Many struggling brick-and-mortar retailers were forced out of business during the Covid-19 pandemic, giving health systems the unique opportunity to reuse vacant retail spaces to expand, while reducing their dependency on "inflexible infrastructure."

Vacant retail spaces create an opportunity

In recent years, shopping malls have struggled to stay in business and many big-city health systems have taken over available retail spaces in vacant malls.

In fact, a "COVID-19 and the Convergence of Retail and Industrial" study by Moody's Analytics reported that millions of square feet of retail space is expected to become available in the next few years.

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As mall owners struggle, commercial real estate investors have started searching for mixed-use opportunities, according to Ginger Davis of Trademark Properties in Charleston, South Carolina—contributing to the rise of the "medical mall."

These "medical malls" can be established inside of converted shopping malls as either full medical centers or a combination of leased spaces offering outpatient health care services alongside leased retail spaces. These facilities offer convenience for patients and providers and cost significantly less than expanding an existing facility.

According to the Harvard Business Review, medical malls can also allow hospitals and other providers to reduce variable costs, and can help lower hospitals' fixed costs by reducing dependency on "inflexible infrastructure." 

In the United States, 32 enclosed malls currently house health care services in some part of their footprint, according to a database created by Georgia Tech urban design professor Ellen Dunham-Jones.

Of those medical transformations, almost one-third were announced after the start of the Covid-19 pandemic.

The pandemic has underscored the need for accessible and affordable preventive and primary care services—especially for underserved populations. According to NRC Health's 2019 Healthcare Consumer Trends Report, 51% of patients say that the most important factor in deciding where they receive health care services is convenient access to care. 

While hospitals are still necessary for acute care that requires in-patient monitoring, specialized care, and certain equipment, "hospitals that prosper five to 10 years from now will be far more strategic, specialized, and nimble than many are today—and some will complement their more expensive, hospital-based services with lower-cost, mall-based services that deliver outpatient care," according to the Harvard Business Review.

How health systems are moving into retail

Benefis Health System converted the Capital Hill Mall in Helena, Montana, into a 60,000-square-foot primary care and specialty clinic on a section of the 13-acre site that was demolished in 2019.

In Alexandria, Virginia, Inova Health System became part of a billion-dollar mixed-use development on the Landmark Mall site, where the health system plans to build a full-service hospital and trauma center.

And in 2017, Davis' company started redeveloping the Citadel Mall, where the primary tenant is currently the Medical University of South Carolina, whose clinics and surgery centers are now housed in the mall's old J.C. Penney department store.

"Right now they're doing surgery where people used to buy sheets and towels," Davis said.

In many cases, the addition of medical facilities is meant to complement the remaining retail spaces. For instance, at Citadel Mall, an individual waiting for a family member who is having outpatient surgery is required to stay on-site. However, browsing Target, which is in the same mall, is still considered on-site, according to Davis.

"We feel like this model can work in communities across the country that are struggling with similar malls that are underperforming," Davis added.

Since 2009, Vanderbilt Health has added 22 specialty clinics to almost a half-million square feet of the investor-owned One Hundred Oaks mall.

In addition, Vanderbilt Health, plans to add more medical clinics to the former Hickory Hollow Mall, which was once the largest mall in the state of Tennessee with 1.1 million square feet.

"The possibilities for service offerings in a facility of this scale are endless," said Vanderbilt University Medical Center CEO Jeff Balser.

Since its construction in 1925, Vanderbilt's main site has been expanded two dozen times. "Most of these hospitals are in areas where there's just no room to grow. And if you do, it's so expensive," said Andrew McDonald, a former hospital administrator who leads health care consulting at LBMC. "These buildings are old. They're antiquated. They're very expensive to maintain."

According to McDonald, malls are a good fit—especially for large health systems—because they allow providers to move everything short of the ED and ICU and keep them clustered. Typically, physicians' offices are scattered across a hospital district, but in a mall setting, almost everything is under the same roof.

"It just creates a whole lot more efficient flow for the patient going through the health care system with whatever infirmity they may have," McDonald added. (Jeffers, Healthcare Design, 4/25; Farmer, Kaiser Health News, 4/26; Berry et al., Harvard Business Review, 11/16/21)