A nine-story medical office building downtown has gone into cardiac arrest.
Once seen as a pioneering model of healthcare delivery when it was built in 1978, the building —Temple Medical Center, located at 40 Temple St., 60 Temple St. and 200 George St. — might not survive this latest scare, after bleeding out thousands of its patients to other medical campuses.
The prognosis: The place could be emptying out within months once tenants’ leases expire.
The diagnosis? The building caught a bad case of “monopolitis,” the disease of decreased competition that’s infecting doctor’s offices across the country as medical groups swallow up private practices and hospital networks merge into larger systems.
Temple Medical Center first came down with the infection in 1994, when Yale-New Haven Health Services Corp. acquired the Temple Radiology Group, a previously independent network of specialists that took X-rays before surgery. That made YNHH the largest tenant in the building.
Under Yale-New Haven Hospital, Temple Medical focused on operations that don’t require an overnight stay, a lower-cost option known as ambulatory surgery. Last year, doctors performed about 85 of these outpatient surgical procedures each week. They also offered a suite of tests, including gastric motility studies, blood draws and high-powered imaging.
Then the “monopolitis” was dormant until 2012, when Yale-New Haven Hospital took over financially-hemorraghing Hospital of Saint Raphael, creating the country’s fourth-largest medical institution with two main campuses (on York Street and at St. Raphael’s Chapel Street complex).
By this spring, the Temple Medical Center will have a big vacancy. Yale-New Haven Hospital plans to consolidate services at its York Street and St. Raphael campuses, yanking all its outpatient services and sending the radiologists and anesthesiologists elsewhere. (Many physicians from the Yale University faculty group who work in the building plan to stay.) The state has already approved a Certificate of Need for YNHH to terminate outpatient services at Temple Medical Center.
“The building is aging and has physical limitations that require significant capital investment to upgrade it to the YNHH standards of a modern outpatient facility,” Cynthia Sparer, the vice-president of Yale-New Haven Health, told the state in a regulatory filing. “The Temple lease expires in May, 2019, and YNHH does not intend to renew.”
So far, no new tenants have expressed interest in moving in, the property-owners told the city. The city’s Litigation Settlement Committee at a meeting last month approved a drop in the building’s assessment in hopes of luring a buyer, despite opposition from the president of the Board of Alders. A state judge subsequently approved the deal.
The lack of interest in the property is not a surprise, healthcare analysts said, as independent medical groups disappear nationwide, a trend that has been even more rapid in Connecticut.
“Who are the customers left who want to operate that facility?” asked Jill Zorn, a senior policy officer at the Universal Health Care Foundation of Connecticut. “There may not be any big medical groups that could take that on. Never mind that the facilities are out of date, there’s parking problems. Who’s left? You need a lot of capital to fix it up, and I’m not sure that there’s a lot of independent medical groups [with the money to do that] in a state that never had a lot of medical groups anyway.”
No Buyers Yet
Temple Medical is owned by a partnership led by the Fusco Corporation and neurosurgeon Alvin Greenberg. They have tried to keep the medical center alive by putting it on the market at a steeply discounted price, three-fifths of what appraisers think it’s worth. But so far no buyer has bitten.
Even at an $18 million listing price, “they were unable to get an offer at that price and go through their due diligence,” said Karen Kravetz, a lawyer hired to represent the city in negotiations. “They had two offers that fell through.”
With what could soon be a corpse on their books, the landlords filed a tax assessment appeal in state court in June 2017.
Like a paramedic delivering a final jolt with a defibrillator, the city has now offerered to knock $7.9 million off the medical center’s $30.9 million valuation. That will provide about $240,000 in relief from what’s been around a $930,000 tax bill annually.
The city’s attorneys argued that they’re still getting a good deal. The building could end up being worthless if no buyer steps up, they noted.
“As hard as that is to swallow, there’s 250,000 square feet of medical office space that’s going to be vacant,” Kravetz said. “Typically, when you’re looking at a rental property [appraisal], you have to consider the market. You don’t usually look only at the tenant you have, because you recognize the tenant might be gone. If Yale leaves when they’re legally allowed to leave, what is your market? That’s when it goes south.”
Board of Alders President Tyisha Walker-Myers dissented in the Litigation Settlement Committee’s 3-to-1 vote. She said the deal lacks any guarantee that Yale-New Haven Hospital wouldn’t reverse course and keep the center alive, potentially shortchanging the city in the process. But the hospital isn’t likely to change its plans, after already gaining permission from state regulators to pull out of the center.
Yale-New Haven Hospital began making moves to consolidate in 2016 after reviewing operations across its newly acquired sites. It gradually relocated six operating rooms to Guilford and four endoscopy suites to North Haven. It moved one operating room to a newly opened Center for Musculoskeletal Care at the St. Raphael’s campus on Chapel Street.
The hospital’s latest proposal from June 2018, detailed in a 77-page Certificate of Need application, asked the Connecticut Department of Public Health for permission to terminate any remaining outpatient services at Temple Medical Center by relocating the last two operating rooms to York Street.
Yale-New Haven Hospital reported that it expects to save $1.46 million annually from the move, though it said patients will benefit too by getting worked up in more modern facilities. Throughout the application, the hospital executives repeatedly said the change will respond to “patient needs” and cut out “unnecessary duplication.”
“The proposal involves no changes to services offered, staff, hours of operation or payer mix,” Sparer told the state in the Certificate of Need process. “The same services will be provided in a manner that improves patient experience and is more cost-effective for the state health care system.”
Sparer added that the efficiencies “in scheduling and patient flow” might enable more patients to visit, and the “coordination of care” all in one building could reduce the need for multiple follow-up appointments.
Temple Medical Center isn’t shutting down because patients don’t want the services. In fact, even greater demand is expected in the future.
“With advancing technology, the shift to outpatient procedures is expected to continue to grow,” Sparer said, noting that Yale-New Haven Hospital performed 30,000 ambulatory surgeries last year.
After reviewing the application, Zorn agreed that the move likely wouldn’t limit patients’ access to care locally. “They’re not taking every doctor in New Haven putting them in the suburbs,” she said. “They have major facilities in the city and that isn’t going to change.”
The Department of Public Health’s Office of Healthcare Access approved the termination of outpatient services at Temple Medical Center without a hearing.
Just as is occurring across the nation, medical operations here are increasingly being consolidated into large hospital campuses. That trend has been even more rapid here because of state policies, said Matthew Katz, the executive vice-president of the Connecticut State Medical Society.
“Just a few years ago, the majority of physicians were not employed by hospitals; they had their own private practices in buildings they owned or leased,” he said. “Today, because of that rapid consolidation, many of them — in fact, the majority — are now employed by hospitals, and many of these doctors end up on the hospital campuses, no longer in the community in those buildings.”
Katz said that there isn’t a “blame” here: The consolidation “makes sense” from the hospital’s perspective, both financially and administratively. But he said the problem is that new doctors aren’t moving in to fill the vacancies.
“If you’re serving the same community, why have different sites with the same doctors? Why not put them, for efficiency, in one place, so you can have one administrator and one rent?” he said. “What’s happened so fast, especially in Connecticut, is that we’re in the top five in the number of doctors we train but we’re in the bottom five for retaining them. We are not seeing doctors come in and taking those offices or leases. Many of them are either retiring or becoming employed by the hospitals.”
Katz said that the state government could tweak its policies and fund existing programs to encourage doctors to open up private practices after they finish up their training.
He pointed to a tough licensing process to establish need for a private practice, restrictions on the use of medical devices, and taxes on independent surgical centers as roadblocks.
He said that Connecticut could emulate its neighbors, like Massachusetts and Rhode Island, by offering loan forgiveness or forbearance to attract doctors and by offering a federally recognized disease database.
Or, at the very least, he added, it could fund a $10 million program that the legislature already approved to offer low-interest loans to doctors looking to set up or expand a practice, which has been zeroed out in the last budgets.
“We have had an unfortunate situation here. Everywhere else in the country has seen consolidation, but ours appears to be more rapid,” Katz said. “That’s because of these burdensome and outdated regulations, those additional tax burdens, and the lack of loan forgiveness or forbearance programs to incentivize physicians to go to areas of the state that need additional competition or just simple basic care. On top of all that, even when we create programs to help expand practices, we take away the available funding.”