Two large, looming changes to Maryland’s healthcare system may heighten the need for efficient space, strategic siting and creative real estate financing in the next few years.
To better respond to current and anticipated challenges in medical real estate needs, MacKenzie Commercial Real Estate Services has established a Healthcare Services Group.
“We have a lot of resources that we can offer the healthcare community,” said Scott Wimbrow, President. “We have mapping software that helps with demographics and psychographics, site selection, value engineering by our construction department, and tenant-improvement financing by our capital markets group.”
Bringing those resources together in one group dedicated to serving healthcare clients could be particularly beneficial as the healthcare industry faces a new economic cycle and major changes in federal policies, Wimbrow said.
“We’re coming into a new era in healthcare in Maryland for two reasons,” said Dennis Bodley, Vice President, Healthcare Services Team.
First, “the Maryland Department of Health and the federal Centers for Medicare and Medicaid Services have been in discussions for almost two years now about restructuring Maryland’s reimbursement model,” Bodley said.
That payment model is unique to Maryland and, according to reporting on the negotiations, the revised model “will significantly reduce Medicare and Medicaid reimbursement to the state and, subsequently, to healthcare providers,” he said.
Second, the federal administration’s large funding package, known as the “Big Beautiful Bill,” will result in “a reduction in Medicaid enrollment in the state,” Bodley added.
Although the exact impact of that legislation is not fully known, it cuts nearly $1 trillion of Medicaid funds nationwide and somewhere between $3 billion and $5 billion in Maryland.
Bodley, who spent 10 years as Director of Real Estate for LifeBridge Health before joining MacKenzie, said those financial pressures could compel healthcare providers to find ways to heighten their efficiency and right-size their real estate portfolios.
“Right sizing doesn’t always mean reductions,” Bodley said.
But many hospital systems, healthcare companies and private equity firms who acquired medical practices in recent years, may benefit from assessing operating costs, patient volumes, local demographics and psychographics of their real estate holdings.
LifeBridge Health, for example, spent several years acquiring medical practices and new facilities before stepping back and critically assessing the location and patient volumes at each acquired site to determine the most efficient way to organize its expanded operations, Bodley said.
To achieve those efficiencies, “mapping is critical, not only demographic mapping but also psychographics to show how different communities spend their money and how many visits they are likely pay to any one medical specialty,” Wimbrow said.
Mapping, he said, “does all the homework for healthcare tenants. It shows them where there’s a need for their services. But it also helps landlords we work with to understand what services they are missing in their property so they know what kind of tenants to go after.”
Escalating construction costs have presented an added challenge to healthcare providers.
“Tenant improvements for medical offices were always expensive,” Wimbrow said. “Five years ago, fit out costs were probably $100 to $200 a square foot. Now, that number is $150 to $300 depending on the condition of the space.”
MacKenzie’s Healthcare Services Group will be able to address that challenge as well, he said. MacKenzie’s construction division can value engineer fit out projects to lower costs and its capital markets group has identified sources to fund tenant improvements.