In the most recent Office Centre Guide published by Illinois Real Estate Journal, HSA PrimeCare’s John Wilson describes the factors contributing to an increase in demand for medical office space:

Following a period of uncertainty in 2009 and 2010, Chicago’s medical office building sector is showing increased activity in 2011. With the Patient Protection and Affordable Care Act (PPACA) now out of Congress, indicators point to renewed activity in healthcare real estate. An aging population and advances in medicine and technology have driven the growing need for outpatient facilities. The relative durability of this healthcare demand is expected to continue to drive medical office investment and development, while the PPACA also is expected to increase the need for healthcare space. The open questions are: when and to what degree?

Although it still faces legal and political challenges, PPACA already is affecting the delivery of healthcare. With the introduction of the Accountable Care Organization (ACO) concept as part of the healthcare reform legislation, cost efficiency and quality control are the top concerns of healthcare organizations today. In April 2011, the Center for Medicare and Medicaid Services (CMS), along with other federal agencies, published the proposed rules for providers that choose to develop an ACO. While the ACO provision is focused on Medicare, providing financial incentives for well-managed ACOs, it is likely that private insurers will adopt a similar approach, since cost and quality are primary concerns for both government and private insurance programs.

Facing the ever-changing reimbursement levels along with the imperative to invest in electronic records technology, independent physicians increasingly are motivated to seek hospital employment—and healthcare institutions are looking to acquire or otherwise become affiliated with physician practices. This movement has taken hold, and it is estimated that approximately 50% of physicians will be employed by hospitals and healthcare systems by early 2012.

Each of these factors has an impact on real estate. Hospitals are looking for ways to efficiently partner with physicians or even other healthcare systems to expand their reach and capture market share, while anticipating changes in healthcare service delivery. For example, Silver Cross Hospital in New Lenox, Ill., is collaborating with the University of Chicago to build a new 22,500-square-foot outpatient center at the intersection of Highway 6 and Silver Cross Boulevard. To be owned and managed by an outside development group, the new University of Chicago Cancer Center at Silver Cross will be fully occupied by the University of Chicago Medical Center (UCMC) oncology department and a joint UCMC-Silver Cross Hospital oncology practice. The developer also built the Silver Cross Medical Office Building—a two-story, 56,000-square-foot property that includes Children’s Memorial Hospital, Silver Cross Hospital and Hinsdale Orthopaedics as tenants.

For more articles from the Office Centre edition of Illinois Real Estate Journal, go to REJournals.com. The full version of this article is available exclusively in the print edition of this month’s Illinois Real Estate Journal.