Forecast: Healthcare should partner with retail

To stay relevant, a healthcare system in transition must forge partnerships, and the retail services industry is a good place to start

A healthcare presence in a retail setting will be an essential strategy in meeting expectations inherent in a restructured health system where success is measured by keeping patients healthy rather than maximizing billable units of service.

Healthcare delivery is undergoing a profound transformation. Methods of delivering care and how consumers pay for it are changing. These changes are redefining what it will take to remain a successful and relevant provider.

Under the new rules of competition, growth remains important; but has a different motivation. In the past growth meant bulking up and leveraging market dominance. Today growth means being better by demonstrating a cost, quality, and service advantage relative to the competition. The new success formula means embracing a population health management view of care delivery, assuming risk for covered lives, competing on outcomes, minimizing cost, and offering convenience and expanded access. Part of the formula for remaining relevant in the new healthcare economy is to engage patients and deliver care in settings that encourage contact and use.


Delivering healthcare within an outpatient environment aided by technology supports safe, high quality, and cost effective care, and will continue. The hospital admission rate has declined and is now steady at 116 admissions per 1,000 population while outpatient visit utilization has risen by 16% since 1999. Growth in outpatient services is predicted to continue and expand a further 20% by 2019. Not surprisingly outpatient services now reflect a larger portion of a healthcare organization’s total revenue increasing from approximately 22% in 1991 to 40% in 2011. Additionally, 20% of current Medicare admissions can be managed without an inpatient stay. Healthcare reform will accelerate this growth. Add to this the emergence of the “care anywhere” service delivery philosophy and we predict healthcare will need to become more diffuse and available in non-traditional venues.

As healthcare becomes demystified to consumers, its costs and outcomes transparent and available, and consumers take on more financial responsibility for the healthcare purchase, the healthcare industry will share more in common with the retail industry and follow many of its trends.

Several other factors should make consideration of a retail healthcare strategy part of your overall marketing plan.

  • A population-health-based delivery model will result in more continuum-based patient care requiring more points of connection with the provider, both virtual and face-to-face.
  • Healthcare transition to a risk model of care delivery whereby the organization will be responsible for the health outcomes for a defined population
  • Continued pressure to reduce the cost of care
  • Availability online of actionable cost and quality information to the healthcare consumer
  • Consumer-driven health with the desire for retail-like access and convenience
  • Empowered patients participating in defining a personalized care plan

With over 80% of deaths attributable to modifiable behaviors (smoking, obesity, physical inactivity, alcohol use, high LDL levels, poor diet choices) a strategy that reaches, engages, and equips patients to make wise lifestyle choices is well suited to deployment at the retail level of patient interaction.

A viable strategy for healthcare providers is to provide services in a retail setting either independently or in partnership with an established retailer that operates in the consumer healthcare product sector. There are several rationales for this approach:

  • A retail presence will be an essential strategy in meeting expectations inherent in a restructured health system where success is measured by keeping patients healthy rather than maximizing billable units of service. This is facilitated by meeting patients where they live and shop to foster patient engagement and identify and treat issues at their earliest emergence.
  • Cost. Leasing space in a mixed use retail venue may be less expensive than developing similar stand-alone single purpose space. Affordable and longer term leases are available as owners recognize the collateral retail traffic that can occur when a major ambulatory care provider leases space at a mall or lifestyle center.
  • Brand Recognition. Service alignment with a national healthcare consumer products company can elevate and spread your brand throughout your defined service area.
  • Brand Distribution. Forming a service delivery relationship with a healthcare consumer product operator has the potential for a rapid diffusion of your brand at a fraction of the cost of establishing an independent market presence.

In short, sophisticated retailers bring a number of valuable attributes to the deal for the health care provider including branding opportunities, amenities to keep patients and visitors on the property, and design standards that are consistent with the retail and health care providers’ brand image. The health care provider can stabilize the property with a long term lease commitment.


Recently McKinsey & Company reported on the trends impacting the retail industry and the steps retailers must take to succeed in the next decade. Several trends identified by McKinsey support a closer connection between retail and healthcare providers in marketing and selling their products.
  1. Baby boomers will drive expansion in both segments. Baby boomers disproportionally spend their disposable income on services and experiences instead of off-the-shelf products.
  2. Healthcare’s refocused emphasis on the customer experience can bring a missing element into the appropriate retailer’s customer retention strategy.
  3. Social networks and user reviews compete for attention with company-directed marketing.  The average consumer peer recommendation carries ten times more weight in the purchase decision than do salespeople. This is true in healthcare and the selection of a personal physician.
  4. Dividing lines between retail formats and sectors are breaking down in efforts to capture the important consumer shopping trip.
  5. Retailers are establishing third-party marketplaces. McKinsey notes that consumers will no longer shop at a retailer just because it “happens to be where a product is distributed.” Rather they will search out retailers that provide value as shopping becomes more experiential.

Outpatient service models are undergoing change that can foster the integration of healthcare in a retail setting. As healthcare organizations deliberately scale up to effectively operate under a population management model, outpatient facilities are getting larger and offering more amenities. The new facility model ranges from 80,000 to 120,000 square feet; rather than previous 25,000 to 50,000 square foot model. Operators are looking for a convenient and accessible address in a Class A or B building setting that will attract more patients to support this model’s scale and added scope of services.

Healthcare operators can provide owners of retail venues with long term leases, substantial foot traffic, high-end fit out of space, and ability to provide stability as an anchor tenant. In return, healthcare operators will seek street level or first floor access, visible signage, adequate and proximate parking, stable and responsive property management, and the ability to limit direct competition at the venue. Retail property owners who have typically shied away from healthcare tenants assuming that the presence of noticeably sick individuals sends the wrong message, may be reluctant to enter into a long term lease agreement, or prefer to have the health care tenant occupy more interior and less curb side visible space. These biases are likely to dissipate as commercial property owners become more familiar with the value healthcare tenants bring to the property.

Having outgrown the available space at its main campus for the expansion and growth of its ambulatory services, Vanderbilt Health sought a property that would be convenient to its patient population. Eschewing development of new standalone space Vanderbilt Health saw an opportunity in the Nashville’s first enclosed shopping mall 100 Oaks which had seen better days. Vanderbilt was prepared to infuse the property with over 1,000 employees and 2,000 patients per day. Seeing the long term market value of a mixed healthcare and retail concept Vanderbilt Health entered into a twelve year lease with the mall’s owners. The owners of the 880,000 square foot mall accommodated Vanderbilt’s requirements for property upgrades. Vanderbilt leased nearly half the available space and established its first satellite outpatient location there to house 20 medical clinics including a number of its back office functions. The commitment helped revitalize the mall and contributed to a rebirth of the surrounding neighborhood.

Hospital-established healthcare services in a mixed-use setting can become the central point in improving a declining urban neighborhood. Demonstrating a commitment to community development can interest both public and private entity participation in the mixed-use project since the successful outcome has societal benefits that exceed an exclusive focus on the pro forma.

A robust example of this model is the healthcare and research-led effort by Johns Hopkins University and Hospital to renew an 88-acre area in East Baltimore known as “Middle East”. There, the non-profit organization East Baltimore Development, Inc. and public and private partners created a renewed 88-acre community featuring research facilities for life sciences and biotechnology, retail development, and housing. Today the development known as Eager Park is thriving. Johns Hopkins has invested in a science and technology park in the neighborhood drawing on its own research initiatives as well as making space available for commercial bioscience firms anchoring the neighborhood.

The healthcare village, another model, is typically found in new suburban and exurban areas where healthcare and retail investment has been marginal. The healthcare village is anchored by a hospital built on a large parcel sufficient to accommodate further campus investment in a planned, mixed-use healthcare-retail development. Metro Health Village located near Grand Rapids, MI was the first suburban hospital in the region and includes an entire community of support services, retail, restaurants, with Metro Health Hospital as its focal point. The village environment coordinates nature, convenience and calm with zoned transitions designed to provide a distinct look and feel. The concept in this suburban setting is to create a town center with an ideal mix of healthcare and retail infrastructure to make the development a destination.

In each of these models, format drives development. Each positions healthcare organizations for a transition from encounter-based to a continuum-of-care-based healthcare delivery.

These models are achievable, but complex, requiring a partnership between a multidisciplinary team consisting of the healthcare provider and its real estate team, developer/retailer, and real estate consultant. A good partnership is one with mutually beneficial terms.

We’ve outlined the ways in which sophisticated retailers can benefit the healthcare provider, but there are some issues to keep in mind when entering the retail space for the provider accustomed to medical office and commercial project development. In the retail environment be prepared for:

  • A longer project schedule to allow rezoning to work its way through village approvals
  • Much lower tenant improvement allowances
  • Building infrastructure with minimal HVAC and electrical capacity; including no back-up generators for services or equipment. Therefore allocate more funding for utility upgrades.
  • Retail developers that want to utilize their own design team; which isn’t in the best interest of the healthcare provider.
  • Work letters that vary from good to poor depending on the sophistication of the retail developer.  This is where a poorly negotiated work letter can be to the detriment of the tenant.

As outpatient care expands it will be offered in a variety of retail settings. Healthcare will increasingly be seen by the commercial real estate industry as a welcome asset to a portfolio of tenants for all of the reasons outlined in this article. In light of sweeping changes to healthcare delivery and payment for individuals, healthcare organizations should seek out commercial development and real estate projects which enable the reformed healthcare delivery system to operate efficiently and effectively. An alliance between healthcare and retail should be seen as a logical phase in forging a better connection between patient and healthcare provider. Success in achieving the accretive benefits of linking healthcare with retail will require a group effort from healthcare, real estate, and commercial property professionals. All need to share a vision of how healthcare integrated with retail can create a valued consumer experience.

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