Thirty years after moving beyond its Midwest base and founding a Florida outpost, Cleveland Clinic has taken a giant leap here this year with a round of acquisitions and expansions that will take it from 155 beds in Weston to 1,058 beds across five Southeast Florida hospitals and a geographic range eclipsing that of its Ohio home.
In October, Cleveland Clinic Florida inked deals to absorb the non-profit Martin Health, a system with three hospitals in Martin and St. Lucie counties, and the non-profit Indian River Medical Center in Vero Beach in Indian River County.

“Our footprint in Southeast Florida is geographically going to be much bigger than our present footprint in northeast Ohio,” says Cleveland Clinic Florida CEO Dr. Wael Barsoum. Indian River lies 128 miles to the north of its base in Weston in Broward County. In Ohio, Cleveland Clinic’s main campus, plus 11 regional hospitals and 18 fullservice family health centers, all lie in a seven-county region within a 30-mile radius of Cleveland.

The two Treasure Coast hospital deals were Cleveland Clinic’s biggest by far, but the year also has seen it expand in Palm Beach and Broward. It opened a medical office in Wellington in March. In north Broward, in July it opened a 73,000-sq.-ft. family health center. In Weston, its Florida base for 17 years, Cleveland Clinic opened a tower and an expanded emergency department that total 221,000 square feet. In Fort Lauderdale, it opened a concierge medical practice this year and imported as its lead doctor a Cleveland Clinic Ohio internist who had been the personal doctor for doctors there, including Barsoum.
Hospital and health system mergers and acquisitions last year totaled a record 115 nationally, according to Illinois consulting firm Kaufman Hill. Driven by Obama-era health law changes and by a desire for negotiating power with insurers in the face of rising costs and decreasing reimbursements, hospitals have gone after scale. Stand-alone hospitals in particular have faced a squeeze.
Barsoum says Cleveland Clinic has cut $1 billion in costs in the last five years from its $8-billion system. “To stay at the top of the hill, you have to be thinking about what’s coming and to an extent be our own disruptor,” he says.
Investment rating service Moody’s says that while Cleveland Clinic is an international brand with strong cash flow and “exceptional fundraising capabilities,” revenue growth is constrained in northeast Ohio. In part, that’s what’s driving the geographic expansion in Florida and also the opening of a 200-bed hospital in London. (Cleveland Clinic also has sites in Toronto, Abu Dhabi and Las Vegas.)
At Martin Health, Cleveland Clinic has promised to invest $500 million over five years. The two already had teamed up on heart and vascular care. A Cleveland Clinic Florida cardiothoracic surgeon joined Martin Health to perform heart and lung surgeries at Martin Medical Center. At Indian River, Cleveland Clinic promised to invest $250 million over 10 years. Indian River board Chair Dr. Wayne Hockmeyer has said Cleveland Clinic’s reputation will be a “powerful recruiting tool” for top-quality doctors.
In its report, Moody’s mentioned more “potential acquisitions” in Florida. Barsoum says the organization is open to the idea. “We recognize health-care organizations, to be successful, need some level of scale,” he says. “We are regularly approached by health systems and hospitals, and we are open to talking with them. If there is a community or hospital that wants us and they are like-minded and a clinical fit, then we look forward to exploring those options.”
Cleveland’s Expanding Reach
Indian River Medical Center and Martin Health have recently joined Cleveland Clinic Florida.

 

Cleveland Clinic Florida, Weston
Beds: 205
Employees: 3,067
Revenue: $500 million
Staff size: 259 physicians; 2,808 others
Campus: Main campus in Weston with locations in Coral Springs, Fort Lauderdale, Parkland and Palm Beach County

 

Indian River Medical Center, Vero Beach
Beds: 332
Employees: More than 2,000
Revenue: $290 million
Patients: 15,300 admissions
Physicians: 320
Campus: IRMC includes the Welsh Heart Center and Scully Endoscopy Center within the facility; separate buildings on the campus: Scully-Welsh Cancer Center, Health and Wellness Center, Wound Care Center

 

Martin Health
Beds: 521
Employees: 4,500
Revenue: $559.6 million
Patients: 34,418 admissions, 117,112 emergency department visits
Staff size: 504 physicians on medical staff, 150 employed physicians
Campus: Three hospitals (two in Stuart, one in Port St. Lucie)

 

Source: Florida Trend

The U.S. outpatient care center sector has grown robustly in recent years as asking rents for medical office buildings continue to rise and health systems seek to provide a better patient experience at a lower cost, according to a new report from CBRE.

The U.S. average asking rent reached its highest level on record in Q2 2018, rising 1.4 percent year-over-year to $22.90 per sq. ft., due to tight market conditions and the completion of new, high-quality space.

“Rents increased in two-thirds of the markets tracked by CBRE and grew fastest in some of the markets with the lowest vacancy rates, including Nashville, Manhattan, Louisville, Seattle, and Indianapolis,” said Andrea Cross, Americas head of office research, CBRE.

In addition to rising rents, health systems have increasingly turned to lower-cost outpatient centers—which enable them to provide lower-cost services closer to where patients live—due to higher capital costs stemming from mergers and acquisitions and a surge in in employer-sponsored, high-deductible health plans requiring patients to pay larger out-of-pocket amounts.

The total number of outpatient centers grew more than 50 percent to approximately 41,000 from 2005 to 2016. Outpatient center employment has more than doubled since 2003, and grew 3.5 percent year-over-year in October 2018, compared with 2 percent annual growth in overall healthcare employment.

“Healthcare systems are increasingly catering to patients as consumers—rather than simply users—of healthcare services,” said Mark Lamp, executive managing director, Healthcare, CBRE. “They are creating outpatient facilities that provide a more ‘hotel-like’ experience—and at a lower cost than the more expensive hospital services—with technology-enabled check-in, abundant natural light and incorporated outdoor spaces, and patient care concierges trained to support guests with any needs.”

Capital Markets Trends

Trailing 12-month transaction volume decreased to just below $12 billion in Q2 2018 but remained not far off the cyclical high of $14.2 billion.

“Medical office properties have shifted from a specialty asset class to a core asset class,” said Chris Bodnar, vice chairman, Healthcare Capital Markets, CBRE. “Institutional and cross-border investors have ramped up their medical office acquisition activity, with cross-border investors on pace to record their highest annual level of net acquisitions in at least a decade in 2018.”

Development Trends

Medical office development strongly correlates with population growth, with Phoenix, Houston, Dallas/Ft. Worth and Atlanta among the top markets for total completions from Q3 2017 to Q2 2018, along with Minneapolis/St. Paul, a leading healthcare cluster. Houston, Minneapolis/St. Paul, Atlanta, Chicago, the Inland Empire, Kansas City and Boston rank among the top markets for square footage under construction.

After nearly 60 percent growth in medical office completions between 2011 and 2017, under-construction levels have started to slow, with lower levels of new supply in the coming quarters likely.

“Many hospital systems have slowed their development activity to reexamine their operations, including how to adapt their real estate strategies to provide a better patient experience at a lower cost,” Ms. Cross added.

To download a complete copy of the report, please click here.

Welltower Inc. (NYSE: WELL) and CNL Healthcare Properties announced today that they have entered into a definitive agreement under which Welltower will acquire a Class A medical office and outpatient facilities portfolio comprised of 55 buildings from CNL Healthcare Properties for $1.25 billion. The sale is expected to close during the first half of 2019, subject to customary closing conditions, governmental and other third-party consents.

Welltower will be acquiring 55 assets out of the 63 properties (medical office buildings, post-acute care facilities and specialty hospitals) initially marketed by CNL Healthcare Properties through its strategic financial advisors. The 55 properties have a current occupancy of 94 percent and average annual rent increases of 2.4 percent. The properties are strategically located and 92 percent are affiliated with some of the nation’s premier health systems including Novant, Memorial Hermann and Cleveland Clinic. With 3.3 million rentable square feet in major metropolitan markets across 16 states, the acquisition portfolio will have significant overlap and synergies with Welltower’s existing outpatient medical footprint. Welltower’s proprietary data science and analytics platform has identified this Class A portfolio to have above average market potential defined by opportunity metrics such as market prioritization rank, predictive annual gross rent, insurance/payor mix and physician net need score. At the same time, the portfolio is affiliated with strong hospitals and health systems, none of which are “at risk” hospitals based on Welltower’s proprietary hospital risk analysis.

“Through the strategic acquisition of 55 high-quality medical office buildings from CNL Healthcare Properties, we continue to accretively expand our outpatient medical and health system portfolio,” said Shankh Mitra, Welltower’s chief investment officer. “Welltower was able to act quickly and definitively when the opportunity presented itself, leveraging our proprietary data science platform and deep local presence through our real estate services platform to come to an agreement with CNL as a high quality and reputable sponsor. With market potential metrics and low risk factors, along with a healthy initial cash yield, good escalators and low capital expenditure requirements, this investment will provide an excellent total return for our shareholders.”

CNL Healthcare Properties, a public, non-listed real estate investment trust (REIT) focused on seniors housing and healthcare facilities with a highly respected and seasoned management team, is monetizing this medical office portfolio as part of its ongoing process to pursue strategic alternatives to provide liquidity for its shareholders. The company plans to use the proceeds from the sale to repay debt, pay closing costs and other related expenses. The company, with approval from its board of directors, may use proceeds to rebalance corporate borrowings to further bolster its balance sheet as it pursues additional liquidity alternatives. Post-closing, the company expects to make a special distribution to shareholders, also subject to approval of its board of directors.

CNL Healthcare Properties will continue to own and actively manage a sizeable private-pay, seniors housing centric portfolio of 87 communities located in 31 states.

“Since CNL Healthcare Properties made our first investment in early 2012, we have worked swiftly and thoughtfully to construct and nurture a leading national portfolio of seniors housing and healthcare assets,” said Stephen H. Mauldin, president and CEO of CNL Healthcare Properties. “The sale of our Class A medical office assets to Welltower underscores both the high quality of these properties and our focused work to drive investment performance and value for our investors. Welltower’s deep knowledge of the sector, the CNL platform’s positive experience in past dealings with Welltower, along with its reputation of certainty in delivering on commitments will realize significant value for our shareholders in today’s volatile capital market environment. While we are in the early phases of our strategic liquidity process for the fund, we are confident that this transaction is a strong first step to begin returning capital to our shareholders.”

In June 2018, CNL Healthcare Properties engaged the real estate investment banking groups of HFF Securities L.P. and KeyBanc Capital Markets Inc. to act as strategic financial advisors in exploring and executing potential liquidity alternatives.

Over the last 15 years, CNL Financial Group has been especially active in the seniors housing and healthcare sectors. As of Dec. 31, 2018, CNL-sponsored companies have invested in seniors housing and healthcare real estate investments valued at more than $10 billion, collectively.

The 560-bed hospital that once threatened to hang like a dead albatross around the neck of the University of Miami Health System has begun to show signs of a financial turnaround — inspiring talk of “a new day” from the chief executive for UHealth, the UM network of hospitals, clinics and doctors that make up the region’s only academic medical center.

“Last year, we had our best financial year ever,” said Dr. Edward Abraham, UHealth CEO.

A growing demand for cancer care, a rise in outpatient clinic visits and the consolidation of three separate UM hospitals under a single license helped UHealth record a $217 million profit for the year that ended May 31, according to a recent Securities and Exchange Commission filing.

That’s nearly three times the $83.8 million profit UHealth reported for the prior year, and includes some good news for the formerly named Cedars of Lebanon Hospital that UM purchased in 2007 but has struggled to make profitable in recent years.

Though the hospital, renamed UHealth Tower, lost $79.1 million for the year that ended May 31, there’s a silver lining: The loss is considerably less than the hospital’s prior year deficit of $94.5 million, and it does not account for a significant investment UM is making to refurbish the aging facility with new operating rooms, interior and exterior renovations, and infrastructure upgrades, including new generators and elevators.

UHealth announced in January that the hospital will be home to a new proton therapy program for cancer, which blasts highly charged proton particles at tumors, reducing damage to surrounding healthy tissue. The program is expected to debut in 2020.

Additional investments in UHealth Tower include five new cardiac catheterization labs and other resources aimed at rebuilding the hospital’s cardiac surgery program, which was set back by the November 2017 departure of two prominent surgeons, Donald Williams and Rogerio Carrillo, specialists in coronary bypass, valve repair, and aortic surgery.

Abraham declined to explain why Williams and Carrillo left UHealth. “I really can’t talk about the personnel actions,” he said.

The surgeons’ departure led to a reduction in cardiac surgeries at UHealth Tower over the past year, and the university has a strategy beyond investing in new resources to rebuild the program — recruiting a star physician who will attract patients from near and far.

Past and present UHealth executives familiar with the system’s plans said that star physician is Joseph Lamelas, a Cuban-American native of South Florida who is considered a pioneer in minimally invasive heart surgery. The former chief of cardiac surgery for Mount Sinai Miami Beach, Lamelas left South Florida for Baylor College of Medicine in Houston in 2017. Sources said he will return to Miami to work for UHealth in January.

Asked about Lamelas, Abraham blushed and laughed. “I can’t say anything,” he said.

The investments in UHealth Tower and the addition of Lamelas are designed to leverage two lucrative services for South Florida hospitals — cancer and cardiac care — and to enhance the system’s core brand as an academic medical center with a faculty practice of nearly 1,300 physicians and specialists, a medical school that trains doctors and performs research, and an integrated network of hospitals and clinics.

“It’s really our destiny,” Abraham said, “to set up these destination programs, these marquee programs that take full advantage of this expertise.”

But some hospital and healthcare experts doubt that UHealth’s brand as an academic medical center will be enough to set it apart from other health systems in the region that have made similar investments.

Baptist Health South Florida, the region’s largest nonprofit hospital system, opened a $430 million cancer center in January 2017 that is partnered with the nationally regarded Memorial Sloan Kettering Cancer Center in New York while Memorial Healthcare System in South Broward is partnered with Tampa’s H. Lee Moffitt Cancer Center and Research Institute, the state’s only National Cancer Institute-designated program.

Allan Baumgarten, an independent healthcare analyst and author of the bi-annual Florida Health Market Review, said lucrative lines of business for hospitals and health systems are also highly competitive.

“At a certain point,” he said, “you have to think that there’s a saturation point.”

Baumgarten said hospitals with destination cancer programs also are vulnerable to changes in payment by Medicare, the national health insurance program for Americans 65 and older, and the largest payer of hospital care in the United States.

Healthcare systems that deliver chemotherapy and other cancer treatment through outpatient clinics are allowed to charge hospital prices, which are higher. But Medicare is moving toward so-called site-neutral payments that would cap reimbursement for clinic visits at a lower rate comparable to that paid for care delivered in a doctor’s office.

“If Medicare is able to do that,” Baumgarten said, “then private insurers will likely follow.”

Joshua Nemzoff, a Pennsylvania hospital consultant who used to live in Miami, said UHealth must find a way to differentiate itself in a market where so many other hospitals and health systems offer more modern facilities located closer to where people live — and the quality of care is generally very good.

“There is no clear standout,” he said of South Florida hospitals.

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From the outside, the new Bayfront Health building in Pinellas Park looks like a typical medical clinic.

With its brick facade and modest parking lot, it could be an urgent care center or a doctor’s office. But it’s actually a free-standing emergency room, equipped to handle much more critical cases. The facility at Gandy Boulevard and Interstate 275 is the first of its kind for Bayfront Health, which operates a traditional emergency room just a few miles away at its downtown St. Petersburg hospital.

So why build another one?

To keep up with everyone else. Nearly every hospital chain is opening free-standing emergency rooms — commonly referred to as emergency departments, or EDs — to connect the dots between their major hospitals while cutting wait times and medical costs for consumers. They’re popping up everywhere in Tampa Bay.

“Larger hospital centers like Adventist or Bayfront Health see this as being part of their ‘extended tentacles’ into the community to provide access,” said Jay Wolfson, a professor at the University of South Florida’s Morsani College of Medicine. “One of the more profound parts of this phenomenon is that millennials are using these things extensively. Probably because there are lower wait times.”

As the health care industry evolves, most hospital operators are moving away from banking on sick people coming to their ERs. Instead, they are beefing up primary care and trying to keep patients out of the hospital. Many are opening urgent care clinics and creating telemedicine apps where patients can interact with doctors from their cell phone screens. Emergency departments offer yet another layer of care, just around the corner.

“The hospital is no longer the absolute center for health care in the community, unless it’s for intensive or emergency care,” Wolfson said. “But this is motivated by business as well. These health care companies are going to encourage people to go to these other sites, like free-standing EDs and preventative care services, as a way to introduce patients to their brand. Once you’re in the system, and you had a good experience, you’ll be more likely to return to that brand.”

Bayfront Health’s free-standing ED will open on Dec. 10. It will be manned by at least one trauma-trained physician and support nurse, plus technician and laboratory staff 24 hours a day, seven days week. The 8-bed unit is equipped with a resuscitation room, pediatrics care, radiology and lab services.

It also has a drive-up loop for ambulances. Bayfront Health is working with local paramedic providers to coordinate protocols for transporting patients to and from the facility.

It will be able to handle medical emergencies like respiratory distress, food poisoning, allergic reactions, bone fractures and minor burns, but residents should know that they can’t stay there overnight for care. Such facilities operate in a space between urgent care clinics and regular emergency rooms, the latter where patients can be quickly admitted into hospitals.

Still, emergency departments are committed to quality care and keeping wait times low, said Dr. Traci Ryan, medical director at the new Bayfront Health facility.

“The doctors and nurses here are trained the same as the doctors and nurses who work in the emergency room in St. Petersburg,” Ryan said. “If a patient comes here and is having a heart attack, that is something we can stabilize here, and then transfer that patient to the hospital to be admitted.”

Urgent care clinics, which are rarely open 24 hours, offer services for more routine and less severe medical issues like diagnosing the flu, wound care, eye or ear infections, and some minor fractures. But patients can sometimes get confused about where to go, in part because free-standing emergency departments and urgent care clinics often have a similar look, typically housed in shopping plazas or along busy commercial stretches.

The cost difference, however, can be substantial. Patients in states like Texas and Colorado have reported receiving bills for thousands of dollars from emergency departments, when they thought they were walking into an urgent care clinic.

With emergency departments, “we’re providing an opportunity for people to be seen by a doctor quickly. Consumers are utilizing them, which is evidenced by the fact that we’ve built them, and they’ve come,” said Mike Shultz, CEO of AdventHealth’s west Florida division. “It’s our job now to educate consumers on where they need to go and for the best cost option.”

AdventHealth, formerly known as Florida Hospital, operates two free-standing emergency departments in Tampa Bay — one in central Pasco County and another in Palm Harbor. Two more are under construction in West Shore and Brandon, Shultz said.

At most of the departments, the care costs the same as a regular emergency room visit, according to doctors at Bayfront Health’s Pinellas Park facility. That means patients with insurance will be responsible for the usual co-pay, and, like any ER patient, won’t be turned away based on their income.

“Some strategies are different than others but we believe we’re providing a service,” Shultz said. “Some do it to make a lot money. Some do it to expand their geography into areas they’re not in.”

But critics say that having too many emergency departments in one community reduces the quality of care because it shrinks the amount of practice that local trauma-trained physicians get when treating complicated injuries. A similar argument was made when Northside Hospital tried to open a trauma center earlier this year, but withdrew after two other area hospitals with trauma centers contested the expansion.

John Couris, the CEO of Tampa General Hospital, said free-standing emergency departments add to the exorbitant cost of health care, and that’s why the hospital has no plans to open any more of them. Tampa General operates one free-standing facility at its Brandon Healthplex, which opened last year.

“To be part of the solution, we must curb costs and improve access for consumers,” he said. “I also think it’s time to be transparent about costs. People should be able to see what they’re paying for. You can, usually, in an urgent care clinic, but not one of these emergency departments.”

UF Health Shands Hospital in Gainesville opened two free-standing emergency departments in 2013 and 2016. But Shands CEO Ed Jimenez said the motivation to do so was unique compared to other hospitals.

“Gainesville is a small town compared to Tampa Bay,” he said. “The hospital is on the edge of the (University of Florida) campus, but the growth of our community has been outward of the city, making the hospital not that accessible to the people around us.”

So Shands opened the two facilities in areas where patients would otherwise have to drive nearly an hour to get to an emergency room.

“Patients were coming from across the city and from Cedar Key, where there is no hospital or ER,” he said. “But if we did this purely for volume of patients, we would have built onto our existing hospital. This was a way to create access, not to take away from our main ER.”

But Jimenez, like Tampa General’s Couris, doesn’t buy the idea that emergency departments are cutting down on medical costs. He estimates that the cost to treat patients at the new facilities is roughly the same as in the regular emergency room in Gainesville.

Whether it’s to offer more choice to consumers or to expand into new regions, experts agree that free-standing emergency departments are here to stay.

“The outcomes tend to be better financially. They don’t have kids and moms and pregnant people, with a variety of diagnosis. And they tend to have easier parking. Infection rates are lower. Overall, they’re just more convenient,” said Wolfson from USF.

“The reality is that health care is going this way and isn’t slowing down. Now it’s on your iPhones. And when you need a doctor, you can pick a place best on the appropriate level of care.”

Source: Tampa Bay Times