TAHFM Interlink
“Continuing” Changes in an Era of
Healthcare Reform and Oil Industry
Concerns….
April 1, 2015
Memorial Hermann Overview
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Greatest market share in Houston area market
Largest provider of uncompensated care and
community service
4,350 beds
Only Air Ambulance Service in Houston – Life
Flight
Only Burn Center in Houston
Only Hemophilia Center in Houston
Only non-county based Level One Trauma
Center
25,000 employees
Three National Quality Awards Winner – Only
System in Texas
215 retail locations vs 2008
$6 billion in physical medical facilities ($2B in
progress)
$1 billion in medical office buildings
$2.3 billion current capital program
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Houston - Forbes #1
America’s Fastest Growing Cities
• “When oil prices are low, Houston’s economy grows.
When oil prices are high, Houston’s economy booms”
• MSA: Houston-Sugar Land-Baytown, TX
• 2014 Population growth rate: 1.81%
• 2015 (Projected) pop. growth rate: 1.74%
• 2014 Gross metro product growth rate: 3.52%
• Job growth rate: 4.5%
• Unemployment: 4.8%
• Median pay: $71,900
• 2014 Population: 6. 4M
• 2019 Population: 7.0M (est.)
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Integration
Health System
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Recent Accolades
15 Top Health Systems; Top
5 Large Health Systems
(2012 & 2013)
John M. Eisenberg
National Patient Safety &
Quality Award (2012)
America‘s #1 Quality
Hospital for Overall Care
(2011 & 2012)
Healthcare’s “100
Most Wired” 8th
consecutive year
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America’s 50
Best Hospitals
(2010-2014)
Texas Hospital
TIRR Memorial Hermann National Quality Forum
Association
- No. 3 in rehabilitation
National Quality
Bill Aston Quality Award
hospitals
Healthcare Award (2009)
(2011)
The Joint
Commission
Top Performer
(2012), Heart
Attack, Heart
Failure,
Pneumonia,
Surgical Care
2011 Texas Healthcare
Foundation Quality
Improvement Awards
(9 Memorial Hermann
Campuses)
2014 Houston
Business Journal
(HBJ) No. 3 Best
Places to Work
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High Reliability Organization
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Awareness
Q: When you think of hospital systems in the area, which one comes to
mind first?
100%
2012
2013
2014
80%
69%
60%
58%
43%
40%
31%
28%
26%
15%
20%
8%
13%
6%
0%
Memorial Hermann
Methodist
* 2013 & 2014 data reflects phone and online survey
St. Luke's
MD Anderson
Don't Know/No Others
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Preference
Q: Which hospital system would you prefer to use if you or someone in
your household needed medical care?
100%
2012
2013
2014
80%
60%
40%
45%
36% 38%
15% 17%
20%
22%
13%
11% 8%
0%
Memorial Hermann
Methodist
* 2013 & 2014 data reflects phone and online survey
St. Luke's
3.0%
2.0%
1.0%
MD Anderson
12%15% 9%
Don't Know/No Others
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Balance ……Or Close Enough….Be
Reasonable
(Critical Timing/Need)
(Real Estate Projects Needed x Many Clinical Projects)
Many MHHS
Worthy Projects
Hospitals
MOBs
Retail
CCCs
Developer Funding/Benefit (Profit)
Balance Sheet
REMEMBER:
HEALTH CARE SYSTEMS HAVE CASH, CREDIT,
FINANCING, EXPERTISE ≠ DESIRE TO BE REAL ESTATE
DEVELOPERS/OWNERS…..
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To Own…..Or Not To
Own….That, Is the Question….
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Balance sheet impact
– Days cash on hand
– Debt capacity
– Wall Street Financial Ratios
– Spectacular patient care programs that should be funded
Funding sources – In order of preference
– Cash flow
– Debt – tax exempt vs. taxable
– Partners (a lengthy discussion)
– Developer owners (for-profit projects)
Asset Types
– Hospital – Tax exempt financing available vs. MHHS/Northeast Hospital
– MOBs – Taxable – Not strategic/core assets (lengthy discussion on MOB
asset management philosophies)
– Retail locations (CCC example of pure retail)
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Convenient Care Centers
• The tale of a Convenient Care Center (CCC) project funding
discussion
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What is a CCC?
Owned by Memorial Hermann?
Developed and leased by MHHS and then monetized?
RFP for developer – turn-key lease?
Who owns the key piece of land? Expansion opportunities?
Developer covenants vs. leasing?
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The healthcare industry along with
its associated medical real estate
and facilities management industry
is changing and your organization
needs to continuously be educated,
informed and active to add value
and be successful in the future.
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Facility Services Overview
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Facility Services Departments
Architecture and Construction
Capital Planning & Asset Management
Clinical Engineering
Biomedical Engineering
Electronic Engineering
Imaging Support Services
Environmental Services
Laundry Services (MH & TMC Laundries)
Medical Equipment Investment Council
Medical Plaza Leasing and Property Management
Physician Medical Plaza Joint Venture Operations
Sterile Processing
System Engineering
System Parking
System Security
Food Service
Materials Management and Supply Chain
SIGNIFICANT DIVERSITY OF RESPONSIBILITIES
Every department is becoming more efficient and effective
through standardization and centralization.
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Bundling Facility Services
Facility Services Philosophy
(Personal Philosophy)
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Design
Construct
Occupy/Lease
Maintain
Supply
All one team – All one vision
Single Point of Responsibility
New entities into this bundled services model
Standardization…..current initiative…..
Henry Ford quote……..
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Recent Events
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Exchange sign-up still very low
State of the Union/Rebuttal – January 2015 (no mention)
Future government shutdowns for Texas and Medicaid?
Healthcare reform delay – January 1, 2016
Employers shedding healthcare coverage = savings to them
Benefit plans dropping healthcare coverage or large
deductibles added
Actual cost of new healthcare coverage vs. value
Employer fines
Individual fines
Lacking: “Sign up” of the “young and healthy” – (SS Program
Example)
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Community Charity Care
• MHHS budgeting $800 million in
uncompensated care!
• Not sustainable! (Fair)
• Who will support our community?
• MHHS investing $2.3 billion in our
community with new projects
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Capital Construction
Strategies
• Reduce the initial capital construction and ongoing
operational cost of medical facilities and real estate
without impacting the quality of care (use of
different types of construction)
• Developing new medical real estate (non-hospital)
strategies (own vs. master lease vs. JV)
• Declining reimbursements continue
• Changing physician-hospital-payer relationships MHHS now offers a payor and MD employment is
increasing
• Be alert for future healthcare consolidations…… 17
Healthcare Reform Impact
(MHHS)
1. Continued, significant reimbursement declines per procedure
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MHHS is at capacity at almost every campus
Medicare/Medicaid payment reductions – hospitals and physicians negatively impacted
Disproportionate Share Hospital (DSH) reductions
Increase in volume of Medicaid patients
Increase in volume of Medicare patients - 10K per day – celebrate 65! – Next 22 years!
Rise in uninsured patients due to corporate cost considerations and deletion of private medical
insurance as a benefit – Wall Street will encourage transition
Employer/employee options example – provide/pay fines
New elections changes profile
2. Houston & Texas economy still envy of most cities!
3. Oil and jobs!
4. Shifts focus from solely growth of patient volumes to wellness, efficiency
& quality to be successful with new payer government programs
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Accountable Care Organizations (ACO’s)
Low cost provider
High Quality patient safety and satisfaction
Guaranteed costs = at risk provider coverage
5. Scarcity of capital for all healthcare providers and impact on
development
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What Does All of This Mean to a
Medical Tenant/Developer/Manager?
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Continued consolidation
No one’s future is totally clear…..patient, physician,
hospital, real estate industry, etc. Be cautious……
Effective forecasting distance is probably less than 1218 months
Physician reluctance to invest in new medical real estate
ventures
Physician reluctance to execute long-term leases
Physician reluctance to align with organizations due to
the unknown….or relief…..
Frustration over compensation/reimbursements
Increased downward pressure on operating expenses 19
Management Models/
Cultural Change
• Outsourcing Experience
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Environmental Services
Food and Nutrition Services
Clinical Engineering
Laundry
Property Management & Leasing
Centralizing
• Security
• Supply Chain Management
• Clinical Engineering
• Sterile Processing (New 2014)
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• Medical Equipment Investment Council (New 2014)
Facility Services
Facility Services Strategy and Philosophy
• All Facility Services Departments have input on capital
projects and we enforce “Best Practices” – previously local
campuses dominant
• One Team + One Vision + One Point of Accountability =
Success/Efficiency (Better be Correct!)
• SLOW AND DIFFICULT TRANSITION FROM FULL
CAMPUS AUTONOMY TO CENTRALIZED
CORPORATE DIRECTION
• Hotel example
• Top executive support
• Performance “usually” = acceptance
• Aggregate spending
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MHHS Reorganization
• Discussion:
• Purpose
• Succession Planning
• Standardization
• Service Lines
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75 vs 50 vs 25 Year Facilities
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Recent focus on “First cost capital”
Less expenditures on architectural interiors
No longer building 50-year or 75-year facilities
Focus on energy efficiency – not “green” if costs
more $$$
Make it a rectangle
“Every Team Starts Fresh”……Unfortunately – limit!
Depreciation impact to financials
Competitive pricing model impact
Joint ventures - OPM – leasing of assets – Ex: 23
Convenient Care Centers
Further Areas for Exploration
• Medical Real Estate and Facilities Managers must
understand the industry and have experienced
personnel!
• Implementation of Environmentally Friendly programs
 Waste stream
 Utilities
 LEED Certifications
 Energy Star Ratings
 Recycling
 Reprocessed supplies
• Cost neutral mandate for all “green” programs!
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Memorial Hermann
Pearland CCC/Hospital
MOB 2
Site Plan
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Katy Hospital – Site Plan
New Tower
New MOB 2
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Sugar Land Hospital
Expansion Rendering
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Texas Medical Center Campus
MFP – Site Logistics
Parking Infrastructure Building
(PIB)
HPI (Existing)
HPII
Digital Scan Conducted by Contractor for Site Logistics Planning
Life Flight to Continue Operations During All Construction
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MH-TMC Master Facility Plan
Partial Robertson Demo
Robertson
Pavilion
Phase I of PIB Generator Building
Demo line
Central
Plant
Bridge from G4
Dock
Note: All structures in Red
will be demolished
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MHHS TMC Campus Master Plan
Preliminary Rendering – Park View
North Campus Elevation
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MHHS TMC Campus Master Plan
Preliminary Rendering – Park View
North Campus Elevation - Night
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Memorial Hermann
Cypress Hospital
View From Highway 290
MOB 1
Hospital
CCC
Preliminary Rendering
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MH Convenient Care Center
South Katy – Architectural Night
Rendering
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MHHS Medical Office Building
Development (Six MOBs)
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Memorial Hermann engaged Powers Brown Architects to design a new proto-typical
medical office building for Memorial Hermann, utilizing tilt-wall construction vs.
traditional pre-cast construction. Several months were devoted to designing a
rectangular, energy-efficient and efficiently designed floor plan, that could easily be
replicated at multiple sites, saving significant design fees and schedule time. This new
tilt-wall design is less expensive, delivers occupancy more quickly, keeps physician
lease rates affordable, and still provides a high-quality, long-term asset
Design is complete for TWH – MOB 4, Katy Hospital MOB 2, Sugar Land Hospital MOB
2, Pearland Hospital MOB 2, NE MOB 2 and Cypress MOB 1
PLH – MOB 2
TWH – MOB 4
(On Hold)
SLH – MOB 2
KH – MOB 2
Standardization…It Pays…..
NEH MOB 2
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Questions
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