President Obama and his merry band of Democrats are on a nationwide road show, meeting with voters, and selling the benefits of their $940 billion overhaul of the nation’s health care system. ObamaCare promises to expand access to health insurance coverage to 32 million additional people. Undoubtedly, these newly insured patients will increase demand for medical office space, and that has some property owners wondering how they may take advantage of the new legislation.
Many hospitals are currently focused on expanding facilities to increase capacity and meet future demand. For example, Moses Cone Health System in Greensboro, NC is investing over $200 million in an expansion that will add 250,000 square feet to their existing 1 million square feet. Other health care providers, such as the Cleveland Clinic, are making more nominal investments as they focus strategically on expanding outpatient facilities. Nevertheless, these investments are occurring at a time when the nation’s construction industry is starving for new contracts.
Developers that want to take advantage of this emerging trend should focus on building relationships with health care real estate brokers. Medical providers may engage these brokers to locate space in neighborhoods where uninsured people currently live, areas that will likely see increased demand as a result of ObamaCare. Most doctors are interested in owning their space, so developers may want to focus on constructing medical office condominiums, which became widely popular during the latest real estate boom.
Owners of medical office space that lease to providers should prepare themselves for the unintended consequences of ObamaCare. For example, a new 3.8% Medicare tax imposed on the investment income of upper-income tax payers – including rental income. In addition, landlords should be wary of other pending changes to the tax code, such as the expiration of the Bush tax cuts.
Not to mention, landlords need to screen tenants carefully, because some medical providers will suffer in the new environment, due in part to changes in reimbursement levels. Several states are facing large budget gaps as a result of the “Great Recession”, but I expect fiscal struggles to grow once they begin tackling the unfunded federal mandate to add 16 million people to the Medicaid system. Other hidden costs to landlords may come from higher property taxes and new taxes or fees on services to cover the newly insured.
I expect that we will debate the winners and losers of ObamaCare for the next decade to come, but I think it is clear that our existing health care system will have enormous demand from the 32 million newly insured people. Our communities will need updated facilities and new medical office space to accommodate the growing number of patients that require quality health care.