the things we talked about earlier, the output of a healthcare system comes to us and says, “Hey, we want to really grow primary care, urgent care, orthopedics and cardiology in an outpatient setting.” We would build those forecasting models based on combining their data with our data and methodologies and then forecast: here’s how many locations you’re going to have for each of those service lines in the market and here’s where they layout. The best analytical intersections for you. You now have that inventory of top potential locations that meet all the criteria that your successful locations already have for those services. Well now with CoStar, the one thing we weren’t able to provide was: okay, that’s great. These are the best analytical intersections for me. Is there anything available that meets my ideal location both in terms of size and quality but also economics.

Now, they can actually turn on the Buxton recommended potential traders. You can turn on then CoStar and say, “Okay. What’s available that meets my economic criteria, my size criteria, my use criteria, that fall within those recommended trade areas?” So actually see all of that in one platform, see who to contact there or who to put your people in contact with to get these very precious sites in the most ideal trade areas as quickly as possible without having to wait on brokers or other things that may take a while, or only see some of the sites that may be available. This gives you access to all of the sites with all of the information that you have to get to sites … Again, we’re talking about a very competitive market. To get to those sites in the best-recommended trade areas analytically faster than your competition, it is really a game-changer in our world.

Andrew Dick: So Bill, when we were talking offline it sounds like your clients could also use this, the CoStar feature as well, to the extent that they were looking at a leasing arrangement with a referral source and the Stark law or the anti-kickback law may apply. You could quickly pull comps from that area and make an educated decision based on what is fair market value in that area. Is that right?

Bill Stinneford: That’s exactly right. I mean, CoStar does a tremendous job pulling that data in every market across the United States at regular intervals so that it’s clearly available on the platform. So you have to utilize data to prove that you are asking fair market value for real estate. You can easily pull that report in a few seconds and so it’s just tremendously valuable, yes, for Stark law compliance and anti-kickback.

Andrew Dick: Right. Bill, as we wrap up, I want to ask you just a couple of questions. Over the next five years, how do you think the Buxton business model will change?

Bill Stinneford: It’s interesting. Over 25 years, our business model, what we do has not really changed, which is combining our clients’ data with our data and methodologies and technologies to produce answers, right? We love data. We’ll always love data. We spend millions of dollars a year on data to help answer a lot of these questions, but data in and of itself is worthless. There’s a lot of people that are data-rich and insight poor, to use the cliché. But what we really bring to the table and have always brought to the table is the ability to find the patterns in the chaos. To know what to do with all of that data combined, and experience to create answers. These are the things that you need to be successful and here are all the places that you do not that have it. Here are all the places that you are that don’t have it anymore. Right? Whatever that ends up being.

Now, where we’ve changed and evolved and grown is how our clients interact with those answers. So we talked about our technology platform that enables our clients to push buttons easily and get the answers that they need to make these decisions, so I think you’ll continue to see our technology evolve. You’re seeing all kinds of things with artificial intelligence and machine learning. Those are buzzwords out there, and we certainly implement those things into our solutions, but you always have to question with that, when you hear those sexy buzzwords, you still need a lot of sample set. A lot of data points, to be able to come up with valuable insights in that. But we’re experimenting with that. Data visualization, mobile data to be able to follow people’s traffic patterns and shopping behaviors. There are all kinds of interesting technologies and new data sources that we’ll continue to investigate and implement and develop ourselves to continue to make our answers better and the way in which our clients interact with them better.

But, you know, the fundamental question of what Buxton does, helping people understand who their consumers are and where’s everybody else that looks just like them that aren’t utilizing them right now, and where are the best places to invest their dollars for real estate, that’s always going to be who we are. In healthcare, that will only continue to grow. I think you’re continuing to see the advancement and the acceptance of these types of strategies and the need to understand people, patients as consumers. The need to think about things not purely as retail but more like retail than they have in the past. So I think you’ll continue to see us invest heavily in our healthcare vertical, in data technology and people to continue to produce the best solutions for our clients to help them navigate a very competitive and evolving time.

Andrew Dick: Great. Bill, where can our audience learn more about you and Buxton’s healthcare practice?

Bill Stinneford: Yeah, you know, the best place, we have a lot of great content, is to go to our website. That’s just buxtonco.com. You can contact me directly as well. It’s Bill Stinneford and my email is bstinneford@buxtonco.com. Or you go to our leadership page and you’ll see our leadership and our email addresses on the website as well, but there’s a healthcare section on there. Lots of great content and videos, and for people at any stage to learn more about the things that we’re talking about today and why they’re so important.

Andrew Dick: Bill, thanks for joining the podcast. I really enjoyed our discussion. Thanks to our audience for listening as well, on your Apple or Android device. Please subscribe to the podcast and leave feedback for us. If you have any ideas for future topics or guests, please reach out to me. My email address is adick@hallrender.com. We also publish a newsletter called the Healthcare Real Estate Advisor. To be added to the list, please reach out to me at the same email address. Thank you!

Creating HealCo, A Technology Platform to Manage Medical Office Timesharing with Kirat Kharode

October 1, 2019 Andrew Dick Health Care Real Estate Advisor 31:02 Comments Off on Creating HealCo, A Technology Platform to Manage Medical Office Timesharing with Kirat Kharode

Creating HealCo, a Technology Platform to Manage Medical Office Timesharing with Kirat Kharode

An interview with Kirat Kharode that was recorded in Scottsdale, Arizona at the Health Care Real Estate Legal Summit sponsored by Hall Render. In this interview, Andrew Dick interviews Kirat Kharode, Founder and CEO of Healtor. Healtor is a technology platform that is designed to create a marketplace for health care providers to better utilize timeshare space and to manage timeshare arrangements in a compliant manner.

Podcast Participants

Andrew Dick

Attorney with Hall Render.

Kirat Kharode

Founder and CEO of Healtor.

Andrew Dick:  Hello and welcome to the Health Care Real Estate Advisor Podcast. I’m Andrew Dick. I’m an attorney with Hall Render, the largest healthcare focused law firm in the country. Today, we are broadcasting from the Health Care Real Estate Legal Summit in Scottsdale, Arizona. My guest today is Kirat Kharode, the founder and CEO of Healtor. We’re going to talk about his career and how he ended up founding a tech startup company. Kirat, Thanks for joining me.

Kirat Kharode:  Thanks so much for having me, Andrew.

Andrew Dick: Before we jump into your business, talk a little bit about your background. You have a unique story to tell, and tell us a little bit about.

Kirat Kharode: Sure. I started my career in hospital administration. I went to a grad school at Johns Hopkins School of Public Health. Started my career at the VA hospital in Pittsburgh. I had the opportunity to work with the transplant program there and separate the transplant program to be the first independent in-house liver and kidney transplant program based out of a VA hospital in the country, and that was my administrative residency. Kind of opened my eyes to compliance world regulatory issues and fostered my interest in going to law school.

Kirat Kharode: But coming out of grad school I didn’t really have a whole lot of funds, didn’t want to pay for law school. I was fortunate enough to find an opportunity where a health system, the University of Pennsylvania, paid for me to go to law school at night across town in Philadelphia while I was working at Penn.

Kirat Kharode: After that, I continued in hospital administration, did law school while I was working. Completed law school. Learned a lot about compliance. Regulatory health law was my particular focus, and it helped me understand a lot of the nuances as I was going through different business development and operations roles, to understand the complexities and also have intelligent conversations with the general counsel in the facility so that we could have some healthy discussions about what was appropriate and what wasn’t appropriate in the risk spectrum.

Kirat Kharode: I stayed in hospital administration for almost 20 years, working in all kinds of different organizations, both nonprofit, for profit publicly traded, for profit privately owned. It just opened me up to a gamut of sort of issues, both from a strategic perspective as well as an operation perspective that really kind of set the stage for the creation of Healtor.

Andrew Dick: You have this health care administration background. You have a law degree. At what point did you say, “Gosh, I want to start a technology company.” I mean, that’s a pretty big transition.

Kirat Kharode: Sure, sure. Well, you know, I think the theme throughout my career, regardless of the setting that I was in, was really focused on making convenient ambulatory care settings for patients. With the physician shortage that exists nationally, to me, it’s very important to foster that medical office ecosystem because I think the medical offices are really the unheralded hero to me in the whole health system. Everything that you do from the most complex of procedures to the very basic. The birth of a child doesn’t happen in a medical office, but certainly the first conversations do.

Kirat Kharode: The NRC actually just put out research that 80% of decisions that patients make are based on convenience of the provider location. To me, medical office locations was always extremely critical.

Kirat Kharode: As a hospital administrator, I feel today too, that there almost should be term limits on how long you stay in hospital administration before you’re forced to do something that really changes the world because, as an administrator you see all kinds of issues that you know that, hey, if somebody had a solution like this, this would solve a problem. I think that too often hospital executives stay in positions. They move from one facility to the other. They come up with these realizations, and it just kind of goes out the window.

Kirat Kharode: I really wanted to focus on this because I see it as an important issue, especially as we move to more of a value-based world. As more services are done outside of the hospital facility, I think it’s critical to have a technology where it makes it easier for doctors and hospitals to access and create timeshare spaces and places where patients want them to be.

Andrew Dick: Let’s stop there. Hospital administration, you find a pain point with how hospitals are managing, owning the real estate. When did the light bulb go on and you say, “Here’s a problem. I need to find a solution.” Talk a little bit about that. What was that moment like and talk about the pain point that you’re trying to solve for.

Kirat Kharode: Sure. To boil it down to just one or two might be a little difficult. I think there’s a whole … There’s a whole subset of problems that kind of compound the issue of medical office timesharing.

Kirat Kharode: First is just basically that right now, like 50 years ago, if a physician wanted to look for a medical office space in a new community, and they didn’t want to spend an inordinate amount for capital cost and leasing out the facility for 10 years, there’s really a few options that exist besides calling around to every building in town to try to find space.

Kirat Kharode: On the front end, there’s that problem that exists. On the back end is the bigger issue of whether hospitals are … When they enter arrangements with physicians if they remain compliant with stark and anti-kickback statutes.

Kirat Kharode: And both of those issues kind of came up in various points of my career a number of times as both we were trying to place physicians out into communities that we didn’t have a presence, hub and spoke type of strategy as well as issues where we have timeshares with physicians and we’re trying to manage it as best we can. But there’s just a whole host of compounding issues that take place and make it a little bit complicated to manage that process for both the administrators as well as the physicians, which leads to lapses in payments, and potentially down the road could lead to [inaudible 00:06:55].

Kirat Kharode: So, I can’t pinpoint a moment in time necessarily that I came to the realization. I think it was over the course of a few years that I realized that this was really something that needed to be addressed and was extremely important.

Andrew Dick: So, getting those specialist out in the community, trying to document those arrangements, trying to ensure that they’re fair market value, and you’re really focused on the timeshare space, is that correct?

Kirat Kharode: That’s correct. Yep.

Andrew Dick: And so, for our listeners, a timeshare space being a physician can go use some clinical space for a half a day, a day, a couple of days throughout the month, but there’s no longterm commitment. It’s just buying blocks of time. Is that what-

Kirat Kharode: That’s right. I mean if it’s a hospital leasing to the physician, there’s the commercial it has to be set in at dance in terms of the rate, and it has to be a year long in terms of the lease, depending on who the owners are and the relationships, those factors change a little bit have a different … They can lease it at different amounts of time than hospitals can when they have a referral arrangement with the physician.

Kirat Kharode: So, it’s certainly a very small amount of time, or it could be two, three days, but right now there’s no technology platform. If you wanted to buy a building, you could find that online. You could buy a medical office building. You could lease a 10,000 square foot space that’s completely shell and build it out yourself. You could find those opportunities. But if you wanted to look for a second generation space per se, one day a week or two days a week, that’s going to be really hard unless you’re picking up the phone and calling around at this point.

Andrew Dick: So, timeshare space is the area you’re working in, and you recognized really maybe two pain points. One is there’s not a way to connect landlord and tenant who wants to enter into these type of timeshare arrangements, at least not efficiently. And then there’s that compliance issue. Stark, kickback, if it’s two providers who want to enter into these arrangements. There’s often not a lot of money exchanging hands, but the risk is a quite great if they get it wrong.

Kirat Kharode: That’s correct.

Andrew Dick: Right? And you witnessed that as a hospital administrator, healthcare professional.

Kirat Kharode: That’s correct.

Andrew Dick: So, talk about Healtor and how does it solve for those problems?

Kirat Kharode: So, we essentially solve for six different issues, and those are pain points that we’ve learned through, not just my own experience, but countless conversations with hospital executives, medical office owners, physicians, and as we’ve developed the product, and we’re still very early stage, but as we’ve developed the product, we now have 70 customers around the country. We have three health systems in the pipeline as well for our compliance product. So, we’ve had the opportunity to talk with many executives, and I think it’s extremely important as we grow that we keep that alignment and discussions with the customer very close to what we’re trying to build.

Kirat Kharode: Those six pain points that we’ve encountered are a lack of accountability on who owns the timeshare. So, in a health system, there’s multiple different angles by which a timeshare becomes active. For example, business development may bring the doctor in. They court the doctor for a couple of years, then they hand off the arrangement to maybe a practice administrator who has a space that’s there for employee doctors. The actual leasing goes to the accounts receivable department and finance who’s tracking payments.

Kirat Kharode: There’s all these different hands kind of involved in that process, and when there’s a breakdown, there’s really few people that are accountable in terms of who’s actually responsible for that. So, that’s the first one.

Kirat Kharode: That triggers things like payment lapses, which is the second issue that we’ve heard quite a bit. So, physician either forgets to pay or now they’ve been there for a year, and Dr. Jones has decided that it’s time that he stopped paying because he’s doing a lot for the hospital, and as an administrator I’ve heard that quite a bit as well.

Kirat Kharode: The third is the lack of communication that exists between tenants and the physicians who are valuable parts of this ecosystem, and hospitals often look at medical offices as being an incubator to build a broader relationship with the doctor within the inpatient facility. And yet the lack of communication about the space issues that exist themselves, if something’s broken or not fixed, that could also ruin strategically the relationship with the doctor.

Kirat Kharode: The fourth one that we’ve heard quite a bit is a space creep. So, physician has space, and they decide they’re paying for two exam rooms. They decide that, yeah, take a third because nobody’s there. That’s obviously not okay either. We’ve also encountered a lot of organizational history gap that exists when there’s mergers and acquisitions and people who have an Excel spreadsheet somewhere are no longer a part of the organization, and now many hospitals are combining it to one and centralizing their real estate function and have no way to sort of track what’s going on in these new facilities that they’ve acquired.

Kirat Kharode: And then finally, it’s really the core issue of the front end piece, which is underutilized medical spaces not being optimized by the hospital. And often, employed medical groups that are affiliated with hospitals either through a captive PC or another arrangement often have specialists that they have out in the communities and they’re willing to take a loss on those employed specialists, but a big part of that overhead is where their offices are located. And when a physician is out during surgery or they’re rounding at the hospital, in days when those offices are not used, those lack of optimization creates overhead challenges for the medical group.

Andrew Dick: So, I’m hearing … You hit on a number of points that I’m very familiar with. One, the compliance issue but also the timeshare arrangements historically haven’t gotten the attention they deserve. The whole health system administrators will say, “Yeah, a couple of hundred dollars a month even if we don’t collect or we mess this up. It’s not a big deal.” When, in reality, is a very big deal.

Andrew Dick: And then, you’ve also talked about efficiency of timeshare spaces. So historically if a hospital has some timeshare space, you’re right, maybe they rent out a couple blocks of time throughout the month, and the rest it’s just sitting idle, right? Not generating any revenue, not helping further the health system’s mission, and that’s what you’re hitting on, right?

Kirat Kharode: Absolutely.

Andrew Dick: You’re hoping to make that space more efficient. And how do you do that?

Kirat Kharode: Right. So we have three basic products within our technology that we’re building right now. Healtor market is the front end piece of it and relates to onboarding. Healtor recon is our compliance engine. And the third piece is Healtor MD, and that’s more of our management function. Each of those plays a different role.

Kirat Kharode: The front end marketplace is like an Airbnb for medical offices if you will. And, as we’re building this … We’ve started … I wanted to point out we’ve started … As a non technology person, I’ve now surrounded myself with a lot of resources of really experienced technical people. But my goal from the beginning was really to be very basic and prove out the concept and really figure out our product market fit in terms of what we’re doing so that we’re not spending a whole lot of money and resources to build the technology that’s fancy and really doesn’t serve anybody’s purpose.

Kirat Kharode: So, what we’ve done is really create a basic front end splash website right now to prove out the concept around Healtor market. Right now we have 70 customers. We’ve already started generating revenue, which is really exciting. The Healtor … The recon piece of it, which is a compliance engine is where we’re working with health systems to figure out ways to take their best practices from across the country, and the health systems that we’re working with all have these pain points and so they’re really willing to work together in terms of building a product and improving our product from what I believe is the ideal to really what the customer believes is crucial in terms of making the compliance product effective.

Kirat Kharode: And the third piece of it, Healtor MD, is going to be further down in our technical development but really deals with how are we going to manage that space creep issue effectively and use technologies appropriately, whether it be machine learning, whether it be some sort of distributed ledger, a combination of those including IOT, things that we can use to basically take our technology and make it easier to manage the utilization of these spaces and do it in a compliant manner. So, those are the three basic areas that we’re, we’re working on.

Andrew Dick: So the marketplace idea is pretty interesting. So Airbnb gets a lot of attention, but this product will allow a physician, for example, to potentially find unused or available timeshare space. Is that the right way to look at it?

Kirat Kharode: Absolutely. So, available timeshare spaces and areas where they’re looking. We also give the control … I mean a lot of the control in that process is obviously with the physician that has a space, the landlord, so to speak. So, the physician landlord really has to make the decision about who they want to welcome into the space.

Kirat Kharode: And so, in these conversations that we’re having, and it depends on area. There’s some specialties that really aren’t welcome from a competitive perspective or from a perception perspective, and we honor those requests as we’re developing our protocol to make those arrangements.

Kirat Kharode: So, it’s not completely … It’s not exactly like Airbnb in that there are certain restrictions of who’s coming into the space that we allow, but we are creating that mechanisms to be able to bring physicians into communities and into spaces and blocks of times in these timesharing increments that they’re looking to come into.

Andrew Dick: What would that look like? You log … You get online, and you’d log into Healtor, and depending on what market you’re in, at some point, I know you’re company is relatively new, but as you grow out in certain areas around the country, someone could either list I guess or find available timeshare space. Is that right?

Kirat Kharode: Yeah. Ultimately that’s what’s going to happen. I suspect that this summer we’re going to be doing some private launches in particular regions of the country that we’ve already realized are pretty hot areas from the 70 customers that have signed up so far. And those are areas where we’re really going to fine tune the product itself and make sure that it’s delivering and the quality’s high before we kind of roll it out to five or six markets and so forth and so on.

Kirat Kharode: So, we’re really excited about some of the partnerships that we’re creating, some of the things that we’ll be announcing very soon about alignments we’ve made with really prominent members of the real estate community. Really a who’s who of BOMA [inaudible 00:18:25] if you will in terms of who’s helping us and is already on our board.

Kirat Kharode: And so we are envisioning a scenario where it’s an alignment both with brokers, with physician liaisons and hospital executives as well as the general marketing to the community of physicians at large that are looking for spaces and have spaces.

Andrew Dick: So let’s talk about the second component, the recon component, compliance. It’s a big deal in the timeshare world. What will the Healtor platform offer a healthcare provider in terms of compliance?

Kirat Kharode: Well, it’s really the management and the ability to account for, on a monthly basis, the transactions that are happening and any changes that might create a trigger. For example, if a physician stops paying in the middle of their lease, that sort of compliance alert and that chain of command at a very basic level will be a function that we’ll have a through the Healtor recon platform, but the compliance engine is being built to track those payments on a monthly basis.

Kirat Kharode: We’re also looking forward to building APIs with different data sources around the fair market value specifically so that if there are changes, so that these quote-unquote … Some of these in a discussion I was having the other day, there’s a physician who had a space, had a lease that was an evergreen for 20 year, and now they’re paying significantly and have for many years been paying significantly under fair market value. With Healtor recon that won’t be possible because we’d have caught that at the beginning. And I think that’s an important piece to highlight because in my experience and the experiences that I’ve heard from hospital executives, it’s one thing if you approach a physician who hasn’t paid a month in and say, “Hey doc, you’ve forgotten to pay. Something must’ve gone wrong with the setup.”

Kirat Kharode: It’s a very different conversation 18 months later when the person hasn’t been paid, and now they’ve incurred thousands of dollars in fees and penalties that they now owe the hospital, and they’ve also been bringing a ton of admissions, and they’re now the rock star of the hospital. And so, that immediate communication component is going to be a big part of recon as well.

Andrew Dick: Yeah. Because those noncompliant arrangements can really create tough conversations between providers and jeopardize those relationships.

Kirat Kharode: Right. And it’s also who … Going back to the point earlier about accountability. If there’s a clerk in finance who realizes that there’s been a non-payment, they might try to escalate it through the channels that they have, but they get buried with work. They’re trying to reach out to a business development person who, really what they’ve been spending two years trying to recruit those physicians. Do they really want to be shaking that person down now for a lack of payment along with kind of just the culture that often is created. As you pointed out earlier about, is $200 is really a big deal here and there? If you really think about the downstream revenue, which even though many hospitals don’t want to talk about really, that’s really what it’s all about is the downstream revenue that these physicians are bringing to the hospital, which is millions of dollars in some cases, and are they really going to irritate the physician about $200 here or there? It’s something that’s difficult to have when you don’t address it right away and proactively.

Andrew Dick: So, the way I envision this platform working almost like a … Not only do you have this Airbnb type component where you can shop for space or list space, you’ve got this compliance component that helps you manage the space. So, almost like a property management type platform. Is that a way to think about it?

Kirat Kharode: Yeah. In some ways it’s a bit of a property management platform, but really it addresses this particular pain point around timeshares and these arrangements that exist. So, we’re not trying to do everything to everyone. We’re really trying to address this … Property management, as you know Andrew, is such a wide span, a spectrum of things that get covered. And what we’re really trying to do is provide a specific value set around this pain point that everybody seems to have. And everybody seems to hate medical office timeshares, but the phrase that keeps coming up to me is necessary evil. Medical office timeshares are something that every hospital needs. Ever hospital wants to have, but it’s just a pain to manage. And that’s really the specific property management issue that we’re trying to tackle.

Andrew Dick: So, the third benefit, which sounds like will be developed maybe a little bit later on, this Healtor MD, that will help you manage the space. Give us a little bit more information about what that might do when you build that out.

Kirat Kharode: Yeah. I think that with Healtor MD, there certainly is going to be an integration beyond just the online technology but into more of a hardware integration. So for example, the monitoring of the spaces itself, and for the folks that really are … The health systems that really are on the Uber end of being compliant. these are the folks that we’re talking to about, what can we do about space to (a), from the get-go, create a 3D visual of the space, of what it looks like, what it looks like today, what’s in there, having a potentially [inaudible 00:23:54] some of the equipment that’s in there, looking at the activation and the doors as a key component of who’s entering the space, when they entered, how long they were there and tracking that utilization.

Kirat Kharode: And it also ultimately, if things go according to plan, will also be an automatic indicator that would prompt us to alert the medical office owner that they have under utilized space. If they have blocks and weeks and weeks ago by without a room or two rooms or a part of the space or all the space not being utilized on a particular day of the week. And so then it basically will fuel the Healtor market and get us more activity on that end too.

Kirat Kharode: So, Healtor MD is really going to be one of the things that we will build out over time once we really have the first two components built out. But I’m really excited about it. I think there’s a lot of the application that will come, and depending on the needs of our customers, we’ll adapt and we’ll speed up the development timeline to address those needs sooner rather than later if we have to.

Andrew Dick: Well this is fascinating. I think there is definitely a need for a product like this. Talk about you founded the company not so long ago have made quite a bit of progress in a short amount of time. Talk about that from the point when you founded the company. How long ago was that?

Kirat Kharode: Yeah, so we started the company in January of this year, so not too long ago. I’ve obviously been thinking about it a lot longer than that, but we became a C-Corp in January and started at that point, but since that time, we have, even though we’re a small team, a set of developers, there’s a few people that are helping me out. We have annual goals, and we have a quarterly goals that we track weekly in terms of the progress. And in the first six months, one of the things I really wanted to do is make relationships with the industry. There’s a lot of stuff, even having done this for almost 20 years, there’s a lot of things that I don’t know, and I’m learning things every day. And so really getting closer to the customers, whether they be the physicians, the hospital executives, the property management companies, the brokers, and really understanding what these pain points were from a macro perspective so that I’m that making assumptions about what the product should be or should ultimately look like.

Kirat Kharode:  And so, I’ve really been thrilled. I’ve met a ton of people. I’ve had hundreds of conversations about medical office timeshares. I joke around. I’m like the Bubba Gump shrimp guy for medical office timeshares because I’m always going around talking about medical office timeshares. But it’s really been fascinating, and everyone has a different perspective, and everyone … The common sentiment is that these are pain to deal with, but if we have a solution that comes in and can fix this, it’d be extremely valuable to a lot of people.

Kirat Kharode: And one of the very interesting things … I was so focused on the United States, and last week I was contacted by one person in Canada and one person from Australia. And so, as we are looking at our addressable market, it’s a lot larger than I initially expected this would be.

Kirat Kharode: So, I think there’s a lot of applications that we are probably not even thinking about when we look at the global market just yet. But we have to walk before we can run, and that’s exactly what we’re doing right now.

Kirat Kharode: So, the first six months have been really busy and active, and we value the key KPIs around revenue as being our North star in terms of how we’re developing the company and what metrics we’re looking at to grow. And so, we wanted to get to having revenue, ideally even before the technology was completely rolled out, which I’m thrilled that we’ve done. The traction from having customers join as quickly as they’ve been joining and the health system’s interests and just the tremendous amount of interest and activity as will be reflected in our announcement of our advisory board very soon, which really reflects a whole a spectrum of thought leaders in the healthcare real estate world.

Andrew Dick: So as we wrap up here, talk a little bit about your vision over the next five years and what does Healtor look like five years from now?

Kirat Kharode: Yeah, I think five years from now, five to seven years from now, there’s going to be … Ideally it’ll be …. In the medical office world, It’ll be a household name, if you will. Everyone will know that this is the gold standard to turn to as it relates to medical office marketplace and compliance.

Kirat Kharode: Marketplaces aren’t easy to develop. There’s just so many different factors in there, and there’s a lot of things that could trip up our success, but I think if we stay grounded and we really stay close to what the customers need and really keep fine tuning the product market fit, then I think that we’ll get to a place, in five years, where it’s very possible that we are, not only in medical office a household name for medical offices in the United States, but around the world.

Andrew Dick: How can our listeners find you and Healtor if they’re interested in the product?

Kirat Kharode: Sure. I think the easiest way is probably just email me. My email is Kirat, kirat@healtor.net. Please feel free to email me and share your thoughts, or any questions I can answer, I’m happy to do that.

Andrew Dick: And so if providers want to try the product out or be involved developing the product, they can just reach out to you.

Kirat Kharode: Absolutely, yep. Right now we have a very basic splash website right now where we’re lead-generating through a contact form, and I’m having discussions even through our chat rooms sometimes where I’ll take the helm and be answering chat questions from folks who interact through our website, and the questions range in spectrum from compliance issues to what they’re actually looking for in terms of space.

Kirat Kharode: And so, if they want to reach out to me they can certainly reach out through our website, healtor.net. We have a contact form on there. Again, it’s a very basic site, but it’s up and running, and my email would be the best way.

Andrew Dick: Terrific.

Andrew Dick: Kirat, thanks so much for being on the podcast. I want to thank our audience for listening as well. On your Apple or Android device, please subscribe to the podcast and leave feedback for us. We also publish a newsletter called the Healthcare Real Estate Advisor. To be added to the list, please email me, Andrew Dick at adick@hallrender.com.

 

Leveraging Opportunity Zones and Other Health Care Financing Tools with Jerimi Ullom and Joel Swider (Webinar)

September 21, 2019 Joel Swider Health Care Real Estate Advisor 29:37 Comments Off on Leveraging Opportunity Zones and Other Health Care Financing Tools with Jerimi Ullom and Joel Swider (Webinar)

Leveraging Opportunity Zones and Other Health Care Financing Tools with Jerimi Ullom and Joel Swider (Webinar)

Do you have a hospital development project that you would love to get done but just can’t seem to find the money? Wondering if your health system can benefit from the Opportunity Zones program? Join a health care finance attorney and a health care real estate attorney to hear about some unique and innovative ways to get your project funded.

.

Podcast Participants

Joel Swider

Attorney with Hall Render

Jerimi Ullom

Attorney with Hall Render

Joel Swider: Welcome to the Health Care Real Estate Advisor Podcast. I’m Joel Swider, a healthcare real estate attorney with Hall Render, and for today’s episode we’re going to listen in on a webinar put on by my colleague Jerimi Ullom and I, which aired in September 2019, on Opportunity Zones and other healthcare financing tools.

Jerimi Ullom:   Thanks Joel, we want to first of all today thank the Indiana, Michigan and Ohio Hospital Associations for having us, and we look forward to talking with everyone.

Joel Swider:     So there’s been a lot of buzz about so-called qualified Opportunity Zones, but many of the hospitals that we work with haven’t focused a lot of attention on how they can benefit from this program, at least not to date. So in today’s webinar we’re going to answer at a high level three questions that frequently arise in the healthcare context when it comes to Opportunity Zones and the financing of hospital projects more generally.

Joel Swider:     First we’ll look at what are opportunities zones, how do they work, and how can a both for-profit and nonprofit providers benefit? Second I think we’re going to find that the Opportunity Zone program has a relatively narrow fact set where it can be best utilized as a financing tool. So we’re also going to look at what other tools and incentives are available to hospitals to fund new development projects and to drive complimentary development within their markets.

Joel Swider:     Finally, we’ll look at some concrete action items surrounding the next steps for hospitals who are looking at how to get their projects off the ground. Today’s session is designed as kind of a lunch and learn. We should go about 30 minutes, but feel free to type in any questions in the chat box or email us offline we’re happy to make ourselves available to answer any more in the leads questions that you may have.

Joel Swider:     So what are Opportunity Zones? Opportunity Zones were conceived by the Tax Cuts and Jobs Act of 2017 the TCJA. They were designed as a way to spur investment in distressed communities by providing tax incentives for taxpayers who invest capital gains in certain geographic regions. As authorized under the TCJA, state governors were the ones who originally designated these zones, over 8,700 of them and the IRS then later approved those. They’re in all 50 states, the District of Columbia as well as five US territories, and this slide shows just an overview of where the Opportunity Zones can be found.

Joel Swider:     At least this is a view of the continental US and there is an official government map, which we have a link to that on our website where you can zoom in, there’s third party maps as well. You can zoom in and find the area where your hospital or health system is located. And you can tell just from looking at this map at a high level that there are a lot of zones located in and around large cities, but they’re also in a lot of rural areas, especially if you look out West. So because it’s up to state governors to designate these zones, the state had some latitude as to where they’re located. So you might be interested to find whether you’re in one or near one.

Joel Swider:     So how do Opportunity Zones work? So I’m going to go through this slide and the next at kind of a high level, and I’ve used some numbers in here just as an example, the dates as well, just as an example, so that you can see how this might work in practice. But I’ll go through this just briefly so that you can see whether or not you have a situation that might actually fit into the Opportunity Zone program or not.

Joel Swider:     So to start with, you’ll have the sale of tangible property and a gain that’s been realized from that sale. So that’s work I’m calling that investment number one because that’s from some old investment. Now some hospitals buy and sell property more frequently than others. And we’ll get into how you might partner with a developer or other capital partner who might have more gains that they can deploy. So yeah, these dates here other than the timeframes are just for example purposes. But one date that’s important is within 180 days of the sale of that initial property, you must invest that gain into a qualified Opportunity Fund. So that could be all or a portion of that original gain. And I’m calling that investment number two.

Joel Swider:     So that’s a separate investment and you’ll see in a minute that it’s treated slightly differently. Within two and a half years of that initial investment, investment number two, the Opportunity Fund has to purchase Opportunity Zone property and that includes real estate businesses, business assets, etc. And they must improve it by at least the value of the purchase price. So this fund is essentially a vehicle, an investment vehicle, it could be a partnership, a multi-member LLC tax as a partnership or it could be a corporation. But importantly it has to invest at least 90% of its holdings in one or more Opportunity Zones.

Joel Swider:     So now we’ve got the gains from the sale of our initial property, invested it into the Opportunity Fund, we’ve put that money to work and then after five years in the fund, you will get a 10% increase in basis on the initial gain. So going back to that initial amount that you invested from the first gain, you will get a basis step up of 10% essentially that amount is the amount the taxable gain goes down by 10%. Then if you hold that investment for another two years, in year seven you will get an additional 5% increase in basis or another step up on that gain from the initial investment, investment number one.

Joel Swider:     Again, there’s no gain recognized either in year five or year seven, you’re still continuing to defer those gains. Then in 12.31.2026 that is a hard date. There is a mandatory deferred gain recognition on that original capital gain from investment number one. So that and so because of the timeframes here, I’ll mention, if you want to get the full 15% basis step up on that deferred gain, you need to really invest by 12.31.2019. Now you can still invest later and qualify for the 10% basis step up if you hold it for five years. But obviously you could no longer hold it for seven years because that 12.31.2026 drop dead date.

Joel Swider:     Then as to investment two, so going back to our Opportunity Zone investment, if you hold that investment for 10 years total, then any gain from that sale of a second investment is completely erased. You get a basis step up to fair market value. So as you’ll see, I think if you can fit into it, it’s a great program, and as I kind of talked about on the previous slides you can get temporary deferral of gains, you get a step up in basis as to those gains, and you can get a permanent exclusion on taxable gains on the second investment. So it can be a good program if you qualify.

Joel Swider:     Now what happens if you’re tax exempt, you say, “Look, I, don’t have any taxable gains. I am charitable, I’m nonprofit and tax exempt.” Well how can this work for you? And so I think there’s still are some ways that you could leverage the Opportunity Zone program, one of which is, especially for hospitals that are located in the Opportunity Zone or near the border. And there’s some specific rules that the IRS put out earlier this year with respect to those types of properties that span, that are partially in the zone, partially not, which we can again talk about kind of offline if you have questions about that.

Joel Swider:     But if you’re on or near the zone, you could partner with a capital or a development partner who is able to take advantage of the tax benefits and that could result in a lower cost of capital to you as a provider for the real estate or for other development projects.

Joel Swider:     Another way that we’ve seen this work is that hospitals can attract for-profit investors to improve social determinants of health in the community. So we’ve seen a lot of focus in recent years with our clients and other hospitals where they’re looking at non traditional healthcare investments it’s really within their charitable purpose, but what they’re doing is they’re investing in affordable housing, they’re putting grocery stores into sort of a food desert area, and they’re making nontraditional healthcare investments that really help improve the population health in the community as a whole. And by so doing achieve their mission. So this is another way, and we’ll get to an example of this in just a second of how you might partner with a for-profit to provide some of those services.

Joel Swider:     Another thing to think about when it comes to a tax exempt provider is that a rising tide floats all boats. So what kinds of investments could you make that are within your charitable purpose within that community where the longterm value might actually end up not as a direct result but indirectly helping others who would be willing to invest in that community. So for example, a hospital could pledge community improvements in order to attract for-profit investors to the community, thereby improving social determinants and population health more broadly.

Joel Swider:     So just we have three quick examples here kind of straightening what this can look like and I’ve got links to the … If you want to find out more about each of these, I’ve not used the provider’s names but you can look them up. There’s an academic medical center on the East Coast, which collaborated with a for-profit pharmacy operator to open a new pharmacy and wellness store near the hospital’s campus.

Joel Swider:     The store offers a variety of health services, daily living products and health food options, and it also provides a health clinic that’s staffed by nurse practitioners. So this is again in coordination with the hospital. And so this actually came out a couple of years before the Opportunity Zone program, but when we were looking at this we thought, wow, could we recreate this today and take advantage of the Opportunity Zone program? I think you certainly could.

Joel Swider:     And so for this example the for-profit pharmacy operator could defer, reduce their capital gains by investing in the zone and the academic medical center could attract additional capital and development partners, which they have that are able to utilize the program. So again, kind of a win-win for both parties.

Joel Swider:     Another example here, this is in the Midwest, a large nonprofit Midwest health system partnered with a community development financial institution to help mobilize loan and grant funding to revitalize under invested communities this was in greater [inaudible 00:11:53] area. The goals of that partnership included supporting and trusting social determinants of health, job training opportunities, employment skills, education and food security. And I’ve got a picture here of a grocery store that they have built in a food desert area.

Joel Swider:     The amount of this investment was about $45 million. And again here we see partnering with investors and asset managers that are looking who have capital gains exposure, they’re looking for social impact investment opportunities and both the investors in the health system can benefit in these types of arrangements.

Joel Swider:     So one other example that we’re aware of is a large healthcare organization with a national footprint it’s a nonprofit integrated health system, which created an investment fund that committed up to $200 million to target housing stability, homelessness, and other community needs. So they’re approaching it again from a little bit different angle with the goal of preventing displacement of homelessness or homelessness of low to middle income households in developing communities.

Joel Swider:     They’re also using it to promote access to supportive housing and helping to make homes more affordable, they’re looking at environmental impact as well. And the tax savings here again presents opportunities for those for-profit investors and it also improves the quality of housing and improves the overall population health in the community, which is important to the hospital.

Joel Swider:     So I guess as we’ve seen in this first portion of the presentation, there really can be substantial savings and investing in Opportunity Zones if you’re either a tax payer like a for-profit health system, but what about if you don’t have, you can’t partner, the timing is wrong, what other options exist out there particularly for nonprofit providers to take advantage of those, Jerimi?

Jerimi Ullom:   Sure. Thanks Joel. Appreciate it. Yeah, so beyond Opportunity Zones, I mean we’ve dealt for years with various economic development incentives and various models to get projects completed and get projects financed. So we thought it appropriate to maybe look at a few of those, this is not an exhaustive survey, but we’ll highlight a few things that we see in the marketplace, some of which had been around a long time and some of which are relatively new models.

Jerimi Ullom:   And the first thought is that there’s really been a change, I think in the last decade when folks think of healthcare as economic development, the conventional wisdom, and I think if you go back, you can find white papers and journal articles and the like was that healthcare development would simply follow population. And so unlike manufacturing or technology or these other industries, there really was no reason to incentivize healthcare development in a given community. The healthcare providers would simply follow behind the rooftops and want to locate near them.

Jerimi Ullom:   I think we’ve seen a change in that because what we’ve seen is that healthcare can be a catalyst to an entire community. It can almost function like an anchor tenant does for a retail area, if you will. Oftentimes healthcare providers are the first development in a new area. We’ve also seen an increase in kind of competition for healthcare facilities for decades and decades, if a new manufacturing plant was being built, you would have multiple states vying for it to come to their state. And healthcare was seen as not really in the same vein. We weren’t exactly competing Wisconsin versus Alabama to see where we build our new hospital.

Jerimi Ullom:   But at the micro level location is a bit fungible whether we are in suburb A or suburb B when they buddy each other can have a big impact on the project as a whole so we’ll look at that. And then obviously I think one thing that folks have always agreed on is that having quality providers in your community is important in attracting other economic development. Much like having quality education in a community. You want to make your city, your town a place where folks want to live.

Jerimi Ullom:   And before we leave this slide, I think one other objection that has been proffered throughout the years particularly with respect to nonprofit providers is well these guys don’t pay property tax. Why would we ever want to provide any incentives or whatnot to attract them to our community? Part of that came out of this notion that property taxes were generally the tool available to local governments to provide economic development incentives. And part of it came from this notion of viewing it, I think a little too narrowly, so we’ll get to that.

Jerimi Ullom:   But if we look first if we have a situation where maybe a healthcare development is really the catalyst in an area or an anchor tenant, if you will this slide, this is a live project, it’s under construction right now, but we’ve been through several variations of a very similar project. And in this instance what happened is the health system acquired roughly 70 acres, right? They were going to develop 10 or 12 of the acres represented by the blue circle, but they were going to put in the infrastructure and the utilities and the other things necessary for that entire area to develop. They wanted to play a role on the development of the full 70 acres. They wanted to control maybe how it was developed and what those ancillary uses were.

Jerimi Ullom:   So the healthcare system was kind of the initial catalyst, they were often responsible for putting in a lot of the infrastructure but that would lead to additional development. And what we’ve been able to successfully do in many of these instances is negotiate incentives with the local county, local city, whereby the TIF revenue, the tax increment revenue, which I’ll explain shortly generated by these future additional uses, would help offset those initial investments by the healthcare system.

Jerimi Ullom:   At a micro level location is fungible. This is a map I pulled up of the St. Louis, Missouri metropolitan area, not because we have a particular project here, but because I knew St. Louis is comprised of a gazillion municipalities. And if you look at this map, you see all of these small cities and towns that make up the metro area, if you’re a healthcare system looking to locate in a metropolitan area like this whether you locate in one hamlet or village or suburb or the other might not be that critical. We’ve had lots of projects where our clients have looked at multiple sites all within a very close proximity, but all potentially within a different jurisdiction, some might be in an unincorporated area of the county, others might be in the incorporated limits of the city or the next suburb or city over.

Jerimi Ullom:   So oftentimes without being overly harsh or playing hardball with all these communities, but you may well find a location or a community that is much more welcoming and willing to provide a lot more in the way of incentives because they want your project, they want it to be the catalyst in their community. Healthcare projects often come with a number of high wage jobs as states and communities around the country I think there’s a general shift from property tax reliance to income tax. I think that the location of the jobs rather than being on the tax rolls becomes much, much more important.

Joel Swider:     And Jerimi, before you go on, I think one thing I’d add there too, I think I mentioned with respect to Opportunity Zones that a lot of times a hospital is looking to expand its existing footprint, but especially if you’re going into new markets, like you said-

Jerimi Ullom:   sure.

Joel Swider:     It may not matter if it’s a couple blocks away from this side or the other and one may be in a zone one not.

Jerimi Ullom:   And we’ve had systems we’re going to build an orthopedic hospital, we’re going to build an ancillary center, or an ambulatory surgery center, and it needs to be on the Northwest side of the city, right? That could be in any one of two or three jurisdictions. So I mentioned TIF before, real briefly we’ll overview because this is one particularly around the Midwest that’s used very, very frequently. TIF stands for Tax Increment Financing, and it is as it sounds, a structure where we capture the incremental taxes generated by a development or a project and we can capture those funds and use them to help support that project or that development.

Jerimi Ullom:   Oftentimes the current property tax value is kind of locked in as the base assessed value and any amounts beyond that become increment. It’s a little easier to think about when you view it in graphically here, if we go from left to right along the time continuum and then from South to North is the appraised value. You can see when we create the TIF area, we set the baseline of property values. The taxes associated with that baseline continue to flow where they were flowing before to the schools, to the libraries, to the city, to the county, to all of the taxing districts.

Jerimi Ullom:   But the lighter blue triangle over time, that’s the tax increment, because what we’ve done at creation is we have built a new project, or we’ve attracted additional investment to the area that’s driven up the assessed value and therefore is generating more property taxes. That increment is captured and that increment can be used to finance or to pay for portions of the development in the first instance.

Jerimi Ullom:   So if we go back to couple slides that go to the map where the hospital is the anchor tenant that hospital is investing in the infrastructure in the area, but they intend to recoup that investment from future tax increment over time. So if they spend $5 million putting in roads and drainage and utilities, the arrangement with the town will provide that the future tax increment generated in the area will come back to the hospital as a way to recoup that investment.

Jerimi Ullom:   And then of course to the far right once that TIF area ends, determined by state law, but typically 20, 25 years in most states, then obviously all of that increased value is just in the general tax base. So the big win for the city is this is increment we wouldn’t otherwise have, so we’re not giving up any of our base and at some point in time we’re going to have the value of all of it after this TIF area has run its course.

Jerimi Ullom:   Again graphically kind of how it works in practice, you could see where the new development if you will in the graphic generates revenue that can be spent in the area. Most state laws restrict how that money can be spent, it has to be spent either in or connected to or in some states on projects that benefit the area, the city can’t simply capture TIF revenue and go off and do something wholly unrelated with it.

Jerimi Ullom:   This map just gives you a sense for how widespread the use of TIF financing and tax increment as an incentive is. If you look particularly we’ve got Indiana, Ohio, and Michigan associations on the line, and you guys are squarely in the upper echelon of TIF usage. We’re resident in Indianapolis I know there are literally thousands of TIF districts in the state of Indiana, and you can see kind of around the Midwest is a home to it. California, Texas also show up as being pretty significant users.

Jerimi Ullom:  And the overview here is that there’s been a shift over the last decade of healthcare from just something that follows population to really being an economic driver. And if you think about the modern healthcare campus, you can see that readily, all the ancillary for-profit development, all the hotels, longterm care, medical office buildings, et cetera, that are on the tax rolls that generate additional jobs that bring additional people to the area. That economic development story is usually a pretty easy one to put together.

Jerimi Ullom:  Two more thoughts here. Another phrase you might hear a lot about when you’re looking at projects and project finance and economic development is P3, public private partnerships. I say here, it could be P3, it could be four, five, six, seven. There’s no magic to P3. Okay? I hate to burst all the consultants bubble, but there’s no magic around this phrase.

Jerimi Ullom:  All a P3 project is, is multiple parties coming together to get something done. And typically those come from the public space in terms of government, you might have private for-profit, nonprofit, you might have all the above. And each of them often have different tools they can bring. They have different access to capital, you might have a city that owned some land that they want to contribute to a project. And so, a P3 project is really nothing more than bringing together a group and seeing what each of them can offer to the project, what risks they’re willing to take in the project to collaborate and get the thing done. I wish it were sexier than that, but that is really what we’re talking about in that arena.

Jerimi Ullom:  This is an example of one that we’ve worked on that is still in the planning stages. Lots of boxes, lots of lines. This project was out in the western United States, it involved a healthcare system. It involved a new nonprofit that was being created. It involved the local community college. It involved the local city. And it also involved a private developer, and then subsequently a private manager. And so all of them were coming together. The health system would brand the project, it would be built on its campus. The new nonprofit was going to serve as the owner of the project. They could finance that project with tax exempt debt. They would likely get a property tax exemption as a nonprofit owner. The private developer was obviously going to build it and then they were going to manage the property on an ongoing basis. The host city was going to use the project in part particularly for their first responders, their police and firefighters, and then the local community college, this was a wellness center, they wanted it to be available to their students.

Jerimi Ullom:  So we’re able to cobble together all of these parties in a P5, not a P3 project, to try to pull together a structure that worked and a credit that worked and an underlying cashflow that worked.

Joel Swider:    So Jerimi, when somebody talks about a P3 or P5, you’re saying that they could take really any number of forms in terms of-

Jerimi Ullom:  Yeah. And in fairness, the three refers to the three P words, not the number of parties. I just like to say that because oftentimes these projects involve many, many parties. If you think about them as multi ventures rather than joint ventures. My point is there’s nothing particularly sacred about P3, and I think people often hear that phrase and think there’s some magic to it and it’s really just about bringing the parties together and what can each add.

Jerimi Ullom:  Another model that we see gaining some traction is a nonprofit foundation, nonprofit real estate foundation models. Some of you may have seen this, may have heard about it recently. This is a model that’s been around for a while in higher education. We’ve seen it with student housing projects, with research facilities and the like, and we see that migrating to healthcare. We’re working on our first two projects with this model, both of them in the southern United States, and it’s really just an alternative to for-profit or developer or REIT ownership of a facility. So if you have facilities that maybe the health system doesn’t want to own, so they’re looking to maybe have a developer or a REIT or a for-profit entity own those projects and lease them back to the health system, this would be one potential alternative to that. You can almost view these entities as alternative landlords that are in the nonprofit space and maybe a little more aligned with the nonprofit mission of the healthcare providers.

Jerimi Ullom:  Very flexible, by and large willing to structure and finance and put the project together in any way the health system would like because of their nonprofit mission to try to serve the health system rather than a for-profit mission to try to enrich themselves. So this is one to keep an eye on. I’m sure we’ll be getting some more information out there. If you have interest in this model, my colleague Andrew Dick did a podcast with one of the players in this model recently and you can, I’m sure, find that by searching Hall Render Podcast, Hall Render Real Estate Podcast. And if all else fails, contact us and we’ll make sure you get it.

Jerimi Ullom:  And then, because I can’t resist boxes and lines, this was what one of those nonprofit real estate foundation deals look like. So, not simple, but can be a very, very good alternative to some of the for-profit players in the real estate development industry.

Jerimi Ullom:  And with that, Joel, we’ll see if we have any questions that have come in. I don’t believe we’ve seen any in the chat room, but if you have any beyond this, feel free to contact myself or Joel or really anyone at Hall Render.

Joel Swider:    Yeah. And special thanks again to the Indiana Hospital Association, Michigan Health and Hospital Association, and the Ohio Hospital Association for inviting us. And we hope to talk with you soon.

Joel Swider:    Remember that the views expressed on this podcast are those of the participants only and do not constitute legal advice.

 

Challenges and Opportunities in Health System Property Management with Lorie Damon

August 1, 2019 Joel Swider Health Care Real Estate Advisor 20:23 Comments Off on Challenges and Opportunities in Health System Property Management with Lorie Damon

Challenges and Opportunities in Health System Property Management with Lorie Damon

An interview with Lorie Damon that was recorded in Scottsdale, Arizona at the Health Care Real Estate Legal Summit sponsored by Hall Render. In this episode, Joel Swider interviews Lorie Damon, the Managing Director of Cushman & Wakefield’s Healthcare Advisory Practice. The Cushman & Wakefield Healthcare Advisory Practice provides healthcare organizations with strategic and transformational real estate services that directly affect positive business outcomes.

Podcast Participants

Joel Swider

Attorney with Hall Render

Lorie Damon

Managing Director, Cushman & Wakefield

Joel Swider: Hello and welcome to the Health Care Real Estate Advisor Podcast. I’m Joel Swider, an attorney with Hall Render, which is the largest healthcare-focused law firm in the country. Please remember that the views expressed in this podcast are those of the participants only and do not constitute legal advice. We’re in Scottsdale, Arizona today at Hall Render’s Health Care Real Estate Legal Summit, and I’m pleased to have with me Lorie Damon, the Managing Director of Cushman & Wakefield’s Healthcare Advisory Practice. We’re going to be talking today about trends in property management and some of the challenges and opportunities facing health providers in managing their real estate. Lorie, thanks for joining me.

Lorie Damon: Thank you. I’m pleased to be here.

Joel Swider: Lorie, before we dive into the property management, I wanted to get to know you a little bit and start with your background, who you are and how you came to be such an expert in the area of healthcare real estate services. You earned your bachelor’s degree from Hood College in English Literature, your PhD from Purdue, and you also taught a course at Harvard. How did you get into healthcare real estate?

Lorie Damon: Purely by accident. I am classically trained. I was trained to be an English professor, and I spent a number of years teaching. I ultimately decided that that was really not the career for me, and I came back to Washington D.C., which was my college home, and I found a job working in a trade association as the editor of their magazine. One of my colleagues there left shortly about a year after I had joined the firm, and she went to work at BOMA International, and a year later, she called me and said, “Hey, we have this job as our Director of Education.” “Would you be interested? You should interview.” We’re doing a lot of online learning, which I had done. I had piloted some online learning programs at Purdue, so I interviewed at BOMA, and I took the job, and I didn’t know a thing about real estate or healthcare real estate, except that I went to doctors in medical office buildings, but I had a really great … I had the best luck in that BOMA had a small Medical Office Buildings Conference that they asked me to be in charge of, and I am curious, so I had the good fortune of learning from some of the industry leaders by virtue of asking them to speak and contribute content to BOMA’s conference. I learned a lot from John Winer, who was then at Ernst & Young, and now is at Seavest, Todd Lillibridge was one of the first investors in medical office, and I used to talk with him every week to get a primmer on why somebody would buy a medical office, Gordon Soderlund, Danny Prosky, I mean, some of the luminaries in the industry and some of those who are really early, early to commit to this sector were, taught me the business. Then, out of that, in order to create our strategy for growing the conference, we really wanted to have the perspective of health systems, so I was always the person calling somebody and saying, “Oh, I’m sorry. I can’t pay you an honorarium, but would you be willing to come and speak at my conference?”, and so I really established good relationships and listened to those health systems and to real estate companies, trying to navigate their portfolios, right? I always say that one of the most important lessons that I learned is that the real estate industry wasn’t really built for healthcare, and has always, I think struggled in some ways to accommodate healthcare because healthcare doesn’t fit easily into some of our sort of standard boxes to classify their real estate or classify the occupants or classify the owners.

Joel Swider: That’s interesting to think of BOMA MOB Conference as a small conference, right? I mean, there’s what, thousands of people now, and you guys have really grown it?

Lorie Damon: There are 1,500 people there, but in my first BOMA Conference, there were about 100, and I was one of two women.

Joel Swider: Yeah, okay. Wow. Okay. Wow.

Lorie Damon: It was a great experience to watch that conference grow. Some of that was just the luck of market timing because the sector was starting to take off, and there was more interest in it, but I think it was also just very good fortune and having the right set of volunteers who were industry leaders and who were good at recognizing that the industry itself needed to come together and create a venue where we could talk about some of the more complicated matters of working in this sector, and where we could create a forum for health systems, and investor owners, and developers, and property management companies to sort of collaborate and establish a track record of best practices and common procedures, if you will. A lot of that was, really did not exist, and in its essence, that is the obligation of BOMA as the industry’s leading trade association, so it made sense. It gave us the perfect venue in which to do that. Then, one volunteer, we were so fortunate because one volunteer would recruit another. I can’t even tell you how many hours of time all of those folks that I mentioned not only spent teaching me, but just contributing to the industry so that we could have a body of knowledge about this particular sector.
Joel Swider: Sure. How long have you been with Cushman now?

Lorie Damon: I’m in my sixth year.

Joel Swider: Okay.

Lorie Damon: I will finish my sixth year in December.

Joel Swider: Okay. In my mind, I think about BOMA as, as you mentioned, it’s a trade association. You’re sharing best practices. For someone that wasn’t involved maybe on the operational side before you, before your role, and maybe I’m overgeneralizing, but how did you transition then from BOMA? You had a lot of knowledge and expertise to where you are now, where you’re really applying that for clients.

Lorie Damon: Yeah. I think one of the things that was very advantageous about my role at BOMA was that I really had a bird’s-eye view on the whole industry, right? I wasn’t in it. BOMA sits outside of it, but can see all of the things, all of the major real estate firms, regional firms, smaller firms. All of those folks are BOMA members, and there’s a cross-section of owners, and management companies, and brokerage houses who come together to comprise the membership at BOMA, and my job, I was just fortunate because my job was education and research, so I was at the crux of understanding, “What does the industry need, and then how should we teach them?” Well, in order to teach them, I had to learn it, and then I had to determine from all of the variety of sources of information about, well, for instance, “How do you create a compliant timeshare lease?” Well, it would be my job to distill seven different opinions into what looked like the most common set of practices, and then work with, in those days, I would call Bob Hicks and say, “Could you take a look at this, and make sure that we’re not communicating something that’s inappropriate or inaccurate?” All of that activity really helped me to understand how the industry worked, and like I said, how some of the methodologies for serving healthcare could be adapted to better suit the needs of that particular client base. Coming to Cushman, coming into the industry, I did have some reticence about that because I knew all of the firms, and I sort of knew, as they would say where all the bodies are buried, but I really felt like there was a great opportunity there too, to bring a body of knowledge that none of them would have by themselves to bear on a sector that was growing, and demanding, and evolving very quickly, and so I wanted to road test that theory.

Joel Swider: Sure. How has it gone?

Lorie Damon: Well, it’s been a great ride. Well, certainly, Cushman itself has undergone a number of changes. When I joined the firm, I joined one of the legacy firms, so we came together now as an entity. Cushman & Wakefield was a merger of Legacy Cushman & Wakefield, and then DTZ, and prior to that, Cassidy Turley, so we are about 10 times bigger than the company that I joined. We’re international now. We’re a publicly traded company, so we’ve seen a lot of changes on our side, but through the auspices of that, we now have an extraordinary array of services and capabilities that are really only possible with our size firm, and so that has been great because so much of that, as healthcare systems are looking at retail opportunities. I have colleagues who are retail experts. I can pick up the phone and call one of them. I have a colleague who’s an opportunity zone expert, and I can top that base of knowledge. I have a counterpart in London who we have some mutual investor clients. We also have a couple of health system operating clients in common, and so we can regularly compare notes across the pond and start to forge a truly global perspective on healthcare, which is exciting.

Joel Swider: Sounds like a powerful platform and a value add.

Lorie Damon: It is a powerful platform, for sure.

Joel Swider: Yeah. What are, I guess some of the benefits to people listening, benefits of outsourcing their property management through a platform like Cushman’s?

Lorie Damon: There are many benefits to outsourcing, but I always remind my teams and our clients that the best solution is the one that works best for you, and in health care, I just don’t believe that one size fits all. I think in any exercise where you’re looking for a partner, it’s really important to understand how you want, first of all, “What do you mean by property management? What needs to be managed? Let’s look at what those activities are. Which ones do you really want to do yourself for whatever reason?” You can do it better. You can do it more cost-effectively. For internal relationship purposes, you just need to retain that or to risk manage. You just need to retain it. “What do you want to do, and then what do you need a partner to do?”, and so I think one of the best arguments for working with an outsource service provider is that we house real estate expertise. We hire it, we train it, we groom it, we promote it. All we do is think about it, and we can invest in and deploy a variety of tools that might be prohibitively expensive, right? Lease administration is a very expensive technology, and we can work with a variety of platforms, so if that’s not a capability that you have, and you want it, and you can’t afford it, then that’s a good opportunity to look at having a service provider. If you don’t have a big enough facility management team to service a growing outpatient portfolio, if it’s just physically dispersed, and your FMs are based on your hospital campuses, it is not necessarily efficient to run those maintenance talks in a car from the campus out to a surgery center. In cases like that, I think it’s really important to be very transparent and collaborative upfront to understand, “What are the goals?” “What are we trying to accomplish, and then what are you able to accomplish? What do you want to accomplish yourself, and then what do you need help with?”, and then find, if we’re not the right partner, find a partner who’s equipped to address those needs and to do it in a manner that’s consistent with the health system’s philosophy for servicing its assets.

Joel Swider: What are some of the biggest challenges right now facing health systems in terms of managing their real estate? We’ll get to opportunities as well in a second, but what are some of those challenges?

Lorie Damon: Right. Well, I think one of the biggest challenges that I see and that I know a number of my panelists talked about today is just that their portfolios are growing, and they’re growing really rapidly, but their staffs are not necessarily keeping pace. The technologies that they use to manage those portfolios may not also be keeping pace, and so I think that’s really a challenge because in some cases, those portfolios have doubled or quadrupled in size, and it’s a lot. That can mean that you went from having 100 leases to 400 leases, and that’s difficult if you don’t have additional people to manage them. Healthcare leases get touched a lot, and so there’s sort of a constant administrative burden that comes with that growth. I think one of the other challenges in healthcare in general, but at this particular historical moment is just that there’s regulatory uncertainty and there’s also just an evolving set of regulations. I don’t mean just start getting a kickback, which has, in some ways, it feels like it’s always been with us, but I’m thinking about things like site-neutral payments, which dramatically impact how you pro forma a new site, and how you think about where to locate a new site. I think the push toward consumer-driven healthcare really changes the dynamics of site selection, and that’s a different set of skills and a different set of tools than what many health systems have historically used to figure out where they want their real estate. I think there’s just a lot of evolution in the sector now to adapt to a new regulatory environment and just a new consumer that requires a different set of real estate tools and skills than what we maybe had even 15 years ago when I started at BOMA and realized that that medical office was an asset class, and that people invested money in it.

Joel Swider: Yeah. What then are some of the opportunities on the flip side of that?

Lorie Damon: I think that some of the biggest opportunities are to really embrace the data. Embrace data is sort of my mantra. There’s a lot of data available that health systems have themselves about their patients and about future demand that doesn’t always make its way into real estate decision-making, but should and could create a much more foolproof strategy around where to put particular services or particular facilities. I think there’s also a lot of … We could all do a better job of managing the data around how our assets perform as assets, and really understanding the way any investor would want to know, right? “What are we generating and operating in common rent in this particular facility? How much of it is occupied and how much of it is vacant? Are there opportunities to lease out what we already have? Are we paying rent on vacant spaces?” I mean, really, really, really mining the data that’s available to us to create a much more optimal portfolio, I think is a great opportunity and can drive some pretty significant expense savings.

Joel Swider: Lorie, I want to switch gears a little bit. The Health Care Real Estate Legal Summit has just concluded, and you had a panel discussion on property management trends, and specifically for healthcare facilities. Could you give us maybe a little bit of a recap, or what did you view as kind of some of the nuggets of information that you kind of took away from that or that our listeners might take away from that?

Lorie Damon: Sure. I think one of the most important observations from our panel is just that there are no two systems operate that activity the same, so Nancy and Laura from Mercy Health, they manage all of their real estate internally with internal teams, including internal legal teams. Ashley, our other panelist from Atrium Health has a combination of internal teams, including an internal legal team and then external resources, including our property management partner and external counsel. I think that’s always good to know that there are just different models that evolve for that various needs. I think a couple of the other things that we heard is that there’s a real … Both of them echo that understanding control, having both control but flexibility and their portfolio, and structuring that into leases or purchase and sale agreements, or options for buybacks has become absolutely critical, and there are many reasons for that. First of all, there’s a lot of new owners, new investors who are seeking opportunities in this space, and there’s also just a lot of dynamism around what the health system might want to do and when they might want to do it, so one of their goals is to try and optimize that footprint and their control over it so that as their care delivery evolves, their portfolio can quickly adapt to those new changes. Then, of course, we close by talking a lot about retail strategies and how they’re approaching that. Mercy has a pretty significant urgent care strategy that they’ve launched in St. Louis. It’s very fast. In nine weeks, they can have them open and they have literally kind of [led 00:17:01] star city with options on every corner, which is great and very convenient for patients, but they’ve partnered to do that because they recognize that they didn’t have the internal expertise to execute as quickly as they needed to. I think we got a pretty good cross-section of some trends that other health systems everywhere else are grappling with.

Joel Swider: Yeah, and I guess that’s … Maybe I’ll close with that question. We heard from a couple of of well-respected health systems. I know you have the opportunity to work nationwide with a vast number of others. Is what we saw today representative or are there other trends or other approaches that you’ve seen that are kind of on the rise?

Lorie Damon: I think what we saw today is fairly representative. I think most health systems are really, are in some sort of growth mode, at least for their outpatient services. They are looking hard at taking care closer to the patients. I think that’s a fairly common refrain and a common strategy. What varies is the manner and form of that execution. On a lot of how you execute your outpatient strategy depends on who you are and where you are, and who your competition is. We’ve seen in some markets, urgent care is really popular sort of to the point of saturation, and other markets, we’re seeing experimentation with all new sorts of facilities like micro-hospitals, for instance are evolving, and we’re starting to see that. There are only 50 now. In two years, will there be 250? I don’t think we know. Freestanding EDs have come, and in some markets, they seem to be here to stay, and other markets, they seem to be really challenged. I think we’re definitely seeing an evolution of the types of outpatient facilities, and in the strategy for how you create an outpatient strategy to capture market share and to serve as a patient base. I think the other interesting evolution is this focus on the patient, and patient-centered care, and how that translates into the real estate footprint. I mean, Laura made a great point about how much effort Mercy is investing in creating branded facilities that look alike, so that the minute a patient steps into them, they know they’re in a Mercy facility. I definitely see that in all the markets that I visit. There is a much greater focus on making sure that hospitals have clear signage, that patients know where they’re receiving care and from whom.

Joel Swider: Well, Lorie Damon, thank you so much for being with us. It’s been a pleasure talking with you.

Lorie Damon: It’s a pleasure to be here. Thanks, Joel.

Joel Swider: Thanks. If you like what you heard on this podcast, please subscribe on iTunes, and if you’re interested in additional content from Hall Render, you can send me an email at jswider@hallrender.com subscribe to our monthly newsletter. Thanks again.

. 

Creating a Brokerage Firm Exclusively for Health Care Providers with Colin Carr

July 8, 2019 Andrew Dick Health Care Real Estate Advisor 29:20 Comments Off on Creating a Brokerage Firm Exclusively for Health Care Providers with Colin Carr

Creating a Brokerage Firm Exclusively for Health Care Providers with Colin Carr

An interview with Colin Carr from the Carr Healthcare Realty: In this episode, Andrew Dick interviews Colin Carr, the founder and CEO of Carr Healthcare Realty. Carr Healthcare Realty provides real estate brokerage services to health care providers.

Podcast Participants

Andrew Dick

Andrew Dick is a Shareholder with Hall Render in the Indianapolis office. His practice focuses on real estate transactions and environmental law. He advises hospitals and health care systems around the country on the planning, construction and development of new hospitals, medical office buildings, surgery centers and skilled nursing facilities.

Colin Carr

Colin Carr is the founder and Chief Executive Officer of CARR, and invests his time and expertise into the professional lives of his staff and agents, systems and processes, and ultimately the representation of the thousands of clients that CARR has the privilege to represent on an annual basis. Colin has been involved in commercial real estate since 2000 and has personally completed over 1,000 transactions. He is a licensed real estate broker in ten states. 

Andrew Dick: Hello and welcome to the Health Care Real Estate Advisor podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare focused law firm in the country. Please remember the views expressed in this podcast are those of the participants only, and do not constitute legal advice. Today, we will be talking with Colin Carr. He is the CEO and Founder of Carr Healthcare Realty. Carr Healthcare Realty is one of the largest brokerage firms dedicated to representing healthcare providers when leasing space or buying buildings for their business. Colin, before we jump into your business, talk a bit about yourself, where you’re from, and how you ended up where you’re at today?

Colin Carr: Absolutely. First of all, I appreciate having the chance to talk with you and excited to share. I grew up in northern Michigan, upper Lower Peninsula, a little resort town called Charlevoix. It’s in the Traverse City area. Lived there until I was 18. Moved to East Lansing when I was 18, and I jumped into the workforce right away. I was considering going to Michigan State or another university, and I got fascinated with business. Specifically, I got fascinated with real estate and I jumped right in. I started managing apartment complexes when I was 19 years old, and met a gentleman that owned about 13 different complexes in the Greater Lansing area. I started working for him, just apprenticing with him, and was fascinated with real estate. I worked for him for just under two years, and moved to Colorado when I was 20. Picked up managing apartments again in Colorado. I met another individual investor that I started doing a bunch of work for. Did that for several years, and then I got my broker’s license when I was 23. That’s what got me into actually brokering commercial transactions.

Andrew Dick: So, were you out on your own or were you at a national firm at that point?

Colin Carr: I started at a boutique firm when I first got my license. The firm that I worked with was just basically two other people. Their focus was exclusively retail. It was for large national retailers. Wendy’s, Walmart, Blockbuster, large, notable retail tenants. Worked for him for a couple of years, got a great experience, great opportunity to understand the market, but I had a desire soon into commercial real estate to also work on office and industrial transactions. I made a switch at that point to a large, national firm that had an office and industrial focus.

Andrew Dick: Okay. You work at the national firm for a while. What type of transaction are you working on there? Office, industrial, representing landlords and tenants?

Colin Carr: Yeah. At the first shop, it was almost exclusively retail, landlord and tenant side. During that time, I also started just getting really proactive with cold calling. As a young broker, you can wait for the business to come in, you can put your sign in front of a building and wait for the phone to ring, or you can go out there and try to find deals. I got proactive early on and I literally started cold calling every day. I got excited about doing office and industrial transactions, and so when I switched to the large firm, I had a focus on industrial primarily. That expanded into office, it eventually expanded into medical office as well. I got a taste of some land, some investment realty as well. Within a couple years, i had pretty good exposure within a fairly broad segment of real estate.

Andrew Dick: When we talked before, Colin, you told me a scenario where, when you were at the larger firm, you’re working with landlords and negotiating, for example, with I think it was a plastic surgeon. You quickly learned that when tenants aren’t represented, specifically physicians or other healthcare providers, they tend to get taken advantage of. Talk a bit about that scenario?

Colin Carr: Absolutely. When you first get involved in commercial real estate, at least for me, if a deal moved I would chase it. I would go after anything I possibly could. I was going after any aspect of commercial real estate. After about five or six years, I settled in to where I was more focused on my business model, and I got more focused on healthcare. At the time, I was doing a lot of landlord work for owners of medical office buildings, and also several as well, that own medical office buildings. I was also doing a lot of tenant-buyer work, as well. I found myself in a considerable number of transactions where I was working for the landlord, and the tenant did not have any representation, and I found out real quickly how exposed those tenants were. I also had times where I was the agent of the tenant and they wanted to go look at properties where I also represented the landlord, and I found myself involved in a conflict of interest in a number of transactions.

Colin Carr: To your point, I had one transaction specifically where I was working for, it was one of the largest medical REITs in the country. They had two really nice office buildings in one of Denver’s top suburbs. We were approaching a renewal for a plastic surgeon. The last couple deals we had done in the building were around the $24 per square foot range, and the asset manager out of Scottsdale asked me if the plastic surgeon had a broker. My response was no. He asked me if he knew the market. My response was no. Then he asked me, “Do you think the tenant’s willing to move?” My response was no. His response was, “Let’s go back to him at $29 a square foot.”  My thought was that seems like a pretty steep increase. I get the idea of making the most of every opportunity, but my thoughts were that was a little over the top. My next questions were, are we going to give him any free rent? “Did he ask for any?” No. “Then, the answer is no.” Are we going give him a tenant allowance? “Did he ask for it?” No. “Okay, the answer is no.” So, I was looking at the transaction we had done a few weeks ago with an ENT who was represented at $24 a square foot, with a $40 per square foot tenant improvement allowance, with several months of free rent. Then, I looked at this transaction where the plastic surgeon had no representation, and it was a proposed lease for $29 a square foot, with no TI, no free rent. There was other concepts there, as far as not, and other aspects where the deal was going to be extremely unfavorable for that tenant. When I pushed back against the asset manager a bit … Again, I was working for him, but it just still felt a little egregious, his response was, “Get it done.” He just hung up the phone. I just had a wake up moment there where I realized, look, it’s great to make as much money as you possibly can on a transaction, but it would be a lot more fair if that tenant had representation that could protect them. It would hopefully, at that point, be a more fairly negotiated opportunity for both sides.

Colin Carr: I had a couple transactions similar to that where I realized that the tenants were substantially exposed and they were very intelligent people, they were good clinically, they were good medically. I think that most of them, their intentions were good, but they were outmatched very quickly going up against large, sophisticated landlords and listing brokers that knew what they were doing, and they didn’t have a clue what they were doing. Yeah, long story short, over a couple month period of time I watched a handful of tenants get taken advantage of, in my personal opinion, or … let me say this. Negotiate very unfavorable terms, or just get stuck with the terms because they didn’t know how to negotiate. I made a decision at that time to create a business model that was focused exclusively on representing tenants and buyers in the healthcare space. We launched that in February 2009.

Andrew Dick: Which is pretty unique. That model is, unlike some of the other national firms that are chasing the landlords, the REITs. You recognize that, one, you wanted to only be on the tenant side, or the buyer side, and focus on healthcare. There’s also something else you and I have talked about, which is the fact that your team is willing to work really hard for physicians, and dentists, and veterinarians who maybe aren’t going to lease 10 thousand square feet, they’re going to do smaller deals. That’s really in your sweet spot, right Colin?

Colin Carr:It is, yeah. Again, a lot of commercial brokers want to chase big listings, or if they are on the tenant or buyer side, they want the larger deals. That’s just a focus and specific style of doing business. Our model was, if it’s healthcare, we want to do it. The vast majority of healthcare transactions that happen are in the several thousand square foot range. We’ll go down to 1500 square foot chiropractors or endodontists, but our sweet spot is the two to five thousand square foot range. Out of that comes a lot of additional transactions, and we’re doing large deals. We do 20, 40, 50 thousand square foot deals on a regular basis now, but we treat the 2000 square foot tenant the same way that most brokers would treat a 40 thousand square foot tenant. Because of that, that’s opened up a lot of opportunities for us.

Andrew Dick: So, at what point did you decide to go out on your own? When was that, when did you form Carr Healthcare Realty?

Colin Carr: So, over a handful of months I realized that the tenants and buyers in healthcare were not getting the focus and attention they deserved. Again, there was a large focus on the landlord side of healthcare, there was a large focus on the large institutional or large group practices, but there was virtually no focus whatsoever on the smaller, individual users. Over about a six month period of time I put together a business model. I approached the group that I was working with at the time, laid out what I believed was a viable business model, and their response was they didn’t think it had the same merit that I did. They recommended that I go start my own company. So, I did just that. That was February 2009. Within a couple months, we added our first person, within a couple months after that we added our next person. We grew to a handful of brokers in Colorado. We did that for the first five years. Handful of brokers in Colorado. We did that for the first five years, just kept just building our platform, getting more comfortable with the transactions, getting more experience, figuring out better ways to help our clients. And then after about five years of doing hundreds of transactions throughout Colorado, we decided to expand outside of Colorado and go national.

Andrew Dick: And so today, about how many brokers or agents do you have, and how many offices?

Colin Carr: So we are licensed in just under 40 states now, and we have a agents and brokers in about 35 of them. And so we have just under 100 people total right now, coast to coast.

Andrew Dick: And what type of clients are you working with? So we’ve talked about physicians, dentist … But there’s a long list of health care providers, right, that you’re working with?

Colin Carr: Absolutely. So we do dental, medical, veterinary, optometry, vision, physical therapy, chiropractic … We also do a lot of senior housing as well, and so really anything that’s healthcare-related. We’ll do fitness facilities. We’ll do health and wellness centers, med spas, but our bread and butter are the medical, dental, veterinary, vision concepts. And if it’s health or wellness related, though, we’re happy to help, and like having those opportunities.

Andrew Dick: So, Collin, when we’ve talked before, you said, “Look, we’re typically representing buyers and tenants.” What happens if one of your clients says, “I’ve got a building, Collin. I want to sell. Will you list the property?”

Colin Carr: Absolutely. It happens a lot because we specialize in finding facilities that meet our clients’ needs. And sometimes those are individual buildings. Other times those are multi-tenant or investment properties that our clients purchase. So we help our clients buy buildings. Often times we’ll help them … We’ll bring other tenants to the building as well too. But we don’t do any landlord or seller work. So if a client has a vacant space and they want it leased, we’ll refer a listing broker to them. If they have a building, they want it sold, we’ll refer a broker to sell the property. And the idea there is, yes, we’re passing on some fees, but the importance is that we’re staying focused and staying true to our core values, which are no conflicts of interest. So we refer a listing broker who comes in and sells the property or sells the asset, or finds a tenant for the space.

Andrew Dick: Talk about, for maybe health care providers that aren’t in the real estate world like we are, who’s typically going to pay your fee?

Colin Carr: So commercial real estate is very similar to residential real estate, in that the landlord or seller is paying the commission. Landlords and sellers set aside a portion of the commission, both for their agent on the listing side, but also on the tenant or buyer side to attract quality tenants. And so just like if you’re buying a house, the seller of the house typically has a commission set aside for the buyer’s agent. It’s the same in commercial real estate.

Andrew Dick: Okay. Talk a little bit about the growth of the company. How do you explain it? It’s pretty remarkable within a short period of time that you have offices across the country. You have nearly 100 employees. What do you think has been the secret sauce there?

Colin Carr: There’s a couple things. One, just our business model. Our business model is predicated upon we help people that help people. Our focus is trying to help healthcare providers and physicians to find the best locations, and negotiate terms and economics that are equitable and fair to them. We’re not interested in trying to take out landlords. It’s not adversarial against landlords. It’s just trying to protect the doctors. Unfortunately, commercial real estate, it’s a market lease rate’s the most that someone’s willing to pay. And so when it comes to a healthcare provider that’s not educated in the commercial real estate market, that’s probably not prone to, or would not welcome, the conflict and confrontation that’s inherent in a high dollar negotiation, they typically get taken advantage of and get folded in a negotiation very easily. And so our business model is predicated on protecting them, helping them find the best locations, helping them understand the market, helping them understand how the process works, and then ultimately saving them a substantial amount of time and money, and then also providing them a very tangible peace of mind, knowing they didn’t get taken advantage of, knowing they didn’t miss a good opportunity in the market, and that their location is where they’re supposed to be. And so that model or that idea resonates with a lot of people that have joined us, feeling that they’re actually having an impact and an influence on the clients that they’re working with. So I would say just the overall model, our overall business plan of helping healthcare providers maximize their profitability through real estate, that’s exciting. But I think most importantly, as far as how we’ve had the growth, is from our culture: how we treat our staff and our employees, how we treat our brokers, what our focus is. We’ve created an environment and a culture that is very, very healthy. It’s counterintuitive rom how a lot of companies run, and it’s a breath of fresh air for the majority of the people that are here.

Andrew Dick: Talk about that briefly. You said that your brokers and agents only work certain hours, and you try to preserve the time with family and friends. Talk just a little bit about that.

Colin Carr: Absolutely. So we have a set of core values that are very important to us that we don’t stray from whatsoever. And it starts with just an atmosphere of integrity, and just creating an atmosphere in our culture where people know who people are. You don’t have a work person, and then a family person, and then a friend person. It’s the same people everywhere you go. So people operate with integrity. People operate with a spirit of excellence. We’re not trying to push people to get out of balance with lifestyle, with family. We’re all about working hard, but we have a very specific life/work balance. And we encourage our team and our staff, “Don’t work the evenings. Don’t work the weekends. Work it hard during the day, but you’ve got to preserve that time with your family.” And so certainly there’s times when you get pushed to go back and do some extra hours here and there. But overall, we encourage our team to rest, to take vacations, to enjoy the time. And we work really hard, but just like a professional athlete, they work really hard when they work, but you have to rest. You can’t lift weights seven days a week. You can’t play a season that lasts the entire year. You’ve got to work hard when you work hard, and then you’ve got to rest intentionally. And the more rested you are, the harder you come back and work. And so we protect our team’s time. We don’t have a lot of bureaucracy and red tape like a lot of large companies do. And there’s a spirit of integrity, and there’s a culture where people trust the people that are here. They trust the people that are making decisions that they’re trying to build a company in an environment that’s as healthy as possible. And we’re also not building something because we have to pay out shareholders, or we have to meet Wall Street demands. And we’re also not building something so we can sell it real quickly. And there’s a lot of companies right now that have a good idea, or they have a good product or service, but in the spirit of trying to build something quickly to sell it, or trying to satisfy outside investors or Wall Street, they don’t put their people first. They put the profits first. And so we run a company that’s very intentional and with a very intentional culture. And it’s certainly not going to be a fit for everyone, but it’s been attractive to a lot of people that are with us.

Andrew Dick: Well, talk a little bit about the typical agent or broker profile. When we’ve talked before, it’s not as if some of these folks are bouncing from a national brokerage firm to Carr. That may happen, but these folks are often … This is their first foray into real estate. Talk about that.

Colin Carr: Absolutely. So our model’s unique. I’d never seen anyone doing what we’re doing right now. We’re the only commercial real estate firm that has a national presence that has a focus of tenants and buyers only in the healthcare space. So with that unique idea also came a unique approach to how we would build a team. And there’s great brokers at a lot of different firms. We decided to take a different route, which was not trying to find brokers and convince them to leave one firm and come to our firm. Our model instead was, “Let’s find people that have been very successful in other areas of business or other areas of life, and then let’s teach them a very specific way of doing commercial real estate. And then let’s show them how to be focused in healthcare. And so we have intentionally … We have a handful of people that used to be with commercial real estate firms, that you probably could count them all on one hand, but 95% of the people that are here have been successful in other areas. We have former CPAs, former teachers, former attorneys. We have people that have been in other sales roles, other advisor or service roles. We have a handful of people that have owned companies, and we’ve had people that have owned technology companies, healthcare related companies, construction companies.

Colin Carr: We’ve found people that have been successful in other areas of life that are good people, that have a tremendous work ethic, that are very intelligent, that are very savvy and street smart. And then we’ve given them the platform of how to be really good at commercial real estate and how to be really good at healthcare. And then we’ve built a platform where we have several people on staff that all they do is train, and support, and advise. And that’s incredibly unique. I don’t know of any commercial real estate firm in the country that has several people on staff full-time that all they do is answer questions. And so even if we open a new market, no matter what market we’re in or how long that person has been with us, they’re partnering with a senior broker or a managing broker that’s overseeing every transaction that’s involved in every aspect of the deal, who’s been involved in hundreds and hundreds of healthcare transactions. In every aspect of the deal who’s been involved in hundreds and hundreds of healthcare transactions. And so we have a platform and a training system that’s unprecedented that I’ve never seen in any form of commercial real estate.

Andrew Dick: So it’s interesting when we’ve talked before, you said one of the reasons you like starting with someone who hasn’t worked in the commercial real estate industry is because it’s a clean slate.

Colin Carr: Absolutely.

Andrew Dick: You can train them with your values and with your best practices. Talk just a little bit about that.

Colin Carr: Absolutely. Well, as in any industry, there’s really good, and there’s bad examples. There’s great attorneys and there’s bad attorneys. There’s really good real estate brokers and there’s really bad real estate brokers. Real estate’s no exception to that. So we had a desire not to have to undo habits, whether they’re good habits or bad habits. But the reality is the vast majority of commercial real estate brokers are landlord or seller focused. I’ve seen stats that are as low as less than 1% of commercial real estate brokers only do the tenant or buyer side exclusively. I mean that’s extremely niche. So and then to go inside that even further and say, I’m only going to be on the healthcare side of that as well. So only tenant buyers is already a niche. And then getting inside just the healthcare, I mean that’s pretty rare. So we just had the desire to start from scratch and not have to undo the landlord approach or the seller approach. And again, I mean we respect landlords, we respect sellers, but we’re not looking for the next listing. We’re not using the tenants as a chance to set up a lunch with the landlord as soon as that deal is done and ask them if they’re happy with their broker, if they have any other assets that we could list or that we could manage or that we could sell. So our focus is helping our clients get the best terms possible, protecting them. And there’s some conflict that’s inherent with the high dollar negotiation. If your focus as a broker is, I want the landlord to like me so that in the future I have a shot at listing their property or their portfolio, you’re probably not going to get your tenant the best terms possible, you’re probably going to go a little softer or you’re going to compromise a negotiation. And so our model is built on respect. It’s built on trust, it’s built on being an expert. But our focus is helping our clients and protecting them. So not having to retrain that with the broker or have them fall back on getting listings, we just wanted a clean slate to paint from, and it’s worked really well for us.

Andrew Dick: So Collin, now that you’re the CEO of a pretty large operation, how has your role changed? I mean not too long ago you were out chasing deals yourself. You may still do that from time to time, but how has your role changed? What are you doing with your time?

Colin Carr: So first of all, people ask me all the time, are you glad not to be doing deals? And my answer’s no. I love doing deals. I’ve done over a thousand transactions personally, closed transactions, which means I’ve been involved in literally several thousand negotiations. I love doing deals. I love working for clients. I never got tired of it. And I think that’s a testament to why we’ve been successful as well, as us going national or us or me personally having a shift in my day to day wasn’t because we were burned out or because we were looking for the next thing. It was because we loved what we did and we love what we do. So I still help with transactions. I might talk to, I talk to brokers all the time. I’m touching dozens of deals all the time with our team. But the majority of my time is spent training our brokers and training our team, and in growing our brand. I’ve worked with a lot of large groups on a national basis. I do a lot of marketing, I do a lot of brand identification and that I’ve gotten a very healthy education in all the aspects of the company that you would expect if you’re growing national.

Andrew Dick: So looking forward, what type of service lines or industries are you looking at to grow or exploring right now?

Colin Carr: First and foremost, we’re going to stay true to the healthcare tenant buyer only. We’re now in, we’ve got brokers in 35 states. We’re just in our infancy, believe it or not. I mean we can take that wider and deeper and continue to keep on getting better and more proficient in that area. So healthcare tenant buyer rep is going to remain our focus and we are going to keep growing that the best we possibly can. We are doing a lot of senior housing work right now and so we’re going to create a separate division that is just dedicated to the senior housing vertical. There’s a lot of specialization inside that as well with memory care, with skilled nursing facilities. And there’s a lot of things in there that are very specific that go beyond the type of transactions that we do for a physician or for a dentist.

Colin Carr: And so that’s going to be a separate division for us. And then we also are creating another division that is going to be similar to the tenant buyer in healthcare, but it’ll be tenant buyer in commercial. So it’ll be the same focus of, a lot of smaller spaces. 2,000, 5,000, 8,000 square foot spaces for corporations, for commercial professionals. CPAs, attorneys, financial advisors, architects, engineers. And we’re already doing a lot of those transactions. We go and we represent a dentist and she’ll say, “My husband owns an engineering firm, would you help him with his office?” Or we go and do a veterinarian deal and they say, “My wife’s an architect, can you help her with her office?” And so we’re doing a lot of those transactions right now for the same reason, which is, people appreciate the idea of having someone protect their interest beyond their side. And they realize there’s a lot on the line with a commercial real estate negotiation. And when they recognize that someone’s out there that would specialize just on their side of the transaction and help protect them, that’s very desirable for them.

Andrew Dick: So last question. Looking forward, where do you see the company in five years? Are you going to be 200 agents and brokers? 300? I know I’m putting you on the spot.

Colin Carr: Yeah, I think, I mean we’re almost north of 100 right now and will be very soon. We’re very intentional with how we’re growing it. We’re not just trying to add people. If we want to add people, we could literally be at 500 right now. I mean, we’re trying to manage the growth. We’re trying to find the right people. We want people that want to be here for 20 years. And so we’re very intentional with how we hire, with how we train. But yeah, the short answer is I think we’ll probably have, 250, 300 agents. I think we’ll have three or four divisions that we’re focused on. And again, just the commitment and desire to help protect our clients, help them maximize every transaction, help save them dozens of hours of their valuable time. We’re not growing just to grow. I’ve said this for a long time. People say, “Are you growing this to sell it? What’s the next step?” I’m doing this because I love what I’m doing and I believe in what I’m doing. And you could put a tremendously large check in my account tomorrow and it wouldn’t change what I’m doing. It wouldn’t change the house I live in, it wouldn’t change the car I drive. It wouldn’t change the amount of vacation I take. I’ve got a very good balance in my life and I’m doing this because I believe it’s what I’m supposed to do. And I believe that I have the most impact and influence that I can possibly have in the area and the lane that I’m running in. And so you keep doing the best we possibly can to help our clients and add value. And when we do that, there’s a lot of fulfillment and satisfaction that comes from it.

Andrew Dick: Great. Collin, thanks for joining us today on the podcast. Where can folks learn more about you and your company?

Colin Carr: Absolutely. So our website is carr.us. And from there you have a chance to jump into whether it’s senior housing, healthcare, commercial, you can jump into your specific vertical, but that’s a great place to learn about us. And it’s got links to all of our social sites. We’ve got dozens of videos, we have a tremendous FAQ section, a lot of glossary stuff. So if someone’s interested in finding out more about us, they can learn from there. And then we’re big on just putting your money where your mouth is. Again, a lot of commercial real estate brokers, a lot of residential brokers. We’ll go out there and work hard to get a listing and put a sign in front and the phone then rings from there. We hang our hat on every transaction that we do. So we pride ourselves on taking tremendous care of our clients and then that’s how we grow our business. So we have hundreds of testimonials on our website from 1,000 square feet up to 50,000 square foot tenants. From individual location groups to have … from individual locations to groups that have literally a hundred locations. And we can provide hundreds or even thousands of references and testimonials from people that we’ve worked with recently. So our website’s a great place to get more information.

Andrew Dick: Great. Thanks to our audience for listening to the podcast on your Apple or Android device. Please subscribe to the podcast and leave feedback for us. We also publish a newsletter called The Healthcare Real Estate Adviser. To be added to the list, please email me at adick@hallrender.com.

Developing a World Class Medical District in Chicago with Dr. Suzet McKinney

June 10, 2019 Andrew Dick Health Care Real Estate Advisor 34:17 Comments Off on Developing a World Class Medical District in Chicago with Dr. Suzet McKinney

Developing a World Class Medical District in Chicago with Dr. Suzet McKinney

An interview with Dr. Suzet McKinney that was recorded in Scottsdale, Arizona at the Health Care Real Estate Legal Summit sponsored by Hall Render. In this interview, Andrew Dick interviews Dr. Suzet McKinney, CEO and Executive Director of the Illinois Medical District. The Illinois Medical District is a 560 acre medical and research parcel located in Chicago that is home to medical research facilities, labs, universities, a biotech business incubator and more than 40 healthcare-related facilities.

Host: Andrew Dick
Guest: Dr. Suzet McKinney

Podcast Participants

Andrew Dick

Andrew Dick is a Shareholder with Hall Render in the Indianapolis office. His practice focuses on real estate transactions and environmental law. He advises hospitals and health care systems around the country on the planning, construction and development of new hospitals, medical office buildings, surgery centers and skilled nursing facilities. 

Dr. Suzet McKinney

Dr. Suzet M. McKinney currently serves as CEO/Executive Director of the Illinois Medical District. The Illinois Medical District (IMD), a 24/7/365 environment that includes 560 acres of medical research facilities, labs, a biotech business incubator, universities, raw land development areas, 4 hospitals and more than 40 health care related facilities, is one of the largest urban medical districts in the United States. 

Andrew Dick: Hello and welcome to the Healthcare Real Estate Advisor Podcast. I’m Andrew Dick, an attorney with Hall Render, the largest healthcare-focused law firm in the country. Today we are broadcasting from The Healthcare Real Estate Legal Summit in Scottsdale, Arizona. My guest today is Dr. Suzet McKinney, the CEO and executive director of the Illinois Medical District. Dr. McKinney is one of our keynote speakers at the summit and I thought this would be a good opportunity to take some time to learn more about her career in the Illinois Medical District. Dr. McKinney, thanks for joining me today.

Suzet McKinney: Thank you for having me.

Andrew Dick: So before we jump into the conversation, I thought it might be helpful to give some basic information about the Illinois Medical District or IMD for short. The IMD is located on the West side of Chicago. It is about a 560-acre area of land that is home to medical research facilities, labs, universities, a biotech business incubator, and more than 40 healthcare related facilities. The IMD is one of the largest urban medical districts in the United States. Dr. McKinney, before we jump into what you’re doing at the IMD, tell us a little bit about your background, you have a pretty impressive resume, and how you ended up at the IMD.

Suzet McKinney: Sure. Well, once again, Andrew, thank you so much for having me today. So in terms of my background, I am a public health practitioner by training. I am both masters and doctoral level trained in public health. And my area of expertise in public health is bioterrorism and disaster emergency and response. And so I have spent the vast majority of my career working in that specific area of public health as well as teaching at the University of Illinois at Chicago School of Public Health. And I have a faculty appointment at the Harvard T.H. Chan School of Public Health. I was with the city of Chicago’s Department of Public Health for a number of years, nearly 14 years. And I served as the deputy commissioner of the Bureau of Public Health Preparedness and Emergency Response there. And I loved that role. It was quite possibly, I think my dream job. And really exhilarating and rewarding to know that my responsibility was to mobilize the team that was responsible for preparing the residents of the city of Chicago for large scale emergencies and disasters.

Suzet McKinney: But I have to say in 2014, we were responding to the Ebola response and I’m not sure if your listeners are aware of this, but during the Ebola outbreak in West Africa in 2014 and 2015, the US Department of Homeland Security and the US State Department rerouted all travel from West Africa into the United States through only five cities and Chicago was one of those cities. So that really brought the Ebola response to our front door. And I think we probably spent about a day or two just really under a lot of stress and anxiety trying to figure out our response. And after those initial days, we mobilized and I just said to myself, “This is what we’ve trained for,” even though that was a condition or a disease I should say, that we always imagined was existing in some far away location and that we didn’t have to worry about it in the United States.

Suzet McKinney: Needless to say, we launched our response. It was a successful response, although it lasted a very long time. And when that response ended, I thought to myself, Ebola was the one thing that we were always afraid of. It was the one thing that was never supposed to happen. And I thought that since I had faced the one thing that was supposed to be my greatest fear and I faced it without too difficult of a challenge, perhaps it was time to find a new challenge. And coincidentally, I received a phone call regarding this role at the Illinois Medical District and decided to explore it as a new challenge and something that would place me outside of my comfort zone. And what I would say looking back is be careful what you ask for. So that’s a little bit about how I arrived at the IMD and if your listeners are just wondering what does it mean to be the CEO at the Illinois Medical District? I would tell them that my role there as the CEO is the perfect storm of public health, healthcare, real estate, finance, big business deals, and politics all rolled into one.

Andrew Dick: It sounds fascinating. Give our audience a little bit of an overview of the IMD. I gave some quick facts when we started, but tell us about the history. How did this come to being? And it’s interesting, it seems like it’s almost like a quasi-governmental district of some kind, talk about it.

Suzet McKinney: Well, you’re right, it is a quasi-governmental district. So as you said in the beginning, the Illinois Medical District is a 560-acre special-use zoning district right in the middle of the city of Chicago. We are about 10 minutes outside of downtown Chicago. The IMD was originally established in 1941 through an Act of the Illinois state legislature. And the district was established for the sole purpose of becoming a hub within the city of Chicago that was dedicated to health care, health education, biotechnology and technology innovation with an overarching goal of fostering economic growth for the city, the county of Cook as well as the state of Illinois. So back in 1941, because we were established through an act of the state legislature, we were a component of state government. We functioned just like any other state agency. But in 2012, the state statute was changed and the Illinois Medical District was made to be its own unit of local government.

Suzet McKinney: My General Council says, we are a unit of local government body politic. So all of the lawyers in the audience will understand what that means, but we are a governmental body, but we are a very unique governmental body because I am not an elected official. I am a CEO that’s hired by our board and I serve in that CEO role. But I have many of the same authorities that many mayors and town officials have, such as zoning authority and building authority. And so we function as a very small governmental entity inside the city of Chicago, which is a home rule government and also inside the county of Cook, another home rule government and within the state of Illinois.

Andrew Dick: Wow. So talk about the board of directors. How are these individuals appointed if you’re a quasi-governmental agency, so to speak?

Suzet McKinney: So as I mentioned before, we have an overarching mission of fostering economic growth for the city, the county, and the state. And because of that, our board members are all politically appointed. We have a seven-member board, four of those members are appointed by the governor of the State of Illinois, two board members are appointed by the mayor of the city of Chicago. And then one board member is appointed by the president of the Cook County Board. So it’s a very interesting mix. But I would say that all of our board members typically are appointed because of their expertise in a particular area that’s related to our work or a long-standing history of civic engagement.

Andrew Dick: Wow. Sounds like a dynamic group. How were the boundaries established? I mean, today it’s 560 acres, give or take. Was it always that big or has it evolved?

Suzet McKinney: Sure. In the beginning, it was not that large although I cannot recall how large it was in the very beginning back in 1941. What I can tell you is that in the beginning, we only had two anchor institutions, the Rush University Medical Center, which at the time was Rush Presbyterian, St Luke’s Medical Center, and then the second one was the Cook County Hospital, John H. Stroger, Hospital of Cook County. In 2006, the medical district purchased additional land and we were able to expand our boundaries through the purchase of that additional land. So we’ve been 560 acres since 2006.

Andrew Dick: Wow, that’s impressive. And today there are multiple anchors, right? Are there four or five that you would consider anchors?

Suzet McKinney: Yes. We have four anchor institutions, all of which are world-class hospitals and healthcare centers. So now joining Rush University Medical Center and the Cook County Health and Hospital System is the Jesse Brown VA Medical Center as well as the University of Illinois Hospital and Health Sciences System. Along with those anchors, Rush and the University of Illinois bring their two medical schools, which are two of the largest and most diverse medical schools in the United States. And then the University of Illinois also has within the medical district, all of its allied health schools, dentistry, nursing, pharmacy, and public health in addition to their medical school.

Andrew Dick: So talk about your current responsibilities. You said you act in many ways like a mayor, or so to speak, over the district. What is your day to day activities? What are you doing day to day?

Suzet McKinney: Well, I would say that my activities vary from day to day, but in general, a lot of those activities include governance of the district. So one of the things that we do in terms of governance is ensuring that all of the organizations, businesses and institutions that are interested in moving into the district, that their work and their mission aligns with the mission of the medical district. So we spend a lot of time, I spend a lot of time meeting with potential new residents, if you will, whether those are new hospitals, new educational institutions or other private sector businesses that may want to establish residency in the medical district. I also do a lot with real estate transactions. One of the interesting things about the medical district is that we were recently designated as a qualified opportunity zone and that brought along with it lots of meetings with investors and real estate developers who are interested in taking advantage of some of the tax incentives associated now with qualified opportunity zones.

Suzet McKinney: I also do a lot of work with our hospitals and other healthcare system partners, really looking at community health issues and some of the things that contribute to increased healthcare disparities in vulnerable communities and lower income communities. The medical district is located on the West side of Chicago, which is historically one of the most disinvested and under-resourced communities within our city. And so we do a lot of work around community health programs and trying to improve the health status of residents on the West side of Chicago. And I could just go on and on and on, but those are some of the activities that I engage in on a day to day basis.

Andrew Dick: So when you assumed the role, Dr. McKinney, talk about some of the challenges you faced stepping into that role. I’ve read a couple of articles, but I want you in your words to talk about what you’re up against and really what you’ve done since you’ve stepped into the role.

Suzet McKinney: Sure. Well, I can tell you one of the things that I always go back to when I think about challenges, when I initially stepped into the role, and I go back to a conversation that I had with our general counsel at the time, and I asked him, “What do you think the largest challenges are that the medical district is facing?” And he said to me, “Two of our largest challenges are anonymity and funding.” And with the first one, anonymity, that challenge was just the simple fact that not a lot of people knew about the medical district. They didn’t know what we were, where we were, or what we did. And so, one of the initiatives that we’ve engaged in since I started my tenure there three and a half years ago, we engaged on an aggressive rebranding campaign and marketing campaign to really raise the profile of the medical district. That included developing or solidifying our mission and vision statements, developing a new logo and marketing campaign that aligned with the mission and the vision.

Suzet McKinney: But then also really just getting out there and being more public facing, talking about the work that we were doing, the work that we want to do and establishing greater partnerships with natural partners as well as with strategic partners. On the issue of funding, we are a government entity, however, we do not obtain government funding from any other government entity. Instead, we generate our revenue through our real estate activity. So we really had to get ourselves out into the forefront of the commercial real estate market. And in order to do that, we partnered with a very large commercial real estate firm. It’s actually the largest commercial real estate firm in the world and engaged in a strategic partnership with them as well as a contractual relationship to assist us in raising our profile in the commercial real estate market. I would also say another area that posed an extreme challenge to us was just in the area of financial stability.

Suzet McKinney: I mentioned previously that we purchased a lot of land in 2006 and expanded our borders, but when that land purchased, the goal was to also develop that land. But shortly thereafter, the real estate market crashed and that new development wasn’t possible and we had borrowed $40 million to purchase new land and expand our borders. And so we were still challenged with a heavy debt load without a revenue source to sort of balance that out. And so I’m very happy to say that we doubled down on developing a strategy for repaying the debt. It took us two years, but we are currently debt-free, which I don’t think many government entities can boast that they are completely debt free. So that was really exciting for us and it represented alleviating one of the largest challenges that the medical district has ever faced. And so I’m very proud that that was accomplished under my leadership.

Andrew Dick: Well, I read a couple articles about that and I was hoping you would talk about it because you received quite a bit of public acclaim because you, I think sold off some assets or some real estate to pay down that debt or pay it off and a number of news stories just said, “Gosh, Dr. McKinney has really turned around this organization and made it so much more prominent.” So that’s just terrific.

Suzet McKinney: Thank you.

Andrew Dick: I want to talk a little bit about generating revenue through real estate. Most of our listeners are attorneys or developers that develop hospitals or healthcare facilities. When you say the medical district generates revenue through real estate, is that through developing a building and being co-owner, ground leasing land, selling land, all the above, what does that mean?

Suzet McKinney: All of the above. So of the 560 acres that make up the medical district, the Illinois Medical District owns roughly 100 of those acres and most of our anchor institutions own the land that they occupy, but they also lease additional land or building space from us. So we engage, we being the Illinois Medical District, we engage in ground leases, both short term ground leases as well as longterm ground leases. We also lease building space to entities and organizations that are interested in moving into the medical district. And now we are engaged in an aggressive plan to develop the remainder of the over 30 acres of vacant land that we still have in the medical district. And one of the things that we’ve done now that we have a level of financial stability and quite frankly liquidity that we haven’t had in the past, we’re also able to engage in some more alternative real estate transactions. So that would include things like public-private partnerships or joint ventures. And so we are exploring a number of options with a few developers currently that would get us engaged in some of those more alternative structures.

Andrew Dick: Yeah. It sounds like a pretty dynamic role that you’re in working with the developers and different healthcare providers. What I often get asked is, well, if I’m interested in developing a project at the IMD, well, how would someone do that, Dr. McKinney? If they say, “Hey, I’ve got this vision,” is it developers coming to you or are you really seeking the resident first, some academic institution or a healthcare provider or a life sciences company, is that first the most important piece, who’s going to be the resident? Or how does it work?

Suzet McKinney: Well, it works primarily the same, whether it’s the resident or the developer. And typically what happens, let’s just take the case of the resident. The potential resident may call the office or send us an email and indicate their interest in having a development in the medical district or occupying space in the medical district. And once we receive that communication, however, it comes in, we schedule a time for the resident to come in and present their project or their idea to us. One of the things that we’re very proud of is that as a unit of local government that is not a component of another unit of government, we’re able to have a little more flexibility and a more nimble structure in terms of how we engage in procurement activity and contracting activities. And so that really helps us when we are entertaining a new project.

Suzet McKinney: So once that resident comes in and presents their project to, not just me, but my senior management team as well, we have an internal discussion regarding what we’ve seen in the proposal and we make a decision as to whether or not we feel that it’s a project that would not only benefit the medical district but would also benefit that potential resident. And if our determination is positive, then we will put that resident in front of our board and we’ll bring them back and give them the opportunity to present their project to our board. Now one of the things that my board is well aware of is that I will never put a project in front of them that I don’t believe is a viable project for the medical district. Whether the viability is programmatic, financial, or any other lens that you may examine the project through.

Suzet McKinney: And once the resident presents their project to the board, the board decides whether or not to advance them forward. And if so, there is a brief review of the financials of the project and then the board authorizes me and my team to engage in the contract negotiations. So the entire process takes about three to four months, which is very fast.

Andrew Dick: I would say it’s very fast given my experience on these type of deals. So are there any projects you’re excited about that you can actually talk about at this point?

Suzet McKinney: Yes, I am very excited, one of the things that we are endeavoring to do, we’ve done a lot of work studying other innovation districts from across the country. We take our cues from a lot of work that the Brookings Institution has done around innovation districts and we’ve really tried to hone in or what factors make these districts successful because after all we’ve achieved a level of success but we want to continue that trend in the Illinois Medical District. So the vast majority of the vacant land that we have in the district currently, I would say about 35 acres is contiguous land. And so we are endeavoring to create a life sciences innovation park within the medical district that can be home to research entities, start-up companies, expanding our biotech incubator as well as infusing some residential and some retail and amenity space in the district as well.

Suzet McKinney: And so we are currently engaged in discussions with three to four developers that have well-defined projects that they’re interested in developing in that area, and we’re being very clear about this goal for life sciences. It is an area where Chicago is really lagging behind other cities. And I will tell you, I am a true Chicago in at heart and I cannot bear to see my city lagging behind others. And so we know this is an important initiative for the city, but it’s also, it’s an important economic driver as well. And we’ve seen evidence of that across the United States and we think that we can replicate it in Chicago and have a similar level of success. And so that’s what we’re doing.

Andrew Dick: So life sciences is hot right now?

Suzet McKinney: Yes.

Andrew Dick: So is it, not only because it’s used to talk about the economic drivers, is it that it’s bringing in high paying jobs? What is it that you like about the life sciences sector right now?

Suzet McKinney: Well, I like that it brings in high paying jobs, but I also like that it attracts young, new talent coming out of our country’s largest universities. And it also engages researchers. And I see that our health care partners, particularly our anchor institutions, are increasing their research efforts. There is a lot of momentum around translational research, really taking the research and translating that into clinical practice as well as engagement, greater levels of engagement with the patient. And so I think that life sciences is a great fit for those types of initiatives. And our university, the University of Illinois at Chicago also has a keen interest, not only in research and biotechnology, but attracting the best and the brightest talent both in terms of students and graduates, but also professors. And so I think you’re right, life sciences is hot and those are some of the things that I think align very well with our mission, but also with the mission of our anchor institutions and some of our other partners.

Andrew Dick: So you touched on maybe bringing in some multifamily into the mix. Talk about that a little bit. So it’s not just going to be office space or healthcare clinical space or research space, but you’re going to try to infuse maybe some more mixed use. Is that what I’m hearing?

Suzet McKinney: Absolutely. Our goal is to create and foster a vibrant ecosystem, a place within the city of Chicago where people want to be. And we see a place where people can live, work, learn and play. And so in order to foster that type of environment, we have to ensure that we are doing multiuse developments. So again, the office space, the laboratory space, but also the residential, some recreational. If your listeners go to our website, under the real estate tab there’s a great video that really shows the vision and what we foresee for the medical district. So we want to bring in some entertainment as well to really make the district a place that can be a place for everyone, whether you are traveling to the district to work, to go to school, to receive your healthcare or if you’re living there. So we’re very excited about that.

Andrew Dick: Well, one of the other topics I wanted to talk about was the strategic partnership that the IMD entered into with IGNITE Cities.

Suzet McKinney: Yes.

Andrew Dick: Talk about that just a little bit and what that means for the district.

Suzet McKinney: Sure. So IGNITE Cities came to our attention several months ago. And in our discussions with the firm, we learned that they are working with mayors from all across the country to help cities develop into smart cities. And so we started thinking what would it be like if we entered into a strategic partnership with IGNITE to create or foster the medical district into a smart district? What would that look like for us? And one of the things that we knew was that place-making and way-finding were challenges within the district. We see about 80000 people a day in the medical district, that includes 30000 employees, and 50000 patients, students, and visitors. But a lot of those visitors oftentimes and patients as well, oftentimes have difficulty figuring out where they need to go within the district, how to get there. And so this strategic partnership with IGNITE will not only incorporate some infrastructure improvements in the district, things like way-finding, whether those are kiosks or large touch screen panels that are installed at street level that will aid in that way-finding. But it will also include some fiber optic infrastructure.

Suzet McKinney: We will be able to provide free public Wifi for visitors and others who are in the district for whatever reason they might be there. But it will also enable us to connect with city services in a way that we haven’t been able to do in the district and help improve safety within the district. And also transportation, helping people understand when and where they can access the transportation assets that are in the district. So we’re really excited about it. This is an initiative that we see big cities doing. And so we think that being a small district within a big city, this is our opportunity to show that this is something that can work for other campuses, whether they are innovation districts, college and university campuses, or other large healthcare and research clusters. So we’re all about being a leader but also being a model and showing what can be done in other areas by using ourselves as a pilot.

Andrew Dick: Well, it’s fascinating. I think what you’re doing at the IMD is really interesting and as we wrap up here, talk just a few minutes about where you see the IMD going over the next five years. If you could have it your way, how do you think things will unfold over time?

Suzet McKinney: Well, if I have it my way, in five years we will no longer have the abundance of vacant land that we currently have. We are really dedicated to creating this vibrant and thriving ecosystem that I spoke about. And so what I see for the medical district is a fully developed district that is full of healthcare, science, and technology-based businesses, but businesses that also have a caring heart and a sense of social responsibility. In the private sector, the term that’s always used is corporate social responsibility. But as I mentioned earlier in our discussion, we are situated on the West side of Chicago and that’s an area of the city where we see a lot of disparity in terms of healthcare outcomes, healthcare access, but also educational access and just economic opportunity.

Suzet McKinney: And so as we attract private sector businesses to the district, we are being honest and forthcoming about some of those social challenges that we see in the area of the city that we occupy. And we are asking the new residents of the district to partner with us to really help us make a difference in the lives of others. And so I see that in the district’s future, but I also see the district as a place where the businesses and the organizations that reside in the district having understanding that while we all want to be successful individually, the real key to our individual success is our collective success. And so we are endeavoring to create a district where our partners collaborate with one another and we are all improved in our work, our businesses, and even our bottom lines are improved because of this incredible collaboration that we foster in the medical district. So we’re very excited about the work. We have achieved some success. And if I can just take a moment, I’d like to give you an example of one of our partners who is relatively new to the medical district.

Suzet McKinney: It’s a company called Superior Ambulance Company, and they are the largest private EMS provider in the Midwest. They’re headquartered just outside of the city in the western suburbs, but they were interested in establishing a presence in the district and when they came to us and we started working to negotiate a building lease for them, I spoke to the CEO about some of the challenges that we’re seeing on the Westside, and I said, “I’m trying to do everything that I can to help get people into educational programs that will put them on a pathway to employment or funnel them right into the workforce. Is there anything that you can do to help me?” And he said, “Here’s what I can do.” He said, “In my first year in the medical district, I will train 100 community residents to be emergency medical technicians or medical billing and coding specialists. And for every single one who completes their training, I will hire them to work from my company.” He’s been in the district, his company has been in the district now for eight months. They have trained and hired 103 community residents.

Suzet McKinney: So that’s a huge success. Now we are under no illusion that the next company or firm will have a hundred spaces to give us, but my outlook is if they have one or two, that’s one or two more than what we had and that’s a difference in one or two additional lives. And so that’s the type of impact that we’re looking to make. And we think and we hope that we can do it.
Andrew Dick: Well, it’s exciting. I’m grateful that you were willing to do this interview, really looking forward to your speech this afternoon.

Suzet McKinney: Thank you.

Andrew Dick: Where can our listeners find more about the IMD? More about you?

Suzet McKinney: Sure. So the listeners can always go to our website, which is medicaldistrict.org spelled just the way it sounds, medicaldistrict.org, and they can also access any of our social media platforms. We are on Facebook and LinkedIn @Illinoismedicaldistrict. Our Instagram handle is @IMDmedia, and we can also be found on Twitter @IL_MED_district.

Andrew Dick: Well, thank you again, Dr. McKinney and thanks to our listeners. On your Apple or Android device, please subscribe to the podcast and leave feedback for us. We also publish a newsletter called the Healthcare Real Estate Advisor, to be added to that newsletter, please email me at A-D-I-C-K@hallrender.com.