February 24, 2012 -- James Paulsen, a Minneapolis-based expert on the financing of medical office buildings, recently presented his paper “The Case for Medically Integrating Wellness Centers in U.S. Health Care” at the Johns Hopkins Carey Business School in Baltimore. The seminar was sponsored by the Edward St. John Real Estate Program at Carey.
Paulsen’s primary theme was that large corporate employers will be the force behind significant changes in the health care system as they aim to reduce health costs approaching 17 to 20 percent of median household income in most of the country. He opened by citing PepsiCo Inc.’s recent choice of Johns Hopkins Hospital to provide joint replacement and cardiac surgery for its 250,000 employees and their dependents. He noted this as an example of how large employers can take a proactive role in containing health care costs by moving toward “bundled services” and away from the traditional “treatment-centered” model of health care.
Paulsen explained the asymmetrical risk facing large organizations where a small fraction of employees can generate the majority of an employer’s health costs. Within the general population, 80 percent of health care costs involve treating chronic illness, while 20 percent of the population has two or more chronic conditions. He argued that preventive care and exercise constitute the most economical response to this problem, and that medically integrated wellness centers will play a key role in devising a preventive strategy.
Increasing medical literacy enables the patient to better understand the treatment options, the qualities and shortcomings of their providers, and the long-term impact of personal lifestyle decisions, Paulsen pointed out. The rise of social media provides information that engenders the confidence to learn from other patients, ask good questions, and shop for services. Better information coupled with economic compulsion is expected to accelerate the shift to preventive medicine.
Science continues to support the “exercise is medicine” premise, he observed. Both the Mayo Clinic and the American College of Sports Medicine (ACSM) have released new research on trying to create the pharmacological impact of exercise and on the recommended quantity and quality of exercise for adults. And recently the University of Texas Southwestern Medical Center published a paper in Nature, which was cited in The Economist, noting the increased general understanding of the science that shows why exercise is important to good health.
Substantial barriers to change still exist, Paulsen said. Health care providers rely on treatment revenues to fund capital and operating expenses, including substantial legacy costs. There is a shortage of third-party professional management firms as well as a paucity of information on best practices and benchmarking data. Broader acceptance of this asset class will require a much clearer value proposition and a capital structure that is less risky than earlier development models.
Health clubs typify the “exercise is medicine” approach, but only 15 percent of Americans belong to such facilities. All new members typically start with a complete health assessment to determine the right combination of exercise, nutrition, and education. Tests may include a graded cardiovascular capacity test, a muscular strength and endurance assessment, a health risk assessment, flexibility screening, and a body composition analysis, as well as a resting blood pressure and heart rate readings. Some industry leaders have introduced a “health score” assessment similar to a credit score that quantifies a person’s financial risk. These facilities employ personal trainers, dietitians, and health care providers who have degrees in their field, as well as accredited national certifications. They also offer continued proximity to personal trainers, dietitians, and medical professionals. Increased medical literacy is an ongoing process and long-term goal of these facilities, Paulsen said.
The extension of a health provider’s brand has been a motivating force in the development of these centers, he stated. A primary goal in their development has been integrating the treatment and preventive sectors to increase market share. Hospitals seek “seamless integration” between the two sectors and will only employ a compatible third-party manager with long-established success. Currently, most facilities remain owner-managed.
In summary, Paulsen said he sees many similarities between the early development of the medical office building business and the current “cottage industry” status of medically integrated wellness centers. The health care business is changing, and the supporting real estate must change as well.
Paulsen has indicated his belief in the need for more research in this asset class. He has begun working with Carey Business School faculty member Dr. Daniel B. Kohlhepp and other industry leaders to produce a research strategy.
James Paulsen is available for interviews at jpaulsen@jpaulsenassociates.com or by phone at 952-443-3418.
