November 29, 2018
John B. Mugford

A Divided Congress Could Be a Positive For The HRE Sector

The mid-term elections of Nov. 6 will give control of the U.S. House of Represents to the Democrats starting in 2019, while the Republicans will continue to control the Senate.

While this divided Congress could result in even more political wrangling than during the past two years, it could end up being a positive for the country’s healthcare providers and systems and, subsequently, the healthcare real estate (HRE) sector.

This potential scenario comes by way of members of the Editorial Advisory Board of Healthcare Real Estate Insights, which includes some of the HRE sector’s leading executives with many of the top companies. The board held its annual meeting just after the election in Nashville.

And what is the reason for their optimism amid the potential for political turmoil?  As several board members noted, with neither side of the aisle having enough clout to make drastic changes to the current healthcare policy, such as the Patient Protection and Affordable Care Act (PPACA), the industry could be in for a couple of years of the status quo.

That status quo, they pointed out, has been rather good to the HRE sector in recent years.

“(I think) having a Democratic House is going to create a stalemate for the next two years, but I think that’s good for the people in this room and it’s good for the hospitals,” said Mindy Berman, managing director with the national Healthcare Capital Markets Group with Jones Lang LaSalle (NYSE: JLL).

As a result of the election results, Ms. Berman added, “I think we’re less likely to have changes to the Affordable Care Act, which helps the hospitals with their patient volumes, their covered lives, and therefore their cash flow.”

In addition, as healthcare providers struggle with falling reimbursements and revenues, any talk among Washington lawmakers to provide financial help is likely to be put aside, or delayed, as Congress is more likely to address the growing deficit, according to one board member.

“The implication for our business could be that healthcare systems that need more money will not receive it, or that individuals will not get help to obtain insurance, all of which could lead to more of a need (for the health systems) to access outside capital (from investors or developers),” said Jonathan L. “John” Winer, senior managing director and chief investment officer with Seavest Healthcare Properties

Eric Fisher, who oversees health and science development in the Mid-Atlantic for Dallas-based Trammell Crow Company,  said he foresees some pending “collaboration between the House and the Executive Branch and the Senate, (with) the potential of deregulation in and around pharma and other aspects (of healthcare) that might create some pretty interesting opportunities that will hopefully bring down costs (and be) beneficial to systems and to users, which again helps advance … the built environment.”

Other EAB members noted that even with a divided Congress, there will likely be efforts, with some potential for successful passages, to lower drug prices and the costs of healthcare in general.

However, other potential proposals, such as a call to expand Medicare to all, could further divide Congress along party lines and squash the potential for the passage of any new laws related to improving and/or lowering costs.

“I would say that over the next two years nothing’s going to happen,” said Todd Kibler, leader of investments with Hammes Partners. “We’re going to end up in a stalemate … and then the real battle becomes in 2020.”