Today, every hospital and health system is looking for strategic opportunities to improve its alignment with physicians. These efforts often involve the acquisition of physician practices, employment of physicians and strategic joint ventures with other providers.

When thinking about improving physician alignment, a hospital should consider its real estate assets as a valuable tool. Used creatively, a hospital’s real estate holdings (both land and buildings) can serve as a “physician magnet” to attract physician interest in locating on or near the hospital’s campus.

New Construction

On the premise that “if you build it, they will come,” a hospital should consider the value of investing in new medical office buildings (MOBs) on its campus. If you are recruiting physicians to your hospital campus, your proposal looks more attractive if the recruited physician will be doing business in a modern MOB. Tired, antiquated buildings don’t hold much appeal for new physicians embarking on the practice of medicine. Since many hospitals don’t have capital available for sizeable investments in MOBs, hospitals often ground lease land on the campus to third-party real estate developers that will be responsible for designing and constructing the MOB.

Physician Investment in Real Estate

A hospital can make real estate investment opportunities available to physicians by converting existing MOBs to “office condo projects” which permit physician to own his/her office suite. New MOBs can also be structured as office condo projects. Ownership of his/her building or office space tends to have universal appeal to a physician (especially those with established practices and community ties). Alternatively, when contracting with third-party developers for the construction of on-campus MOBs, a hospital may encourage the developer to offer physician-tenants an opportunity to invest in the entity that will own the MOB.

Acting as Host Site for Physician-Owned Development Projects

Physician alignment can be directly benefited when a hospital welcomes direct, on-campus investment by physicians who are looking to construct new clinics and facilities. A hospital can go a long way toward securing the allegiance of the physician or physician group by offering an on-campus construction site (either through a sale or ground lease) for development of an office building or healthcare facility that is complementary (not competitive) with the hospital’s business.

It is important to recognize that each of these real estate approaches to improving physician alignment must be carefully structured and documented in compliance with the Stark Law, the Anti-Kickback Statute and related regulations. Structured correctly, however, these approaches can provide a creative and effective means for hospitals to achieve their physician alignment goals.