Episode Archives

Celebrating and Commemorating Juneteenth

June 13, 2021 John Ryan Practical Solutions in Health Care 00:14:09 Comments Off on Celebrating and Commemorating Juneteenth

Educating and Commemorating Juneteenth 

Hall Render’s Former President and Managing Partner, John Ryan, speaks with shareholder and DEI committee chairperson, Charise Frazier, about Juneteenth and how Hall Render as an organization is educating employees and commemorating this important holiday.

Podcast Participants

John Ryan

Former President & Managing Partner, Hall Render

Charise Frazier

Shareholder & DEI Committee Chair, Hall Render

John Ryan: Hello, and welcome to Hall Render’s Practical Solutions in Health Care podcast. I’m John Ryan, [former] president and managing partner at Hall Render, largest health care focused law firm in the country. Today, I’ll be talking with Hall Render shareholder, our DEI committee chairperson, Charise Frazier, about Juneteenth and what we’re doing internally as an organization to educate and commemorate this holiday. So, Charise, hello. Welcome to the podcast.

Charise Frazier: Good afternoon, John. It’s great to be here.

John Ryan: So, maybe to kick things off, you could tell us a little bit about your role as it relates to the diversity, equity, and inclusion initiatives here at Hall Render and the work of our DEI committee. Maybe discuss your role a bit, how long you’ve served in this capacity and the core areas where you and the committee have been focused.

Charise Frazier: Yeah, absolutely. So, as you mentioned, I’m the chair of the DEI committee, which is Diversity Equity Inclusion here. I’ve served in that capacity for over four years now and have served on the committee for about seven years now. And really, most recently … Late last year we spent some time developing a diversity equity and strategic plan for the firm. So based on that, we have three main goals that the committee would like to steer the organization in, and that’s focusing on creating a diverse workforce, and that’s going to be both through recruitment and retention. We also want to create and cultivate an inclusive and engaged environment where everyone can come and feel as if they belong and bring their best self and do their best work. And then finally we want to hold ourselves accountable for the work that we are doing and making sure that the goals that we are setting for ourselves and the metrics that we are looking at are consistent with achieving those goals.

Charise Frazier: So with that, we’re also now in the process of trying to develop a work plan, which will serve as a roadmap to helping us accomplish those three main goals. So the committee has been spending some time with that along with leadership within the organization, just trying to figure out what’s going to be the best roadmap for Hall Render.

John Ryan: Well, thank you. It’s been, having sat in the chair that I have and watched the work of the committee and you in leading that committee, I certainly, for one, have enjoyed the exercises that we’ve gone through over these last several months and the work product that’s starting to take shape and guide the firm.

John Ryan: Let’s turn a little bit more specific. I’d like to talk a little bit about the upcoming Juneteenth. I’ll admit, this is a day of significance that I was not very knowledgeable on until the last 12 months or so. I’m wondering if you might share with me and our listeners a bit about the history of Juneteenth and what the holiday commemorates. Maybe also why you believe it’s becoming a more celebrated event in the last year or so, or at least has gotten more recognition than it had in years past.

Charise Frazier: Yep. So, here’s what I will say. I think, you know, you pointed it out, it has been one of those little-known holidays, I would say, for years. I think among the African-American community, Juneteenth has been celebrated, certainly, since I was a child. It is a holiday that we celebrate and look to for … Very similar to Independence Day, right? So, for the 4th of July, Juneteenth is very much like that in the African-American community.

Charise Frazier: And just to give a little bit of history behind it, it really serves as the actual day of freedom of the ending of slavery for all African-Americans. And I think what’s interesting about the story of June 19th and I guess, first, why it’s called June 19th. So, that just represents the month of June and then the 19th today. 

Charise Frazier:  In 1865, in Texas, after the emancipation proclamation, and this is more than two and a half years later, there are a group of slaves, over 200,000 slaves, in Texas, had not been freed and they had not gotten the word that slavery had ended.

Charise Frazier: I think this marks the day where really all Americans became free, right? While we look at the emancipation proclamation as that date, because there were so many that were still in slavery, we look at Juneteenth to be the actual day and the day that celebrated as a day of independence and a day of freedom where our country was moving away from enslavement.

Charise Frazier: I think it remains very remarkable and relevant today. It serves as a celebration of the progress we’ve obtained throughout the generations. But it also serves as a reminder of the work that is yet still to come. As we do those celebrations, it’s always about kind of highlight where we’ve been and where we’re going in this fight for equality and justice in America and making certain that everyone have the freedoms that we all believe we should have in the States.

John Ryan: Great. Well, thanks for that answer. That was a good history lesson and also an opportunity for me to better understand, and I suspect our listeners as well, not just about the history, but also about the significance of that date and why we would be celebrating June 19th.

John Ryan: Talk a little bit about the focus more recently, the added notoriety that this holiday has gotten, particularly in my instance, in the last year or so, I suspect for many as well. Just interested in your thinking. I suspect a lot of it has to do with the events of the last 12 months and the result in added significance in a holiday that just didn’t get that notoriety that it had in the past. Anything that you can add relative to kind of the increased notoriety with respect to June 19th?

Charise Frazier: You know what, I think it’s just awareness and education, right? Like, as you mentioned, learning the American history and understanding American history has given individuals a new appreciation of the importance of recognizing the significance of this holiday. But so many didn’t even know why it was a holiday or why people were celebrating. I think most people believe that slavery ended with the emancipation proclamation. And once folks became aware and realize that celebrations were happening, I saw lots of people wanting to join in or better understand it. I think, really, the notoriety is also recognizing the work that we have to still do in this country.

Charise Frazier: I think, as you pointed out, you know, over the last 12 months, the amount of injustices that still plagues the African-American community was just something that I don’t think that a lot of people recognize was still happening in this day and age. A lot of people saw that as being history and not modern-day.

Charise Frazier: So I think as people began to be enlightened about not what happened 400 years ago, but what’s actually still happening today in many different forms. I think folks started to want to have a better understanding of it. And then, like I said, I think here and now it promotes kind of the continued fight for freedoms and equality and rights. And I think lots of people thought we were living in a world that was equal but have learned over the time that there’s a lot of inequalities that still exist. And now we are seeing kind of some movement and momentum to kind of make that change and push towards the quality. I think this holiday is one that gives people an opportunity to do just that, celebrate it, join the in in the challenges, and kind of move this thing forward.

John Ryan: Focusing on the last point you made about joining in, I’d be interested in your thoughts on what can those individuals, our listeners, others, myself, who are interested do to commemorate the holiday?

Charise Frazier: Certainly I think the first thing is just learning more about the holiday. I think, again, as I mentioned early on, Juneteenth is something that I’ve celebrated as a child. However, I too have taken the time to learn more about the history of this holiday and the fact that the first Juneteenth happened in 1866, so the year after the order was entered and taking the time to actually read the order in Texas from Granger that says, “Okay, this is what’s happening,” and kind of everything that had gone around that.

Charise Frazier: I think one of the best things you can do is educate yourself, right? Look at the information, learn as much as you can, recognize the importance and the significance, and then just take some time to reflect on how that may be impacting you, your life, friends or families or any of those things just so, because I think part of it is just understanding. I think allyship comes with making an effort to understand, and once you get that understanding, then I think you’re able to contribute in a meaningful way to the cause.

John Ryan: Great. I’ve got a final question for you. I promise it’s an easy one.

John Ryan: But I’d be really interested in your thoughts on, really, how do all these efforts and these activities that you’ve mentioned, and I love your comments on education and awareness and the value of that as well, but if you kind of wrap all that together, how do all these efforts and activities tie into a larger DEI strategy for our firm and really for our communities.

Charise Frazier: I think one of the things that is important in DEI is developing cultural competencies, right? And cultural competencies, again, goes back to education piece, and that is learning the norms and the backgrounds and the understandings of cultures that are different from. So we here at the firm, on a monthly basis, we highlight various different holidays from different cultures or different lifestyles that individuals may have. And the point of that is to educate our sales around what are some of the norms that are not normal to me but are everyday norms for someone else. And then how can I better understand that so that when I am interacting with someone who’s different or have a different background from me, we can have a positive interaction.

Charise Frazier: I think highlighting something like Juneteenth is an opportunity to introduce a lot of people to a cultural activity that they have not been aware of or, frankly, never been involved in. And so helping to develop this cultural competency also allows individuals to become more comfortable because we’re all human. So as I better understand who you are, your likes and dislikes, the reason you do things or don’t do things, that helps me develop a better relationship with you.

Charise Frazier: I think, both within Hall Render and for anyone who’s developing their DEI plans or processes that you want to help develop cultural competency by constantly introducing your workforce to information and celebrations and cultures that they may not have been introduced to, this will then allow them to be able to interact with folks.

Charise Frazier: I think one of our models is, from a DEI’s perspective, is take the opportunity to learn something new and do something different. And when you’re constantly taking that opportunity to do that, you are oftentimes pushing yourself out of your comfort zone, but as with anything, once you’ve did it once, the second time is so much easier and then it becomes second nature. And that’s what we’re trying to get these things to do, that we celebrate everyone. And those celebrations are very comfortable to all because it’s just second nature kind of deal.

John Ryan: Charise, we’re in good hands with your leadership and that of the DEI committee. I really thank you for what you shared today and the very informative discussion.

John Ryan: Thanks to everybody for listening in today. If you or your organization have thoughts or DEI programs that you’d like to share with us or ideas, please contact us on our website at hallrender.com, or reach out to me or Charise, we’d be happy to chat as well.

John Ryan: Thanks again, and everyone have a great day. Thanks, Charise.

Charise Frazier: Thanks, John.

Implementing Virtual Care as part of a Value Based Enterprise

June 9, 2021 Chris Eades Practical Solutions in Health Care 00:16:46 Comments Off on Implementing Virtual Care as part of a Value Based Enterprise

Implementing Virtual Care as part of a Value Based Enterprise

Virtual care offers many benefits, such as better and increased care coordination, better means of patient follow-up, remote patient monitoring and other general efficiencies, that align with value-based purpose. Hall Render Shareholders Chris Eades and Alyssa James discuss the intersection between value based enterprises and virtual care.

Podcast Participants

Chris Eades

Attorney, Hall Render

Alyssa James

Attorney, Hall Render

Chris Eades: Hello, and welcome to Hall Render’s Virtual Care podcast series. Today’s focus will be value-based enterprise more specifically, how and where value-based enterprise or VBE intersects with the concept of virtual care. My name is Chris Eades. I’m a shareholder here at Hall Render and a member of our firm’s virtual care team. I’m joined today by my fellow shareholder, Alyssa James, who has particular knowledge and experience with value-based enterprise. So Alyssa, before we dive in, why don’t you tell us a little more about you and your practice?

Alyssa James: Thanks, Chris. As Chris mentioned, my name is Alyssa James. I’m a shareholder in Hall Render’s Indianapolis office. My practice focuses primarily on fraud and abuse and regulatory compliance type matters. I work primarily with hospitals and health systems, as well as other types of healthcare organizations on various provider contracting matters, transactions amongst various healthcare organizations, and more complex Stark Law, Anti-Kickback Statute and civil monetary penalty, beneficiary inducement related analysis. In the current value-based landscape, I also work with clients to help them navigate these regulatory frameworks when implementing value-based, risk sharing, and other related arrangements.

Chris Eades: Great. Thanks, Alyssa. So when I look at and think about value-based enterprise at a very high level, 10,000 foot view, to me, there seems to be some clear overlap with the potential advantages of virtual care. We’ve certainly seen those advantages unfold over the pandemic. I think it started with the most obvious, which is the fact that virtual care allows distance in between provider and patient, which has had some obvious advantages during the state of emergency, but we’re also starting to realize, I think some of the other advantages of virtual care such as a better and increased care coordination, better means of patient follow-up, even following up with a patient in the patient’s home, remote patient monitoring, general efficiencies to be gained, and really all of these benefits strike me as very much in line with the operative definition for value-based purpose.

And so I do think it makes sense to really talk about VBE in the context of virtual care. And with that in mind, maybe we could start with you providing just a, kind of a general understanding or giving us a general understanding of what we even mean when we’re talking about value-based enterprise.

Alyssa James: Of course. So when we’re looking at a potential value-based opportunity, I like to frame the various definitions in terms of a who, what, when, where, why, how. Under this type of analysis, the VBE or value-based enterprise itself is the who. VBEs must consist of at least two participants. Those participants can be either an individual or an entity that engages in at least one value-based purpose and collaborate with each other to achieve those value-based purposes. When we’re talking about value-based purposes, those can be one of four things: coordinating and managing care for a target patient population, improving the quality of care for a target patient population, appropriately reducing costs and payer expenditures without reducing the quality of care to the target patient population, and/or transitioning from a volume-based care delivery system and payment mechanism to value-based.

You all may also be wondering what a target patient population is, and I know I jumped sort of from value-based enterprise to value-based participant. When we begin to scratch the surface of the relevant value-based frameworks, the definitions get a bit cyclical because each definition refers to other terms that are defined by the regulation. So bear with me here a little bit as we kind of get into this. But as I was saying, the value-based enterprise has to be engaged in trying to achieve at least one of those value-based purposes that I just mentioned. So in essence the VBE is a consortium of individuals (such as physicians or others) and/or entities (for example, hospitals, physician practices, or other healthcare organizations).

A VBE does not have to be a separate legal entity, but it does need to have an accountable body that’s in control of the VBE. So you don’t have to go out and form a new legal entity or a true joint venture, so to speak. But you do have to kind of come together through a contractual arrangement and allocate who is going to be responsible kind of for governing matters of that value-based enterprise as it works to achieve its goals.

Chris Eades: So, Alyssa, if we distill that down a bit, how would you summarize the general steps required to establish a VBE?

Alyssa James: So at a high level, when we’re looking at this in order to form a VBE, you need to identify the following and who the players are going to be…who your value-based participants are in that VBE. You need to identify the target patient population for which the VBE wants to focus its efforts. So a target patient population can be very broad. It could be all the patients in your health system or all the patients that are discharged from a particular hospital, or it can be very narrowly tailored to a certain diagnosis, a certain zip code, that sort of thing. And when we’re looking at that in that “who, what, when, where” framework the target patient population is the where. So, where are we focusing our efforts?

The “why” would be those value-based purposes that the VBE is going to strive to achieve. The “how” is what activities will the VBE engage in in order to try to move that ball forward, to have that impact on the care coordination or other value-based activities for that patient population. Once you identify all those things, the “who, what, when, where, why” then the parties need to enter into one or more value-based arrangements that spell out those goals of the VBE, any compensation that’s going to flow between the parties and other details of the arrangement to show how it’s structured and how it’s going to be implemented.

Chris Eades: So VBE is obviously a relatively new concept. At this point have you seen health systems, hospitals, or other healthcare providers actively pursuing VBEs or otherwise engaging this process?

Alyssa James: Yes. We’ve been fielding numerous inquiries from clients who are looking to what I’ll call exploring the art of the possible with respect to the VBE framework. I think folks are very excited about it. They’re wanting to kind of see what this framework allows them to do as far as a care coordination collaboration standpoint and how they can really focus in on some of these target patient populations that are applicable to their organization and improve care coordination and patient outcomes. In addition to the creation of VBEs more specifically, I think that these applicable Stark Law exceptions and AKS Safe Harbors that have been implemented under this construct are leading providers and other health care organizations to just generally evaluate other types of risk sharing arrangements or patient incentives that may or may not require the formal formation of a VBE, but fit within that same spirit and framework as care continues to shift from a more volume-based to a value-based model.

Chris Eades: So if we take really that piece of the conversation in terms of what you’ve seen and we talk maybe a little more about where this intersects with virtual care, I know that I’ve seen as part of my practice, the concept of VBE come into play potentially in relation to, or at least a precursor to the provision of telemedicine equipment and platforms by maybe a distant site telemedicine provider to an originating site, location that’s going to be receiving those services. Can you maybe speak to kind of how you might see that come into play in the context of a VBE or maybe some of the potential benefits there?

Alyssa James: Sure. So in addition to the compensation arrangements that may be directly associated of with that VBE’s value-based arrangements, there are certain AKS safe harbors outside of that VBE framework that do lend themselves, I think, to various virtual health activities. For example, there’s a new AKS Safe Harbor for care coordination arrangements that improve quality, health outcomes, and efficiencies. This safe harbor allows for the provision of in kind remuneration. So not monetary compensation, but in kind remuneration amongst VBE participants. So you do still have to form a VBE in order to utilize this AKS Safe Harbor, but under this safe harbor, the recipient of this in kind remuneration can receive something from another VBE participant in the VBE.

The recipient is required to pay at least 15% of the offerors costs for that remuneration, but even so, I think this safe harbor may provide significant flexibility for the provision of virtual health or telemedicine equipment or software, or even staff, maybe for that originating site. If they need a technician or a nurse or something to that effect to help the virtual health platform operate, I think those are all options here under this safe harbor for this VBE to lend some of those things to other participants.

Chris Eades: Alyssa, do you see other potential intersections between VBE and virtual care?

Alyssa James: I do. So I think the intersection here is ripe for opportunity. I think as we’re beginning to scratch the VBE surface, we’re also sort of beginning to just unravel what opportunities are available. But in addition to opportunities amongst VBE participants, which Chris, I know you and I have touched on a little bit already, I think there are other increased opportunities for providing items and services to increase patient engagement. This of course is a very important component of care coordination. We can coordinate as much as we want, but if the patients aren’t buying in or aren’t able to access care, it doesn’t get us very far. And so, for example, there’s another new AKS Safe Harbor for arrangements for patient engagement specifically, this safe harbor is also only available to VBE participants, but it allows the VBE participants to provide in kind items, goods, and services to patients that are valued up to $500 per patient per year, for various patient engagement activities.

So typically when we’re talking about items or services that you can provide to patients, specifically Medicare or Medicaid beneficiaries, the Civil Monetary Penalties Law is much more limiting than that from a dollar value standpoint. But this AKS Safe Harbor allows VBE participants to provide items or services up to $500 per patient, which is huge, I think. And I think that these items and services, although they’re required to have a direct connection to the coordination and management of care of that target patient population that we talked about a little bit earlier, I think it can be a great way to provide maybe necessary technology to patients in order to facilitate their ability to access these virtual care platforms, whether that’s a tablet or increase Wi-Fi in their home, or something to that effect too. I think there’s a lot of opportunities here to make sure that not just that the providers have what they need for this virtual healthcare platform, but that the patients that we’re trying to reach do too.

These safe harbors give a lot of flexibility to VBEs beyond just what’s within the four corners of their value-based arrangements amongst each other.

Chris Eades: That’s a great thought and that will no doubt increasingly come into play. So I appreciate that information. So really at this point, Alyssa, if a health system or a hospital or other type of healthcare provider is interested in pursuing a value-based enterprise, what initial steps would you recommend?

Alyssa James: So I think the first steps are really to think critically about who you want to include, both as fellow participants in your value-based enterprise, as well as what patient populations do you really want to target? Do you want to have some sort of broadly defined target patient population? Do you want to at the outset at least, just focus on a couple of more specific subgroups of patients, whether that’s by disease state or comorbidity or something to that effect? The other thing to keep in mind is an organization or individual can enter into multiple VBEs and value-based arrangements. And so maybe it makes sense to partner with a few folks on one patient population, but then for a different patient population, maybe it makes sense to strategically partner with others. So something to keep in mind there, just kind of really brainstorming who you want to be involved and what patient population you want to target.

And from there, I think developing a plan for the actual arrangement construct and corresponding incentives that will follow, more of your contract terms and things like that. Depending upon the nature of the arrangement, there are different Stark Law exceptions and or AKS Safe Harbors that will be applicable, and each have their own specific set of, as you may imagine, criteria that must be met in order to meet the exception or safe harbor. So once you kind of get that general idea of what the goals are and what you’re trying to achieve, really then putting pen to paper and cross checking that with the applicable exceptions or safe harbors, to make sure that this arrangement is going to be in compliance with this new framework.

Generally speaking, the more significant the downside financial risk that each participant has, the fewer restrictions or burdens there are on the VBE and its participants. Value-based arrangements that don’t have a lot of downside financial risk are going to have a lot more obligations put on the participants, such as monitoring, documenting what is required to be in writing, and annual re-evaluations of whether you’re meeting those metrics. And that sort of goes without saying, right? That the less the downside risks, the more the government is going to make you have to do to prove that you’re not abusing any sort of relationship there. So, just something to keep in mind to make sure that you’re hitting all of those elements that are required for compliance purposes.

Chris Eades: Thank you, Alyssa. That’s helpful information. To our audience, I think we’ll conclude there for today. Thanks for joining us. If you or your organization have questions or topics you would like to share with us, please contact us on our website at hallrender.com or certainly feel free to reach out to me at ceades@hallrender.com or Alyssa at ajames@hallrender.com. As always, please remember that the views expressed in this podcast are those of the participants only and do not constitute legal advice. Thanks so much.

Alyssa James: Thank you everyone.

The Importance of DEI Programs at Service Driven Organizations

April 27, 2021 Ritu Kaur Cooper Practical Solutions in Health Care 00:34:41 Comments Off on The Importance of DEI Programs at Service Driven Organizations

The Importance of DEI Programs at Service Driven Organizations

In this interview, Ritu Kaur Cooper sits down with John Mariano, SVP and General Counsel at Precision Medicine Group to talk about the great work that Precision is doing in the area of Diversity, Equity and Inclusion at their organization.

Podcast Participants

Ritu Kaur Cooper

Shareholder, Hall Render

John Mariano

Senior Vice President and General Counsel, Precision Medicine Group

Ritu Kaur Cooper: Welcome everyone. Today. I am talking to John Mariano, Senior Vice President and General Counsel at Precision Medicine Group. And we are talking about the great work that they’re doing in the diversity, inclusion and equity space. John, so before you start talking about all the great work you’re doing in DEI, I’d love for you to introduce yourself and Precision to our audience.

John Mariano: Thank you. And it’s really my pleasure to be here. It’s always a pleasure to see you, of course, but it’s my pleasure to be here and to speak about some of the initiatives that obviously have gained a tremendous amount of momentum in a little less than a year, particularly in Precision. Precision is a global life sciences service business that concentrates in accelerating the delivery of life-changing treatments and profoundly improving health outcomes. Precision has been around for 10 years now, we’re in our 11th year. We have approximately 2,500 employees worldwide, about 500 of those are in Europe, Canada, and Australia and the remaining 2,000 are in the United States. I’ve been general counsel of Precision since it started, in fact, I’ve been general counsel with the founders going back to 2003, and that was three companies ago we’re on our third business now and this is a very exciting one. And not just because we’re able to make, I think, a big impact on this diversity, inclusion initiative that we’ll discuss today.

Ritu Kaur Cooper: That’s great, John. So, and I’ll tell you I’m not just saying this, I thoroughly enjoy working with you and your team. You can tell that people love working at Precision and they do really love the atmosphere and the culture. I think that’s attributed to the tone that you all are setting at the top. So with that, John, why don’t you tell us about your DEI initiatives that you have at Precision?

John Mariano: Sure. Look as a service-driven organization, our greatest asset is our people. No doubt, that’s the bottom line. We felt after the events of last summer, that we wanted to really now develop a clear vision that respects and celebrates diversity within our organization and the communities we serve. Our vision is to recognize that diversity, promote equity, and elevate a culture of belonging. And we started with a variety of committees, employee-driven and executive-driven committees to try to develop a roadmap to build out these initiatives and we’ve landed on a three-year plan. The plan is largely modeled on the global diversity and inclusion maturity model. And that is kind of composed of four elements, purpose, strategy, initiatives and the fourth element is something that we have, which is our human relations guiding principles. And I’m going to start with the fourth one because that’s important for any organization, including a law firm like Hall Render or any organization.

John Mariano: When you have those guiding principles, I think all roads can lead back to them when you’re talking about your people, your assets, your initiatives like this. And our guiding principles are client service, purpose, accountability, mutual respect, and collaboration. So we want to take those guiding principles, apply them through our purpose in business, and then lay them out in the strategy that goes across three areas, talent, culture, and community. And then we have a number of initiatives under each of those three areas. For example, in talent, we have recruitment programs, talent development, talent, promotion, employer brand, talent metrics. In culture, we have D&I awareness and D&I training, employee committees, listen and learn circles, which I want to talk about a little later, that’s important, I think, and communications and messaging. And then finally in the community, we’re trying to develop philanthropic support in our communities, a sense of volunteerism amongst our employees, a commitment to that, and supplier diversity. For example, we just launched within the last two weeks, I think it was announced last week actually, that we now have a company-wide volunteer time off program, a VTO program, which, obviously aims to encourage and promote employee volunteerism within our communities.

John Mariano: So that we think, this three-year plan will be able to help us develop and sustain an immersive culture of diversity and inclusion and ensure that diversity and inclusion are demonstrated through tangible actions and align our corporate social responsibility to identify opportunities and partnerships that materially impact the industries and populations that we serve.

John Mariano: Finally, one quick note, which you know, is as a privately held company and as largely a service provider to pharmaceutical biotechnology companies, our client base is looking at us to ensure that we are following these D&I initiatives. That we have best practices, that we are really pushing out these kinds of initiatives across the organization. And we are almost always asked about what those initiatives are and what we’re doing by the clients when they do preparations for an RFP or incline audits as well.

Ritu Kaur Cooper: So goodness, John you’ve shared a lot. I mean, it’s incredible. I mean, you can tell that a lot of work has been put into that.

Ritu Kaur Cooper: So of these initiatives that you have, whether they’re recent or you’ve had them for a while, which ones of them do you feel are having the greatest impact on your organization?

John Mariano: I would say that there’s probably three or four. The employee-led committees that we formed early on were extremely powerful and had a great impact in developing the course of action we wanted to take. And it came right from our employees, we had volunteers, we had a number of committees set up, they all worked together collaboratively and created a roadmap that was ultimately developed into our three-year plan.

John Mariano: One other thing is we’ve established partnerships with several nonprofit organizations that we feel you will help us provide internships, sponsorship donations within the communities we serve, where our offices are located to create a bigger impact in that regard. And the third one actually is probably the volunteer time off, like I said, that was announced last week and it really had a great reception amongst the employees and I think it really shows, we’ll talk about this from the leadership standpoint, but that leadership is behind this initiative. That they’re supporting the workforce’s ability to take time away from work and contribute back to the communities and the volunteer causes that you may feel are important to you and that align with the D&I initiative. So those probably are the biggest ones so for.

John Mariano: The final one that I kind of want to mention, at least here, it wasn’t necessarily an initiative, but last summer when so many of our communities were turmoil, and many of us were personally at turmoil about what we were seeing and what had happened with George Floyd, kind of obviously there’s just so many other incidents that we could mention that proceeded that. We had a series of Zoom calls, you know our business lines and the Zoom calls were largely within the business lines. But as general counsel, I was able to kind of sit in on some of those in addition to the corporate call. And those calls were so powerful Ritu, I can’t even begin to describe the impact that they had on me. And I think the impact they had on propelling or turbocharging the momentum for these initiatives to be adopted and enacted. The emotion, the raw emotions from some of our employees who have experienced discrimination, injustice, inequality was eye-opening. I was on one call where a senior executive was literally in tears on the call hearing stories from some of our younger employees who face this every day, who confront this inequity in terms of it being singled out. One person said, “Walking while black.” You just can’t fully understand it, probably ever. But, when you hear it and see it and listen to it on a Zoom like that, obviously, the best we could do was a Zoom because of the pandemic. But, it had a tremendous amount of power. And the additional thing in that was a lot of the young mothers that worked for us or mothers with young kids, I should say, perhaps. They talked about the struggle of teaching their kids right and wrong.

John Mariano: Teaching their kids equality. Teaching their kids freedom. Teaching their kids about a non-racist society or a non-racist basis. And, literally, just getting smacked in the head over and over again when they see these events happen. And when they have to explain things like this to their kids. And the frustration that they had. That was really a very, very powerful initiative. It had a tremendous impact. If that’s something that an organization can do, I would strongly encourage that they do it. Because that’s the listening and learning that needs to happen to really see the impact that some of these initiatives can have in the real world.

Ritu Kaur Cooper: John, I couldn’t agree with you more. And actually, I’m getting probably a little emotional hearing you say that. But we did a similar thing, John. We did some town hall meetings. I was one of the facilitators. I did not expect to become emotional when I talked about myself and my family. Just thinking about it right now… I don’t know if you know John, but my husband is black. I’m married to a black man. I’m raising two black boys as well as Indian boys. They’re black and Indian. And I will be honest. I’ve always been a worrywart and never really felt totally comfortable until Tony has come home or he calls me when he gets to his location. But in the last few years, if I go four or five hours and not hear from him, I wonder. I do. I’m sorry. I didn’t mean to…

John Mariano: No apologies necessary. You are reminding me exactly of the force of impact that those discussions had. To hear that really brings home the challenges that we have ahead of us. I can only say that from my standpoint, one of the things that I felt that came out of it best was, you know our chairman, Ethan Leader and our CEO, Mark Klein, they are our co-founders. Our ability to hear this, but then encourage these mothers, to tell them you have to stay strong, you have to continue to teach these pillars of equality, justice, diversity, inclusion, those kinds of things to your kids. Because that’s what we’re counting on.

John Mariano: It all happens at the ground level. It all happens. It takes a village. I think that helped some of these moms on the calls, to hear that coming from Ethan and Mark and Chad and me and some others, obviously that you know. I can say that it probably would be good if we moved on because your emotion is also getting me emotional, too. That’s exactly the way I felt. It was really, really powerful stuff.

Ritu Kaur Cooper: Then I’ll switch to a funny story. I don’t know if Tony and I are doing right or wrong. When all of these issues have been occurring in the last couple of years, we asked our older son, who is now seven. I think at the time he might’ve been five or six. We asked him, “Shaan, you know that you’re black and Indian, right? That makes you Blindian.” And he looked at me and he goes, “What mommy?” He said, “No, I’m not. I’m peach with cream on the inside.” And he’s looking at his hand as he’s saying that. And Tony and I look at each other like, oh my God, are we doing something wrong? I said, “No, you’re black and Indian because your daddy is black and your mommy is Indian.”

Ritu Kaur Cooper: And he said, “Mommy, daddy’s not black. His skin is brown.” And then I repeated, “No, your father is black.” He’s like, “Do you mean because he’s wearing a black shirt?” Honestly, John, Tony, and I looked at each other and we’re like, oh no, either we’re doing something right or we’re not doing something right. You’re seeing the world through a five, six-year old’s eyes. For him, we’re very, very fortunate to have a very mixed group of friends and family. In our culture, we call anyone who is your parents’ friends, auntie, and uncle. They call someone who is white auntie. They call someone who’s white uncle. They call somebody who’s black auntie. Asian, Indian. For them, once we tell them that they’re part of our extended family, that’s their response. I’m hoping that you’re right, that if we’re teaching that to these children and that when they see everyone, they notice that they’re different. I don’t want them not to notice the differences. But, that they all look at them and they all look at everyone as equal.

John Mariano: I think the younger generation, I’m a little more senior than you. I have a 26-year-old, a 24-year-old, and a 22-year-old. And the extent to which their interactions are colorblind, amaze me. This is my own personal viewpoint. But, there has been a seismic shift in that from a generational standpoint. I’m hoping that that is also a foundation for our ability to move on past some of these things that have really been a drag on the country, our culture, and so many other things. I’m optimistic in that regard. I really am. When you hear stories like that from you, when you hear stories from the moms with young kids and how they teach these kids and how they’re committed to teaching them about equality, justice, right and wrong. And then you see it when they get a little older like mine and how it translates into the real world and their lives. It’s pretty powerful stuff. Yeah. It’s pretty good.

Ritu Kaur Cooper: Well, that’s great. But John also, that’s a tribute to you and your wife. Raising them. It’s not just to their world, but it’s also to what you see at home because kids repeat what they hear at home also.

John Mariano: And that’s really one of the big takeaways. Not just the listening and learning and the eye-opening aspect of hearing these stories directly from some of our people. But, that created an opportunity for us to encourage those same people to continue those kinds of lessons and molding and building of your kids. And it is. It’s vitally important.

Ritu Kaur Cooper: That’s amazing. With the initiative that you have, John, how are you capturing any of your DEI metrics or ensuring that they’re working or evaluating them?

John Mariano: Probably no different than you guys would. In an analytical world, as we get more and more into metrics, controlling everything we do. Again, we have three elements here. The first is engagement. We wanted to engage our employees in these kinds of things. We created interactive presentations on our intranet, as well as we have something called Precision Pulse, which is a newsletter that goes out every week. For example, one of the early things we did was we launched a company-wide voluntary training.

John Mariano: We went out and licensed a video called the History of Race in America by Jeffrey Robinson. And we built that into an initial, internal DNI curriculum. If you can get your hands on it, it was relatively inexpensive, the license arrangement. In fact, they were thrilled that it was being used for this purpose. that’s a great and powerful presentation that we launched early on. And that attracted people in to make them understand what we needed to do here. The second element would be the metrics, the numbers. We hired a consultant, like most businesses would, in an area that we want to learn about and understand and get ideas in terms of how to address, no different than a law firm getting a Management Consultant or a consultant on how to run the business or a consultant on how to train your associates, or whatever the topic may be, how to train your partners maybe even. That consultant helped us map out the kind of industry-wide benchmarks that we needed to look at. Now, coming back to three’s here, but three aspects there were total US workforce percentages, our industry, biotech, and then our company and how our numbers matched up to see where we need to improve and where we need to target further inclusion and diversity.

John Mariano: We were fairly pleased, at least at first glance. We exceed the biotech industries metrics for percentage of employees that are black and Hispanic, so we were happy to see that. Without the framework of the initiative that we have going on now, we had at least created a workforce that we felt was balanced and moving towards more diversity and inclusion. We were surprised we were very low on Asian employees. We were well below the biotech industry percentages, but we were well above the overall US workforce. So we’ve got some work to do there, but that was great to kind of look at a roadmap basically, kind of a map of everything that we can figure out where we needed to put some attention to.

John Mariano: And finally, again something else that is just recent, we have hired a Head of Diversity Inclusion in Corporate Social Responsibility. Her name is Temi Adonja. We were able to steal her from Price Waterhouse, which we were very happy about. She just started about a month ago and she’s obviously on a listening and learning tour now to kind of absorb a little bit more about what we want to do, understand our plan better and we are all really really excited about that that’s for sure.

Ritu Kaur Cooper: That’s incredible. John, quick question because you mentioned US-based and you guys are global, do you have initiatives outside of the US and if so, are they different? What do they look like?

John Mariano: We have included Canada and Europe in these initiates and they’re not very different at all. The interesting thing from the European standpoint is the challenge there was translating the initiative out of a stereotypical understanding of America and racism, frankly, and into cultures that actually very very open to diversity. Many of our European, notwithstanding the rivalries within European countries or nationalities, many of them were all like, “Well, that’s what we do here. We don’t look at people as black or Indian or Asian or white. It’s the person.” And so, they were very receptive to all these initiatives, and I think uniquely interested to see how they could participate alongside an American company to help improve diversity and inclusion. So that’s been a big plus. We have HR Directors in Europe who help work with that and Temi will help be a global enterprise-wide leader of the diversity and inclusion initiative, too.

Ritu Kaur Cooper: That’s great. I definitely would love to connect with her in six or nine months to see what she’s learned. I think that would be a really great perspective. It’s like you said right now her job is to just listen and to learn and then assess. Well, congratulations on that. That’s a big deal. That’s a really big deal. We’re trying to walk the walk. Exactly.

John Mariano: We can talk all about it all you want, but until you start dedicating resources and time and talent to this initiative, that’s all it is, just talk of the talk. We’re really excited about Temi coming on board. I think it’s a huge addition. Again, supported at the highest levels of the company. This has been a priority for Mark and Ethan from day one. My hats off to them because it starts at the top. You’ve got to set that tone at the top. Like any service organization like or anywhere, you need it to come from the top.

John Mariano: You know Mark Klein a little bit. He tends to look at of our leadership and our dynamic duo, Mark tends to look at the bottom line a little more so it’s a big accomplishment to get him to dedicate the resources, anything beyond the basics here. I think that speaks volumes as to how important it is, and even he recognizes that, too.

Ritu Kaur Cooper: Absolutely. I think you’re touching right now on my next thought, which is leadership. Obviously, you’ve put the resources in, you’ve hired someone to be the global head of diversity for your organization. You’ve put all these other new initiatives or reinvigorated old initiatives throughout the organization. Tell me from your perspective, why is it so important for that tone at the top, to have leadership understand the diversity and inclusion initiatives?

John Mariano: It should not be as glib as walking the walk or as glib as it starts at the top, but let’s face it, it does. Leadership is critical in effecting real change. When leadership cultivates a culture of respect, education, and dialogue we know that our teams will do the rest. When you tie that into our guiding principles and having a common theme that leadership can embrace and then push down within the context of a DNI initiative like this it has tremendous importance and impact on our people. We have phenomenal people. You’re kind enough to say how much you like working with us and our teams. We really have phenomenal people. When they were offered the opportunity to identify challenges and encouraged to design the solutions we got progress. We put those employee committees together and that was really a big big step in the right direction early, an important step in the right direction.

John Mariano: Now, leaderships role is really, we’ve got to insure that we’re offering support, constantly supporting these initiatives. Whatever the forms are, developing the right forms so that we advance diversity and inclusion and advance it within our culture of the guiding principles I mentioned earlier. That’s really important. Like I said, it’s been embraced by our chairman and our CEO and I don’t know if I mentioned this to you before, but my little sacrifice as a somewhat of a leader was that my assistant Donnea McClinton who has been with me for quite awhile and is really invaluable to me, asked that she be given a new opportunity to expand her professional career and to be a leader and work hand in hand with Temi, our new Diversity and Inclusion Officer, to help push out and roll out these initiates across precision.

John Mariano: I had to give up Donnea to something much more important than my daily whims and eccentricities and whatever else you would call them, but that I think shows how there are all kinds of little opportunities to help someone really grow professionally within this kind of diversity and inclusion model. Donnea is black, she’s African American and she has embraced this new role and it’s just really really satisfying for me to see her want to do that and then to start on a path of success for that. You talk about getting emotional before, that gets me a little emotional now. I’m really proud of her. So that’s kind of the support. That’s kind of a real-world example. You got to get out of your comfort zone. I got to make my Zoom calls now and I got to do some calendaring on my own and things like that, but it’s all for the better. It’s for the better for someone like Donnea and it’s for the better for the organization.

Ritu Kaur Cooper: That is a huge sacrifice, John. Since I’ve known you, Donnea has always been there and is incredible. I think she knows what you’re doing before you know what you’re doing. But just like you said, that is amazing to recognize. I actually think it’s amazing that she felt comfortable to ask, which also then goes to your organization being a place that is supportive open because she could have been in an organization where she would have felt reluctant to even ask, to want to pursue and expand her professional prowess. So I think that’s … Kudos on both sides, but oh my goodness. I am so sorry.

John Mariano: Yeah. So far, so good. She’s been keeping an eye on me. I’m just really, really proud of her that she want to expand, obviously her professional career, but at the same time she wanted to play a leadership role in this initiative. She saw it as something important to Precision, and in her role as my executive assistant, or I’m not quite sure what her official title was, but my right hand basically, she’s a gatekeeper. She sees so many people interact with the legal department across the entire organization, across the entire world. And I think that she was able to take this broad-based knowledge of the organization and say, “Hey, this is something I can help with. I know these people, I know the players, I know people all across the organization. I know how they operate.” And it’s really just a great opportunity for her. It was a no-brainer. It was a no-brainer.

Ritu Kaur Cooper: That’s great. Well look, John, I could probably talk to you for hours. I do. I absolutely love talking to you. So I know I could.

John Mariano: The feeling is mutual.

Ritu Kaur Cooper: But our audience may not want to talk to us or hear us talk all day. So could you give our audience just maybe some best practices or lessons learned or something, just as a parting thought for them to think about as people go about their initiatives that they’re doing for their own organizations?

John Mariano: I’m afraid this is going to be a little repetitive, but I still love this whole idea of empowering your employees to create a structure to how this should move ahead, how an initiative like this should move ahead. That’s number one. And number two really, I think were these town halls, these Zooms. I learned so much. The lessons I learned in that were so powerful personally, professionally. I know we had internal meetings amongst the executive management group afterwards, after sitting through all of these. We had a number of meetings. And we were all blown away at the power of these stories, of these personal challenges that people have. You just get so comfortable in that work mode.

John Mariano: You are a longtime friend of a young lawyer who has worked with me for almost 20 years now. And I know her in this work context, but I don’t know those challenges she’s dealing with, with her kids at home and what they confronted and what they see and how it impacts her personal life. And to have this 360-degree view and to really understand the challenges that mothers with young children are dealing with and the challenges that some of our younger members of the workforce are dealing with. Again, eye-popping. That had an incredible impact on all of us in the leadership group, as well as you just learned a lot of lessons about how challenging it is to raise kids, as you noted, the challenges that you yourself personally deal with. To hear that just creates a whole new perspective, I think.

John Mariano: One other thing was really interesting, which I guess maybe a simplistic way of looking at where we are in the arc of time in this challenge that our country’s had. So many of our minority younger employees, when they would tell stories about being picked out, being pulled over by police over and over again, by being afraid to walk home because if they’re walking through a white neighborhood or something, I mean, just all kinds of stories that they told us. It came back to something that I think is really driving a lot of this today in our culture and in our country. And it’s very simple, enough is enough. Enough is enough. And to hear this from some of these younger kids, that had a big impact on me too. They’ve seen it with the parents. They’ve probably seen it with their grandparents, and now they’re living it. And their viewpoint is enough is enough.

John Mariano: And I think that really, we took away from that saying, it’s now or never. We can’t just let this float along or just let this slide. We need to take concrete action to put in place a real diversity and inclusion program for Precision that really works. And I think that was a big, big lesson that we learned to help propel us to that point. So we rolled into these town halls, whatever you want to call them, in June and July, and they were a really great way to let people talk, let people hear, listen, understand and learn. And it was really, really helpful.

Ritu Kaur Cooper: And because you love threes, if you want to say a third, I’m okay with it.

John Mariano: No, I think I’ll stick with two on that one.

Ritu Kaur Cooper: All right. No problem at all. Well John, thank you so much for sitting with me today, and if it is okay, I would love to be able to check in on you guys in six to nine months, and to see the work that Temi and Donnea are doing, and to see maybe where your program is.

John Mariano: That would be great. I’d love to do that.

Ritu Kaur Cooper: Awesome.

John Mariano: It’s always good to see you and get to do something fun like this. I almost feel like this is a kind of a Francesca Mariano podcast. That’s an inside joke for our audience, but Ritu can tell you if you want to ask about it.

Ritu Kaur Cooper: Well, hopefully, she approves.

John Mariano: Yeah, it’s not as much fun as she’s having right now talking about the Oscars last night, I’m sure, but this is still a really important topic. I am so pleased you asked me to share this with Hall Render and your colleagues. It’s been a great relationship that we’ve built over the last five years or so as a client of the firm’s. You guys have done great work, and I’m looking forward to a little up on this too. It’ll be interesting.

Ritu Kaur Cooper: Well, great. Thank you. Thank you, thank you. And I hope you have a great day. And to our audience, thank you so much for tuning in.

A Look at the Evolution of Health Care Delivery

March 29, 2021 Brian Betner Practical Solutions in Health Care 00:54:59 Comments Off on A Look at the Evolution of Health Care Delivery

A Look at the Evolution of Health Care Delivery

Join Hall Render attorney Brian Betner, along with Jacob Bregman of Everside Health, Meg Duffy of DispatchHealth and Chad Knight of Encompass Health – Home Health & Hospice, for a discussion exploring how health care delivery is evolving with an emphasis on patient access, meeting patients where care is needed and the importance of integrated post-acute care. From the perspective of industry innovators, the panel will discuss the opportunities and challenges in navigating health care status quo and their thoughts what tomorrow holds.

Podcast Participants

Brian Betner

Attorney, Hall Render

Jacob Bregman

Everside Health

Meg Duffy

DispatchHealth

Chad Knight

Encompass Health

Brian Betner: Good afternoon everybody. Thank you so much for investing your time with us on what hopefully is a beautiful afternoon to you somewhere. My name is Brian Betner again, I’m an attorney with Hall Render.

Today we have an impressive panel on the whole notion and concept of the evolution of healthcare delivery. We’ll be talking about trends and opportunities and challenges in navigating the healthcare status quo, from the perspective of a few organizations making a splash in their respective areas, and hopefully touch some expectations and predictions for the future.

But before we dive into the panel introductions, I want to provide an overview for our panel of who we have participating today, and there’s a number of us across the country, whether as a participant, you’re a hospital or health system representative or multi-specialty group practice or home health or hospice, we have a broad array of individuals on the phone or on Zoom with us now and I’m sure you also have interesting insight experiences that may guide questions during the next hour or just short of that. So please use the Q&A feature to pose those as we proceed here over the next, like I said about an hour.

Our goal today is that whatever your role is in the industry, you’ll come away with something, a new idea, a fresh perspective, a new strategy that you can apply to your organization or your role as you navigate this evolving healthcare landscape. So to give you an idea of what to expect, we’re going to take a few minutes for each of the panels to briefly introduce themselves, tell a little bit about their background and the industry and their respective organizations.

I will then kick off our conversation with a very brief overview of what we mean by the evolution of healthcare, and then ask some questions that draw out some of the high-level themes that we hope to be talking about here over the next hour and gets you thinking.

And then toward the tail end of our hour today, we’ll open up the Q&A to give you an opportunity to ask specific questions that you’ve been thinking about or to help you navigate some of the issues that have been challenging for you. So with that, again, we’re grateful for your time today, unless you have any initial questions, let’s get started with a few introductions. And so now I’m going to turn to Meg Duffy with DispatchHealth. Meg, thank you for being with us today.

Meg Duffy:    Thank you, Brian. I’m happy to be here. I’m going to just as part of my intro cover three things. Who am I? What do I do? And what is DispatchHealth? So my name is Meg Duffy, I’m the VP of Strategy at DispatchHealth. I joined Dispatch in August of 2020 in the midst of the pandemic. And prior to joining DispatchHealth, I spent about a decade on the health system side working for various health systems in the industry, always in a strategy role.

And that brings me to my second thing. What is strategy? What do I do? Because often I get that question, what is strategy? And I would describe it as, the way that a mentor that was very important to me did years ago, strategy is watching what’s happening on the fringes of the world that we live in and how it’s going to impact how we deliver care in the future. So it’s exactly I’m aligned with, I believe the topic here, the evolution of health care delivery.

And then what does Dispatch do? DispatchHealth really as a tech-enabled provider, a company that partners with health systems and payer groups across the country, to deliver medical care in the home to hopefully avoid unnecessary urgent care emergency room visits and hospital admissions. So in a nutshell, that’s me, what I do in strategy and DispatchHealth.

Brian Betner:  Thank you so much, Meg, I really appreciate it. Chad, thanks for being with us today, tell us about yourself.

Chad Knight: Thanks Brian. And legal is not as interesting of an introduction as Meg’s in Strategy, but I’ll try and share a little bit about the company too. My name’s Chad and I’m general counsel, Encompass health, Home Health and Hospice. Our Home Health side is the nation’s fourth-largest provider of skilled Home Health services by revenue.

Our hospice side is the eighth largest provider, we operate in 31 States with the concentration in the Southern half of the US. And then just Home Health patients are frequently referred to us following a stay in acute care or inpatient, rehab hospital or other facility. And we also have many patients referred from primary care settings and specialty physicians without a hospital stay.

Our patients are typically older adults with three or more chronic conditions, significant functional limitations, and may require a number of medications. We also provide Hospice services to terminally ill patients. And look forward to sharing more through this panel. Thanks.

Brian Betner:  Oh, that’s great, that’s great. Thanks so much, Chad. Jacob, so it looks like we’re interrupting your mountain retreat, so sorry for that, we really appreciate you giving us time here this Thursday afternoon.

Jacob Bregman: Well, thanks Brian. Good afternoon everyone, and thank you for having me. My name is Jacob Bregman and my role is the market president for the West side of the United States for Everside Health. So in that role, I’m responsible for operations and client relationships operating about 50 health centers. And before working at Everside health, which I joined in 2019.

Similar to Meg, I have some background working in health systems, so I worked at university of Colorado hospital here in Denver, prior to that I worked at DaVita dialysis company. And started off in healthcare at the advisory board company in Washington, DC.

If you’re wondering what is Everside Health? So Everside Health is the country’s second-largest provider of direct primary care. And Everside Health has a new name and a new brand for us just within the past few weeks. Those on the call may know us as Paladina Health, Activate Healthcare or Healthstat. Those are the three legacy companies that merged together to become Everside Health.

And what we do in a nutshell is we partner with employers, we partner with unions and we develop onsite, near-site and virtual primary care services. So the typical challenge that we address with our clients is groups, particularly employers are seeing healthcare costs go up and up and up, but they’re not seeing necessarily the quality of the health that their employees and their dependents are receiving going up.

So our model involves really giving primary care providers a lot more time to spend with their patients, longer appointment time, smaller panel sizes. We hire providers who work at the top of their scope to fulfill potentially up to 90% of a patient’s healthcare needs inside primary care. And then we try to make the incentives aligned to ensure that we’re providing high quality and at the same time, low-cost primary care. So that’s Everside in a nutshell, and again, thanks for having me.

Brian Betner:  That was great, Jacob, thanks so much. So you touched on a number of issues, hopefully, we’ll explore here today. So let me… As I commented on a few minutes ago, before we dive into the panelist perspectives and experiences, I want to give a very brief backdrop. So we talk about the evolution of healthcare. We’ve had a bit of a level set with everybody in terms of what we mean.

So when discussing the notion of an evolving healthcare landscape, in terms of how and where care is being delivered, it’s important to have a background that speaks to what’s driving the evolution. And so here’s how I’ll tee that up for us, just so we’re coming from the same point.

We’ve had a perfect storm of sorts for the last 20 years or so, and if you want to go back to 1999 and 2001, the whole notion driving quality, that really brought at least when you’re a healthcare provider and you’re involved in policy and quality and how we deliver. The Institute of medicine [inaudible] crossing the quality chasm release Seminole papers, that started a dialogue certainly within the federal healthcare system, in terms of the return on investment that American healthcare gets in a prevalence of patient safety events, et cetera.

And then when you compound that with social security trust fund insolvency issues, CMS’s hospital quality initiatives, the joint commissions national patient safety goals, dramatic advancements in HIT. I mean, if you go to any healthcare provider from a line item standpoint, that health information, whether it be the chief technology officer or whatever the title is, they have an insatiable budget, because there’s all sorts of toys out there, that dramatic advancement in HIT are really driving things.

The advent of the triple aim, certainly increased fraud abuse compliance enforcement with additional funding, which creates scrutiny and opportunities to avoid certainly the whole notion of corporate negligence and negligent credentialing takes a very significant role. A host of market trends, patients have a greater expectation today in their experiences and their quality and their outcomes. And certainly quick-moving commercial payers.

That entire perfect storm that’s been happening the past 15 plus years feeds into what’s happening today, there’s a longstanding Axiom that continues I believe to be true, which is that reimbursement policy drives delivery system change. And we have seen that through the affordable care act, now just a hair over 11 years, two days ago, it was 11 years old, I guess.

But CMS has made its goal very clear and shifting that the largest payer in the country in terms of lives touched in relationships with healthcare providers, its goal of shifting Medicare and Medicaid away from fee for service, to being more oriented toward value-based and pay for performance, quality control, cost control, driving integration among providers, et cetera.

But this is really challenging when you consider that so much of the foundation of our healthcare infrastructure is built on or has been built on not inappropriately, but is built on acute care, and inpatient focused mindset, patients coming to providers, certainly a hospital anchored design, a hospital-sponsored and funded design, if you will. And these and other factors have contributed to a very meaningful shift in where and how care is provided.

Generally, I would say an emphasis on primary care, pre acute and post-acute, care of individuals and certainly end of life issues among other matters that are starting to become prevalent because of the costs involved in care, there’s a data point, an overwhelming percentage of Medicare’s budget is attributed to the last 180 days of life.

And we’re starting to look at that as a society and a country, and as a result of all these pressures, healthcare industry has been making efforts to improve its efficiency, access, quality, affordability of services, and lots of changes have occurred, and especially the past few years as a result of these efforts, for example, I mean, we see a tremendous, measurable, I should say, decrease in hospital admissions as more people are served throughout the outpatient care continuum, we’ll call it.

And so, there is a confluence of events and activities, and we’ve got a lot of innovators around the country, it’s really amazing. Anything is impossible in healthcare, but for some hurdles and challenges, of course, that hopefully we’ll explore today. So with this as a backdrop, we’re going to turn to our panel, and Meg I’m not picking on you, we started introductions with you.

But I want to start with you here. And here’s what I want to set aside, so that everybody understands this. The whole notion of COVID elephant in the room, this is not so much a COVID panel discussion, but we can’t avoid it. It is probably the prevailing or the dominant experience for many of us, certainly over the past 12 plus months. But the past several years have involved some common denominators for all providers in terms of them shifting the patient experience and emphasizing quality, addressing population of health issues and certainly efficiency and cost control.

So with those dominant factors, Meg I want to start with you, because in some respects, DispatchHealth it’s existence, it has to do with many of these things. So, can you describe for us Dispatch’s mindset and how it shows it has started to address these trends?

Meg Duffy: Yeah, absolutely. So, I wish I could speak firsthand to being one of the founders of Dispatch, but our co-founders started Dispatch in 2013 really after decades of working as clinicians, our CEO Dr. Mark Prather is emergency medicine Physician and the stories he tells about seeing people come into the emergency department and thinking there’s got to be a better way, I don’t know that they’re going to get their meds, I don’t know that they’ll follow up with their cardiologist.

You know what? I don’t have any context of their lives, they come in, we treat them and they’re out and he started to think there’s just got to be a better way. So he started in Denver where we’re headquartered, piloting really with EMS agencies to re-imagine the 911 response. And using a proprietary risk stratification model and some logistics engine we have within our platform. We’ve been able to prove that you can safely risk-stratify patients, determine who’s appropriate to be seen in the home and effectively take those clinical capabilities to the home.

 We have a set of providers, an emergency-trained physician assistant, or a nurse practitioner along with a medical technician that goes in the home with the clinical capabilities to be able to treat people where they are and meet them where they are and avoid unnecessary trips into the emergency department. So saving the unnecessary costs, not just in the emergency department, but also for the EMS agencies and transporting those patients.

So we quickly realized, okay, not only are we able to accomplish this at a lower cost, but over the years now, as we’ve scaled the model across the country, here to date, our NPS score is still 96, which is just phenomenal, you don’t see that very often in healthcare delivery, that high of a patient experience for our net promoter score has consistently maintained that high.

Our outcomes we believe to be superior, particularly as we branch into areas like hospital at home where our readmission rates are less than 4%, our unexpected mortality is zero. And so we’re able to say, gosh, we’ve taken care back to the home, we’ve had to do some testing,  started small, but as we scale, we continue to see lower costs, better experience and better outcomes. And our providers love it. They have more autonomy, they are able to experience a better relationship with the patients, they see their pets and their family members, and they get that context of the social determinants of health that you may not get in other care settings.

So that’s sort of, you’re exactly right, we were born out of this mentality of, there’s got to be a better way to achieve the triple or quadruple aim. And I’d say, five-plus years later operating under the Dispatch health model, we’ve been able to prove that it’s possible.

Brian Betner:  So there’s a lot to unpack there. I like that. Jacob, let’s go to you. I want to understand the direct primary care model that Everside is largely built on today in terms of its priorities and emphasis. How does… Dispatch has found a sweet spot in terms of where it’s seen a void. What is Everside’s view in terms of how direct primary care plays into that?

Jacob Bregman: Yeah, absolutely. I love what Meg said and it resonates with our philosophy of, there’s got to be a better way. And I think the niche that we fit into is people who sponsor health plans. So typically employers, Taft-Hartley union groups, some benefits trust funds. As I mentioned before, healthcare is not necessarily going up, even as costs go through the roof.

And so our approach is basically to proactively and comprehensively manage primary care. And we do that through a mix of brick-and-mortar primary care clinics, and as I’m sure we could all speak to the growth of virtual care over the past year.

So a couple of things that I think are highlights of the model, we leveraged technology a lot to risk-stratify patients. I’ll give you an example, I know Brian, you don’t want to go to COVID quite yet, but it’s pertinent in this case. A year ago when nobody really knew what was happening with the Corona Virus, we were able to leverage our analytics and stratify our patients, basically depending on their risk factors, if they were to contract the virus, the higher risk folks got a personal call from their primary care physician, the next step down, they might’ve received a call from an advanced practice provider or from medical assistant or a web message, basically letting them know, Hey, we’re here for you and getting those patients, getting their medications refill, getting them care as they need it. Sometimes just reassuring people.

So not dissimilar from DispatchHealth, a big part of our model is keeping patients away from higher-cost locations for care, such as urgent care or the emergency department, and when possible managing healthcare within primary care. There are things we can do related to dermatology is a great example, women’s health is another example, wherewith the well-trained family medicine physician, our advanced practice provider, we can take care of those needs for the patient within our model at no cost to the patient. And that voids a specialty visit that enhances coordination. And because we’re not worried about following up on referrals and records and things like that and convenience and time savings for the member.

Brian Betner:  Does the current reimbursement scheme, the major payers, governmental and commercial, do they facilitate that? I mean, I often use an expression when I talk to physicians today that a lot in advanced practice professionals a lot is required of them today, and there’s no CPT code for it, right? They’re being asked to do things in a management way that may not fully align with the reimbursement system. Is the model you just described? Does it fit well or a lot of these things don’t value adds.

Jacob Bregman: Yeah, it’s a good question. So the broad model that we fit under is direct primary care, and the direct word basically references that we view our relationship as between the provider and the patient, whereas in traditional fee for service medicine there’s the insurance carrier if it’s in there. So for the most part, we don’t bill at all. There are certain instances where the IRS requires us to bill under high deductible health plans and things like that, but for the most part, members might… You might compare your access to Everside Health is like a gym membership. We collect a flat fee or a monthly fee, and then members come in and use our care as much, or as little as they need it doesn’t matter, there’s no impact on reimbursement if it’s virtual, if it’s in person, if it’s by a text message.

So that’s one of the really nice things, and I think the providers who work in our model really enjoy that, they’re not spending time billing and coding and up charging, they’re just focused on providing the right care to the patient.

Brian Betner:  So, Chad, Jacob just described a pretty flat relationship to payers, a little more streamlined, but that’s not your experience, right?

Chad Knight:  Right. And I mean, Home Health for a long time is very much fee for service, we’re seeing, I think within the past seven years, and it’s just growing and growing is new payment models. And so things that shift more to the value-based care like we talked about earlier, right now Encompass we’re collaborating with about 140 within different payment models, so these are NXGEN, ACOs, MSSP and direct contracting is one of the newer ones coming from CMS.

So, as that landscape changes our ability to fit in and provide more value-based cares is growing too, so I think that’s just going to keep increasing as we go into the future.

Brian Betner:  Is that having to maintain competency over 140 or so different payment models, how does that… Explain to me how that works? That seems a bit minomic.

Chad Knight:  Yeah, there’s probably only a dozen or so different payment models, but I think MSSP has been around and NXGEN have been around longer, so those are pretty standard now, but as we’re working on direct contracting models, that’s new and everyone’s getting their templates together and things, so that takes more time, I think that’ll get easier as time goes on.

But even just working with the 140 different, whether it’s physician groups or hospitals or ACOs, each of them depending on the region has different things that’s important to them and drafting the contract in a way that aligns best in the patient’s interest really is I think the fun part about the new models. So that’s what we’re working through and that takes time with each relationship.

Brian Betner:  Meg, Encompass can align through recognize participating provider arrangements with commercial payers and Medicaid, Medicare, et cetera. How does that work for Dispatch?

Chad Knight:  Yeah, I mean, we are contracted with 300 plus managed care contracts across the country, we have 150 plus covered lives that have access to DispatchHealth through those contracts, and then of course we see Medicare and Medicaid, and we’re looking at how to participate with direct contracting as well. Most of our interest comes from health system partners or provider groups that are taking risk that we’re able to demonstrate the value on their different populations, not to say we’re taking the risk directly ourselves, but we’re able to enter into an arrangement with those health systems or provider groups that are at risk and partner with them to make sure that we’re, again, risk stratifying, identifying the most appropriate patients that we can be helping offset unnecessary costs.

And then one of our main things always is to tuck the patient back into whomever is their primary care or whoever is their network to make sure that right now we don’t have necessarily that longitudinal relationship with the patient, but we want to make sure that they’re taken care of and tucked right back in. So regardless of the payer, that’s always top of mind as well, but I would say that the most attention from interest from the industry is coming from those that are already taking risks today.

So, what each of you has described assumes that the whole notion of helping a patient, engaging the patient assumes that their patients understand your models, they understand how to take advantage of it, they’re engaged enough to be, I mean, there’s a competency there, proficiency or knowledge, how does it even work? I mean, how does Dispatch or Everside or Encompass meet the patient so that they’re making an informed decision? Help me understand how that works, Jacob?

Jacob Bregman: Yeah, I think that’s a big part of what we work on every day, I think there’s a little bit of feedback we get sometimes when people first hear about Everside Health thinking, one of two things, one is this too good to be true? What am I missing? The second being, huh, I am not sure how I feel about my employer, my job being connected to my personal health care.

So how do we get through those things? I think it’s really a combination of education, of transparent communication. I mean, on the employer and the privacy side, we can talk to patients about HIPAA and privacy practices around the provider, patient relationship. Quite honestly, a lot of the learning just comes by word of mouth, I’m fond of sharing my own personal story. When I first got access, when I worked at DaVita, I had access to Everside Health as a patient, and I was one of those folks who said, I have a primary care provider I’m happy with, I don’t want my work in my personal medical life.

And then what happened is I got sick and my primary care provider, I called them and they said, yeah, we can get you in the next week. And my thought was, well, I’m sick now. And then I remembered through my workplace, I had access to Everside Health, I gave them a call, they said, can you come in in an hour? And I said, yeah. And they took that opportunity not just to treat what I was facing that day, but they said, Hey, if you’d like to come back in and establish care with us, we’d be happy to take care of you. So, that’s a lot of what we do patient by patient, just explaining what we do and how we’re in their corner. And patients once they come in once or twice, they typically keep coming.

Brian Betner:  All right, that’s rational, that makes total sense. Meg how does it work from Dispatch’s perspective?

Meg Duffy: Not too dissimilar, where once they’ve experienced us they’re ready to come back, but I will say it’s similar, it’s too good to be true, wait a minute, you’ll come to me within two hours or whatever it may be. So I would say, a couple of things that we do on our onboarding process, we try to make sure that we have appropriate reading levels and things like that of the language that we’re using to describe our services and do the risk stratification. So that way it’s translating well to the mass majority of callers, we have web-based, mobile-based ways that they can request care, so hopefully we’re also hitting people whatever is the methodology to request care that’s best for them.

And then I think we have… I don’t know most of our patients are new patients, we have a lot of return repeat patients, and we also have a lot of caregivers that are calling in on behalf of, so it’s me for my mother, or it’s, I’m a caretaker for somebody. And so often they’re the ones that are recognizing, gosh, I don’t have the time or the foresight or whatever to be able to plan accordingly a half a day or a full day or whatever it may take to get somebody into an urgent care appointment, especially if they’re homebound or have transportation issues. And so, a lot of times it’s the caregivers and we also have referrals directly from our providers and payers that we partner with.

So a lot of times they’re helping with managing up the Dispatch option as a choice for their members, and then sometimes even making the direct referral to us, should it be something where they can’t handle the need appropriately, or it’d be better suited for DispatchHealth to come in and treat that patient where they are.

So a lot of different ways that hopefully we’re trying to get the message out, but once similar, I experienced DispatchHealth firsthand and I mean, and definitely, that was long before I worked for DispatchHealth, like you were saying, Jacob, and I’m a believer from that firsthand experience. So it just takes one time.

Brian Betner:  So there’s an unavoidable theme in everything each of you has said. And when I think about access, when I think about how you generate your business and a referral mindset, a lot of it has to do with convenience and experience, staffing is everything for that, right? You want to get a dermatology appointment, you’re looking at March of 2024. Providers and availability of individuals.

So I don’t understand, help me understand how you accomplish access, convenience, that experience you just described, particularly given your scale and size. Chad, the scale and size of Encompass, help me understand from a staffing standpoint, how are you able to staff it? How does it work? How do you have the providers who are available at the right level, particularly, it sounds like we might be, the whole top of the license notion that I think Meg had mentioned, how does that work?

Chad Knight:  It’s been tough especially over the past year. The biggest thing that Encompass does I think is, we’re big on best place to work, and you’ll see that just throughout the country where we have offices. So I think it’s either corporate culture or that extra feel kind of the family feel that our offices have, that makes us different from other providers, and working another provider but staffing is difficult for all health care providers across the country.

Brian Betner: Are we talking largely APNs, PAs? What’s the license mix that dominates your rosters?

Chad Knight: Yeah. Nurses and physical therapists in Home Health.

Brian Betner: Okay. Jacob, how about you?

Jacob Bregman: Yeah, for us it’s a mixture of family medicine physicians, and then family medicine and trained nurse practitioners and physician assistants. And so we’ll work with each client when we’re establishing a new health center to discuss the right staffing mix for that particular location and patient population.

We find it works really well to pair the two together, so to have a health center staff by a physician complemented by an advanced practice provider gives the patient some choice, it allows some focus as we’ve been saying for each provider to work at the top of his or her license.

And I’ll echo what Chad said, especially as we talk about these innovative models, one of the challenges we face is recruiting providers who get it and they want to practice this way. And I think in our world for a family medicine physician who’s coming from the fee for service world, where they’re seeing 20 or 30 patients a day generally generating a lot of referrals and a lot of billing codes, it’s different.

A lot of our providers tell us this is the way I want to practice medicine, but on the front end, back to this too good to be true, we sometimes struggle with that. And the other part of our model is we want our patients to be able to access us, so we ask our providers to be on call 24/7, because we’d rather get a call on a weekend or in the evening than have one of our members go to the emergency department for something that we could have helped avoid.

Brian Betner:  So that’s interesting because there are jokes [inaudible] that physicians will choose, certain specialties at a residency, because they don’t involve call, right? And now you’re telling me that your FPs and your primary care advanced practice nurses and PAs they take 24/7 call.

Jacob Bregman: They do, yeah. Meg, how is staffing for Dispatch? You’re largely because of the … it’s much more autonomous, right?

Meg Duffy: So, actually, so I’m going to try to kill two birds with one stone here. So there was a question in the chat from Lisa Brandt, and I asked a little bit about our focus. We go to the home, do we use telemedicine? And so I guess to tie that into how we staff, we’re constantly focused on how we can continue to right-size care, we’ve limited resources, there’s not necessarily parody with regard to reimbursement across all different payers, and so what we’re trying to I think do is look at our risk stratification model and make sure that we’re optimizing it all the time.

And so we started off with the business model of sending out an emergency trained nurse practitioner and physician assistant paired with a medical technician into the home. And what we’ve found is typically our patients are chronically ill, elderly, and that’s appropriate, but there’s some times that it’s a snotty nose or a sore throat or whatever, and we want to right-size care, we don’t necessarily need to send out that full team.

So instead we’ve developed a model that we call tele presentation which is basically an enhanced or assisted virtual visit where we send out the medic, they’ve got the kit, the equipment, they’ve got a moderately complex CLIA certified lab that they can run point of care testing, but they’ve got the virtual APP on the other end. So that way we’re continuously right-sizing care. And so depending on the service that we’re providing, the staffing complement might be a little bit different. So it could be anywhere from a med tech tele presenting, full tele medicine. We could go all the way then with the hospital level of care in the home where you’ve got RN coming in and doing visits.

So, anywhere from that episodic intervention to now we do post-acute visits in the home. So after they’ve been discharged from a hospital at one of our partner systems, we’ll send in a nurse or a tech to do some follow-up, and make sure that within three days there are some services wrapped around them, we’re avoiding a readmission, all the way through a seven day episode, a 14 day episode, a 30 day episode, really just based on what the patient needs. So the staffing complement is all based on that sort of right-sizing care and right-sizing the resources needed to treat them appropriately.

Brian Betner:  I was going to hold this question for diving into COVID, Jacob, I promise we’re going to get there. Diving into COVID, but this relates to all this, Meg, because you just mentioned the role that mobile technology and telemedicine plays. Is telemedicine playing, COVID aside or COVID, let’s go ahead and go there. What role is telemedicine playing in your current delivery model? Is it dominant? Is it different post COVID or not? Jacob.

Jacob Bregman: Yeah. I think it has shifted, but I think it’s here to stay. And at the beginning of the pandemic, probably in April of last year, somewhere around 80% of the appointments Everside completed were virtual. And I think that’s stabilized, I’ll use the word stabilize, who knows, but around 30 to 40% now of care is still being completed virtually. I think there’s been a lot of learning and a lot of comfort development on both sides, both patients and providers. Patients realizing that this is something that is convenient and safe and trustworthy, and I like it. And on providers really saying that, hey, there’s a lot of medicine I can practice with a video feed or even a telephone call to the members.

And then we wrap that around the physical clinics, the health centers that we have. So probably the classic example is abdominal pain, there’s certain elements of abdominal pain that the providers can evaluate virtually, but probably the patient does need a belly exam for comprehensive care. So the same provider who speaks to the patient on the video visit can then say, great, if you want to drive over, we have an appointment this afternoon, and we can complete the care that way.

Brian Betner:  Chad, is technology or telemedicine or telehealth generally, is that playing a role in Encompass’s model or has COVID changed that?

Chad Knight:  It has, there were waivers this year to allow telemedicine visits, and we found that we use them I think more so when COVID was really bad and for our patients, it seems like a lot of them still prefer in-person visits. So I think telemedicine is here to stay, but I don’t think it’s going to replace having a nurse there in person.

Meg Duffy: I can tell a little story around that if it’s relevant, if you don’t mind.

Brian Betner: Oh, please.

Meg Duffy: Because you’re right, Chad, we’ve had the same response, particularly from certain consumer segments that are just, they love seeing their provider, they want to see their doc, who they’d been going to for years or whatever. But one of our partners in the Pacific Northwest, earlier in COVID said, Hey, we’re struggling to get our patient panel in to see their primary care for health maintenance visits, how can you help us with that? You have assets in the market, you’ve got teams that are already going into homes, is there something we can pilot there?

So over the past year we’ve been piloting what we call a clinic without walls, and it’s essentially one of our medical technicians going out into the home, and then tele-presenting back to our partners primary care provider. And for being able to, again, provide point of care lab testing, and some of that hands-on stuff that otherwise you can’t do with just a virtual visit. And we’ve now since been able to survey our patients that we’ve treated through that mechanism, through clinic without walls.

And all of them say that it saved them two or three hours than a typical visit would, all of them say that they loved it and that they would do it again, but all of them also said that their preference would be a hybrid model, that they would see their providers in person sometimes, and then on the off times, or here and there they’d be able to interact with them with the clinic without walls model.

So I agree, I think it’s here to stay, but there’s going to be this blend I think in the future, and we have to think about the difference in different consumer segments and their preferences and being able to accommodate those.

Brian Betner:  Does provider or physician… the acceptance of that model, a technician going in and facilitating that, providers accepting of it. I mean, you’ve got physicians like IO and that works for me, I like it. Some of them, okay, yeah.

Meg Duffy: Some of them. So some of them been kind of like, how’s this going to work, a little… some of the provider that we’ve had, a couple of providers that we’ve had piloting that have been wonderful and they are totally bought in once they see the technology, they actually say the heart sounds, the lung sounds, the ear sounds are better through technology than they are through a stethoscope or for what they’d be hearing in the office and they have the ability to record those things, go back and document it in the chart that way. So I think they’ve really seen the value.

And then just to, also while I have the floor answer a question I saw come through at least on the panel side, around we leveraged remote patient monitoring, we leveraged personal emergency response devices. And our view is that eventually we’re going to have to be able to partner with any of those solutions, any company, because we’ve got, again, a diversity of partners from health systems and payers that may have preferences for RPM or for pers devices. And we want to make sure that we’re leveraging those so we can keep people safely in the home, but that we can not create unnecessary limitations with which devices we can be compatible with.

Jacob Bregman: And if I can add one idea onto that, talking about the acceptance of virtual health across different areas of healthcare mental health, I think it’s been remarkable and a really great thing for society to see the very quick acceptance of virtual mental health care. I think despite all of the work that we’ve done over the years, there still is a little bit of a stigma for patients going into a psychologist, psychiatrist office versus finding a comfortable, confidential space to do a virtual visit. It has done great things I think we’ve seen within our population.

Brian Betner:  Jacob, that’s interesting, because I often think about building a… in emergency situations, this doesn’t really happen as much, but building a rapport, so there’s a trusted relationship, there’s a sense it’s hard to do that in initial virtual encounters, that hasn’t appeared to be a hurdle from every side’s experience.

Jacob Bregman: It really hasn’t, I think what you just described is what all of us anticipated at the start of this. And I think we’ve seen those walls break down very quickly, and again, on both sides, both from the provider feeling as though she or he is… it’s more challenging to create that rapport without seeing the person in person. And on the other side the patient feeling comfortable to have this type of relationship across the screen.

Brian Betner:  There’s a notion, I mean, if you go to most health systems websites today, you’re going to see the words clinically integrated, we’re a clinically integrated delivery system. It’s a strategy officer’s [inaudible] love it Meg. It’s a concept, now it has legal parameters on it, if you think from antitrust issues, but at the end of the day, I mean, it’s a delivery model and it assumes that providers are collaborating with other providers and you’re sharing information. How does that work within, Chad, from Encompass’s perspective, historically there’s probably a lot of handoff situations, right?

Your post-acute managing patients in a home health setting after discharge, post-surgery that sort of thing. What is clinical integration played a role in each of your models in terms of affiliating with other providers?

Chad Knight:  Yeah, I think more and more it’s coming up and providers are asking for it, so we have contracts where we share data, share metrics, track quality at its core I think it’s the same thing we’re all doing improving results for the patients, and that’s all of our goals. So the more that we can incorporate metrics that are aligned between us for the patient and actually track those, hold each other accountable, meet and discuss, the more we’re seeing benefits.

Brian Betner:  And, are those metrics. I mean, some of this is co-management, right? You and another provider type. I mean, is metrics, is that information that’s, is it solely within Encompass providers jurisdiction or some of it because it’s the care’s being managed with a primary care provider you’re not affiliated with, I mean, are they all internal metrics to encompass providers or are they metrics that kind of measure more of that continuum or other aspects of care that you’re not exclusively responsible for?

Chad Knight:  It’s both and it depends on the metrics, right? So, some data we’ll have to share, some the provider can add data to our EMR or vice versa. But I think in most cases it’s, we need to share reports and meet and talk and [crosstalk]-

Brian Betner:  Direct primary care. What’s that?

Chad Knight:  It’s not as easy as it sounds on its face, so.

Brian Betner:  Right. Jacob, direct primary care. How does that work with specialists? How does that work with relying upon the various specialties and subspecialties that your FPs and APNs, et cetera, lean on?

Jacob Bregman: Yeah. So I think in primary care we view our role as the quarterback or the coordinator of the patient’s care. And so when we think about specialists and referral needs, we kind of think about it in three tiers. So the first tier would be, with the right time and tools and training of our own providers, can we get this done inside Everside?

Now the next would be perhaps the, maybe it’s a diabetic and the patient’s situation is on the bubble at the edge of the telemedicine providers training. We leverage an e-consult service to do basically a curbside consultation in that case with an endocrinologist to get an opinion. And then that might result in a referral to that endocrinologist.

 One of the nice things about our models, because we’re working with clients, we work with a defined number of health plans, so each of our clients typically only has one, maybe a handful of health plan options. So we get to know those pretty well, who’s in-network? Who’s going to give us great quality, great service and keep those costs low? So that’s our view of the world of specialty, we as much as possible try to keep it in house, and when we do need to be on our specialist partners, we try to use the best plan information and analytics to make sure that we’re sending patients to the best specialist.

Brian Betner:  How does your EMR work? Providing access and populating it with those providers? Do you have relationships… you have relationships where they’ve got direct access, how does that work?

Jacob Bregman: Yeah, it’s a difficult question to… because there’s not just one answer there. Certain health information exchanges in different States make it very easy for us to retrieve information. Some people might be familiar with Epic, Epic has a care everywhere functionality that is very easy to use, so the primary care provider can get records more easily. But I’ll be very honest with you, there are still instances where we’re getting faxes and other records in older ways and we’ll incorporate those so we can make sure we have everything we need.

Brian Betner:  The occasional pigeon or so. Yeah. Meg, how does DispatchHealth integrate? You probably have given the remote monitoring technology, I’m sure you’ve got direct access. You’re an extension in some cases for your hospital relationships, right? You do have direct access to the EMR?

Meg Duffy: Depends on the relationship and we’re working on further integration with Epic specifically, but I would say, what we do is digest their network, and our platform is able to refresh that and make sure that if we need to send a referral we’re sending it within network for that patient. So that’s first and foremost.

One other things though that we find with our model as it grows and evolves as we become our own referral source, so when we’re in a patient’s home for an urgent care or emergency care level visit, six to 8% of the time, somebody needs to be admitted for further observation or for a short stay, and we’re able to evaluate their home environment right then and there and say, okay, would they be eligible to be admitted in the home.

 And so when you’re doing that with our model, we have 98% acceptance rates where patients are like, sure, great, okay, yeah, you can do that right here, I can safely be admitted at home, I’ll do it. When they’re in the hospital, and this also gets to another question on the Q&A, when they’re in the hospital and they already show up either by ambulance or self or whatever, and they’re in the emergency department and a physician says, Hey, we’re going to need to admit you, but we can admit you at home, we’re partnered with Dispatch or Medically Home or others that do hospitalization in the home. The admittance rate is I think less than 2% or something, because it’s very hard for patients, once they’re already there physically to understand, wait, I got to go home now and you can actually do that at home, but I’m here. So you don’t want to take care of me or, can you just do this now?

And so our acceptance rate when we’re referring to ourselves for that next level of care, are a little bit different than a specialty consult, but for that next level of care is really high. And so we continue to see benefit with having a full continuum of options to offer patients.

And then the question also starts to ask about the decline in volume, these are patients that I don’t think health systems will be incentivized for the long haul to keep them in their four walls anyway. And it’s actually going to be a win-win a benefit to the health system and the patient to be able to treat them at an appropriate cost setting.

So, I do think there may be a decline in admissions, but hopefully a pickup in value over the course of time, and then I do think that the reliance on elective procedures in the inpatient setting is short-sighted, with the vast majority of those things moving to the outpatient space safely, hospitals are going to have to figure out another way I think to partner with folks like us who are willing to help them create opportunities to right-size care and safely care for patients where they are when appropriate.

Brian Betner:  So, the whole notion of decline in volume is a good segue to address some COVID issues here. Chad, want to go around the horn here, but I think I want to hear from each of you on two items, what was the biggest impact COVID had on your delivery model? And number two, what do you expect… is COVID changing your operations beyond, let’s assume everybody’s vaccinated in 42 days and we kill this thing and the malls are full and everything’s happening, let’s assume all that. How COVID may change if at all, or is it not changing operations post PHE? Chad, how did COVID impact volume? How did you react and is anything going to last?

Chad Knight:  Yeah. So COVID had a lot of challenges for us I think like everyone else, our patient volumes decreased a lot in Home Health, we had decreases in visits per episode, and also on the supply chain side, we had disruptions, we had trouble getting masks and other PPE, so either delays in that or price increases. And that continued for months, so I think once that’s resolved and everyone has equipment they need on time and it’s not worried about getting it, that’s big difference. And I think you’re right, COVID could go away and I don’t know that anything changes from power handling it now, I think we’ve made the adjustments that we need in our operations to handle it if it comes up again and made improvements in where we’re at. So I don’t know that we’ll have… we’re not going to flip the switch or anything and change everything [inaudible] it’s gone. So.

Brian Betner:  So, that makes sense, Jacob.

Jacob Bregman: Yeah, for us I know we’ve talked a bunch about this shift to virtual, and I think that’s here to stay, I think finding a good balance between in-person virtual visits is probably what will be the future for us. I mean, to be honest, 10 months ago I was wondering, will we continue to build primary care health centers as we continue to shift to virtual? And the answer has been a resounding yes. And when we work with employers and union groups and other trust fund groups, they’re still interested in having an onsite and near site place where their folks can go to receive care.

If I can highlight maybe one other thing that was a silver lining or something good about the pandemic is I think it got everyone thinking about health care. And when we think back to the beginning when no one really knew what to do or how to get tested or things like that, the public health guidance was, go talk to your PCP.

And I think there were a lot of folks out there who said, I don’t have a PCP and that was their motivation to say, Hey, I probably need someone in my corner, and so they got themselves into the healthcare system which I think is great for everyone.

Brian Betner:  Yeah. Great talk. Meg.

Meg Duffy: Well, so COVID kind of threw us for a loop, similar things like everybody, we had to acquire PPE and make sure we had all the right safety protocols. But we were a leading indicator of COVID volumes, we would be getting called for asymptomatic testing, we’d have people with symptoms coming into their home to do testing so they didn’t have to go out in public and either risk getting the virus or risk spreading the virus.

And so it just accelerated, we had the busiest year, of course we’ve been growing year over year, but I mean, just way more than we would’ve anticipated, with just your seasonal communicable disease, and so COVID accelerated our business model, absolutely. But it also I think highlighted some areas of opportunity for us to, like we have been doing now is evolving across the continuum.

So early days we could get out there and we could send a team, and we were doing asymptomatic or symptomatic COVID testing, and we quickly realized, gosh sometimes for example it’s a whole family that needs the testing. How does that impact our logistics engine and our predicting on-scene time and some of those things. And so it’s made us think I think a little bit differently about how we’re onboarding patients, the questions we’re asking, how we’re working them through the process as well as rightsizing care once again, so I’ve said that a few times, but if we’re just doing a point of care tests, we can send out a medic, we maybe don’t need to send out a whole team.

And so just thinking again about what are the resources that are truly needed, because in the past year we were very full in all of our markets mostly with COVID. And so that is a little bit of a concern too, for us, just from seeing volumes drop for other communicable diseases, what will seasonality look like in the future? It’s kind of a wild card, I think, but should be fun to solve whatever that challenge may present.

Brian Betner:  Said by a true strategy officer, that’ll be fun. Yeah, I love it. So, hey, so let’s close with this. I want to ask each of you, your wishlist, your one item from your delivery model, meeting the patient, outpatient, home care. What is the hurdle that you want to overcome? What’s the wishlist? Is it a reimbursement one? Is it a regulatory issue? And your perspectives are going to drive this. I mean Chad’s a lawyer, so he’s going to want, we want free-market principles. What is the one wishlist that would absolutely optimize your strategic goal, your care model, et cetera. Chad, I’ll start with you.

Chad Knight:  Yeah. I think, so right now there’s I think a lack of tele-health reimbursement throughout healthcare. And so the reimbursement model needs to catch up to the technology. So that would be my first ask.

Brian Betner:  Right. Yeah. And there’s a long list of people behind you with that one. Jacob.

Jacob Bregman:  Yeah, for me it’s a bit of a buzzword, but value-based care. And that term has been around for a while and I still don’t feel like we’re where we should be, I think the world still revolves around fee for service and the incentives are aligned to provide more healthcare as opposed to the right healthcare.

Brian Betner:  Yeah, I get it. Meg.

Meg Duffy: I second both of those notions. So I agree, but I will add just for a different flavor, that for us, the variability in scope of practice, limitations by state, really, I think inhibits our ability to innovate and think creatively about how we use the right resources for the right care at the right place. So, that would be probably my number one if not for reimbursement.

Brian Betner:  Yeah, that’s absolutely huge, the inconsistency, we have 50 States you have to navigate with those issues. Absolutely. So we are right at the 60 minute Mark. And so here’s what we’ll do. I’m going to turn it over to Julie here in about 12 seconds to make a closing statement from an admin perspective. But we’ll take a look, make sure we answered any questions. Do not hesitate to reach out to us and follow up if you have any inquiries on anything you heard here today, I am absolutely grateful, you took an afternoon here in late March to speak with us and especially want to thank each of the panelists for their expertise and experience.

Hospital Property Tax Exemptions – The New Jersey Statute and Beyond – An Interview with Neil Eicher of NJHA

March 22, 2021 Joel Swider Health Care Real Estate Advisor 00:31:54 Comments Off on Hospital Property Tax Exemptions – The New Jersey Statute and Beyond – An Interview with Neil Eicher of NJHA

Hospital Property Tax Exemptions – The New Jersey Statute and Beyond – An Interview with Neil Eicher of NJHA

In this interview, Joel Swider sits down with Neil Eicher, Vice President of Government Affairs with the New Jersey Hospital Association, to discuss a recent bill that was signed into law in New Jersey related to property tax exemptions for nonprofit hospitals. The law brings resolution after almost 6 years of uncertainty in the wake of the NJ Tax Court decision in the Morristown Medical Center case which jeopardized hospital property tax exemptions in New Jersey. The interview covers the New Jersey statute as well as strategies for protecting property tax exemptions in other states through legislative efforts.

Podcast Participants

Joel Swider

Attorney, Hall Render

Neil Eicher

Vice President of Government Affairs, New Jersey 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. Our guest today is Neil Eicher, who is vice president of government affairs with the New Jersey Hospital Association. We’re going to be discussing legislation that was recently signed into law to restore property tax exemptions for nonprofit hospitals in New Jersey, but which also requires nonprofit hospitals to pay certain community service contribution payments, which we’ll get into in more detail. Neil, welcome back to the podcast.

Neil Eicher: Thank you, Joel. Thank you for having me and you guys do great work on this issue, so I appreciate being a part of it.

Joel Swider: Well, thanks Neil. So before we can understand and appreciate the text of the bill itself, that was recently signed into law, I think it would be helpful to explore some brief background of hospital tax exemptions in New Jersey. I think that there’s really a broader applicability here in other States where we’ve seen the gradual chipping away of property tax exemptions for nonprofit hospitals. And so I think the process is in some ways, just as important as the result, particularly for those who are looking at this case and who’ve been watching it as we have from other States looking to see what that’s going to look like in New Jersey in the future and how it might be translated or mistranslated in other States and other contexts. So, Neil, could you give us a little bit of a lay of the land? What did the landscape look like pre Morristown, which was the case that really sort of brought this issue to a head in 2015?

Neil Eicher: Yeah, sure thing. So the Morristown Memorial hospital tax court decision was a pivotal moment for the industry. As you said in summer of 2015, it’s sort of unexpected rolling from one tax court judge in New Jersey, challenging Morristown property tax exemption. Now, they had been in litigation for almost 10 years with a town that included, multiple mayors moving in and moving out, even a change in administration at the hospital level. So it did kind of predate when the decision was actually made. But the judge in that ruling, as I said, stated that Morristown should be paying property taxes. It wasn’t precedential, but it was certainly influential. And then it resulted in NJHA as the advocacy wing to start pushing for a legislative solution because the judge did actually make that statement.

Neil Eicher: And his court decision was that although they should be paying property taxes, the legislature needs to step in. And it’s interesting because our statute on tax exemption, property tax exemption goes back. I want to say 70 or 80 years. And in that exemption, there was no carve out for for-profit medical providers within a nonprofit hospital. So while we disagreed with the rolling for a variety of reasons, the fact that the judge said we need to step in and get a legislative solution is what changed the landscape for us.

Joel Swider: Okay. So what did happen after the Morristown Medical Center case? What has happened sort of bring us up to this current bill that was passed last month and signed what’s been happening in the intervening years. I know you guys have been working at this for a long time.

Neil Eicher: Yeah. So after the decision was rendered, we knew we had six months or so until the end of our legislative session to pass a bill. And again, this is in 2015. So we did pass a piece of legislation, very similar to what has been signed into law six years later. But unfortunately it was vetoed by the governor at the time and what we were afraid of and what actually happened was with the beginning of the tax year in 2016, we saw a flurry of litigation. In some cases, it’s the town putting the hospital on the tax rolls. And it’s the hospital that initiated the litigation. Sometimes it was the reverse, we had to deal with omitted assessments, which is just a clever way of kind of looking back at retroactive tax years up to two years prior to put entities back on the tax roll.

Neil Eicher: And then I think when we’re all said and done, we probably had 40 to 42 of our 59 nonprofit hospitals engaged in litigation. Now I should note that some of them settled, they had agreements with their towns. Ironically enough, many of those agreements were similar to the community contribution fees in this law, but they had expiration dates. Other hospitals were just involved in litigation and then some other hospitals didn’t see any lawsuits at all.

Joel Swider: So then leading up to, you mentioned there’ve been other attempts over the years, leading up to the current bill that was finally passed and signed. Even that once it was introduced in January, 2020, took over 13 months until it was finally signed. Was there more give and take at this time around as well?

Neil Eicher: Yes, absolutely. It was a very arduous legislative process. We’re happy with the result so we can kind of look back at it and figure out what worked and what didn’t, what started, having the speaker of our general assembly as the prime sponsor and only sponsors, five or six bills in a session that was a positive signal and also getting our Senate, President and Governor on board early, at least conceptually was important. What happened in practicality is as the bill started to move, we started to hear, or the legislators started to hear from very influential mayors who had problems with what this bill might mean for them, at least according to what their tax assessor told them, what they could get out of the hospital, if there was full property taxation on the facility.

Neil Eicher: So we did a lot of behind the scenes work with local mayors, local hospitals tried to resolve very territorial type of issues, but it actually worked as a benefit because what we were seeing was the creation of an adversarial relationship between the towns and the hospitals that didn’t exist prior to this Taxport decision. And having this discussion kind of helps move that smooth that over. So some of the amendments in the law dealt with, for example, walking in or grandfathering in current agreements that are in place between a town in a hospital, that would be the floor. If the legislation, or I guess the law will say, if it has to be greater, the hospitals is obligated to pay more. But that took care of a couple of towns. We made some changes to the offsite for-profit medical providers made it very crystal clear that the medical provider had to be exclusively working with the hospital for a hospital purpose.

Neil Eicher: That was an issue from some legislators previously thinking that non-profit hospitals would all of a sudden purchase a bunch of for-profit medical provider buildings, take them from tax paying entities to non tax paying entities. That was not the way we read it. And it’s obviously was not our intention, but we needed to make necessary changes. And then the last thing I’ll say, Joel, is you might may have noticed if you follow this at all, we went from $2 and 50 cents per bed, per day, contribution to the town, to $3 per bed per day contribution. That was because the governor’s office wanting to get a little bit of a higher rate from hospitals to towns. So that obviously we had to discuss that for a while, but we ultimately agreed to it. And there are other small changes, but those were the main ones.

Joel Swider: Well, Neil, let’s dive into the meat of the law a little bit, this nonprofit hospital property tax bill, or a 1135, as it’s been called, going through session, let’s start with what type of property or property owner is subject to the new law?

Neil Eicher: We first specifically to a nonprofit hospital. I’m sorry, nonprofit general acute care hospital. That’s important in case you’re a specialty hospital, rehab hospital. And according to your State’s definition of licensure for a general acute care hospital, that’s important, but for our purposes, for New Jersey’s purposes, a nonprofit general acute care hospital. So it’s that building in any other building that’s utilized by the nonprofit hospital solely for hospital purposes. As I mentioned previously, if it’s a for-profit medical provider, it has to be exclusive to that hospital who does this apply to and in all practicality, it’s your ER groups that maybe you contract with, maybe you have an anesthesiology group or wing cardiology, all the wrap services, pathology, those that may have for within your hospital, maybe it’s an attached wing of your hospital, but this is an important point of clarification because this had stalled the bill as well.

Neil Eicher: If you have, let’s say a for-profit medical provider group that is renting space or attached to the hospital or attached to the hospital and renting space, and they provide some assistance to patients from the hospital. So if it’s a cardiology group and let’s say they do 40% of services for the hospital, but they have 60% of patients come as walk-ins, they would not allow that part of that wing, that building would not receive a property tax exemption. They would still be required to pay property taxes. The normal arrangement is through the lease agreement with the hospital.

Neil Eicher: So we made it very clear. It has to be pretty much, well, it has to be a hundred percent of what that group does is for the hospital purpose. It also, if you have a McDonald’s, if you have a Starbucks within your hospital, that will remain taxed. Usually again, it’s done between the lease agreement with the facility that will not change. The cafeteria, however, would fall under the property tax exemption.

Joel Swider: Okay. So if you have an exemption, you qualify, you’re a general acute care hospital, you qualify for exemption, but there’s also this element of a community service contribution. What does that mean? And what does that look like?

Neil Eicher: So because of the statute that we were dealing with about the inability for Eddy for-profit activity to occur in a nonprofit entity to get property tax exemption, we recognize that with for-profit activity occurring in these hospitals, that we needed to modernize the law. It could be those groups that I mentioned previously, or it could be a specialist that has privileges in a hospital, whatever it may be, at least in New Jersey, there are for-profit entities working in a nonprofit entity and it puts our statute in jeopardy. So recognizing that things have changed, what we agreed to was that in exchange for, I guess, the codification or update to our property tax exemption, we would pay a fee to the town because we are also getting bigger. We are utilizing more municipal services. So as a recognition and actually just from the get-go trying to be a good player with the towns and not just try to railroad through something, we thought we would try to find that fair balance and at $2.50 at the time, the contribution will be $2 and 50 cents per bed per day, to each town.

Neil Eicher: I will note that you are, as a hospital, able to deduct any agreements that you already have. We call them voluntary agreements. Most people know them as pilots. We stayed away from the word pilot because there’s a strict definition in New Jersey statute that may have brought on issues after this became law. So we just call them voluntary agreements, voluntary arrangements. So if your obligation of now it’s up to $3 per bed per day, is $500,000 to your town. You have an agreement for $300,000 each year, maybe to pay for a public nurse in the school system, redo a park, whatever it might be, or just general money. You’re able to deduct that 300,000 from that 500,000, therefore you would owe $200,000 a year.

Neil Eicher: It would never go reverse. If your agreement is more than the requirement here, you can’t obviously deduct that. But that was again, a good faith effort by us. We just wanted to turn the spigot off of all these lawsuits, put something in there that was a fair that the towns would get something. And then we wouldn’t be spending money on legal fees. So that, that was the purpose of the community contribution that we thought it was important to be a good partner with our towns.

Joel Swider: That makes sense. And Neil, I mean, this applies to a lot of hospitals. I know you, you gave a couple of specific examples in some sort of variations of the general acute care hospital, but I mean, that’s a majority of New Jersey’s acute care hospitals will probably fall into the ambit of this statute. Is that right?

Neil Eicher: Yeah. Correct. We have 59 non-profit hospitals and 71 acute care hospitals.

Joel Swider: Okay. So are there any carve-outs from the ambit of the statute or other clarification’s that we should be aware of in terms of how this shook out?

Neil Eicher: I mean, I think it’s important to understand kind of your for-profit medical providers, the buildings associated with your nonprofit hospital, how it’s structured under your license. I think that’s very important. So I did talk about that, but I will say we did get abdication carve out. We have a specially cardiac hospital in New Jersey that doesn’t bill patients. They have a special OIG opinion from the federal government to have this exemption, not to, for example, go after Medicare patients for balanced billing. So we did insert a section in there that exempted them and that actually made it into final law.

Neil Eicher: So let’s say, other than that, no other real carve-outs, no hoodwinking that we were trying to do, we try to be as transparent as possible, where we needed the clarification, like I said on off-site for-profit medical providers and whether we’re going to buy them up and switch to property tax status, we made it very, very crystal clear that that wasn’t the intention. But it was very important to us on the for-profit medical provider to get that exemption for the emergency department. For example, if you have a for-profit medical group, if you have the third floor of your hospital has a cardiology group, that needs to be exempted. So other than that it’s pretty straightforward with, again, nonprofit general acute care hospitals.

Joel Swider: So Neil, as I read this statute and I’ve read now a number of them from other States, I find it to be pretty comprehensive in terms of, it’s pretty clear about its scope. It’s pretty clear about how it applies and how it works. There are two things that caught my eye though, as potential wrinkles, I guess you could say in terms of how this is going to be implemented, one of them is that there’s language requiring the New Jersey healthcare facilities, financing authority, and the director of the division of local government services to adopt regulations, to effectuate the bill, where do you see that going? And it sounds like it has to be done within four months following enactment and which may or may not end up taking place, but any thoughts on the regulatory aspect of this?

Neil Eicher: Sure thing. And I think it’s good for listeners to consider that in their own state. A lot of times when we have legislation going into the water, there is a requirement for the promulgation of regulations, but it’s very clear, from previous experience, that a statute is a statute. So you still have to implement it, still the letter of the law, even if the regulations don’t come. So you’re correct. There needs to be regulations within four months. I doubt that our department will meet that deadline. It’s been very difficult previously. And then of course we’re still trying to get out of COVID and a lot of other things that are affecting the work of the department. So I personally do not expect them to meet that four month deadline. However, what was important to us and maybe another consideration for your list just to make the language as specific as you can.

Neil Eicher: And even some of these provisions need further clarification. After six years, we tried our best to make it as clear as possible, but we still need some guidance on a few things from the various departments, but we did make a conscious effort to make it as specific as possible. So that once the bill was signed into law, we knew what to expect. Our members certainly knew what to expect following this for years and most of the towns as well. So I do think they’ll get to regulations eventually, but right now, we’re just kind of moving forward with our interpretation of the law until we get that guidance.

Joel Swider: So near the other wrinkle, if you will, that identified as I was reading it was, there’s a non-profit hospital community service contribution study commission, which has set up, which has as its goal, sort of looking at the financial impact, analyzing, analyzing the financial impact on effected hospitals and municipalities among other things. And I guess, again, as an observer from another State and who represents clients in additional States, I think it’s really interesting. I will really be curious to see how the study commission reports shake out and what is found, but could you give me a little bit more color to why that was in there and what the goal of it is?

Neil Eicher: Yeah. Yeah. You and me both, I’m interested to see what they come up with. We thought again, because a lot of this language was actually taken from our original bill that went forward in 2015. And the purpose of this bill, originally, I guess it still is, was to provide a stop gap, to put a pause on a lot of the legal suits because no one has really examined the role of healthcare entities, hospitals in particular, and how it relates to property taxes, New Jersey, by the way, has the highest property tax rate in the nation because we, variety of reasons. So property taxes are very, you know, interesting phrase here. So we needed, you know, some experts kind of sit down and take a view of the changing landscape of healthcare changing landscape of towns and property taxes.

Neil Eicher: So, that was the purpose. At the time the $2.50 now $3 contribution was meant as a stop gap. We knew that we needed to start paying something two minutes to Powell these, and by the way, it’s pretty much, it’s about 20 to $21 million a year annually, collectively in New Jersey. But we want this commission to review everything. And if they say, you know what, $3 is too low, we’re going to have to swallow that and accepted. Luckily, we have some good representation. One of the amendments that the governor’s office asked for some additional person from the governor’s office to sit on ex officio. So I do think this will be helpful and understanding kind of as we move forward. However, one thing I neglected to mention about the community contribution fee is that each year it goes up with an inflator of 2%.

Neil Eicher: So at minimum, it goes up 2% moving forward. So again, for the hospitals that are listening, this might sound like a good deal for the towns, even though they lobbied against it, but this bill and this law is essentially the floor of what hospitals must pay. Things will always continue to go up. So we needed to make sure the study commission was there, but at the same time, it is balanced. So it’s not swayed one way or the other, but Joel, kind of to your question about regulations, when that’s going to come, I know there are strict deadlines for this, but it’s possible that this doesn’t meet in a timeframe that the put in the bill.

Joel Swider: So Neil, let’s turn to the subject of sort of the effect or the fallout, if you will, both positive and potentially negative of the legislation. I think in some ways beauty’s in the eye of the beholder, but Kathy Bennett, who’s the president and CEO of the New Jersey Hospital Association, seemed overall positive about the new law in the news reports that I read. She said it was the right solution. And I do think that, I mean, just my personal opinion is that NJJ has done a great job of taking into account the various perspectives here and coming up with a solution that is equitable, but also puts New Jersey hospitals in your membership, in a better position than they were for the past five, six years and maybe more. Do other healthcare leaders in community organizations feel the same way about the bill or what sort of the anticipated effect?

Neil Eicher: Sure. So we were very as an association and by the way, where we represent all the hospitals in New Jersey, I know that’s somewhat unique in many States, so it’s-

Joel Swider: So it was sort of everybody

Neil Eicher: Everybody. Yeah. So we have a for-profit non-profit that adds up to 71 hospital members. We have 250 to 275 post-acute specially care type of maybe not core members, but affiliated members, business members, et cetera. So we count over 400 members in our membership, but of course our core membership is mostly general acute care hospitals for-profit and nonprofit, but we also have some behavioral health facilities and other post acutes that are core members. But to your point, everyone, all the non, all the acute care hospitals supported this, membership completely supported this. It was difficult at times going from $2.50 to $3 to make sure everyone’s comfortable with that. I should note I won’t name, but there was one health system that had four hospitals in New Jersey that had no pending litigation that wasn’t very happy with it. They were fine with MGHA pursuing and they were absolutely great partners in it, but they just made it clear that they didn’t support it.

Neil Eicher: It would mean over a million dollars to them each year that they would have to pay. There are other categories of members who may not have had lawsuits, but also knew that they could be next and we’re supportive. I think it was also supported by maybe not very publicly, but nursing home health associations, others that were nonprofits, but thought that maybe they could be next. Educational institutions also were supportive. We got the council, the center for nonprofit hospitals or sorry, center for nonprofits in New Jersey to be supportive because of kind of the snowballing effect that could happen watching what would happen to our hospital. So we did have some kind of ancillary support and really the only, the only opposition was the advocacy group that represented the towns, it kind of depends on your perspective.

Neil Eicher: They were making a case to their mayors, that hospitals needed to be taxed, a hundred percent of the market rate. We believe that we shouldn’t have need to pay anything, but at least we came up with a compromise, the pay something, again, over $20 million a year, the other side just fought it and wanted a full payment. So I think in general, just some of, I think in general, a lot of the healthcare leaders understood this was important to get this codification, even those who are advocacy groups for patients, et cetera, knew that we were spending money on legal fees. And as a nonprofit, you have to report to your board, you have certain community benefit requirements. So they knew we could put that money back into care. So I’m glad we got this done. And I think we had the right amount of support.

Joel Swider: So Neil, maybe to close here, I’m curious as well, you mentioned the towns and the advocacy against this effort, which sort of surprises me in some ways since the statute previously allowed for exemption. And it really wasn’t until Morristown, that was even in question, but what is the anticipated effect on legislation, excuse me, on litigation that was ongoing at the time that this was signed or maybe really everything that’s kind of come out since Morristown, what will happen with that litigation and what do you see there happening?

Neil Eicher: That’s a very good question. And I’m happy to be able to explain this a little bit. And again, every state’s different, but I think there might be some crossover on this statement, but with the legislation being signed into law, it codifies our property tax exemption. It refines the statute for the exemption. As I mentioned before, requires the community contribution fee. However, everyone wants to meet. Everyone must remember the separation of powers between the executive branch and the judicial branch.

Neil Eicher: So yes, the statute will go into effect, but it cannot throw out the lawsuits and the litigation that’s currently taking place between towns and hospitals. That’s the legal interpretation from our council. However, in all practical sense, since we only have three or four tax court judges, and our counsel has been the ones representing those, the hospitals, she has told us that every judge has been looking at the progress of the legislation and art, and they are going to point to the legislation as kind of the solution.

Neil Eicher: So for those of you, or you may maybe council or are looking at from a legal sense, it’s important to understand that just because you pass a law, doesn’t necessarily mean it overturns a tax court decision, but it will be very influential and making their decisions. So if you’re thinking about going our route and trying to make a lemonade out of lemons and just kind of dealing with a bad situation that was put in front of us, I would encourage you as you go through the legislative process to also think about how you can make sure the judicial branch is aware of what you’re trying to do before moving forward.

Joel Swider: Well, thanks so much for your time and expertise, Neil, and congratulations on getting this bill finally negotiated and signed into law. Where can our listeners go to learn more about the law or about your work at NJHA?

Neil Eicher: Sure. No. And, and thank you for having me. njha.com. Please visit us. We have a lot of different things that are available for non-members a non password protected that you can visit. My email is an eicher@njha.com always feel free to send me a note. Again, it’s eicher@njha.com. I’m happy to talk about this. This was six years in the making happiness done, still more to do, but yeah, I’d be happy to talk to anyone who wants to learn more about this.

Joel Swider: Great. Well, thanks again, Neil, and thanks to our listeners for joining us today. If you liked this podcast, then please subscribe and leave feedback for us using your Apple or Android device. And if you’re interested in more content on healthcare real estate, we also publish a newsletter called the Health Care Real Estate Advisor. If you’d like to be added to the list, please email me at jswider@hallrender.com.

An interview with Kevin Jones, Managing Director and Real Estate Practice Leader, ZRG Partners

March 16, 2021 Andrew Dick Health Care Real Estate Advisor 00:40:22 Comments Off on An interview with Kevin Jones, Managing Director and Real Estate Practice Leader, ZRG Partners

An interview with Kevin Jones, Managing Director and Real Estate Practice Leader, ZRG Partners

In this interview, Andrew Dick sits down with Kevin Jones, Managing Director and Real Estate Practice Leader with ZRG Partners to talk about professional development and executive recruiting in the healthcare real estate industry. 

Podcast Participants

Andrew Dick

Hall Render

Kevin Jones

ZRG Partners

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 will be speaking with Kevin Jones, a managing director and real estate practice leader with ZRG Partners. Kevin helps real estate and healthcare companies with executive searches. We’re going to talk about Kevin’s background, the healthcare real estate industry and what he looks for when recruiting for executive positions within the real estate industry. Kevin, thanks for joining me.

Kevin Jones: Thank you, Andrew. Always a pleasure.

Andrew Dick: Kevin, before we talk about your role at ZRG Partners, let’s talk about your background. Tell us where you’re from, where you went to school and what you aspired to be.

Kevin Jones: Sure. Well, the first part of my career, if you will, is largely uninspiring. I went to Indiana University in Pennsylvania, which spent the rest of my life explaining that’s actually in Pennsylvania and not Indiana. However, I actually joined a recruitment firm right out of school, so I had no industry sector experience. And if I think about my career and my background, it really boils down to three to four significant decisions and changes that I made. The first one is leaving the firm that I started with after nine years to join as one of the partners at Crown Advisors. And crown was only a few months old at that point.

Kevin Jones: And I have a 13 year run to really effectively build that firm, helped build that firm from the ground up. Although at the time, the plan was just to stay there for the next 20 years, I couldn’t see it. The firm, it topped out. And my timing there was that I wanted to do a lot more in the firm, became a lifestyle business, which is great. But it was just focused on the partnership and the lifestyle that the business created. That was the second big risk that I took, is I left just to start the Jones Group. And that’s when I doubled down on my commitment to healthcare real estate.

Kevin Jones: For the next eight years, I focused on becoming a subject matter expert in the healthcare real estate sector, became embedded in the business in that community. That’s where I really understood the value of becoming a specialist. As an insider, you could build meaningful relationships versus just somebody that, who calls into the sector, if you will. So, that was a great run on my own. And I established relationships that I believe will be with me the rest of my career. About three and a half years ago, I was actually approached by a search firm to build a global real estate executive search practice at ZRG.

Kevin Jones: And so frankly, that’s been a heavy lift. But the nice part about ZRG is we have a robust healthcare executive search practice across the board. So I bolted into the healthcare group when I started. And our roots and healthcare as a search firm, we actually have a partner that’s a medical doctor. We focus on clinical academic medical centers and of course health systems, as well as PE backed healthcare firms. So within that group, I was able to use that as leverage to build the global real estate practice. And now, though the real estate practice is anchored in the US, we have outposts in Brazil, London and Dubai and it gives us a legitimate global reach.

Kevin Jones: I still do largely healthcare real estate, but as a practice, we’re doing probably 60, 50 or 60% in commercial real estate. And then I do the balance in healthcare real estate.

Andrew Dick: So Kevin, how did you at some point, and it sounds like many years ago, you identified healthcare real estate as a niche that you wanted to pursue. How did you end up working on searches in the healthcare real estate industry? That’s a pretty narrow niche.

Kevin Jones: Yeah. Yeah. It goes back a while. I was actually at the first BOMA Healthcare Conference in San Francisco. There might’ve been 45 people there. You’d have to, Laurie Damon would have to fact check me on that, but it was very small. And like a lot of people in this sector, Andrew, I had a personal experience that just drew me to healthcare and hospital real estate. So it became an interest. Once I discovered it, it became an interest. And like you build a practice anywhere, you get some companies that are growing and you work really hard to satisfy them and as they grow, your practice grows. And I had done that with a couple of pioneering firms in the sector, where I’d worked closely with their founder.

Kevin Jones: And as they grew market to market, they just tapped me on the shoulder and I helped them open. They went from a local brand to a national brand and I did all those searches. So through that process, that’s how I just became embedded in the business when it was much smaller than it is today. It was an easier effort because when people start to recognize you specialize in their startup sector, if you will, they recognize you. So it was easy to make my way around the block with all the players and as the sector grew, my practice grew. It was really more serendipity than, I did something spot on to make it grow.

Andrew Dick: Sure. So Kevin, give us an idea of the type of assignments you’ve had over the years in the industry. Would this be C-Suite executives or give us some examples?

Kevin Jones: Sure. Yeah. And focusing on the sector, I would say I do C-Suite, as well as the people reporting into the C-Suite. That’s really my strikes zone. And I’ve done some board advisory work, as well. I would say a typical search, it involves… I had done a search for a senior managing director for a group that does healthcare real estate consulting. And the leader of that group, somewhat of a legendary person in the sector frankly, was retiring. So, they engaged us to find that replacement and that’s always tricky to find somebody that’s been embedded and worked with the team for decades to bring a new leader in. And we did just that. It was a very successful search. It took us probably eight months, which was three months too long, frankly.

Kevin Jones: But when you work at that level, you’ve got to work around non-competes, you’ve got to work around other competitive covenants to try to get the timing right. Nobody wants to go against that. But that’s a typical search. And what I see when people come to me often, they’re looking for more than a plug and play person. They want somebody that has deep experience in the sector, but also they have that ability to be the face of the franchise. Somebody that knows how to sell and lead and execute. I see that a lot and I get that a lot. So that’s probably the type of role that I see, because they’re just so hard to find. You really need to know those people first, just to get their attention to consider something because they’re generally well paid, well taken care of because they bring such, three components of value to the organization.

Andrew Dick: Let’s talk about that, Kevin. We have quite a few young professionals who have been in the business maybe a couple of years, the healthcare real estate business. Or young professionals who are looking at getting into the healthcare real estate business. Let’s talk about the skills that you look for and your clients look for when trying to identify talent. You hit on a couple things, the ability to sell, interact well with others, et cetera. Talk more about that. What advice would you give to someone who’s really trying to make a name for themselves in the industry?

Kevin Jones: Sure. And that’s a great question. I actually have kids in that same period in their lives. This is something I’ve thought about. I think it’s, the thing is, it’s not new, right? It’s a generational to generational piece of advice. But I think the first thing is for most people, they need to redefine what sales is to them. Everybody carries around this baggage of what sales is and what it isn’t and the immediate cliches and imagery that comes with it. That’s obviously so old fashioned. I challenge people to, that they really need to just look at that. Do some self discovery and understand really, what’s your hang up on that word and what that means. They need to redefine it because every business is driven by sales and top line revenue.

Kevin Jones: There’s no way around that. And the more you can impact that, the more value you bring to an organization. I think most people, some of the conversations I’ve had with people, they just will tell me, “Well, I won’t sell.” And I think, “All right. Well then, good luck and stay where you are and nestle in, because that takes away a lot of your growth opportunities.” So that’s a little bit of personal work. You really need to evaluate what it is, what your hangups are around it. You need to read on the subject, very contemporary material on what it is, because that really is going to be a game changer. And once you’re able to embrace that and put your talents to use around it, that’s going to change your value to the market. And that changes everything.

Andrew Dick: That’s a great point, Kevin. We have on the team I lead, we have a number of young professionals and we talk a lot about building a personal brand and getting your name out in the industry. And in other words, even as lawyers, we have to sell. We sell a little differently maybe than other industries and we’re subject to ethical rules that prohibit us from doing certain things. But I think you’re spot on, Kevin. I think that in certain circles, when you talk about sales and those types of skills, it can turn people off. But in my experience, individuals who master the art of developing relationships and building a personal brand, tend to rise to the top. And I think that’s what you’re saying.

Kevin Jones: You’re exactly right. That’s what you see across the board. You bring up something else too, is networking is a large part of that. And networking, frankly, networking was real work for me. I mean, I obviously love what I do and it’s a cool business, frankly. But when I would go to a conference, networking would be so challenging. And I probably still haven’t been to a conference in a while, but I still get nervous and feel like I’m intruding. You’ve got to get over all those hangups and networking is an amazing skillset. It’s just that, and it’s like a skillset. You have to practice. You have to do some of the corny role playing. You have to really get outside of your comfort zone and become effective.

Kevin Jones: And that takes, more than anything, the things that I hear now is self-awareness, social and professional awareness, C-Suite and board presence. Those are really important elements and that’s communication skills. That’s style. That’s how you carry yourself, to a T. So you need to keep that in mind. If you want to be in the C-Suite, you really need that self-awareness and social awareness. And if it doesn’t come naturally, even if it does come naturally, it’s something that you need to work on and practice so you’re prepared. I’ve always, I’m going to butcher it, but I’ve always kind of hung on the Abe Lincoln quote. Prepare yourself, for one day, your chance will come. It’s one of those things where you need to be prepared. You need to practice beforehand. And when you find yourself in that situation, you’re ready.

Kevin Jones: Networking’s a big part of that and it’s going to be again. You’ve been in this space for a while too, Andrew. We went from one conference a year to maybe two a month. It is a business in and of itself, or it will be, and that’s fine. That’s a great opportunity to meet people, to sell yourself, to create that personal brand. The opportunities exist and the more you embrace that, the more you get comfortable with it and dive into it versus shy away and just try to back away from conversation… When people talk about coming out of their comfort zone, that’s a perfect example. It really is. And then, that’s when you’d need to develop a self-awareness and have a ready list of conversation points or topics or trends that you’re seeing.

Kevin Jones: Asking questions is always the way to engage conversation. Ask important questions. In those situations, you can start personal, but you really want to be able to learn how to leverage that into business. What do you want to ask about your legal needs, about your recruitment needs and your growth strategies? That’s when you have those conversations. Everybody’s at ease and disarmed, and it really is just a conversation. We both know everybody loves to talk about that. Nobody doesn’t want to talk about their growth plans or their growth strategy or their troubling situations professionally. So, develop a strong list of questions to ask, and that makes it a lot easier.

Andrew Dick: Great advice, Kevin. Let’s dig just a little deeper for the folks who are starting out in the industry. Talk about in your experience. I mean, you hit on a couple things about some individuals are maybe introverted or are uncomfortable networking and putting themselves out there a little bit. What tips do you have in terms of, do those individuals, should they seek out mentors who can help them or coaches? We live in a world where there’s an awful lot of coaching going on, which I find really interesting. What tips would you give? Do you see executives or young professionals seeking out mentorships with more senior level professionals to help them through that journey?

Kevin Jones: Yeah. Obviously, mentoring works, but it often doesn’t work. It’s not like you can be assigned or go up and approach somebody and say, “Be my mentor.” Right? And you might pick the wrong person. You really might. My advice, my approach to that is, and it’s think of it more of not like the old way of I’ve got one mentor and I do whatever that person tells me and I follow them around. But maybe target three people, three types of mentors and define what they are. Somebody that’s just amazing in sales and networking. Somebody that technically has a lot of depth, and somebody that you respect from an integrity standpoint, that seems to have the, I’m not going to use the word balance because I’m not a fan of that approach. It’s somebody that has balanced a career and a family or healthy relationships outside of work, is a better way to put it.

Kevin Jones: You don’t just walk up to the person and ask, but again, you develop your list of questions. And when you are around people like that, whether it’s a cocktail party or a conference, you have your line of questions. So, how did you get into what? Just like we’re engaged in here, right? Where are you from? What do you do? What do you do outside of work? Those are easy questions to answer, and then you feel yourself out. You’re going to resonate with somebody or not, and then you just latch on. And a mentor, that’s not a lifetime relationship, right? Somebody might just, it might be a five-year gig if you will, of where you need that help, and then you maintain those relationships. And they’re meaningful relationships, that you don’t have to just find one person that you follow around for 30 years. That’s an old fashioned way, in my opinion. And I think you can get a lot of value from different perspectives.

Andrew Dick: Good advice. Before we talk about some trends in the healthcare real estate industry, let me just ask one more general question, Kevin. When you’re undertaking a search, I know ZRG has a number of different tools to help find the right person. Maybe talk about how that search process works when you narrow the list of candidates and what metrics are you looking at? I think you’ve hit on some of them, sales and ability to work well with others. But how does that work when you narrow the field?

Kevin Jones: That’s a good question. Well, and look, that’s the reason I joined ZRG. I’ve always been in smaller boutique, real estate focused companies, whether my own or at Crown and when I started. And ZRG is very different. We’re actually the fastest growing search firm, maybe two out of the last three years. Through the pandemic, we’ve added maybe 10 plus managing directors where everybody else was shrinking. So it’s a very contrarian minded search firm and our approach and our thinking is to be the biggest search firm outside of the top five. We’re not looking to then become public or the size of a Korn Ferry or Heidrick because when we compete against those firms, we’re more nimble. We’re more flexible. Our culture is genuinely collaborative and that makes us better as a firm, as we approach these searches.

Kevin Jones: And like any sector, people grow tired of the old guard, of the way they’ve always done things and they want to do something different. And search is no different. And I agree, I’m glad you noticed our tools because they really are unique. It’s more than just a prop that we can set up. The assessments we do, and really, it’s the skills and attributes grid that our CEOs developed and we’ve refined over years. But it weights key skills and attributes, and we’re able to then create data points along the lines for each candidate. So you can rank them, frankly. Let’s say you create a batting order, but we’re very clear that doesn’t make your decision for you. It just gives you data points. You’re still having to hire the person.

Kevin Jones: This creates a very interesting dialogue because some people might score people differently or differently from us. You’re able to pick out what those points are. I think the strongest aspect of using our dashboard of tools, it keeps everybody on the same page where everybody’s interviewing, say on the seven same skills and attributes and what we’ve determined to be keys. In real estate, I find the interviewing technique is click and close. Once somebody clicks with somebody, they try to close them on either side of the table. And this process, it really forces the team because you’ve got to answer back to your team in terms of, this is how I ranked this person on all of these attributes. You can’t just then drift off into sports or family or politics, whatever you might be off topic. It forces everybody on the team to interview from the same criteria.

Kevin Jones: So everybody’s evaluating that candidate. I always think the value of a search firm is we continue evaluation. We’re doing a search right now for a chief revenue officer. There’s a lot of likeability around, say the two lead candidates, but from our process, we’re still in market talking to people. We’re also continuing to evaluate these candidates. We’re not just assuming, this is the person that we’re going to go through and hire. We’re continuing to critique and evaluate and share that with our client. That’s valuable because that’s where mistakes in hiring are made. You have that good first interview, and then you just glide to the finish line versus the continuing conversation, digging deeper. You’ve got this.

Kevin Jones: And I’ll go through frankly, through a process and I’ll re-rank my skills and attributes. The deeper you get to know somebody in the process, they might go from a four to four and a half or four to three, because as you dig and you talk to that person, I might talk to somebody 15 times through the course of a search candidate. You’re continuing to revisit and ask questions and that really helps in our clients just getting that right person in the seat. Does that answer your question?

Andrew Dick: It does. Just one follow up, Kevin. You talked about one search that took approximately eight months. When you’re hiring, I mean that was a special search, you’re replacing a leader of a group. On average, how long does the process take when you’re going, hiring maybe a C-Suite executive? Is it five months, six months? Or how long can someone expect to take, to go through a process?

Kevin Jones: It’s a three month process to identify and get commitment, and then you’ve got to work through the final piece of resignation. But yeah, within three to four months, the heavy lifting will be done and you’ve got one candidate that you’re finalizing. You should have somebody warming up in the bullpen as well, just in case.

Andrew Dick: Okay. And one more follow up, Kevin, because I enjoy this discussion. I find when I talk with professionals in the real estate industry, sometimes I feel like there are folks who are focused on the salary offered by a position. But in my opinion, that seems shortsighted. What are you seeing in terms of individuals looking for growth and opportunity? What’s your advice to a young person? It seems to me that they shouldn’t be focused just on salary or the location of the opportunity, but really, is there an opportunity to grow, to learn, to be mentored? What advice would you give there when an individual’s kind of considering a couple of different opportunities? What do you think is important?

Kevin Jones: Sure. Again, a very good question. It goes back to the advice you’d give. The other piece I would give to somebody that’s looking at a career is, re-examine what work means to you. So many people get hung up on work-life balance and whether they’ll be home and what their commute will look like. I really look at it is don’t even use the word work. You’re just spending your time. You can build a foundation, a professional foundation and a personal foundation to grow and merge those two. There’s a bridge between that. It’s not one or the other. So, I do. And work’s one of those things where we have these concepts that we’ve never questioned. They just kind of come up through our upbringing and we never reevaluate these things that we learned from a young age. Sales and work are two things that I think are worth reexamining throughout your life.

Kevin Jones: But the question is, to go back to your question, Andrew, I would say this, is you’re exactly right. People get hung up on salary and they get hung up on title and things like that. When you’re at that pivot point, and I’d mentioned mine. There were three to four really that were pivotal in my career. I think you need to recognize when those periods are in terms of, this is a pivot move and this is an opportunity. And then don’t ask yourself, what will I make in the next 12 months? But you need to sit and who am I going to be in the next three to five years? How can I grow? Who can I transform into being with this experience? And we see that with our private equity clients all the time, of when you join a growing private equity operating company and take that through a cycle, you’re a different person.

Kevin Jones: You’ve got a merit badge after that because of your experience there. So think about who you can become in this role versus what you’re going to make in 12 months. I think if you step back and take that process, that’s going to be very clear and that helps your answer. Now, comp always comes into play. It’s why we do it, certainly. But if the comp is close and one just has something more exciting to it, then you should certainly take that risk. It’s not a risk-free professional life that we live in, and you need to make smart risks and you need to make sure that the return isn’t so much in 12 months. I’ve made several moves where I actually had to take a step back. What I’ve learned through that process has been, the return is extraordinary. That’s what I would switch around and reconsider when people are looking at that.

Andrew Dick: Good advice. Thanks, Kevin. Let’s switch gears. Let’s talk about the healthcare real estate industry. The industry has grown tremendously. As you mentioned, you were at, I think the first BOMA MOB Conference, a small conference pre-COVID. It’s turned into what I would consider to be a mega conference, thousands of people. And then I think through COVID, we’ve seen even more growth in demand for healthcare real estate assets. Give us your perspective on the industry today.

Kevin Jones: Yeah. Well, it’s certainly different. There’s a couple things. If you recall, Andrew, I remember when the Affordable Care Act was a game changer the first time it came through. And the industry stood still waiting for some sign to act, a green light or red light to have certainty to go forward. And now, healthcare needs to be as nimble and decisive as any other sector. The old school bureaucracy, this is how we’ve always done things. It doesn’t translate into 2021. And we’re seeing a lot of that, frankly. We are seeing that old guard, that old way of thinking, it doesn’t translate and it’s not going to transform into future success, even if its worked in the past.

Kevin Jones: And frankly, I feel it’s an exciting time to be in healthcare if you’re prepared to be part of the change. If you’re clinging to what is, and that’s obviously always scary, regardless of what you’re doing. I’m seeing it. If you look at trends, I would be remiss not to say the words, proptech or data science. Those elements are becoming embedded in every sector, the technology efficiencies and data science. So I’m not minimizing that, but I don’t think that’s an insightful trend right now. That’s an obvious trend. I’m working with some firms that are leveraging machine learning and AI in terms of investment strategy and thesis, in terms of underwriting. It’s really a remarkable, if not scary, the depth that machine learning is coming into real estate from a decision making standpoint.

Kevin Jones: So I think that’s really interesting, where it just takes a more global picture, demographics, returns, all the things you want to put into the pot of stew. And it’s coming out with really smart and insightful answers. That’s really where I’m seeing in terms of technology, the proptech, the data, that’s really important. But there’s more to come and there’s even more forward thinking when it comes to applying technology within commercial real estate. In residential, for that matter.

Andrew Dick: I would agree. I think that there is. I’ve seen an awful lot of growth in site selection technology that’s really interesting. We’ve seen an awful lot of growth in telehealth and retail healthcare. And when you see a lot of private equity firms, as you mentioned, getting into this business, the healthcare business and the healthcare real estate business, I think we’re going to see more and more change. They’re typically very aggressive in trying to implement new models, so it’s exciting.

Kevin Jones: It’s exciting and it is different. The evolution is important. It goes back to my business in executive search. I mean, certainly that’s my day job, but with the changes and the speed of change right now, as a practice, my services have evolved into further introductory services. Whether it’s capital markets, joint ventures, project and pipeline introductions, mergers, team carve-outs. So, people are coming to me less with, “Hey, I need to hire this individual,” though that’s still the business. But more, “This is my larger problem of what I’m trying to solve. How can you help me solve that larger problem?” And it isn’t necessarily… A great example is this. We’re seeing more chief revenue officer searches right now. I think you could quickly just say, “Oh, that’s a head of sales,” but it really isn’t.

Kevin Jones: As you know, so many people that are trying to grow, they’ll hire a VP of business development and stick them in a region and say, “Grow the region.” Market facing people. The chief revenue officer role is transformative because this is a person that comes in that’s part of the C-Suite, and they’re really creating that repeatable systematic revenue process. If you have the right person, they’re not only looking at driving growth in revenue, but they’re creating systems and procedures to work with the sales team. And really, they should be strong assessors of talent to recognize this is the model. This is the model of person that we need to plug into this role, not just a VP of business development to go knock on doors.

Kevin Jones: And then the other component is identifying your client base. And how do you build more revenue from that in a very creative way? And then, how is that sustainable? How do we create revenue when the development market dips? How do we still keep cashflow and revenue expanding? That’s a strategy role, but the skill set really is in sales and marketing. But more so than just being a savvy client facing sales pro, the person brings a next level strategy to the business that frankly, the CEO, COO and CFO, they generally don’t have that background, that technical background. They also are not devoting the time to do that because they’ve got other full-time jobs.

Kevin Jones: So that’s been another trend that we’re seeing of people bringing in that transformative CRO. And that goes to the point, really part of the thing that we’re discussing here is the business is changing quickly. It’s exciting if you’re out in front of it. The problem I’ve seen is so many firms think they’re out in front of it. They feel like, yeah, we’ve got this. We’ve been through this before. But it’s a different, this, it’s a different scenario than it has been historically.

Andrew Dick: So Kevin, I have one more question as we wrap up. We’ve seen a lot of articles in the real estate industry about work from home and what that’s going to mean post COVID. What’s your take? Are we going to see organizations ask their teams to come back to the office? What will that look like? Any predictions?

Kevin Jones: That’s a big one. And this is just my opinion. I’m not an expert in that world. That involves sociology, psychology. The people that think everybody’s, everything’s going to go back to work from the office, largely have large office portfolios. So they can’t afford to even think anything different. I do see people coming back, but in a very different manner and a more effective manner, not just for Face Time. I have got clients and I know firms are looking to bring everybody back full time. I think that goes the way of the tie, right? Once you stop wearing a tie, it’s hard to put one back on. I think we’ve got a great experience on how to do this, but the real factor is having the right person.

Kevin Jones: If you’ve got the right person, they could work from anywhere and be productive. And if you have the wrong person, they can be in the office every day and still not quite get it and get it done. I don’t see office going away. If you look at your office, I think our own personal experiences play to it. I’m in a role where I can effectively work from home, but I’m very excited to get back on the road and work face to face. I still go into my office twice a week right now because I crave that interaction and you can’t create, or even have a culture if everybody’s working from home. I think everybody’s grown tired of the video conferences.

Kevin Jones: They’re very effective and they’ll play a greater role going forward. But I think we all know as a society that Face Time, personal interaction, it’s not healthy to do away with that in any, whether it’s professional or personal. You need to build that into your business plan, frankly, and make sure it’s effective.

Andrew Dick: Well, Kevin, I’ve enjoyed this conversation and I’ve enjoyed getting to know you over the past 12 months or so. Where can our audience learn more about you and ZRG Partners?

Kevin Jones: Sure. Easy to find, ZRGPartners.com is our website. My email’s KJones@ZRGPartners.com. So those are two very easy ways to find me. I’m all over LinkedIn as well, so I’m easy to get to.

Andrew Dick: Well, thanks again, Kevin. 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 Advisor. To be added to the list, please email me at adick@hallrender.com.

 

Strategy Considerations for Health Care Real Estate

February 24, 2021 Rene Larkin Health Care Real Estate Advisor 00:58:44 Comments Off on Strategy Considerations for Health Care Real Estate

Strategy Considerations for Health Care Real Estate

Hall Render attorney Rene Larkin talks with Kelly Adams of SCL Health, Cindy Black of Indiana University Health, Matt Crawford of Bon Secours Mercy Health and Heidi Hohendorf of Spectrum Health. Changing trends, legal updates and population forces are steady factors health systems use to inform their real estate strategy, but evaluating the long-term impact of a pandemic on how and where health care will be delivered ensures significant implications on real estate strategy in the health care industry.

Podcast Participants

Rene Larkin

Hall Render

Kelly Adams

SCL Health

Cindy Black

IU Health

Matt Crawford

Bon Secours Mercy Health

Heidi Hohendorf

Spectrum Health

Rene Larkin: My name is Rene Larkin. I’m a shareholder in our Denver office of Hall Render, and I do real estate transactions, general transactions, and work is kind of a general counsel for some of our small critical access hospitals in the mountain West. I’m going to turn it over to our panelists to let them introduce themselves. So we’ll start with Matt Crawford.

Matt Crawford: Thanks Rene. My name is Matt Crawford. I’m the vice president of real estate and ambulatory facilities for Bon Secours Mercy Health, a Catholic non-profit healthcare system located in Cincinnati, Ohio. I oversee our transactional activity in our real estate portfolio, as well as our ambulatory facility management platform and the administration of our portfolio at large. Glad to be here.

Kelly Adams: Hi, my name is Kelly Adams. I’m in-house counsel for SCL health headquartered here in Broomfield, Colorado. We have hospitals throughout Colorado and Montana. I provide legal support for strategic growth transactions in real estate matters and our joint ventures. My counsel on acquisitions, dispositions development work, and also negotiate leases as in timeshares. Also partner with our real estate management team CVRE to help improve systems that manage our real estate portfolio. I’ve been with the system for just over a year and prior to that, I was in private practice with the Denver office of Ackerman. Thanks for having me.

Cindy Black: Thanks Rene. My name is Cindy Black. I’m the director of real estate at IU health. We’re headquartered in Indianapolis, Indiana, and we have hospitals and we deliver care across the State of Indiana. I work with a team that manages all of the transactions, the asset management and the lease administration partner with internal providers who help us deliver construction services throughout the system. And just happy to be here and talk to you about what we’re doing.

Heidi Hohendorf: Hey Rene. My name is Heidi Hohendorf. I’m sooner legal counsel for Spectrum Health. Spectrum Health is a nonprofit integrated healthcare system serving Western Michigan. We have a presence as far North as Trevor city, Michigan, all the way down to the Michigan Indiana State border. With our corporate headquarters in grand Rapids, Michigan our real estate portfolio consists of approximately 12 million square feet. We’ve got about 10.5 million that we own. And 1.5 million lease that consists of 14 hospitals, including a dedicated children’s hospital, 11 urgent care centers, various different physician offices, and seven integrated care campuses. My role includes providing… I’m involved with reviewing negotiating drafting contracts throughout the system with a primary focus on providing legal support for our real estate team.

Rene Larkin: Great, thank you again for being here. So as we saw who registered, I think we have a wide variety and diverse attendees participating in the webinar today and signing in. So I think it’d be helpful and instructive if each of you would just kind of talk through your real estate department, how it works, how it interfaces with strategy, business development and finance. So as people are kind of hearing your responses they just might be able to take some application and move it forward with their institution. So we’ll start again just with Matt and kind of go in the same order.

Matt Crawford: Sure. As I mentioned, I’m the area of our department that deals with real estate and ambulatory facilities, sort of think of it as your shorter traditional corporate services platform, your transactions, your brokerage, your property management, maintenance, et cetera. And then the overall administration paying the rent, collecting the rent, dealing with expirations and options, et cetera. I’m oriented as part of a broader group, real estate development and construction. And we have in-house development capabilities, we have a design and construction arm and within my group we’re heavily outsourced. We have corporate partnership with Cushman and Wakefield where we outsource a lot of the blocking and tackling and the fundamental stuff we do in service of the organization. We report through finance and broadly interact with obviously our medical group, our hospital leaders, our group leaders, our market leaders, just a host of folks that perpetuate the activity of a system the size of ours. So fully integrated within the organization. But then again, heavily outsourced as it relates to the services we provide to our constituents both internal and external.

Rene Larkin: Great, thank you Kelly.

Kelly Adams: So our internal real estate team consists of VP over real estate, and then we’ve got a planning construction team, and then like Matt, we outsource a lot of facilities management, lease administration services, brokerage services, things like that to CVRE who’s our management company. They also provide some strategic input in terms of the context of new development and some of our existing assets. And then our leaders in various markets and our business development team work really closely together in tandem with this real estate team on projects and initiatives. I’d say generally speaking real estate is a little bit of an output of a strategy at my organization. There are times we sort of develop an operational strategy in terms of what markets we want to be in. And then the real estate team has really pulled in to identify potential properties or areas for development. And because we sort of have a leaner structure at my organization, I’m sometimes pulled into sort of the more front end strategy for the system as well.

Rene Larkin: That’s great. Thanks, Kelly. Tell us about IU Health Cindy.

Cindy Black: Yeah, so IU health has a really robust platform. We have a pretty well actualized real estate department. Our real estate department has a number of verticals. So we have our transaction management where we do all the leasing acquisitions and dispositions. We have another team that manages the lease administration. We have an asset management group that’s growing as we speak and bringing on more and more capabilities. We also in-house have a design and construction group who actually sits outside of real estate, but we partner with them on most of our transactions, wherever we’re missing capabilities. We bring in third party vendors. So again, all of the sort of support services that Matt and Kelly talked about. We’re bringing in brokers and developers and contractors space planners, architects, engineers, wherever we need them that kind of support so that we can deliver a complete capabilities to our team, as far as how we work with our strategy folks and our finance folks.

Cindy Black: The strategies delivered both at a system level, regional level, and a local level it kind of depends on the type and the magnitude of the project. So if it’s a new billion dollar hospital that you’re contemplating that’s definitely going to sit at the system level. But we have smaller less large strategies that will be delivered on more of a regional local level, although we are integrated throughout the system. And as Kelly mentioned strategy really is the guiding light who with what it is we want to be doing, right. They make a decision with all the stakeholders that are involved. We provide input information so that they’re making, they have some real estate leaning information to make those decisions, but they make the decision and then kick that back to us.

Cindy Black: And they may tell us what they want and what in perhaps what geographic area or sub-market we tell them what corner there are opportunities on and what the cost of that’s going to be and how that could be structured, whether an own or a lease type of a model. And then with that information, they’ll go back and together we’ll make the decisions. Finances is feathered throughout all of those discussions. So they’re always at the table. It’s just a real dynamic kind of push and pull through as we deliver.

Rene Larkin: Great. Thank you. Tell us about Spectrum Health, Heidi.

Heidi Hohendorf: Yeah, so our structure is very similar to what Cindy just described. We also have an in-house real estate department. That’s comprised of five contract specialists, including two real estate service leads. We have an accountant dedicated to our real estate functions. They’re overseen by a senior director of real estate strategy and planning, and also a VP of real estate and facilities. So this team is very involved in the real estate strategy and planning. They’re often at the table in those discussions, providing input and actually, driving decision-making to and work very closely with our in-house plant operations and facilities teams. We also have an in-house construction team that includes on staff architects, design specialists. So those teams all work very closely together. We do also outsource construction. We engage with contractors for construction projects and whatnot, but we do have a robust in-house team.

Heidi Hohendorf: All of the senior leadership and our real estate department reports directly to the… Well up through the chain reports directly to our chief financial officer. So he’s very involved in decision-making processes related to real estate strategy as well. So that’s how we interact with facilities or with finance, but there’re processes in place where the operational stakeholders are brought in on relevant projects related to the service line. So I’m not involved in the day-to-day behind the scenes strategy, but the real estate team is very angry and in that process with our finance and our strategy teams.

Rene Larkin: Great. Thanks. Well, and so just let me kind of give a roadmap to our attendees of where we want to go today and use this time. We’re just going to kind of talk through trends, reimbursement. I mean, I think it’s been an exciting year in kind of health care in general. One way to put it and just talk through obviously the pandemic is going to come up, but also, normal kind of implications of regulatory reimbursement other industry trends that we’re seeing and how that’s impacting becoming the output for healthcare real estate strategy. And so feel free. There is a Q&A box at the bottom of your screen, feel free to post questions throughout if we can fit it in, we’ll pop it in timely. Otherwise, we’ll try to leave some time at the end for any questions that we didn’t get to but don’t hesitate.

Rene Larkin: We want to interact with you all as attendees and make this kind of as dynamic as possible. So just in that Q&A box feel free to throw any questions that you might have and we’ll do our best to answer them. So I think the first topic want to hit is… I mentioned obviously we’re seeing regulatory changes, reimbursement changes and those are typical without a pandemic. I think one thing we’ve seen this year too, is telehealth. There’s been a great, I think the pandemic was a catalyst for really pushing telehealth use both on the provider and the patient side. So I think that’s one component, but if you guys just want to talk through what you’re seeing in those areas, those trends and how that’s informing your strategy for real estate.

Kelly Adams: I think Rene as you mentioned, that pandemic has really accelerated out of necessity. Some of the telehealth initiatives that were already in place or that we were working towards as a system and right now we’re operating in a much more relaxed regulatory environment that might be tightened post pandemic. But I think telemedicine for us is going to continue to supplement our brick and mortar operations and is certainly a good tool for early consults and follow up visits. I think ultimately it may actually expand our medical office space because we’re able to reach more rural residents in our Colorado and Montana markets and provide consults that would lead eventually to in-person visits.

Kelly Adams: And then I think the other impact that we’re seeing is on construction. So I think there’s some considerations in terms of how our new spaces are designed and constructed to reconfigure facilities to provide technology enabled spaces and remote health monitoring services. And so it’s impacted space planning as well. But I think overall, I see telehealth really as a compliment to our traditional models of delivering care and not so much a replacement.

Cindy Black: I can kind of reiterate what Kelly said. I mean, there’s obviously regulations have a huge impact in our industry and they’re constantly changing. They impact where we locate and they impact how we deliver and how we design our space. And so everyone in the industry has been asking, how is telehealth going to impact your footprint? And early on in the pandemic, leaders that I was talking to felt that gosh, the advent of all of these relaxed regulations and increased use of telehealth would have the effect of reducing our footprint, but actually as we were starting to work through how care is delivered, some of the realities of that are kind of changing our attitude. And while it’s not fully informed yet, what we’re finding is that physician that is sitting in the office, that’s delivering telehealth care needs a PA or another assistant to set up that call and they both have to sit someplace.

Cindy Black: And if that physician is also delivering care in a clinical exam room to patients in the flesh, but part of his scheduled time is virtual care, then he’s got to have two places to be in that same office. So what those workflows look like and how that impacts the design of our space is really something that we’re trying to flush out. I think everybody on this call understands we’re all living in legacy space that was designed for workflows as they used to be. And so we’re just trying to get our hands around what those workflows are going to become and how that will impact.

Heidi Hohendorf: Yeah. To echo what both Kelly and Cindy said so far, we haven’t seen telehealth as having a major impact on any sort of reduction and it’s spate for clinical space that we need. Telehealth is important as a convenience for the patient. And we have been, and will continue to focus on quality of care and patient convenience. And the way that we’ve done that in the real estate world is still far as we have I mentioned earlier seven integrated care campuses. And for us that those are kind of a one-stop shop where the patients can come. They’re located throughout the service areas that we serve. So they offer a range of coordinated health care services from diagnostic to primary care to specialty care. So a patient comes in they are close to their home. They’re not having to travel an hour away to go to the hospital.

Heidi Hohendorf: They have convenient parking, they can come in and get a lab drawn, get an x-ray, go down the hall and see their primary care doctor. So with telehealth being convenient for patients, that’s kind of what we’re focusing on for real estate perspective is just making healthcare simple and affordable and convenient for the patient. So those are some means that we’ve been doing it. Again, I don’t see telehealth reducing the footprint but we can reconfiguring like Cindy and Kelly said to bring in technology to expand that and expand our convenience to the patients.

Rene Larkin: Yeah, I think that’s great. And really insightful. I think the man on the street would probably, if they were asked would assume the opposite. So another thing, and Heidi, you hit on this and maybe Cindy, if you want to talk about this because you and I had talked about it as we see this regulatory and reimbursement push towards really value-based care, I think you’re going to continue to see possibly the incentives to create more of kind of that integrated care. Cindy, can you just talk a little bit about some of the real estate implications you’re thinking through your team, they’re thinking through as that might become more of a reality.

Cindy Black: So value-based care and population health management they’re all kind of buzzwords that are flying around in the healthcare system. Obviously the goal is how do we improve the health of our patients and reduce the cost of care at the same time. And real estate kind of is a layer over that helps us accomplish that. And as I spoke previously, we’re all living in legacy space and legacy space has a workflow that’s designed around the way we used to deliver care. So now, if we’re looking for a model that Heidi was talking about, we were of an integrated model where we’re bringing all of the different provider types into one place. And for the convenience of the patient, we’re trying to drive them through all of the different service providers that they need and treat the whole patient. Then that looks at a different workflow and that’s going to require a redesign. And so I think this is work that was started pre pandemic, and I think it’ll continue post pandemic. But real estate is definitely at the forefront and helping to figure out how we can make that happen.

Rene Larkin: Thanks, Cindy. And a question just came in and I think one of them is really relevant. Here is those of you that kind of talked on how telehealth might be changing your spaces. Have you seen specifically kind of HIPAA compliance spaces? Is that a concern? And has that taken into consideration for kind of remodeling to ensure that the provider can be providing telehealth services without certainly a violation of HIPAA, maybe something we wouldn’t be considering in a day to day, because they’re seeing a patient in a closed room. Are we taking that same consideration to the telehealth implications for real estate?

Cindy Black: I think HIPAA compliance is always at the forefront of all of our minds when we design our space. We all have specialists and guidance in our organizations that are helping us make sure that we have security and safety in place in whatever form or fashion needed. So I can’t think of a specific example how the telehealth delivery would change that. I don’t know if one of my other panel members can think of something that-

Rene Larkin: I mean I’m thinking no longer… Maybe we’re not providing telehealth in the break room and knew we never were, but right as the pandemic happened, maybe that’s where you were providing it because we just haven’t thought for spaces, but it’s like truly that needs to happen in a private space. Even if the patient’s not there, the provider Neil’s still needs to be giving that in a private space. And I think you touched on that, Cindy I don’t know if anyone else has any other thoughts, but that’s kind of where my I jumped to.

Kelly Adams: And I mean, I think that supports I think Heidi’s comment as well regarding… We’re still using exam rooms to provide the tele-health services. So it’s not separate space. That’s just incorporating it into our kind of existing designs.

Rene Larkin: Right. But just because the patient’s not there doesn’t mean we need less space to deliver that care in a way. No, super insightful. So I think you know, let’s turn to the pandemic, what are the effects? I think there’s two kinds of different ways that we’ve talked about this, that we see it affecting. There’re the effects of the pandemic on non-patient facing space. Our admin space, our space where we don’t necessarily need people to be in a central location. What are the effects that your system kind of seeing because of that?

Matt Crawford: Yeah, it’s big, a little bit to the non-patient facing and even our administrative footprint. I certainly can’t say has it has experienced as much scrutiny as it has over the last year or so. And what I think the learnings are just, ever-changing ongoing. You find out something new about how it’s working or not working for groups, individuals, departments, almost every day, sometimes by the hour. I don’t think just because we’re in healthcare, we’re really any different than other or any other office occupying business. We’ve got administrative space that doesn’t include any clinical function and we’re analyzing how we can be more efficient in that space. It doesn’t mean you can get out of some lease locations that are become less necessary shirt consolidate into what we may have a longer term commitment to occupy.

Matt Crawford: Absolutely. But I think it extends into how we use our existing space and what we need to keep. I think for us what we found is that for a lot of people, this has been okay. It hasn’t been as shocking or as disruptive or as uncomfortable relative to being productive at work. I think there’s a lot of people might’ve anticipated. And I think the question for again, not just us many, many, many other office using companies is what level of this should continue to achieve either cost savings, flexibility, or perhaps more importantly. These days associate retention, just because we are a Catholic non-profit healthcare organization doesn’t mean we don’t want to think like organizations that have to recruit talent, just like we did. When forwarding a work environment or an option to work in a way that’s not everyday onsite in an office makes sense.

Matt Crawford: Then that’s something I think we want to be able to pivot towards. So how we use the space, what we keep and what we don’t, what level of work can be done just as productively from a low room, like the one I’m sitting in right now. I think our questions that are definitely out there and that continue to be answered with new information every day was certainly probably not an end in sight, at least in the next 12, 18 months.

Heidi Hohendorf: I can speak to how it’s affected our administrative space too. And we were actually Spectrum Health was taking a look at how we were going to reimagine use of administrative space before COVID hit. We had been involved in conducting a study where sensors were installed in some of our spaces to see how often the administrative space was utilized and found that in some instances, people were using their space less than 50% of the time. Whether that would be they were offsite and attending meetings and whatnot. And we still do intend to build a new center for innovation and transformation where we’re playing to co-located various different administrative departments. Now COVID has definitely impacted how we’re rethinking, how that’s going to be designed before COVID. So these statistics just came out last week.

Heidi Hohendorf: Our workforce showed that in February 2020, we had less than 1% of our workforce working virtually. So that amounts to about 200 employees as of February 2021, it was 20%, which was 7,000 plus. So we don’t see remote work going away. In fact surveys showed us that 97% of our employees want it to have the option to work remotely, at least part of the time have some flexibility. So COVID has definitely been an accelerant and to use a term that our senior director of facilities planning and strategy says he calls it a positive disruptor. So it’s causing us to think about getting out of the conventional use of space, where one employee had one office and focus more on shared space hoteling space spaces that give people the flexibility. Like I said maybe I don’t need an office in a building dedicated to myself full-Time.

Heidi Hohendorf: Maybe I’ll work from home two days a week and I’ll share it with one of my colleagues. So we’re looking at how we’re going to reimagine, redesign our administrative space. And it’s definitely going to result in a reduction, especially when we have this new building built, because of, as I mentioned, we’re going to be co locating various different departments, and that’s going to free up some space and some cost savings that and if we own that, the space that’s being vacated, then we can repurpose it for other clinical purposes. But I think the work from home really more than anything is showing how administrative space is going to be impacted going forward.

Kelly Adams: Yeah. I think like Matt and Heidi described STL health too, is sort of exploring different ways to consolidate our office space and reconfigure the space to move away from individual offices or cubes and move towards kind of collaborative workspaces. And our response I think, is not primarily being driven by cost. I think that’s certainly a secondary benefit. But we like others have kind of surveyed our associates and recognize that it’s really important for employee satisfaction and retention and recruitment that we allow for that, that flexibility. And so our space planning is really just being responsive to that. And another thing we’re sort of factoring in is, so we are co-located with a technology company on a campus and depending on what their strategy is in terms of return to work that impacts, some of the shared amenities on campus, like cafeteria and gym and things like that.

Kelly Adams: So that’s certainly being taken into consideration as well when we’re planning. I think Rene, you mentioned too, just like other trends from a patient facing perspective. And I think I’ll just add a little bit in terms of what I’ve seen in the market. We are in the process of building a new campus for one of our existing hospitals. And I think as a result of the pandemic and the economic impact developers I think are eager to work with us because we’re financially very strong and we’ve seen, definitely proposals with some very competitive cap rates which has been good to see and is working to our advantage. And then I’d say the other area we’re sort of looking at is retail space. And I think there’s an opportunity there where landlords are eager to get us in as tenants, and we’ve been able to negotiate some pretty strong terms for leases there.

Matt Crawford: Kelly, I would edit what you just said relative to the creativity of landlords across the board. Whether it’s honing in on healthcare as an industry that’s has to survive, or whether it’s just thinking of ways to repurpose space that’s recently become vacant. We’ve certainly been, I would say the beneficiary of some tremendously creative ideas owners in our various markets who are obviously trying to attract a tenant to a property. But frankly, properties that we hadn’t traditionally thought about. As Cindy may have alluded, when we get down to that zip code or that corner what maybe we considered before, because it hasn’t been available or haven’t considered before, because there was tremendous competition for the space. I think there’s certainly a trend towards those properties being put in front of us in a more significant way. And us being forced to evaluate those a little differently than we have in the past.

Rene Larkin: Yeah you’re seeing just nationally kind of this reuse of space that the pandemic probably accelerated like a shopping mall right. I mean, we’re seeing healthcare tenants take advantage of that and move in and repurpose that for maybe integrated care model or what have you. But just with fresh new eyes, looking at that for maybe something you wouldn’t have considered in the past and landlords willing to work with you from the TI prospective or what it may be to make sure that that meets your needs. Cindy.

Cindy Black: I could just jump in there. We’re looking for… We’re trying to be opportunist. Opportunistic and so pre pandemic, everybody was trying to move towards more of a retail model in the delivery of care, get closer to the patient. And retail was very attractive, but anybody working in the real estate industry knows that your retail is pretty high priced. Those corners of prime. And so it’s difficult for some of our operations to support that kind of cost. But as retail starts to see, how it starts to feel some pressure we become more attractive as target tenants.

Cindy Black: And so we’ve we are our long hold tenants. We go into space, we don’t leave and we pay the rent on time and landlords really appreciate that. So if a landlord is under some pressure that might create some opportunity and I’ve seen some really unique applications where they could shopping centers have been turned into corporate headquarters, administrative space. And then again, there are those typical outlaw opportunities or inline retail, where I’d love to put primary care there, but it’s just a really high cost, but maybe there’s a some softness in some particular areas that we could take advantage of at this time.

Rene Larkin: Yeah. And Cindy I know we’re stepping back a little bit, but I thought you had just an interesting experience with kind of the work from home and how the surveying of people kind of changed as the pandemic went on depending on age group too. Do you mind talking a little bit about that?

Cindy Black: Oh, sure. Yeah. Heidi was talking about serving and everybody in the market healthcare typically relies on high-skilled employees. And so we are all in the business of trying to retain those employees because it’s hard, it’s costly to have that turnover going on. So we’ve been serving and we’ve delivered several surveys. And at the beginning of the pandemic my staff, I can speak anecdotally. They were ready to go back, waiting to go back and we have several generations represented on our team. And over the course of time, as our capabilities of working remote have shifted and changed, and people have really come to appreciate the work-life balance that has come along with this. Some of the unexpected discoveries we’ve gotten to know each other better.

Cindy Black: In fact, we as panelists talked about that earlier that I now know who has a cat and who has a dog and what their names are because onscreen. And I hear them in the background and we know each other’s children’s names and that’s been really refreshing. And so and we are also those of us who have any kind of a commute we’re realizing we can have two to three hours added back in our day. Now some of us choose to put that into our work and we never get out of our seats and the others choose to have a little more work-life balance. But my team specifically has now really grown and decided that this isn’t a bad model, but we’re seeing really is a demand by our employees for a hybrid model.

Cindy Black: And what does that look like? That’s the head-scratcher and how do you manage that? So people sharing space in a safe environment, pre pandemic, we were going to more, we were densifying our space. And so we were taking out the walls and pushing people closer together in fewer private offices. And that was wonderful, but we’re not sure how that works in this new environment now. And how many days a week and how do we manage who comes in and out and how do we reserve that space? And so there are a lot of challenges with planning for that hybrid approach, but that does seem to be the preferred model, at least what we’re seeing evolve.

Rene Larkin: And just the question from one of the participants that I think tags onto the end of this, and you guys all touched on it, but do any you at this point have a return to work strategy or that’s still in flux?

Cindy Black: Yeah, I’ll finish and then I’ll throw it to some of my partners here to see what they’re doing. I think it depends and it changes. So earlier in the pandemic, everybody said we were going back at the end of 2020, and then it was June of 2020. And now it’s maybe December, I’m sorry. Now it’s June of 2021. And now it’s maybe December of 2021. And so I guess my answer is we don’t know when we’re going back and we don’t know how we’re going back. I’m speaking for generally for my system, understanding that our healthcare providers they have never gone home. That we are continuing to work and we’re all working. It’s just this remote for workforce. We don’t know when we’re going back and how.

Heidi Hohendorf: Yeah, that’s the same for us too. Like Cindy said, it’s continuously changing. Plans are being put into place, but it’s all science driven based on what is going to be happening with the vaccine. What sort of the herd immunity and what we’re seeing come out of the vaccine and how it’s going to impact people. We kept having guidelines and the targets have shifted. The last I heard was earliest return would be January of 2022 for those of us that are working at that kind of work at home, we’re still having to work from home. And then when people do come back, flexibility will be implemented, and it’s going to be a role based to who has the ability to do this work at home without having to be onsite.

Heidi Hohendorf: So there’s just lots of variables and I think there’ll be pilots put into place. So what does the return to work look like? What’s the space going to look like from a safety perspective. And so I think different groups will kind of come back at like a phased in basis.

Kelly Adams: I would just echo Cindy and Heidi’s comments from our perspective from STL health perspective. Really the plans have continued to evolve over time and just continue to be responsive to new research that’s out there. And then the data that we’re collecting internally as to people’s preferences. I think generally speaking a hybrid model is probably what we’re moving towards, like others have mentioned. But I think it just continues to be something that we’re working on and trying to implement.

Rene Larkin: One question that we’ll ask before we move on from this topic, we’ve all talked about kind of all admin being sent home, the administrative offices. They specifically asked, did that include kind of the administrative associate, so kind of your assistant type, have your systems been able to mobilize them such to work at home or were they returned back to work?

Matt Crawford: I would offer yes and with great success with. I think my one time I was going to say earlier when Cindy was talking about and I said this earlier to this group. It’s almost a shame that it took a pandemic for us to come face to face with our shared humanity. I think that we’ve realized that while we may do it begrudgingly in largely it can be done. And it’s been from the top down certainly in our organization as everyone has alluded to. It’s to what degree will that persist in sort of around the story. And it seems like more than less.

Rene Larkin: Thanks. Well, let’s move on into… I’m going to switch you guys up a little bit, but I think you guys are ready. Kind of just driven by some of the questions I’m seeing in the Q&A box. Let’s talk kind of the pros and cons of leased space versus owned space and especially in light of a pandemic and how that might kind of kind of change the way you look at things moving forward.

Matt Crawford: I have to take a swing at that a little bit as it relates to [inaudible 00:38:52] and the activity across our portfolio. I think in years past the mantra was if you need the flexibility and you’re generally off campus broadly leasing makes sense here too for have we had to take advantage of that flexibility sometimes, but not very often. I think there’s a lot more of these days. We’re analyzing certain locations and saying, nice short remaining lease term. It gives us an opportunity to do something to help ourselves. And I just think that’s really writ large these days, especially as it relates to our newly acquired lease locations. It’s all of those flexibility benefits that come with leasing a space are evermore important. On the ownership side again, it’s really the same analysis.

Matt Crawford: And I think these days, if we’re going to be there long enough, will it make financial sense? Well, once you figure that out, you’re analyzing your capital options, internal, external, et cetera, and trying to figure out whether it makes most sense to deal with something internally and try to control that piece of real estate or whether it makes sense to bring in a partner. And you’ve got an environment now where Kelly, I think you said earlier cap rates are changing rapidly. Demand is increasing substantially and properties are trading at a velocity that it’s startling almost to see that it happening during a pandemic against [inaudible 00:40:20]. And then it’s that type of activity you thought would largely slow down. I don’t know if it’s healthcare specific, but it is most assuredly picked up.

Matt Crawford: And to the extent we can participate in that opportunity to own our own real estate that we populate, you know, we do, I think a lot of organizations do. And again, as it relates to the leasing, just finally taking advantage of that rainy day flexibility that you always wanted but very rarely pulled the string on. And I think that demand for flexibility when you’re negotiating new leases, that demand… I saw a question actually that I might take a swing at answering. We’re seeing a lot of landlords more and more willing to extend the period of time during which we’re obligated to spend [inaudible 00:41:03]. And that’s really nice frankly. Thanks to all you landlords out there.

Matt Crawford: Thank you very much. It’s it gives us the flexibility because the TIA allows doesn’t always go all the way for us. We have to put some of our own capital next to it gives us a chance to wait to spend some of our own money. And if we have to give a little more term in order to gain that flexibility, that’s a hugely beneficial thing for us. Again, going back to what I said earlier, flexibility, the leasing scenario expanding a little bit relative to our own portfolio, I think has as benefit on both sides. And I think as it might’ve said has been accelerated by the pandemic environment.

Heidi Hohendorf: Yeah, I know with our system, we, we definitely have been seeing advantages and owning as of late and for several reasons, one being able to control costs and operating expenses. If we’re leasing five different buildings, we got five different landlords. They’re using five different cleaning companies. They all have their own, different protocols that they put in place. Whereas if we own the building, we can use our own internal environmental services to save just some, efficiencies they’re familiar with our spaces. And with regard to reduction in costs, as far as flexibility goes, I think it goes both ways. There’s definitely flexibility in leasing, but there’s flexibility and owning too. We’re not tied by restrictions that the landlord might have in place.

Heidi Hohendorf: We can use the space within, regulatory confines, how we want to use it without having to get permission from the landlord. We there’s certainty and knowing that what the lease term comes up, we might have to negotiate with the landlord. They we might be at a disadvantage, they might charge higher rent, whereas when we own it we have the certainty that we will have that space available to us. And like I said, it goes both ways. There’s pros and cons for both we’ve been seeing pros in lease or in owning outweighing the cons.

Cindy Black: Yeah. I would add to that from an operational perspective. There are definitely some pros to owning during a pandemic as well, just in terms of having more control over the building and other tenants and really just from an infection control perspective as well. So helpful in terms of enforcing, social distancing mask wearing you know, air flow, HVAC issues, things like that. And, and even cleaning and disinfection processes. And so when the pandemic hit in the spring for the buildings that we own where we have third party tenants, we instituted pretty strict supplemental building rules and regulations around kind of best practices which helped create standards that ultimately, protected our patients that were coming to visit us at those locations. So I guess the flip side to that is that this required deploying a lot of resources on our end.

Cindy Black: Whereas, if we were leasing, the landlords would kind of bare. There are some of those burdens. So another kind of challenge I think has been for us as landlords has been dealing with various issues that have come up with rent, deferral and rent abatement requests for our tenants. And so we’ve had to manage that and we’re in the business of healthcare and not real estate. And so certainly that has, that has shown to provide some challenges for us. And it’s more complicated from a regulatory perspective as well.

Kelly Adams: Yeah. I could just add tag on to that. Some of the things that we found ourselves trying to manage during the pandemic is, hey gosh, we need to stand up a daycare immediately for our employees so that we can deliver date deliver care to our patients. We need to get an infusion going so that we can start delivering some of these different treatments that are now available. We need drive-through testing and we don’t own the building, but hey landlord, do you mind if we start putting tents up and start routing patients through, and we’re bringing them from all over the city, and by the way, we need to change our hour of operations. And we want to control who can come in and not come in this building and under what circumstances they can come in. So you don’t mind if we put controls in, on your building.

Kelly Adams: So these were all interesting conversations that we had, especially when we might be the majority tenant, but we’re not a hundred percent tenant in those buildings. So those were some of the challenges we began to face. I would say that whenever we’re trying to figure out how we’re going to deploy our cash, we have to do have a trade-off question. Do we drive our money first, we assess our financial health. And then are we going to put that money in for business? Or are you going to hire more doctors or providers? Are we going to buy, you know, more x-ray machines and MRIs. So once we get past that hurdle and we have managed our core business, then if there’s still money available, I would say some in response to some of the other comments I’ve heard, I guess we’re developing a framework on when we want to own and when we want to lease and right.

Kelly Adams: And I think a lot of systems kind of had loose framework anyway. And so now we’re just tightening that up. So if it’s on our hospital campus, if it’s attached for a hospital, gosh, our preference would probably be to own. If it’s in an emerging market we’re not sure and we want to retain flexibility. That might be a place where we want to stay flexible in lease. And then there are different product types. Do you want to own your surgery centers, it’s a high cost delivery of care, but it is dealing with landlords who’d maybe don’t manage those buildings to the standards that you would like. It creates that push and pull. And so we are developing that framework so we can better deploy our capital.

Rene Larkin: On that capital question. That question came in and I do think it’s interesting. We didn’t hit it on it feel free to pass, but presumably we might see a lower cost of corporate capital. To your point, Cindy, there might not be a big of a pool of money such that we can then use that for real estate. Is that impacting or hasn’t yet even come into the consideration of maybe a reverse monetization strategy instead of buying back your buildings are you going to now considering going back, has that even entered the realm yet?

Cindy Black: I think the pendulum is always swinging, right. We went through a period of time when everybody monetized. And so we’re now all living through the great reality of working with our re partners. And what challenges those bring. So I do think you’re starting to see some conversations bubble up. I don’t know if that’ll bear fruit. I don’t know if any of my partners on the call have thoughts on that.

Matt Crawford: I think what it’s done relative to analyzing the lease versus own decision and analyzing individual deals is amplified the financial transaction aspect of it. Real estate is a location. It’s a quality of building, it’s a presentation to the community and your patients, but moreover, it’s a deal it’s dollars and cents. You’ve got to understand the very small, changes and things like cap rate that can have tremendous impact on value. And, when the internal cost of capital fluctuates by a half a point that makes a material difference in the way you’re analyzing your given transaction, where there’s that’s always been the case. That’s not new news being ever more important today when those half a point ticks can be daily, weekly, certainly monthly. And so I think the emphasis on considering these real estate deals as financial transactions, far more, really detailed level, far more than really ever before, as at least be prevalent for the workload.

Rene Larkin: Okay. Thanks. That’s helpful. Well, I think we have about five to 10 minutes left, and there’s quite a few questions that are kind of just random if you guys are okay with it, I’ll kind of take through those. And to the extent any of you feel comfortable responding, feel free. I think we answered that one. One of the questions I think that came up when we were talking about reutilizing space in light of the pandemic is how are you guys addressing the need for more technology as it relates to wifi coverage, et cetera? How is that impacting… I don’t think we hit on technology. So maybe if you guys can hit on that expanded use, and if that’s impacting the way you guys are looking at your existing and reutilizing the space.

Matt Crawford: Well, nobody else is jumping ahead. I’m not even sure what I’m going to say, but, what came immediately to mind is something so silly as printing. So many people working from home printing and whether or not you’ve got adequate wifi access whether you can maintain an unfettered video connection for hours and hours on end. I guess what I would say is just challenges nobody ever really thought we think about before and how real estate interacts. We interact with our HR department a lot as it relates to again, that associate experience. I can commend my colleagues certainly in our organization for really paying attention to that, thinking through those things. Whereas you look at a real estate person’s square feet, TEI, the difficult stuff we deal with, having to figure out whether or not the people who work around those administrative locations really can do so effectively from home.

Matt Crawford: Now, how do we accommodate a group that needs to come in and print out a high volume? How do we accommodate a group that has a scanning function that shouldn’t be done in their home office? What are the IT considerations connecting your home printer to your company laptop, things like that. I can’t profess to indicate that we’ve got a solution or that we’ve even begun to answer these questions, but they’re just new challenges that we’re trying to figure out. I would argue that a personal opinion certainly, but the benefit of remote work again, as we said earlier as it relates to being a retention tool, as it relates to attracting talent, as it promotes sort of counterintuitively the work-life balance as some people have experienced.

Matt Crawford: I think those benefits far outweigh the challenges associated with figuring out how to securely print something. And look at those roles require those types of activities, they shouldn’t be remote all the time. And then again, doesn’t that all speak to the flexibility of what we’re trying to provide and still get the work done that is requisite for our organization. I couldn’t tell you the color of the cabling and our office spaces, but I can sure tell you that we’ve thought about what it meant to not have that available in your house in rural Virginia, for example. Certainly something we need to address and tackle that everybody knows.

Heidi Hohendorf: Yeah. Along those lines and I don’t know the answer to the solution either, but I know that we’re certainly considering technology that will allow for a seamless connection between virtual off-site workers and those that are onsite. I know there’s been some struggle with say there’s two folks in an office, and then they’re on a teams call and trying to get everybody and the sound and the interaction between the two that are offsite and the ones… I know that’s been talked about and will be looked at and being implemented into our facilities is how to get some sort of seamless analogy between the off-site workers, the remote workers and the onsite workers.

Cindy Black: All I can say is it hasn’t been an issue for my teams and the teams I work with. So maybe that speaks to the fact that our system and specifically our ISIT folks are handling it really well. I mean, prior to the pandemic, we all migrated to a single platform. Our company uses teams, it’s a really robust platform. It works really well. And I think in healthcare, we’re all used to hand-offs and working as teams to deliver care and our administrative teams are doing the same thing. Somebody’s microphone doesn’t work, cameras are working, or they can’t figure out to do this or that everybody’s been jumping in. So I really has not been an issue for us. I think the question was wifi coverage. And I’ve really not had any experience with anybody in our system, but I don’t work in IT. So I’m sure there’s somebody out there and that is an issue for the ISIT department.

Rene Larkin: Yeah. And to your point, it’s probably driven more by the areas that you serve, rural, urban, et cetera. And then where your colleagues are. Let’s just hit on maybe one last question that we have a couple of questions relating to lease concessions, TI repayment, TI allowances reduced rent, kind of what were you seeing as a landlord, what are you offering especially peak of the pandemic related to those terms if you guys are willing to share.

Matt Crawford: Months and months and months of free rent, unlimited TI, bargain basement rates across the board, it’s been smart it’s been non-skid. I mentioned that again, we’ve been successful in working with our partners and landlord partners to get again, longer periods of time to spend TI allowances. Some of those flexibility provisions we talked about, some of your typical deal terms, termination on longer-term deals with termination options with penalties, et cetera. Maybe it’s not a deal term, but something Cindy, you said earlier, that kind of stuck with me more over the landlords would be great. Maybe that’s a shocking thing to hear from the mouth of a tenant, but it’s true. Landlords have been great as it relates to the difficulties we’re experiencing in the healthcare system and what we have to do to keep our patients safe in buildings, where we might not be the only occupant or whether we might be the only healthcare organization using the space.

Matt Crawford: I can honestly say that we’ve got 12 and a half million square feet of ambulatory real estate alone, not including the hospitals. The number of landlords we interact with is incredible. And I could not make any single one, nor would I that was anything but accommodating as it related to our need to set up a tent or to provide testing or to lock down a door to make sure there was a temperature taken, those sorts of things. We really enjoyed a lot of really nice collaboration. I think it made a substantial difference, or it changed our interaction with a lot of our landlord partners, largely for the positive.

Matt Crawford: Again, maybe that’s just another positive unintended consequence of having to deal with something like this. That’s worked out great. But generally speaking, I think maybe more of a willingness to accept the short-term going on the middle Eastern stuff. I mentioned the flexibility. I’ve said it a thousand times, but we don’t always do the five-year deal. I’m not going to do a three-year deal. And a lot of times it’d be a short conversation when that came out. That’s not the case anymore. And really any term commitment associated concessions is on the table whether it’s helping the organization because demand has been impacted accordingly. I’ve surely observed that in our lease portfolio.

Cindy Black: So yeah, to Matt’s point, I can tell you our landlords have generally taken the stance that short term is better than no term. And because of the pressure that they’re seeing in the market, they have more of an appetite for those shorter term leases. And obviously we as the tenants were looking around saying, are we at the top of the market here? Do we really want to go long in a lease right now at this rate? So we’re both sides of the table are seemingly willing to take that shorter term. They’re also willing to again, extend the amount of time to deploy, attend improvement dollars, recognizing that when you have pandemic restrictions in place, you can’t start swinging hammers if you can’t even go in the building.

Cindy Black: So they’ve been very amenable to that and they’ve been very good to work with. You’re starting to see some softness in the market in particular assets and particular asset classes, perhaps. But I would say healthcare real estate is healthy and there seems to be people with money that they want to deploy and invest, seem to want to flock to healthcare, because it seems to be a stable market in this economy and that’s putting upward pressure on rates. So I can’t see that we’ve seen really any kind of softening in rates as of yet, hopefully, but I haven’t seen it.

Rene Larkin: That’s great. Thank you all the panelists, it’s been a great and robust discussion.

Stark Law Final Rule – Impacts on Health Care Leasing Arrangements

February 8, 2021 Libby Park Health Care Real Estate Advisor 23:11 Comments Off on Stark Law Final Rule – Impacts on Health Care Leasing Arrangements

Stark Law Final Rule – Impacts on Health Care Leasing Arrangements

Hall Render attorneys from four offices across the U.S. discuss CMS’ Final Rule modifying various Stark Law regulations, including those specifically geared toward health care real estate arrangements. CMS issued the Final Rule on November 20, 2020, and starting January 19, 2021, health care organizations nationwide were required to comply with the new regulations. The podcast discussion addresses key guidance provided by the Final Rule, and covers topics of fair market value, commercial reasonableness, and Stark exceptions that may be available to health care organizations.

Podcast Participants

Libby Park

Attorney, Hall Render
Denver Office

Gerard Faulkner

Attorney, Hall Render
Dallas Office

Joel Swider

Attorney, Hall Render
Indianapolis Office

Kiel Zillmer

Attorney, Hall Render
Milwaukee Office

Libby Park: Hello, everyone. And welcome to the Healthcare Real Estate Advisor podcast. My name is Libby Park and I’m an attorney with Hall Render, the largest healthcare focused law firm in the United States. Thanks for tuning in today. We have some great content for you. Today, we’ll be talking about CMS’s final rule aimed at modernizing key fraud and abuse regulations under the Federal Stark Law. CMS issued the final rule in November, 2020, which became effective as of January 19th, 2021. These regulations have now been in effect for a few weeks. So, we hope that this podcast has content that is relevant and timely to our listeners. Today, we’ll hear from three Hall Render attorneys from different geographic locations around the U.S. Joel Swider is joining us from our Indianapolis office. Hi there, Joel.

Joel Swider: Hi, Libby. Thanks for having me.

Libby Park: Of course, welcome. Kiel Zillmer is based out of our Milwaukee office. Hi, Kiel.

Kiel Zillmer: Hi, Libby.

Libby Park: And Gerard Faulkner is from our Dallas office. Hey, Gerard.

Gerard Faulkner: Hey, Libby. Happy to be here.

Libby Park: Thanks for joining us. I’ll be moderating our conversation today, and I’m located in Hall Render’s Denver office. Thanks, everyone, for joining me today. Today, we’ll discuss the big three areas of the Stark law final rule changes that will impact healthcare leases, fair market value, commercial reasonableness, and exclusive use. Joel, let’s start our conversation with fair market value, as it relates to the final rule. Can you tell us what changes did CMS make to its interpretation of fair market value in the real estate context?

Joel Swider: Thanks, Libby. When it comes to fair market value, CMS did a couple of things in the final rule. The first is that they finalized changes to the structure of the definition of fair market value, the structure itself. CMS advanced a general definition of fair market value, as well as some more specific definitions that apply in the rental of office space and rental of equipment contexts. The general definition of fair market value that was finalized is, and I’m quoting here, “The value in an arm’s length transaction, consistent with the general market value of the subject transaction.” So, they’ve really scaled it back and made it more basic.

Joel Swider: And then, CMS went on to give additional definitions for, in our context, the rental of equipment and the rental of office space. And so, part of that definition, from the rental of office space exception or the new language from the final rule says, “With respect to the rental of office space, fair market value means,” and I’m quoting here, “the value in an arm’s length transaction of rental property for general commercial purposes, not taking into account its intended use, without adjustment to reflect the value that the perspective lessee or lessor would attribute to the proximity of convenience to the lessor where the lessor is a potential source of patient referrals.” So, this was a concept that appeared previously, but was somewhat disjointed and they kind of brought it down into one definition.

Joel Swider: And then, furthermore, and I’m quoting again here, it says, “It must be consistent with the general market value of the subject transaction.” So, the CMS also updated the definition of general market value to sort of bifurcate it into multiple parts, applicable to different scenarios and applications. They had one part for assets, one part for compensation, and there’s a separate definition for general market value that is specific to the rental of office space and equipment. And what CMS finalized there is, it says, “With respect to the rental of equipment or the rental of office space, the general market value is the price that rental property would bring at the time that the parties enter into the rental arrangement, as the result of bonafide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for one another.”

Joel Swider: So, these concepts in verbiage are really consistent with how those definitions read in the past. But they’ve been consolidated and they’re easier to find. And so, really to my mind, from a practical perspective, I don’t know that this necessarily changes the end result of what would be considered fair market value. But I do think that it makes it easier for a health provider to find and use the definitions. It also makes it easier when we are, let’s say, reviewing an appraisal that has come in from a third party. We can make sure that they’re using the right definitions and that they’re using them in the right contexts.

Joel Swider: So, the other thing that I’ll mention about the fair market value definitions for real estate arrangements was CMS removed part of the text that used to say a rental payment does not take into account intended use if it takes into account the costs incurred by the lessor in developing or upgrading the property. And CMS had originally added this language to the Stark regulations to basically clarify that rental payments may reflect, they are allowed to reflect the value of improvements or amenities, which I think to most of us practicing in the real estate realm or anybody that’s an appraiser or works with valuations frequently would realize that that is a base assumption upon which the fair market value of the space is based, is those costs that were incurred in improving it. But CMS basically said this was really confusing to people. It wasn’t necessary. And so, they took it out.

Joel Swider: So, I guess, in summary, the CMS in the final rule, they modified that definition of general market value to more closely align with valuation principles that are already used. And any sort of FMV appraisal or broker’s opinion of value that a provider might have previously used is probably still accurate, even if it’s based on those old definitions. But, from a practical matter, I think one takeaway for me and to those listening is, consider updating your template fair market value reports, your fair market value policies, your lease templates, because these definitions have changed. And to the extent that an appraiser would, in his or her professional judgment, base an opinion on these, obviously they’re going to be very important for those purposes.

Libby Park: Thank you, Joel. And thanks for offering some practical tips for folks listening in as to how we can apply some of these changes. Another question, in regard to fair market value, Joel, did CMS opine on any methodologies for setting FMV in real estate transactions?

Joel Swider: They did. So, what CMS said in terms of methodologies was basically that CMS will not prescribe any particular method for coming up with fair market value. And CMS said it would accept a range of methods, appraisals, comparables, looking at documentation of other transactions. They even talked about cost plus a reasonable rate of return, which is something that hasn’t appeared in commentary for a long time. Basically they will accept any method that’s reasonable.

Joel Swider: And I think, from a practical perspective, this really gives providers a bit more leeway to use their discretion, which is a good thing for providers. And I think that’s where too, from a legal perspective, some of our guidance comes in the form of let’s look at this arrangement, let’s look at the stakes involved and the parties involved. And maybe we can apply a cheaper, or faster, or easier method to come up with fair market value, as opposed to getting an appraisal, which is really sort of the gold standard. And that’s something that you would want to use in a more high-risk type of arrangement. So, I think in general though, it was good because CMS gave additional leeway to providers in this area.

Libby Park: Thank you, Joel. Appreciate your thoughts on the fair market value portion of this. Let’s shift to commercial reasonableness. Gerard, can you please tell us a little bit about what changes did CMS make to the definition of commercially reasonable?

Gerard Faulkner: Yeah. So, CMS’s definition of commercially reasonable was sort of expanded in order for them to try and take a more objective approach to their analysis. And so, they ended landing in the final rule on commercially reasonable meaning that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty. CMS also kind of added in there that an arrangement may be commercially reasonable, even if it does not result in profit for one or more of the parties.

Libby Park: Gerard, thanks for that definition. How will CMS determine if an arrangement is commercially reasonable? And how does the new definition impact this analysis?

Gerard Faulkner: So, now under the final rule, the new rule, CMS’s determination is based on a case by case analysis that turns on whether or not the arrangement makes sense as a means to accomplish the party’s legitimate business goals. And so, when CMS is making this determination, they’re going to look on a case by case fact specific inquiry on the characteristics of the parties. And that will kind of depend on which parties are involved. So, they’re going to be looking at things like the size, the type, and scope and specialty of the parties.

Gerard Faulkner: CMS indicated in the publishing of the final rule that it views this updated standard is more objective since it requires assessment of the characteristics of the parties themselves rather than the previous rule, which had more of a focus only on the perspective of those parties as they entered the arrangement. So, that’s really how the previous CMS commentary had framed this commercial reasonableness discussion. It’s important to remember though that just because an arrangement ultimately achieved a legitimate business purpose, that doesn’t mean that that arrangement was necessarily commercially reasonable. We can take from the final rule that the focus here will not, obviously, be on that result of the arrangement, and moreso a fact-based inquiry, case by case inquiry into whether or not it was reasonable to enter that arrangement in the first place for the parties.

Libby Park: Thanks for those thoughts, Gerard. And can you tell us how will this definition, what are your thoughts on how the definition of commercially reasonable will work in conjunction with the requirement that lease space does not exceed the amount of space that is reasonable and necessary for the legitimate business purposes of the leasing arrangement?

Gerard Faulkner: Yeah. So, that’s a bit of a mouthful, but CMS essentially clarified the additional requirement that the leased space does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease arrangement. In the office space exception, it’s separate entirely from this commercial reasonableness standard. According to CMS, the language in that office space exception is more geared towards the prevention of sham lease arrangements where the rental charges are for office space for which the lessee rather has no genuine or reasonable use. So, it’s not serving legitimate business purpose.

Libby Park: Great. Thank you for your thoughts on this topic, Gerard. Kiel, let’s close things out today with a discussion on the changes to the rental of office space exception. Did CMS make any other noteworthy adjustments to the rental of office space exception that providers should be aware of?

Kiel Zillmer: Thanks Libby. Yes. In addition to the changes to FMV and commercial reasonableness that Joel and Gerard have discussed, CMS finalized another significant change to the rental of office space exception and how we view leasing arrangements in the healthcare context. One of the requirements of the rental of office space exception is that the lease space be used exclusively by the tenant. The rationale for this requirement was to prevent, as Gerardo alluded to previously, sham or paper leases in this case where a landlord receives payment from a tenant for space that the landlord continues to use itself. However, without further clarification, this requirement was also interpreted to mean that the tenant could not share the space with other tenants contemporaneously. So, when we had clients who wanted to structure part-time or shared space arrangements, we were inclined to rely on the timeshare exception to protect the arrangement, which does permit non-exclusive use. But, as those who work with the timeshare exception know, it does have a number of strings attached to it and a number of hoops to jump through.

Kiel Zillmer: In the final rule, CMS incorporated a comment in the rental of office space exception, which clarifies that the exclusive use, as used in the exception, means that the tenant and any other tenants of the same space uses the space exclusion of the landlord or any person or entity related to the landlord. So, in other words, the landlord may not be an invitee of the tenant to use a space, but the tenant and any other tenant operating in the same space may use it at the same time. So, this is a significant clarification by CMS, particularly in light of the trend of hospitals employing more physicians, as value-based healthcare becomes more prevalent. It allows for greater flexibility in how leasing arrangements can be set up, and provides more collaboration between tenants in clinical space.

Kiel Zillmer: So, a prime example of the situation would be where a physician invites another physician into its clinical space to treat a mutual patient for the patient’s convenience. This may have previously been considered a Stark violation, given our understanding of the rental of office space exception and the exclusive use requirement. However, with the revisions to the exception, CMS has made it clear that these types of arrangements would not pose a risk of program or patient abuse, provided that they continue to meet the other requirements of the rental of office space exception. And lastly, I should also mention that CMS also incorporated a similar change to the exclusive use requirement in the rental of equipment exception. So, there is some additional leeway there as well.

Libby Park: Thanks, Kiel. It sounds like the final rule added in some flexibility, which will be beneficial to providers and further clarification as well. Another question, does the final rule provide any other insight on Stark exceptions that may be available to providers in structuring real estate arrangements?

Kiel Zillmer: Yes. As I mentioned, when we look at protecting real estate leasing arrangements, we have typically looked at the rental of office space and timeshare exceptions. However, in the final rule, CMS made clear that leasing arrangements may also be protected under the fair market value exception. But this is also a drastic departure from CMS’s position in previous rulemaking and is significant, particularly in light of the fact that the fair market value exception does not have a one-year term requirement like the rental office space exception does. This provides healthcare entities with greater flexibility for one-off arrangements that may be shorter than one year or arrangements that otherwise do not qualify under the rental of office space or timeshare exceptions.

Kiel Zillmer: In the final rule, CMS also confirmed its position that other exceptions, even beyond the rental of office space and fair market value exceptions, may protect space lease arrangements. For example, CMS reiterated that the arrangements with hospitals exception could cover certain real estate arrangements like, for example, rental payments made by a teaching hospital to a physician to rent his or her house, as a residence for a visiting faculty member. Likewise, CMS repeated that the payments by a physician exception could protect payments by a physician for the lease or use of space other than office space, such as for leases of hospital owned storage space or residential real estate.

Kiel Zillmer: And finally CMS finalized this proposal for a new exception for arrangements with limited remuneration. Provided certain requirements are satisfied, this exception would protect remuneration from an entity to a physician for the provision of items or services that does not exceed $5,000 per calendar year. So, this exception could be available to protect one-off or short-term lease arrangements with terms that are set in advance, even if the arrangement is not set in writing, that is not a requirement under this exception. So, obviously, it provides some greater flexibility there as well.

Kiel Zillmer: And lastly, I just wanted to mention two other changes CMS made that could also be relevant for those who practice in the healthcare real estate realm. First, CMS revised its position with regard to missing signatures and the writing requirement rules. Previously, if a written agreement lacked the party’s signatures, they were allowed to obtain the signatures within 90 calendar days following the effective date of the arrangement, provided the arrangement complied with all other required elements of an applicable exception. In the final rule, CMS expanded the scope of the late signature exception to include a grace period for the required writing, along with the missing signatures. In the event the parties fail to compile a written agreement for a particular arrangement, if that’s a requirement under the applicable exception, they now have 90 days from the arrangement’s effective date to compile a collection of documents that evidences the course of conduct and the terms of the arrangement between the parties and reduce that collection to assigned writing. So, we’re expanding it, not just to the signature, but also to the required writing requirements for certain exceptions under the Stark.

Kiel Zillmer: The second change is with regard to the isolated transaction exception. Healthcare entities have historically used this exception to protect a one-time transaction involving a single payment or one that involves integrally related installment payments. In the leasing context, we typically see this exception called upon in the instance of a missed rental payment or a similar oversight in an arrangement. But the final rule clarifies that the forgiveness of an amount owed in settlement of a dispute, so for example, the payment of back rent or a missed rental payment, is itself a separate arrangement which may be covered under the exception. However, the important thing to note here is that the compensation arrangement, which is the subject of the underlying dispute, is not retroactively made compliant simply because a settlement arrangement is achieved by the isolated transaction exception.

Kiel Zillmer: So, it gets to be a little complicated and convoluted when you go down this path of trying to figure out if an arrangement or a back payment could fit under the isolated transaction exception. So, if there is any confusion or any question as to whether an arrangement would comply with the exception, we often tell our clients to go through the facts and consult with their attorney to figure out if they can rely on the exception in that case.

Joel Swider: Yeah. And, Libby, this is Joel. The only thing that I would add there, and I think Kiel makes a great point, that these additional exceptions that CMS has allowed providers to avail themselves of in the leasing context is a really big and important departure from past guidance, and one that I think a lot of our health provider clients will be able to utilize.

Joel Swider: So, I guess, two quick notes. One is on the isolated transactions exception. As Kiel noted. I mean, I think the important thing to consider there is that CMS didn’t have a lot of guidance on that particular exception in the past. And so, one of the big, I guess, departures or clarifications that was made was the fact that it doesn’t make the underlying arrangement compliant. And Kiel noted this, but I just want to highlight that, that even if we have a payment that needs to be made to settle a dispute, that payment itself might qualify or be compliant under the isolated transactions exception, but it does not make the underlying arrangement compliant, if it otherwise wasn’t, otherwise didn’t meet the other standards.

Joel Swider: The other thing I wanted to point out too is the fair market value exception, because I think that that one, in particular of all of the three or four that CMS pointed out and sort of opened up to leasing arrangements, I think the fair market value exception is going to be really important and provide a lot of flexibility to providers because it can sort of help cure or cover arrangements that, as Kiel noted, they maybe don’t fit within the realm of office space exception. Maybe the term is less than a year. And they maybe don’t fit in the timeshare exception, because it’s actually a lease. It’s not a license. It’s conveying a possessory leasehold interest. But nonetheless, it can meet the other elements of the fair market value exception and, in some ways, that might be easier for certain arrangements. So, I think that’s another one that I think it provides a really good backstop for providers who are really trying to do the right thing with their arrangements, but for whatever reason, the terms of that arrangement don’t fall neatly into the rental of office space exception.

Libby Park: Thanks for jumping in, Joel, and for those additional thoughts on the two exceptions and highlighting their relevance to our listeners today. That’s all that we have on our discussion format for today. Thanks to all of our listeners for tuning in and to Joel, Gerard, and Kiel for joining me today. Please feel free to email any of us directly with follow-up questions. Our emails and contact information is located in the show notes of this podcast and also on Hall Render’s website at www.HallRender.com. And additionally, I’d let listeners know that we prepare a newsletter called the Healthcare Real Estate Advisor. And, to be added to this list, please email me directly at LPark@hallrender.com. Thanks again for tuning in, and have a great day.

An interview with Connor Siversky, Research Analyst, Real Estate, Berenberg Capital Markets

February 1, 2021 Andrew Dick Health Care Real Estate Advisor 0:20:44 Comments Off on An interview with Connor Siversky, Research Analyst, Real Estate, Berenberg Capital Markets

An interview with Connor Siversky, Research Analyst, Real Estate, Berenberg Capital Markets

In this interview, Andrew Dick sits down with Connor Siversky, Research Analyst, Real Estate with Berenberg Capital Markets to talk about publicly traded healthcare REITs.

Podcast Participants

Andrew Dick

Attorney, Hall Render

Connor Siversky

Research Analyst, Real Estate, Berenberg Capital Markets

Disclosures:
• BCM is making a market in Ventas (VTR)
• BCM is making a market in Medical Properties Trust (MPW)
• BCM is making a market in Omega healthcare (OHI)
• BCM is making a market in LTC properties (LTC)
• BCM is making a market in Caretrust REIT (CTRE)
• BCM is making a market in Healthcare Realty (HR)
• BCM is making a market in Healthcare Trust of America (HTA)
• BCM is making a market in Physicians Realty (DOC)
• BCM is making a market in Community Healthcare Trust (CHCT)
• BCM has no company-specific disclosures on Alexandria (ARE)
• BCM has no company-specific disclosures on Welltower (WELL)
• BCM has no company-specific disclosures on Healthpeak (PEAK)
• BCM has no company-specific disclosures on Sabra Healthcare (SBRA)
• BCM has no company-specific disclosures on National health investors (NHI)
• BCM has no company-specific disclosures on Global Medical REIT (GMRE)

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. Today, we are speaking with Connor Siversky, a REIT research analyst with Berenberg Capital Markets. Connor currently covers nearly all of the publicly traded healthcare REITs, which gives him a unique perspective on the healthcare real estate sector. We’re going to talk about Connor’s background, the different healthcare REITs that he covers, and a variety of other healthcare real estate topics. Connor, thanks for joining me today.

Connor Siversky: Thanks for having me, Andrew.

Andrew Dick: Connor, before we jumped into the discussion, talk about your role at Berenberg Capital Markets and your background.

Connor Siversky: Yeah, sure. I was born and raised in New Jersey, town of Montclair. Stayed in the state, went to Rutgers New Brunswick as an undergrad, got a degree in finance. And then I think in the fifth grade I said I wanted to be an investment banker ski racer, so I think I got pretty close to one of those goals.

Andrew Dick: How did you end up at Berenberg Capital Markets? It’s an interesting niche covering healthcare REITs.

Connor Siversky: Yeah. For sure. For sure. I took a bit of a backdoor to get into the securities business. Immediately after college, I was doing construction. There was a little ferry New Jersey based GC called Mobile Construction. We did all sorts of projects throughout the state, a lot of municipal work. Incredible learning experience to see how those boots all work on the ground. And then I moved to a property manager called Solstice Residential in New York City. I was on the special projects team there. We had an excellent boss and mentor, in some respects. His name was Ken Lupano. We did a whole slew of projects in and around the borough, so Local Law 11 projects, roof replacements, facade replacements, leak repairs, all sorts of things like that.

Connor Siversky: I got to see a lot of different parts of the city, whether that was from the roof of 220 Madison Ave or maybe on the trains going to the different boroughs. It was a very interesting experience as well. Around spring, summer 2018 I got a recommendation from a buddy I actually went to college with and took on the associate role in the real estate team at Berenberg Capital Markets. Definitely a bit of a learning curve coming from the construction side of things, but some aspects of training fell in the right direction. It wasn’t very long turnaround before we were writing notes, building models, and all the things like that. It definitely helped that the lead analyst on the team, Nate Crossett, he’s still there today, extremely knowledgeable in remodeling and equity research in general. He was a ton of help in my development as an analyst.

Andrew Dick: And so how did you get the responsibility of covering healthcare REITs? Pretty narrow niche.

Connor Siversky: Yeah. It was a pretty fast turnaround, too. Nate had started covering the data centers, and then he moved on to the net lease group. He was up to capacity pretty quickly. And right around April 2018 or 2019, sorry, I think I had gotten the mandate to cover the healthcare names. Right after the first level of the CFA that June, I pretty much spent the entire summer working on the initiation report and launched on the eight names September 2019.

Andrew Dick: Got it. And for the listeners that aren’t familiar with how firms like yours review REITs and provide recommendations, how does that work in layman’s terms?

Connor Siversky: Typically, I mean, from start to finish, if we’re initiating on a company, we’ll read through all the 10-Ks, 10-Qs, the quarterly reports. We’ll use the financials. We’ll build out a financial model. We use a four pronged valuation systems. We have an AFFO multiple. We do a discounted cashflow with the AFFO out of 10 years. We do a net asset valuation, an appraisal of the portfolio at a point in time, and then a TV EBITDA multiple. Through the writing, depending on our opinions of maybe the intangible aspects of the company in conjunction with the valuation, we’ll come up with our rating. And we do a traditional buy, sell, hold at Berenberg Capital Markets, so a buy and sell would be a 15% upside or downside, respectively, and then the hold rating is anywhere in the middle.

Andrew Dick: Got it. And right now you’re covering most of the well-known healthcare REITs. I think when we spoke before, Connor, you said there’s really only a couple that you don’t cover. What are the two or three that you don’t cover?

Connor Siversky: Yeah, so we covered pretty much all the healthcare REITs that I would consider really coverable. I think DHC would be the last one, and then there’s another named SNR. Neither of those names have a lot of coverage, so those are ones that we’ve left off the table for now.

Andrew Dick: Got it. You’re covering a pretty wide gamut of diversified healthcare REITs, and then a number of pure-play REITs, for example, senior housing, medical office buildings, some of those pure-play REITs, but you’ve got a lot to cover there. How many REITs are you really covering today? Is it 10 or 15? I mean, the healthcare REIT sector is pretty big.

Connor Siversky: The healthcare REIT sector, we have 14 names in the healthcare REIT sector, and then four more names, the smaller cap industrial REITs, which is something that we’re going to be working on going forward as well. So, it’s 18 total at the moment.

Andrew Dick: Got it. And so when you think about breaking down the sector, when you’re talking to others in the industry, how do you break it down? I mean, I typically think of the big three that are diversified healthcare REITs: Ventas, Welltower, Healthpeak. And then there’s all these other niche players. I mean, is that the right way to think about it?

Connor Siversky: Right. It’s an interesting question because I think when you look at the healthcare REITs from an outside perspective, you want to lump them all together, but they’re really quite different, right? So, maybe if I just run down the list here, you could start with the life sciences assets, laboratory space, biotech, pharmaceutical development. And the real name there is ARE, Alexandria. And you also have Healthpeak and Ventas, which are building out life science portfolios as well. Then you’ve got medical office buildings, so outpatient medical office buildings, surgery centers, things like that. HTA, HR, and DOC are really the dedicated names in that space. Healthpeak, Welltower, and Ventas, they have some MOB portfolios as well.

Connor Siversky: And then when you look at the smaller names, say GMRE and CHCT, they chase after some medical office buildings, probably smaller assets in secondary and tertiary markets where they’re not really competing with those larger names. Of course, you have skilled nursing and senior housing. The important difference between the two of them, so skilled nursing is primarily funded by Medicare and Medicaid, right? The three main names in that sub-sector would be Omega (OHI), Sabra, and CTRE. And then LTC, NHI, they have SNIF portfolios as well. And then senior housing, again, there’s an element of diversity within senior housing in itself, so Welltower and Ventas are really the biggest names here. The interesting element in those portfolios are the operating portfolios where the REIT is the owner and the operator in effect. Sabra has an operating portfolio as well. And then they also have the net lease portfolios as do Omega (OHI), CTRE, LTC, and NHI.

Connor Siversky: You also have hospitals. The only true player in the hospital real estate space, at least in terms of the public REITs, is MPW. They take a unique approach here, an international approach, to investing in hospital real estate. They’ve been growing very quickly over the past several years. Very interesting name to keep track of. And then I think, finally, again, going back to the smaller cap names, more diversified assets, surgery centers, ambulatory care centers, some medical office buildings, dialysis clinics, things like that, and that’s where you’ll find GMRE and CHCT. And these names are interesting. I mean, they’re looking at these secondary and tertiary markets. They’re finding higher yields than some of their larger peers do. And they’re not really competing for those assets in primary market, so they can find higher yields. They have a better spread versus their cost of capital. And they’ve been growing very quickly over the past several years as well.

Andrew Dick: So, Connor, looking at all these different healthcare REITs, which ones do you find interesting right now in the world that we live? Which sectors are you focused on, or which rates do you really like right now based on the interesting world that we live in?

Connor Siversky: Right. The pandemic environment has definitely had a profound impact on healthcare in general and the healthcare real estate owners. There are a lot of different dynamics at play here. I think the names we like right now have an element of safety in them. For example, Alexandria (ARE), they have very strong tenants. Even though they can be grouped as office buildings, there’s still an element of human interaction within those facilities. By and large, all of those facilities are open. ARE has done a very good job on leasing and growing the portfolio with a 1.3 to $1.6 billion development pipeline. That’s one name we like a lot.

Connor Siversky: I do like the medical office buildings. Their share price has been depressed somewhat this year, so their cost of capital is a little bit higher. It’s harder for them to generate growth from external opportunities when they can only manage, say, a 50 to 100 basis point spread against their AFFO. But, they’re very high quality facilities. People are still going out and getting elected procedures. And for the most part, these names have been collecting all of their rents through the entire year, so you can definitely see an element of resiliency for the medical office buildings. Again, that would be HTA, HR, and DOC.

Connor Siversky: I like skilled nursing compared to discretionary senior housing. I think a very interesting name within skilled nursing is OHI. It’s one of the larger names in the space. They have a huge reach in terms of who their operator tenants are. They have the best cost of capital among the skilled nursing names, so when the time is right, when it’s prudent to do so, I would expect these guys to go out and start acquiring assets again and generate some external growth. Interestingly-

Andrew Dick: They’ve been around a long time. We’ve talked about that before.

Connor Siversky: Right. Right. They have been around for a long time. If I remember correctly, I don’t think they’ve had to cut the dividend in either 17 or 18 years. And the management team has been in place for a long time as well. They’re very clear with their messaging. They’ve done a great job managing skilled nursing assets, which is a very tough business to be in, especially in the current environment. And then one interesting takeaway there is that the skilled nursing operators have been the beneficiaries, of some degree, of government support through the pandemic. I would never want to say that they’re completely out of the woods yet, but these are also portfolios that have been collecting high-ninety percents of their contractual rents pretty much every month.

Andrew Dick: Which is impressive. Yeah. How do you look at a company like MPW? We haven’t talked about hospitals, but you made a point that, look, they’re international, they’ve been growing significantly. I find the company to be really interesting. How do you react to it?

Connor Siversky: Right. I mean, I agree with you completely there. They’re really the only name among the public REITs that are going after hospitals. And I think you can take into consideration that underwriting hospitals is quite difficult. I mean, from my understanding, you would have to go in there; you have to underwrite the patient flows to a certain degree; you have to have a familiarity with the physician groups operating in the hospital’s geography as well. And also, who are your competitors within those markets? It’s a very dynamic underwriting process. And I think MPW definitely has a bit of a strategic advantage of being able to underwrite those assets.

Connor Siversky: They’ve been growing very quickly over the past several years. 2019, 2020 in particular, they’ve done multi-billion dollars in acquisition for both years on an international scale as well: Australia, the UK, Switzerland, Germany. They’re even going into Columbia now. They definitely have wide reach. They’re definitely approaching the real estate space in general from somewhat of a unique avenue. And I would expect them … this year, I think they’re going to continue to execute on external opportunities. And it’s also worth noting, too, that hospitals, you can consider them, by and large, critical pieces of healthcare infrastructure. There’s definitely an element of social and government support for those operators and those assets as well.

Andrew Dick: Yeah. Good point. What about diversified REITs?

Connor Siversky: So, the diversified REITs, I mean, you can look at this in two ways. Maybe we could say this is the big three that have MOB portfolios. They have their senior housing operating portfolios, the net lease portfolios, but, to me, I like to look at GMRE and CHCT for these names. They have a lot of smaller assets that they can pick up in these secondary, maybe tertiary markets throughout the United States. And through this business model, which I think is very valid, particularly in the current environment where REITs are coming down, they can acquire at seven, eight, in some cases, nine, ten percent cap rates. And the math just works out as such that GMRE and CHCT, I mean, they can generate 10% AFFO growth if they continue to execute on these opportunities, not withstanding any kind of tenant issues or something like that. But, for the past couple of years, they’ve been pretty stable in that regard.

Andrew Dick: Talk about the impact of COVID on the REIT industry.

Connor Siversky: There are a lot of impacts in a lot of different places. I mean, I think maybe we could rewind to late February, early March when the issue was really coming to a head when we all started to get eyes on it. I think the most profound impacts have been in senior care businesses. In terms of skilled nursing, I mean, you’ve seen the headlines all over the place. It’s a very dangerous situation to be one of those more frail patients in this current environment. The impact has been felt there. Also, in senior housing I think one of the developments that really impacted the real estate fundamentals is that as the virus rolled inland from the coastal cities, it would force the state and the local governments to shut down admissions for these facilities.

Connor Siversky: There’s always a background rate of attrition, as much as I hate to sound morbid, but when you combine that with admissions restrictions and also an element of fear involved in maybe enrolling into one of these facilities or maybe electing to go to one of these facilities as a senior citizen, the impact on the real estate fundamentals has not been good. When we look at the Q4 NIC map data dump that came out a couple of weeks back, you see both skilled nursing and senior housing occupancy is down approximately 10% across the board. Obviously, it varies in different markets, but when you’re underwriting … let’s just say, if you’re underwriting a skilled nursing facility at 83% stabilized occupancy, and now you’re down to 75%, I mean, that’s a very profound difference in how the facility’s cashflow profile looks.

Andrew Dick: Where do you the most opportunities, Connor, for some of the healthcare REIT sub-sectors as, hopefully, over the next six to nine months, we’ll see some recovery as the vaccine is more widely distributed. Do you think that’s going to help valuations? Are these REITs going to recover or is that already priced in?

Connor Siversky: I think for the time being there are still some headwinds at play. I mean, we still see that we’re still getting an element … we’re still seeing rising infection counts in a lot of locales. Vaccine distribution maybe hasn’t gone as smoothly as we would have hoped thus far. I think safety is somewhat the name of the game right now. And I think if you’re looking for yield, you can hide out in some of the skilled nursing names, such as OHI. If you’re looking for stability of your tenant base, you can look at the medical office building names. And if you’re looking for a combination of both, I think Alexandria is a very attractive option where you can get very strong tenants. You can also get internal and external growth, albeit at a bit of a premium valuation. As we make it to the spring and summer months, I think the dynamics will change somewhat.

Connor Siversky: If we can start to see a trough in occupancy for senior housing and skilled nursing, if you can start to see these REITs get more comfortable getting back into the external environment, then we can start to see a reemergence of AFFO growth. And at the moment, these REITs are trading at depressed valuations versus where they were before the pandemic. I think there will be a time when those options become very attractive again, but for now, for safety sake, I think you remain in a holding pattern for most of those names.

Andrew Dick: Yeah. I have one question, Connor. That’s a great response. One question that we hadn’t talked about is we have a pretty diverse group of healthcare REITs that are publicly traded. We’re seeing some growth in these privately or non-public REITs. How does that affect the public REIT market in your opinion? I feel like we’ve got a number of these smaller, regional private healthcare REITs that some of the developers operate. Does that have any impact on the public REITs that you’re covering? Is there competition for investment? What are your thoughts?

Connor Siversky: I’m sorry. You cut off at the beginning of your question there. Could you run that by me again?

Andrew Dick: Sure. So, Connor, what do you think about some of the private healthcare REITs that aren’t publicly traded? Do those compete with the public REITs? I mean, we’re seeing more and more developers and investors create their own funds or REITs. Is it one or the other? Are they looking for … How do you distinguish those private and public rates? I mean, what are the investors chasing there?

Connor Siversky: I mean, I think the reality of the situation is that any investor is going to be going after a high quality asset. When we look into our primary markets, whether it’s a long-term thesis for senior housing, or maybe a shorter term play for something more stable in the current environment, like a medical office building, you’re going to have more eyes on those assets. Without digging into too much specifics where we see maybe private equity funds with these private funds getting involved in real estate, I think the intuitive answer is that you see some cap rate compression. And in one sense, that’ll benefit the revaluations in terms of the NAV. In another sense, if their AFFO multiples aren’t increasing to a level where they can generate accretion based on their financing methods, then it makes it more difficult for them to grow. It’s a bit of a double-edged sword there.

Andrew Dick: Great. Moving on to the end, we had a couple of questions. What advice would you give to someone who’s just getting into the real estate business or the equity research business? You’re still a relatively young guy. You’ve learned the business quickly. What advice would you have for someone who’s starting out in the business?

Connor Siversky: Yeah. It might sound a little cliché, but I think the best advice is just to talk to as many people as possible and act like a sponge in that regard. In finance in general and equity research in general, there’s so much to learn whether it comes from valuation or the narratives you want to push, or how stocks are traded or what kind of different funds or entities look at the stock. I mean, every time that we have a client call, or if I get on the phone with one of the corporates, you always try to take away a couple of key points that help expand your knowledge of what we’re studying and what we’re looking at. Ultimately, you can pick up a lot from reading a 10-K or a 10-Q, and we do that as well.

Connor Siversky: But, sometimes the best pieces of information will come from someone else or a message from someone else, or maybe asking to have a more clear or more detailed explanation for one of the dynamics that’s coming into the market. And that could come from maybe one of our salespeople at Berenberg. It could come from an IR conduct at another company or maybe the funds come from. There are really, I think, a ton of different ways to just keep learning about the dynamics of real estate or healthcare real estate specifically.

Andrew Dick: Great. So, Connor, I know you’re in the business of publishing research on healthcare REITs, where can folks find more information about you and your company?

Connor Siversky: Well, we are operating … I mean, as a broker dealer, the research, it goes to our clients specifically. It’s not exactly publicly available to anybody who wants it. I would definitely recommend if anybody wants to learn more about the healthcare REITs, you always go to the IR websites. You can always take up … the supplementals are full of valuable information like that. In terms of help with the industry, I mean, there’s always LinkedIn, there’s always the Berenberg website, if someone wishes to have access to our research, but I can’t exactly provide it myself like that.

Andrew Dick: Sure. Well, Connor, thanks for being a guest on our podcast. Thanks to our listeners as well. We publish a newsletter called the Health Care Real Estate Advisor. To be added to list please email me at adick@hallrender.com.

The “New Normal” for Managing Medical Office Space

January 27, 2021 Joel Swider Health Care Real Estate Advisor 00:39:47 Comments Off on The “New Normal” for Managing Medical Office Space

The “New Normal” for Managing Medical Office Space

While the CDC and other governmental and trade groups have issued wide-ranging guidance on “reopening” medical office space in light of COVID, the realities are that these spaces never truly closed, and furthermore, it would be nearly impossible to abide by all of the standards that have been published. This session instead focuses on what hospitals and other MOB operators are actually doing from a facilities perspective to manage medical office space to reduce the risk of liability.
Attendees will:

  • Learn about industry trends and best practices for operating medical office facilities in light of COVID
  • Hear tips on reducing liability for COVID-related legal challenges that may be brought by patients and other users of medical space
  • Have an open forum to discuss experiences managing medical office space with similarly situated individuals navigating this complex issue

Podcast Participants

Joel Swider

Attorney at Hall Render

Julie Carmichael

Advisor at Hall Render Advisory Services and President of Carmichael & Company

Mark Theine

Executive Vice President – Asset Management at Physicians Realty Trust 

Ryan Walters

Senior Real Estate Manager at Providence St. Joseph Health

Today we’re presenting The “New Normal” for Managing Medical Office Space, presented by Hall Render with a few guests.

Joel Swider: Thanks, Julie. And thanks so much to those joining the call for investing some of your time with us today. I’m Joel Swider and I’m a healthcare real estate attorney at Hall Render. Today we have a very experienced and distinguished panel here to talk about The “New Normal” for Managing Medical Office Space.

Joel Swider: We at Hall Render have had clients ask for the past year or so guidance about reopening medical office space post lockdown. And the reality is that most of these spaces never truly closed. And so owners and operators of medical office space have really had to learn and implement new procedures on the fly.

Joel Swider: We’re not really concerned as much anymore with reopening or getting ready for COVID, but we’re dealing with operating in this new reality, which we’ve called the new normal that we all have to navigate. So our goal in our discussion today is that whatever your role is in this industry, that you will come away with new ideas, fresh perspectives. Something that you can apply to be more successful in your day-to-day role, as it relates to COVID preparedness and liability protection.

Joel Swider: So I guess at this point, I’d love to have our panel introduce themselves. Julie, could you tell us a little bit about yourself and your background in this topic?

Julie Carmichael: Sure. It’s nice to be here today. Thanks everybody for logging on. My name’s Julie Carmichael, I’m a healthcare consultant in Indianapolis. I have a consulting business that I started about six years ago. Prior to that, I was the chief strategy officer for Ascension St. Vincent in Indiana. And I had responsibility there for all of our real estate and design and construction. So I have a practical hands-on experience in this area. And then I work today with health systems and private physician practices and get involved in quite a bit of their real estates and medical office issues. So glad to be here.

Joel Swider: Yeah. Well, thanks for being here, Julie. Mark.

Mark Theine: Yeah. Joel, thanks to you and thanks to Hall Render for including us on the panel. I’m really privileged to be here, appreciate it. So again, my name is Mark Theine. I’m the EVP of asset management for Physicians Realty Trust. We are a publicly traded REIT under the ticker symbol DOC. D-O-C go by a lot of times. So our portfolio today is about five million in healthcare real estate investments located in 36 States across the country. About 15 million square feet. So it’s really been interesting managing our portfolio through the [inaudible 00:03:00] and then the care nationwide and watching into this, we’ve had different spikes in different regions. So hopefully can bring a little perspective to that, but day in and day out. My role as the lead in the operations team is release asset management, property management, leasing in capital construction.

Joel Swider: Great. Well, thanks again, Mark and Ryan.

Ryan Walters: Yeah, thanks for the invite. My name’s Ryan. I’m our senior real estate manager for Provenance in the Washington and Montana region. Less are a big Swedish portfolio over in Seattle. So we’re across seven States, each area is broken up with a different real estate manager.

Ryan Walters: So today I’ll talk about our portfolio across Washington, Montana. It’s about 275 properties, mostly MOBs, but we have office buildings, industrial, land, and all sorts of fun gifts that people have donated. So I’ll try to talk mostly about the MOB perspective. We have a team of property managers at CVRE and Kiemle Hagood that are really out, seeing what the differences and implementing all these new best practices for us. So try to talk to some of those and what our technicians are seeing. So before this, I was a property manager and broker at Kiemle Hagood in Spokane, I guess that’s me.

Joel Swider: Great. Well, thanks again to our panel and for your time and expertise, by the way if those of you listening today enjoy our discussion. We have three additional ways that you can connect with us and continue the discussion on healthcare real estate. First is to consider subscribing to our podcast, which is called the Health Care Real Estate Advisor. And you can find it on the Apple Podcast app or on our website.

Joel Swider:The second is we publish a monthly newsletter with news and insights related to healthcare real estate. And if you’d like to be added to that list, please reach out to me by email, jswider@hallrender.com.

Joel Swider: And third, I want to let the group know that we have another of these round table discussions similar to this happening on February 25th on healthcare real estate strategy consideration. So it’s sort of an offshoot of today’s discussion where we’ll be talking about the impact of COVID, recent regulatory updates and other trends on the broader strategy discussion.

Joel Swider: So I’m very excited to hear from our panelists. I want to give one or two quick backdrop notes from a legal perspective, because I think that we will find through this discussion that this is really more of a practical issue than a legal one.

Joel Swider: From a legal perspective, medical office space is really distinguishable from inpatient space in terms of the regulatory environment. So any certified provider or supplier that’s subject to survey by Medicare has to comply strict infection control protocols. Those require cohorting of positive or negative COVID patients. There’s a guidance level on surveys for social distancing and things along those lines. But outside of the inpatient setting and outside of the ASC setting, there’s not a licensure or accreditation requirement, in most States anyway, when it comes to medical office space.

Joel Swider: And so even though the guidance is there from CDC and CMS and [Ashe 00:06:25] and the World Health Organization and others, there’s no enforcement mechanism in this setting. So in some ways that’s a good thing because it means flexibility for landlords. In some ways it’s a difficult thing because it means it makes it more difficult to discern a reasonable approach when there’s no requirement.

Joel Swider: The last thing that I’ll say on the legal front is we did some research and found that the majority of States at this point have implemented or are advancing serious discussions around liability shield laws. And those generally protect a business owner from COVID liability so long as they act reasonably and are not negligent or grossly negligent.

Joel Swider: So what I’m hoping that we’ll come away with from today’s discussion is some sense of what is reasonable in this setting so that we can all serve our patients while also obviously avoiding liability.

Joel Swider: So with that as background, the first question that I want to pose to the group is, what are hospitals and other MOB operators actually doing from a facilities’ perspective to manage their medical office space? And maybe Ryan, if you could walk me through from the time somebody drives into the parking lot to receive medical care to the time that they leave what changes in protocols would that patient or visitor encounter?

Ryan Walters: Yeah, and I think my general response to this new normal, I think what we’re finding is if the buildings were professionally managed and following best practices pre-COVID, there’s really been minimal impact. I think there was a lot of unknown upfront of, “Oh no, what else are we going to have to do?” But I think we found our best practices have held true through this.

Ryan Walters: We obviously have more coordination, more PPE and some extra signage, but when a patient comes in, you’ll probably see some tents at some of our MOBs for testing facilities. So you might have to find a different parking spot. And I guess you’re used to. You’ll probably see some signage on the building entrance and maybe some directional signage on certain doors to enter or not enter. Please wear masks, social distance.

Ryan Walters: Often though when you walk into our lobby it’s the same friendly face. They’ll just have a mask on. You’ll probably see furniture spaced out a bit more in our waiting rooms. I think you’ll probably see less people in those waiting rooms. Trying to get patients back to an exam room as quick as possible. And we do have less people in our buildings. So it’s a much more coordinated effort. When vendors need to come onsite our technicians or property managers are meeting them at the front door, escorting them into the facility and getting out as efficient as they can. But other than that, for the most part, I think that’s what you’re going to expect to see.

Joel Swider: And Mark or Julie, I know when we talked earlier, you said there were some jurisdictional related items too, that you having a portfolio for example, Mark, that is in multiple States, you might see some variation in that. Any additional thoughts?

Mark Theine: Yeah, absolutely. Certainly. It’s going to be a customized approach based on the size of the building, location of the building geographically, climate, things like that. I guess even taking a step back it’s amazing that, I read an article this morning on [Axial Self Care 00:10:02], that one year ago today there were about 2000 confirmed cases of COVID and most of which started in China, of course. And there was just a handful in the US.

Mark Theine: So I mean what a ways we’ve come in just one year’s timeframe. And I’m really proud that within our company, we sent out our first communication to our healthcare partners around the country at the end of January of 2020, just about the importance of good hygiene. And if you’re feeling sick staying out of medical office buildings. And then obviously we got into March and pandemic started spreading a little bit faster and the awareness of what was coming at us increased.

Mark Theine: And within our team we formed our own COVID task force at that time. And we developed a 32 page building readiness manual for our property management workers around the country. So we could approach this with a customized and plan that we could implement all around the country.

Mark Theine: We also put together a tenant guide for all of our hospital partners with best practices and whatnot. And it outlined exactly what Ryan just said. All of those [inaudible 00:11:13] COVID crisis that we’re so used to seeing now with the importance of PPE, mask, ingress and egress of the building, and then your point about jurisdictional.

Mark Theine: And that was probably one of the biggest challenges that we addressed early on was about screening within buildings, medical office buildings. As patients were coming in, who was in charge of that screening? Was it the building owner? Was in the hospital system? And in the case of our portfolio, we partnered with the hospital system and entered into a license agreement to allow them to use common area space in a multi-tenant medical office building, or use a parking lot for screening or now the vaccine administration.

Mark Theine: But it definitely varied region by region. And we’ve worked with our revenue management teams across the country to implement those best practices that Ryan was outlining a minute ago.

Ryan Walters: And Mark that’s a good point too on who’s doing it. I think if you were to, I’m going to talk strictly from our real estate perspective. So our property managers and technicians, but really it’s our clinic managers that are in the buildings and the operations team that have taken on a bulk of the changes that need to be implemented. Because they’re there at the front door and taking on the temperature screening and those kinds of things.

Mark Theine: I would just say one additional thing we did this Summer was to partner with Julie and her company in a survey of health care consumers in five of our largest markets across the country.

Mark Theine: And we asked them just about their comfort level of coming back to medical office buildings, again, to your opening comments. They never really closed [inaudible 00:12:55] more people back and the volumes increased. But what would make them more comfortable coming back to medical office buildings?

Mark Theine: And one of the answers that didn’t surprise us, but one of the answers we heard loud and clear was, not just telling us the things that you’re doing in the buildings and you’re wearing PPE and you are cleaning, but physically seeing someone in the lobby, cleaning, cleaning the buildings, cleaning the common areas, elevator buttons, door handles, et cetera.

Mark Theine: So we’ll talk a little bit more about that survey, but yeah, those are the things that we’ve adjusted on our team to be very visible, very transparent in the communication and the efforts that we’re doing within our buildings.

Joel Swider: Yeah. I’d love to jump into that. Julie, how can we communicate to consumers that it’s safe to enter, and in some cases reenter, because a lot of people have put off care, right? So how do we get them comfortable?

Julie Carmichael: It’s a question that really puzzled me and why we started back in July with a survey in Indiana to see what consumers were feeling. I had heard a lot of anecdotal examples of patients not going to the hospital with heart attack symptoms. And I wanted to understand why that was and what it was going to take to get them feeling comfortable.

Julie Carmichael: So the results that we found in Indiana, and then when we did the survey for Docreit, really are similar across the country and we boiled it down to five key points. The first being consumers prefer strongly, 75% prefer to seek services not on a hospital campus. I think that’s important for us to think about from a strategic standpoint, especially as we’re trying bring patients back. If we have off-campus locations where medical office buildings and other facilities that are not on our main campus and we can ease people back into that setting. I think there’s an opportunity.

Julie Carmichael: As Mark mentioned consumers told us, “We want to see what you’re doing.” Show not tell. Just this need to visibly see that precautions are being taken and that we’re taking their safety very seriously. So I think that’s going to continue and will really contribute to getting people to come back.

Julie Carmichael: Consumers also want us to go above and beyond the requirements. Frankly, they look at what the CDC and others have said. And it’s great, but if you can do more than that, we would really prefer you to go further. And then when we’re communicating to patients, the last two points really get communication. One is physicians and nurses and clinical staff are the best way to communicate with patients that it’s safe to come back and what all you’re doing to keep them safe.

Julie Carmichael: We found, surprisingly, hospital CEOs were on the bottom of the list for folks that should be out in front and giving these messages. In fact, consumers told us they’d rather hear from their local legislators than hospital CEOs. Which I thought was very interesting. So think about who you’re putting out in front.

Julie Carmichael: And then the final point is, to the extent you can, one-to-one communication is appreciated. So rather than just putting out broad notices, broad marketing strategies, being able to send that email to your patient, kind of a one-on-one communication that, “Hey, these are the things we’re doing. This is what you’ll see. This is what you’ll experience when you come into the building.” I think consumers really like that knowing what they’re going to face, as Ryan discussed. What’s it going to be like when I come back to a health care facility?

Julie Carmichael: So that’s the study in a nutshell, and we can talk more about it and I’m happy to share if folks want to dive into that outside of today. Reach out and let me know. I think it’s helpful as you’re thinking about real estate strategy and just getting people to come back to your medical office buildings.

Joel Swider: Well, and that’s very interesting, Julie. I think one of the things that we’ve gotten some questions about is related to certifications and using that potentially as a way to say, maybe it’s a communication device, maybe it’s a sort of check the box item. I don’t know, but anybody on the panel have any experience with those sort of outside certifications that have come to the market recently? Is there any validity to those? Are they worthwhile or is your money better spent elsewhere? Any thoughts on that?

Ryan Walters: I can kick it off. We haven’t pursued any specific certifications. I mean, we have our employed infection preventionists and the relationship between that team and our real estate team is the strongest it’s ever been.

Ryan Walters: They are meeting with our janitorial vendors, looking at their scope and cleaning products, making sure they’re appropriate. And if there’s ever an issue they’ll run over to a building and meet the real estate team to look at the issue. Other than that, certification wise, we’ve definitely been doing more test adjust balance reports from certified vendors that are capable of doing those to make sure we have proper air flows.

Ryan Walters: But Mark or Julie, I don’t know if you’re seeing anything else on the certification front.

Mark Theine: I think you described it really well. Yeah, there’s a lot of groups obviously popping up now. Claiming to have the latest and greatest new certification and trying to monetize that.

Mark Theine: But back to Ryan’s initial point. I mean for groups that have already been operating their buildings to high level, we’ve already invested in the platforms to improve the patient and physician experience in the buildings. And what COVID’s really done, and managing through this right now, is improved the focus and communication of the operations teams.

Mark Theine: So to Ryan’s point again, we are communicating more and more frequently and sharing data in real time from our systems about what we’re doing for our work orders, for hours that people are in the building, screenings, tracking patient volumes. And these are systems that we had in place already pre-COVID, but the focus has really been on increased communication transparency around the efforts that we are doing. Both to our hospital partners and then ultimately to their patients.

Julie Carmichael: I would just add that our survey results really showed that consumers listened to the CDC more. The CDC and local health departments. So as these companies that do the building certifications have popped up, it’s really been after we’ve done the survey, but I go back to consumers have certain people that they view as experts. CDC, State Department of Health, your physicians. And then I think I’d spend my efforts making sure that what I’m doing is well communicated and visible and not necessarily putting a stamp on a building from an organization that consumers don’t know anything about.

Joel Swider: Yeah. That makes sense. And I guess we haven’t really gotten into, another question that we get a lot I’ve heard from you all so far today on communication and some of the protocols. Which to my mind don’t cost a lot or don’t have to cost a lot. Are there any capital outlays that have been necessitated in light of COVID that any of you have seen or recommend?

Mark Theine: Yeah, I can jump in and help here. So from a capital outlay perspective, certainly we’ve evaluated our entire portfolio form, mechanical systems, where we can improve, fresh air flow. We haven’t gone in, wholesale made changes to existing facilities. Where there’s new development facilities we can of course pick things as we’re in the projects, now with COVID implications in mind.

Mark Theine: But we haven’t gone back to retrofit an entire mechanical system or anything like that. But where we are investing our money now is in, when we’re doing common area renovations we’re putting in touchless sinks or automated doors. Sometimes elevators that you can have just one call button instead of pressing the button on every floor.

Mark Theine: So we’re looking at that. And then clearly on tenant improvements as we’re renewing leases and offering some capital to freshen up the space. We are looking sometimes at the design flow of how the office section lays out one way in and then a separate exit out. So it’s one way traffic.

Mark Theine: Some practices are considering not having as large a waiting room and taking patients straight back to the exam room and wait there, so that they’re separated. But then there’s other systems that want larger waiting rooms to separate everyone. So it’s customized by my practice there, but where we are investing our money, again, is more on the TI and the remodels as they’re coming up in our portfolio. But we haven’t gone back to wholesale [inaudible 00:22:51] yet.

Ryan Walters: Yeah, very similar opinion as Mark. We have design guidelines for our primary care and our specialty care clinics. So our architects have been revisiting those and having some conversations around some of the things that Mark mentioned.

Ryan Walters: So things we’re looking at are, should we have power and water hookups in our parking lots, or maybe a bigger plot of land? Should we need to use our parking lots to put up tents in the future? Should we have bigger entrance canopies if we have lines going out our front door? The automated door hardware and hands-free faucets for patients that Mark mentioned. What do we do in our exam rooms to increase our telehealth capabilities? Do we have some extra negative pressure exam rooms near a separate entrance? And where should the doctor’s workstations be for those telemedicine visits? Should they be in the clinic or elsewhere? Just some things we’re thinking about.

Joel Swider: Ryan, I want to follow up on one point you made. Talking about preparing the parking lot as another potential site of care. I suppose that’s easier when it’s owned real estate. I mean has that been successful on the tenant side as well and saying, “Hey, landlord, you’ve got to do something here.” Or it’s not really a TI issue as much as a facilities issue and amenity, if you will. Has anyone seen that on the tenant side?

Ryan Walters: Yeah, so we own about half our properties and lease about half. And I was just going to say, we do have tents set up. We are the single occupant in the MOB, which helps. But we’re very thankful to our landlords. It’s really come down to just a transparent conversation. Hey, who are the vendors? Show us some diagrams, how traffic flows going to work? What electrical systems are you going to tap? How are you going to restore it?

Mark Theine: Yeah, similar to me. Again it goes back to that collaboration with our hospital partners and how quickly can we help them set up something in the parking lots. Initially it was testing sites in the parking lots, but most recently in the last week or two, we’ve been having conversations about vaccine administration and drive-thru vaccine sites through larger tents.

Mark Theine: And some of the discussions get interesting and maybe you’ll appreciate this from a legal perspective is, some of those sites we own the buildings be simple, but in others we ground lease them. So the hospital may already own the land and we own the improvements of the building, but in those cases the hospital has decided on their campus to set up the tent and we just need to kind of over-communicate on where are we going to display some of that parking in those cars. Because a few of our leases do have minimum parking requirements in the leases.

Mark Theine: And it just creates some challenges operationally, in patient flow, and then again for our property managers to be able to communicate that to everyone. In the multi-tenant building those tenants that are not hospital tenants, so ground leases being reviewed a little bit more as we’ve set up testing sites and now vaccine locations.

Joel Swider: Yeah. I want to delve a little bit more into this idea of transparency. And Julie, you mentioned this earlier, Mark, you echoed it as well. Can we talk a little bit about how do we serve our customers, whether at patients or, Mark in your case, hospitals maybe by providing more transparent data. Have you seen that play out?

Julie Carmichael: Well, I think in a couple of the practices that I’ve worked with, I’m seeing the providers just be much more communicative. More regular communication, whether that’s newsletters, quick emails. That one office that’s done a great job putting out videos where the provider will talk about what’s the latest protocol in the office. What’s changed since the last time you were in.

Julie Carmichael: I think it’s just an extra attention to communicating things that we think that probably people already know. It’s that mindset of over-communicating. So that’s really what I’ve seen with most of the medical offices that I’ve worked with. I don’t know Mark, Ryan [crosstalk 00:27:49] seen something different.

Mark Theine: We’ve had employees before COVID, which really helped us excel in their customer service to the hospital partners during COVID. A work order management system platform, where we could track and measure and monitor all requests that we’re getting from our partners.

Mark Theine: So we could track how long until a work order is dispatched. How long until it’s completed? One of the most useful tools is at the end of the work order we can get a rating on how well we did. So thumbs up, thumbs sideways, thumbs down just like an Uber. You get a four star, five star Uber rating.

Mark Theine: We get real-time feedback on how well we’re doing on our work orders. And then in that system we can also track janitorial schedules, engineering hour schedules. And so we have all this data and we put together a [inaudible 00:28:40] report to our hospital systems.

Mark Theine: We share with them on a very routine basis all this data about here’s how we’re doing on work orders. Here’s our customer service to the physicians. They’re rating of our work order in our teams and then how quickly we’re responding to them. And then also showing them that we’re thinking about adjusting janitorial hours or engineering hours to take care of the team’s health, but yet also servicing the building. Those communication back and forth has just really gone long way to keep these buildings open and then ultimately keep the providers and patients safe in the buildings.

Joel Swider: Thanks one other, I want to switch gears a little bit, because one topic that we talked about on our prep calls was how taking the COVID response seriously when it comes to property management can actually enhance business. It could be an opportunity. And of course I don’t mean to be light of a very dire situation, but how can we, from a business perspective, enhanced business in our COVID response? Julie, I know you’ve talked about this before a little bit.

Julie Carmichael: it does feel somewhat awkward talking about trying to grow and expand market share in this environment. And at the same time, I think this is the kind of environment where there are opportunities to grow market share.

Julie Carmichael: Things that I think are important are looking at your portfolio. And if you’ve got assets that are not on campus, figuring out how to maybe drive more service there. I think consumers now like convenience, smaller offices, it’s just that big campus setting that I think people are a little bit leery of. So looking at where you’re providing services. If you can put services together in convenient locations and convenient packages so that people can do multiple things in one trip. I think that’s a good opportunity right now.

Julie Carmichael: And then just from a general standpoint, I think as you’re serving your competitive landscape there are a number of people that you’re probably competing with that are so focused on just responding to COVID because they’ve had to be. So if you’re not in that situation, or even if you are maybe pulling out a small group of people who you asked to focus on the future and think about where are the opportunities that we have.

Julie Carmichael: If everyone is thinking about today and no one’s thinking about tomorrow, I find that to be a bit dangerous from a strategic standpoint. So I like the idea of having at least a small team of people that are thinking about the future and where those growth opportunities are, because they are there.

Mark Theine: Yeah, I think that’s one of the trends that we’ve seen. Accelerated over the last year is the shift to the off campus buildings. I mean the reimbursement and technology and all those enhancements were already driving more and more care off campus. The COVID continued to accelerate that. As consumers didn’t want to go to the big box hospital where the COVID patients are being taken care of. They’d rather get their care closer to home in a clean and safe environment.

Mark Theine: So I think Julie’s spot on with her comments about shifting care to the off campus setting there. In fact 72% of new construction starts last year were in off campus buildings.

Mark Theine: And I think that historically healthcare has been very hospital centric and in the future, as Julie just said, it going to be very consumer centric. And it’s going to be more about the patients and their preferences. How to get care in a clean, safe, convenient way is the way to be thinking about healthcare in the future.

Ryan Walters: Which may or may not be in an exam room in a medical office building.

Joel Swider: Yeah. Ryan, could you elaborate on that? Because I think from the hospital perspective, I think, we just heard a lot of people are not wanting to come on campus or they’re not, obviously there are certain conditions where you have to, but for an office visit. Any thought from the hospital perspective in terms of how you’re responding or plan to respond in the year ahead?

Ryan Walters: Yeah. There’s lots of interesting conversations that I’m sure everyone’s asking throughout the industry, but with the care that’s being delivered in a car out in front of an MOB. What does it mean to look at a car as an exam room? What’s telemedicine do? And what’s an exam room look like if it’s in a patient’s home? Lots of interesting questions and conversations around that.

Joel Swider: Well, I’d like to wrap up our discussion with exploring the future horizon and what have we learned? What does this new normal look like? What will we keep and what will we discard? Obviously we can’t see the future. Any thoughts on that? On what we’ve learned and where we go from here.

Ryan Walters: I think, so big questions in my role, we oversee all of our leasing, buying, selling. Most of our office employees are remote today and plan to be through Summer.

Ryan Walters: I don’t know of many medical office buildings that have formally closed, at least not for very long, throughout this process. But we did close a lot of our office buildings. So we foresee a need for much less office space or a different type of office space. Where nobody has a reserved desk or cubicle. And we deploy a reservation system where you can reserve a cubicle or meeting room, depending on the type of work you need to do in the city that you’re currently located.

Ryan Walters: So we’re identifying which caregivers are fully remote moving forward. My VP recently told me I’m one of those. So I’m a guinea pig in this effort. And who needs to be in front of a desk five days per week can be assigned cubicle and who’s in between.

Ryan Walters: And then on the medical office side, it’s what is the impact of telemedicine? Does that allow us to see more patients and postpone the next new building a few years? Because we have some more capacity. Do we need a different type of space for telemedicine? Some of the questions we’re asking,

Julie Carmichael: I think it’s going to be a mix in some ways. I think a lot about the fact that people are pretty quick to forget things. And I wonder what the lasting impact on all of our psyches will be after living through a pandemic. Will it change our behavior forever, or will it change our behavior for a while?

Julie Carmichael: And I think there are probably some things that may change forever. I think telemedicine is something that has worked well in certain instances, but there are a number of practices and specialties. I think about obstetrics as an example, and a lot of women’s health where it’s just not practical to do a lot of that care via telehealth.

Julie Carmichael: So I think, to Ryan’s point, we’re going to have to live in both spaces. We’re going to have to figure out, maybe we can delay some additions that we thought we might need to do some expansions. And I also think it’s going to be interesting to watch what happens on the ambulatory surgery side. With changes to Medicare and other insurance companies being willing to pay more and cover more services in that setting. And providers, I think, starting to feel that the quality is comparable. I think we’re going to see a lot of activity in the ASE space going forward. But it’ll be interesting to see. I wish we knew for sure, but I think we’re all guessing.

Mark Theine: I love the optimistic question about thinking about what’s coming in the future, especially given how challenging this year has been. But the truth of the matter is that we are still in a crisis and there’s still a lot of COVID care being developed.

Mark Theine: And it’s really important for us to remain disciplined in our operations of the facilities today in what this new normal is that we’re talking about. It’s very easy to get COVID fatigue and not wear your mask or start settling into the new normal of your management hours and things like that. Your management tasks, but it’s really important to continue to stay disciplined for the very foreseeable future.

Mark Theine: And then further into the future to answer your question though. I, talking to a CFO yesterday of the hospital system, and one of the comments he made that really resonated with me is that they shifted more of their surgery procedures off campus, the AFCs.

Mark Theine: Again, the same capacity in the hospital system. And those procedures will probably now for a very long time continue to be located in that off campus surgery center. So there’s a lot of opportunities for certain off campus surgery centers, [inaudible 00:38:51] future. And procedures that have shifted away from the campus, off campus will continue to stay there in the future.

Joel Swider: Great. Well, that is the extent of my prepared questions here. Julie, Ryan, Mark, thank you so much for your insight and thank you to our audience for joining us.

Joel Swider: We will be sending out contact information to the extent that anybody has questions that didn’t get answered today and you’d like to continue the conversation. We have our strategy discussion coming up on February 25th, which I think will be an interesting follow-up to this one.