Consolidations keep hitting Michigan’s healthcare market

Michael Kalil

Michael Kalil

by Dan Rafter

Consolidations have long been a trend in healthcare real estate, with large medical providers merging with or acquiring other health systems in big numbers. That trend has been especially prevalent throughout Michigan in the last two years.

How common are consolidations here? Michael Kalil, chief operating officer and director of brokerage with Southfield, Mich.-based NAI Farbman, can quickly reel off the recent consolidations: In 2013, Dallas-based Tenet Healthcare Corp. completed a $1.8 billion acquisition of Vanguard Health Systems, which was the owner of the Detroit Medical Center. This year, Toledo, Ohio-based ProMedica acquired Mercy Memorial Hospital System based in Monroe, Mich.

Last year, Prime Healthcare Services closed its acquisition of Garden City Hospital in Garden City, Mich. And also last year, Port Huron Hospital in Port Huron, Mich., became McLaren Port Huron, the 12th hospital in the McLaren Health Care system.

Kalil says that he doesn’t expect the consolidations to slow any time soon. They’re a way for medical providers to run more efficiently and reduce their sometimes exorbitant operating costs.

“The consolidations create economies of scale and more purchasing power,” Kalil told Midwest Real Estate News. “That is really what is driving this wave of consolidations, in addition to other efficiencies and an increased quality of care.”

Kalil says that he is also seeing consolidations on a smaller scale in the local healthcare real estate market, with healthcare systems purchasing physician groups. The benefits of such acquisitions? They reduce risk and expense for the physician groups, while the hospitals and healthcare systems gain greater market share.

These consolidations wouldn’t be happening, though, if healthcare real estate wasn’t so strong today.

The country’s aging population means that consumers are making more visits to medical offices and hospitals. With this increased demand has come higher occupancy rates in the medical office sector.

At the same time, healthcare systems are striving to meet the changing demands of patients, who would prefer to have more medical procedures completed at outpatient facilities and freestanding clinics than at busy, overwhelming hospital campuses. As patients increasingly look for medical options closer to their homes, and more convenient for them, healthcare systems are responding by building new real estate throughout the communities they serve, Kalil said.

“More ambulatory care facilities are being developed by healthcare systems in different regions and areas to accommodate patients,” Kalil said. “It’s all about making the healthcare experience more convenient for the patients and creating a less expensive delivery model. And it is all designed to feed the main hospitals that these healthcare systems operate.”

Think of it as the spoke-and-wheel model: Healthcare systems are opening more stand-alone facilities throughout their service areas. These facilities handle a larger percentage of patient visits. But when patients need more intense care, they are funneled to the healthcare providers’ main hospital campus.

“The healthcare sector has remained strong. It wasn’t hurt as much during the downturn,” Kalil said. “And we’ll see more development and consolidations in the future. We are already seeing healthcare providers in our market planning new development, and I’d predict that other developments in addition to these will be taking place, too. Demand is high in this sector.”

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