In the past five years, there’s been major growth in places to go to the doctor in Lexington. Some of the city’s largest health care providers, like Baptist Health, UK HealthCare and the Lexington Clinic, have built or are in the process of building facilities farther out from downtown in an attempt to capture a larger share of patients, to serve more patients and to move some services away from traditional hospital environments.
These developments reflect nationwide trends — like changing insurer reimbursement rates from insurance companies and private equity investors seeing major potential in medical real estate — that unite the Bluegrass with regions across the country and change where residents receive health care services.
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UK HealthCare’s Turfland location includes a pharmacy, sports medicine and physical therapy clinics, laboratory services and radiology services, as well as primary care offices.
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Jeff Walker
UK HealthCare’s Turfland location includes a pharmacy, sports medicine and physical therapy clinics, laboratory services and radiology services, as well as primary care offices.
UK HealthCare — Turfland
The University of Kentucky’s health system, UK HealthCare, opened a sprawling location on the former site of Turfland Mall in 2015. The first clinics to open their doors offered primary care, sports medicine and physical therapy clinics, eventually adding laboratory services and radiology services.
In late 2019 it opened an outpatient surgical center, becoming a majority partner with Deerfield, Illinois-based Surgical Care Associates, which has ties to insurer United- Health Group.
Mark Newman, the executive vice president for health affairs at UK, said the impetus for the Turfland location was to capture both a larger patient population and to expand services for existing downtown hospital patients. He said UK’s Albert B. Chandler Hospital, in Lexington’s center, is a hub for patients from central and eastern Kentucky who have more complex or serious medical conditions to get care.
“We’re trying to make it easier for people in our own backyard from Fayette and the Bluegrass to get to us, because that’s a key goal,” Newman said. “And to have our downtown campus be more for a high specialty and more acutely ill patients.”
Jim Damicis, an expert in health care real estate development and senior vice president of consulting firm Camoin 310, said centrally located hospitals, including UK HealthCare’s hospital, are costly because of the nature of patients seen there. Most patients have more advanced illnesses and need a higher level of care that, at times, requires more advanced medical technology. All those factors add up. Which is one reason health care systems across the country have built facilities closer to the edges of town for less acute patients to get preventive care and for more routine procedures.
“When a health system is being suburbanized, it’s doing so as part of larger systems for cost savings and to be able to absorb the capital costs of the technology,” Damicis said.
Building a medical campus closer to the suburbs, where housing prices and income are typically higher, also means that there’s generally a larger proportion of people with employee-sponsored health insurance. This type of health insurance pays, on average, double of what government- sponsored insurance programs like Medicare or Medicaid will pay for the same service, according to research from the nonprofit RAND Corporation. So, catering to this population means more money for the same types of services. The result, according to Jeff Myers, a health care consultant with OptDis, is that the suburban campus will have higher profit margins.
“You end up pulling out the higher-margin health care users, away from a more central to downtown location,” Myers said.
Newman said that while the mix of insurance types patients have between their central campus and the Turfland location are similar, UK HealthCare is planning to create additional satellite clinics based on where patients live. UK HealthCare also plans to begin building out the fifth floor of Pavilion A at Chandler Hospital, one of two floors in that building that have not yet been completed, in order to accommodate growth.
Baptist Health’s Hamburg campus, set for completion by 2024, will include an outpatient surgery center and at least 12 buildings that will house offices as well as restaurants and shops.
Baptist Health Hamburg
Baptist Health, Kentucky’s largest hospital system, plans to complete a large medical campus off Polo Club Blvd. near Man O’ War Boulevard on the eastern side of Lexington in the Hamburg area, by 2024. The campus will have an outpatient surgery center and at least 12 buildings that will house both doctors’ offices and space for restaurants and shops.
Like UK’s new surgery center, Baptist Health’s surgery center will offer procedures that previously were done in a hospital, but don’t require an overnight stay or the staffing that a hospital provides. In the past few years, in addition to medical advances that allow a shift to outpatient care, the federal government has reshaped the way it pays for certain surgeries, such as knee replacements, and has created incentives for health systems to move many procedures out of a hospital setting.
“There’s a real move to get things out of the inpatient facilities. It’s generally less expensive to provide those services outpatient because you don’t have to pay as much overhead,” Myers said. “So, it becomes significantly more profitable.”
Baptist Health’s plans are part of a much larger trend: In 2019, 74 hospital systems opened or broke ground on outpatient surgery centers. And these surgery centers can also result in more surgeries and other charges, according to many studies.
“One thing insurers know is that if you open up an urgent care clinic in a middle class or affluent neighborhood, you tend to get significantly more services [charges],” said Myers, who works with a wide range of clients, including insurers and providers. “The outpatient clinics will have infusion units or MRIs, PET scanners, and what you tend to see is a vast increase in utilizing specialized equipment that you may not have seen in say, a hospital.”
In early 2019, Charlotte, North Carolina-based Flagship Healthcare Trust, Inc., a private equity investor-owned real estate company, purchased Lexington Clinic’s real estate portfolio in Lexington.
Lexington Clinic
The large outpatient medical group in the Lexington area is due to finish construction on a new South Broadway flagship location this year, replacing a nearby facility that’s operated since 1957. In 2016, Lexington Clinic opened a new facility in Beaumont, combining a primary care practice and an urgent care clinic.
In early 2019, Charlotte, North Carolina-based Flagship Healthcare Trust, Inc., a private equity investor-owned real estate company, purchased these locations, along with three others, in its acquisition of Lexington Clinic’s real estate portfolio in Lexington. Though Flagship did not respond to multiple requests for comment, a promotional video laid out why investors might be interested in owning health care properties.
“The lows don’t get so low as with other asset classes,” the Flagship video states.
Jane Zhu, a researcher and assistant professor in health systems management at Ohio State University, said this development is part of a much larger trend of private equity firms increasingly buying physician practices.
“Say that you are purchasing up a practice that’s affiliated with a surgery center, maybe there are opportunities for laboratories or imaging or similar services that you might need,” Zhu said. “There are a lot of different ways in order for a private equity firm to make returns on investment.”
The same goes for the purchase of the real estate and property that a health care practice leases or owns, like in the case of Flagship and Lexington Clinic. Myers said there’s almost always demand for health care, unlike other industries.
“The odds of it being empty are pretty small, unlike office space, which can empty out once there’s an economic downturn,” Myers said. However, he expressed worry about the potential impact of a health care practice not being able to make rent because of extenuating circumstances, such as a large decrease in patients coming in for care due to a pandemic. “When margins start to shrink, some of those properties won’t be as lucrative as they once were. Ultimately everyone wants rent relief, but when they do not get it, what happens?”