Why Rehab is a Health-Care Niche to Watch: Report

Inpatient Rehabilitation Facilities are the fastest-growing part of the Post-Acute Care sector in the U.S., according to Colliers International.

Data courtesy of Colliers International

Post-Acute Care (PAC) facilities are playing a crucial and increasing role in the healthcare delivery system with Inpatient Rehabilitation Facilities (IRFs) representing the fastest-growing part of the PAC system as the pressure to reduce hospital stays increases, according to a new report by Colliers International. 

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“IRFs are a critical and established part of the Post-Acute Care spectrum. The need to remain competitive is driving the growth of specialized facilities,” Stephen Newbold, director of national office research at Colliers International, told Multi-Housing News. Newbold, located in the Washington, D.C., office, was one of the authors of the Healthcare Services: Summer 2019 report along with Michael Cummings, principal, Chicago-Downtown, and John Wadsworth, senior vice president, Los Angeles-Orange County.

The five-page report provides an overview of PAC and focuses on IRFs, a key segment of the PAC continuum, including growth and income considerations sales and pricing trends and considerations for investors. The report notes PAC offerings include community-based wellness programs and geriatric assessments; home care; senior living (independent, assisted and hospice care); outpatient and inpatient skilled nursing facilities (SNFs) and inpatient facilities including IRFs, behavioral health and long-term acute care (LTAC) facilities. 

One of the key challenges for IRFs is reimbursement, particularly because of their high proportion of Medicare patients. The report notes that PACs are facing pressure to control costs while remaining competitive. Hospitals are increasingly heightening these pressures by narrowing their PAC referral networks and prioritizing high-quality, low-cost settings. Newbold called that a growing trend rather than something new.

“Cost containment and reimbursement are central concerns for all healthcare systems,” he told MHN. “This is one approach in attempting to balance quality of care and the costs incurred.”

Data courtesy of Colliers International

The report states PACS have become established as a real estate investment vehicle in recent years, similar to the growth in the medical office sector. Annual investment in PACS rose from $1.6 billion in 2014 to $3.9 billion in 2017, then fell to $2.8 billion, mainly due to lack of available product to meet the demand. PAC sales volume from Q1 2014 to Q2 2019 was $13.3 billion with IRFs accounting for $7.4 billion, or 55 percent.

IRFs have also dominated the construction of PACs in recent years. Of the 117 freestanding PAC facilities completed from 2015 to 2018, more than half (62) were IRFs, according to Colliers International. Eighteen new IRFs are scheduled to be completed this year, totaling 910,000 square feet at a total cost of $426 million, or about $23.6 million per property.

The report notes the top 5 companies that dominate the PAC sector are: Kindred Healthcare, which specializes in LTAC; Genesis HealthCare, which specializes in skilled nursing; Brookdale Senior Living, also specializing in skilled nursing; Select Medical Corp., a specialist in LTAC; and Encompass Health, which specializes in IRFs. Joint ventures are also becoming more commonplace between IRF companies and acute care hospitals are becoming more common, with Encompass Health opening eight IRF facilities in the past two years.

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