Becker Private Equity & Business Podcast
Episode: The Ongoing Shift to Outpatient Care: Key Trends and Investor Insights with Amber Walsh of McGuireWoods LLP
Host: Scott Becker
Guest: Amber Walsh, Executive Committee Member at McGuireWoods LLP
Release Date: May 8, 2025

Introduction

In this insightful episode, Scott Becker engages in a comprehensive discussion with Amber Walsh, an expert at the crossroads of healthcare and private equity. The focus centers on the enduring shift from inpatient to outpatient care, exploring its multifaceted implications for investors, healthcare systems, and real estate.

The Persistent Trend Towards Outpatient Care

Amber Walsh initiates the conversation by highlighting the longstanding trend of transitioning from inpatient to outpatient care:

"There is nothing new with the move to outpatient other than I am constantly amazed that there are new factors driving the move to outpatient and there's more and new kind of repercussions and impacts of that move to the outpatient setting." [01:40]

She emphasizes that while the shift has been ongoing for decades, recent developments have introduced fresh dynamics affecting investor decision-making and healthcare delivery models.

Impact on Real Estate and Infrastructure

The discussion delves into how this shift influences physical infrastructure, particularly the construction and utilization of medical office buildings (MOBs):

"We're now even seeing off campus medical office buildings taking over on on campus medical office building development." [03:00]

Amber points out that, contrary to the general decline in traditional commercial real estate post-COVID, there's a significant uptick in MOB construction. This growth is fueled by the increasing demand for outpatient services such as infusion centers and mental health programs.

She also narrates a current deal she's involved in, where a health system is investing heavily in MOBs without pre-selected tenants, driven by confidence in community demand:

"They don't have the tenants selected yet, they don't know exactly what's going to go in there, but they're so confident that there's enough community need on an outpatient basis that they're going ahead and making that mob investment." [04:00]

Repurposing Hospital Spaces

Scott Becker inquires about the future of large hospital buildings amidst this trend. Amber Walsh responds by explaining how some hospitals are adapting by repurposing inpatient spaces for outpatient use:

"There are some states that the flexibility that they gave on hospital licensure and space use that they... kept a little bit more flexibility for that." [05:09]

She notes that regulatory changes post-COVID have allowed hospitals in certain states to convert inpatient areas into facilities for outpatient services, aiding in the optimization of existing infrastructure.

Private Equity Perspectives and Investment Strategies

Shifting focus to private equity (PE), Amber discusses the strategic angles investors are considering in this evolving landscape:

"There's the additional angle of how do you bring those providers into your existing platform growth strategy either in a contractual relationship where you have more bundled payments and value based care..." [05:47]

She outlines various strategies, including:

• Direct Investments: Focusing on high-growth specialties like endocrinology and infusion centers.
• Contractual Relationships: Integrating outpatient providers into existing platforms to enhance bundled payments and value-based care.
• Partnerships: Collaborating with providers to reduce costs and share risks.
• Ancillary Services Development: Aligning with employed physicians to diversify revenue streams.
• Geographical Considerations: Recognizing regional variations, such as higher confidence in the Sun Belt due to population growth.

Amber underscores the importance of understanding specific market dynamics and reimbursement trends:

"It's a big concept, but it's really interesting and exciting and an opportunity for investors to constantly be thinking about." [09:19]

Challenges with Reimbursement and Sustainability

A critical aspect discussed is the volatility in reimbursement rates for outpatient services:

"There's some reimbursement that's been really steady on an outpatient basis, other that's been more spiky." [08:00]

Amber advises investors to meticulously analyze reimbursement sustainability at a granular level, down to specific CPT codes, to mitigate financial risks associated with fluctuating payer policies.

Scott Becker adds that health systems must balance the loss of higher inpatient reimbursements with the influx of outpatient services:

"They lose things to a lower acuity setting and take them out of the main hospital where they got paid higher rates." [11:12]

Amber acknowledges the financial strains this can impose but also highlights varying responses from health systems—some embracing the shift proactively, while others struggle to adapt:

"Some that embrace it, use the opportunity... But it obviously causes some financial strain for a lot and you see inpatient days going down over time." [11:12]

Geographic and Demographic Influences

The conversation touches on how geography influences the confidence and success of outpatient expansions:

"It's geography dependent. You see a lot more confidence in the Sun Belt with growth in both the baby boomer population." [12:50]

Amber points out that regions experiencing population growth, particularly among aging demographics, present more fertile grounds for outpatient service expansion.

Conclusion

Scott Becker wraps up the discussion by acknowledging the complexity and necessity of understanding the nuanced elements of the outpatient shift for effective investment:

"But it's got to be specific and really understanding it. I think that's right on." [09:40]

Amber Walsh concurs, emphasizing the need for strategic precision and localized knowledge to navigate the evolving healthcare landscape successfully.

This episode provides a deep dive into the strategic considerations surrounding the shift to outpatient care, offering valuable insights for investors and stakeholders in the healthcare and private equity sectors. Amber Walsh's expertise illuminates the multifaceted impacts of this trend, from real estate developments to reimbursement challenges, underscoring the importance of informed and nuanced investment strategies.