Microhospitals Coming Into Their Own

By Steve Barrett
Monday, May 1, 2017

More comprehensive than freestanding emergency rooms but smaller than traditional hospitals, microhospitals are gaining attention in the healthcare real estate sector.

At a medical real estate forum in Colorado, Ryan Rothacker, Vice President of Healthcare Operations for Indianapolis-based Duke Realty, noted that his company is in partnerships to develop 11 microhospitals. Duke is proceeding carefully because the investment is more significant than that required for a medical office building.

However, Rothacker adds, “We are comfortable with our investments because we believe this is the future model of care.”

Typically, microhospitals have eight to 12 inpatient beds and are open around the clock. They usually have transfer agreements with other hospitals. According to Becker’s Hospital Review, health systems frequently build microhospitals in urban areas that lack ready access to emergency or acute care.

To Lease or Not to Lease

One size doesn’t fit all when it comes to deciding whether your organization should purchase or rent medical space, but industry insiders offer some principles that can inform your decision.

Under a purchase agreement, you can accelerate deductions for certain building improvements faster than you can under a lease, Joseph Eckelkamp, CPA, owner of Eckelkamp and Associates CPAs, notes in an ambulatory care center trade publication, The Ambulatory M&A Advisor. However, deductions are more predictable under a lease, whereas under a purchase agreement, certain deductions — such as improvements or repairs — are less certain.

A lease might also make more sense if an organization wants to be in a certain location, such as on a hospital campus. Some clients find that securing a prestigious location outweighs the benefits of buying, Eckelkamp says.

Overall, however, he believes owning is more beneficial from an economic and, more specifically, from a tax standpoint than leasing.

Bullish on Medical Real Estate

Demographic and other factors are converging to make healthcare facilities a valuable investment, according to New York-based real estate manager Everest Medical Core Properties.

The elderly population is growing rapidly as Americans embrace healthful dietary and other lifestyle habits and take advantage of medical technology, Everest notes on its website. By 2055, more than 87 million Americans will be at least 65 years old.

In addition, healthcare spending in the United States represented about 13 percent of GDP in 2000, compared with almost 18 percent by 2012. That is expected to rise to 20 percent of GDP — $5 trillion — by 2022. That growth will create enormous economic activity.

“Between 2010 and 2020, the healthcare sector is projected to grow nearly 30%, generating 3.5 million new jobs — more than any other industry,” according to Everest.

Viewed in total, those factors make medical real estate “a highly resilient and reliable investment opportunity.”