March 2021

PRACTICE MANAGEMENT

Facility development in the peri-COVID era


by John Pinto and Corinne Wohl, MHSA, COE

 

As this article goes to press, national pandemic response planners are struggling to hold two conflicting data sets in their minds.
The good news: Vaccination rates are slowly accelerating, new case rates are finally on a modest decline in many parts of the country, and treatment protocols continue to soften mortality rates.
The not so good news: In a significant part of the country, ICUs have run out of surge capacity, a low percentage of the country has been immunized, and COVID-19 strains from the U.K., Brazil, and South Africa appear to be more transmissible, potentially more fatal, and with unknowns about efficacy of current vaccines.
Taken altogether, 2021 may not be the year that COVID-19 “goes away,” but rather the year that we all use what’s been learned to dig in for the next phase of a longer fight than was ever expected in March 2020.
But even in this still hunkering-down year, practices have to continue to pursue their development plans. These include growth dimensions like:
• How large is our natural service area today and should it expand or shrink?
• What new services should we offer, and what old services should we wind down?
• What mix of providers makes the most sense?
• How fast might we grow in the future, and how can we have more control over that?
• What are our real facility needs, especially if some of our pandemic habits hold over, like having patients wait in their vehicles rather than in a reception area?
Lately, we’ve had more client requests for input in this last area regarding office space. Their issues include:
• “Our senior doctor is taking an early ‘COVID retirement,’ so our space needs may shrink; should I give up part of our space?”
• “Can we negotiate better rental rates and terms now that the commercial property
sector is softening?”
• “Despite the pandemic, our practice is growing rapidly; how large should our next office be?”
• “Would it be better to expand our current space, perhaps moving into an adjacent suite, or better to open a satellite office?”
This is an especially vexing business development problem in the current environment. Even before the pandemic, deeper health reform and fee cuts loomed, and labor costs were poised to rise.
To help sort it all out, here is a starter list of a few basic points to ensure that your facility thinking is in line with your wider development goals.
1. Know your facility utilization numbers. Let’s assume you have a general practice. The best coarse gauge of whether you need more space or not is to count up the number of active, fully equipped exam rooms, multiply by 173 (the nominal number of hours your clinic is open each month), and divide the resulting figure into the number of patients seen in the average month. The resulting figure should be about 1.0, with units of “patient visits per exam room per hour.” Here’s an example:
• Your practice has five exam rooms.
• You have 5 x 173 = 865 room hours per month.
• You serve 800 visits per month.
• Divide 800 visits by 865 room hours to get 0.9 patient visits per exam room hour.
If your practice had these statistics, your facility would be running at only about 90% of potential capacity, at least on paper, and you don’t need added space. This is obviously a gross, first-pass calculation. Depending on your subspecialty, the intensity of optical dispensing or special testing space, pace of growth or general layout flaws, you may still need more space.
2. Explore a “temporal” expansion before adding more square feet; that’s to say, think about expanding office hours rather than adding facility space and cost. If you are trying to make just four exam rooms stretch to serve two doctors who both want to work Monday–Thursday, 9 a.m.–4 p.m., shift clinic hours around so that the providers are a little less bunched up. For example, one doctor works on Friday in alternate weeks, and run from 8 a.m.–5 p.m.
3. If you absolutely need to expand but have to do so on a budget:
• If your budget is tight, eliminate non-essentials. Do you need a private washroom for every doctor? Over the course of an average year, this owner perk may cost you about $5 per bathroom break. The same goes for private doctor office space; a group office with a meeting table and separate cubicles not only costs less but facilitates communication.
• Use flexible cubicles for business staff rather than erected, fixed walls.
• Fit out an impressive waiting/reception area, but leave the back clinical space more industrial. Consider doing what Hampton Inn and similar mid-grade hotel chains do with a plush foyer and serviceable but plain guest rooms.
• Leave out the crown molding, premium carpet, custom wall treatments and original artwork. The real product of the practice is the doctor; a little extra “packaging” never hurts, but some patients can be turned off by lavish facilities.
• Make sure your builder takes a second pass through your architect’s plans to “value engineer” the final project.
• Don’t under-build; if you build for today’s needs in a growing practice, the second phase of near-term construction will be far more costly per square foot than being right-sized for a longer service life.
• Unless you think you must, don’t try to win architectural awards with off-beat, expensive designs.
• Don’t buy more land than you need, but leave room for any obvious, future expansion. Very few ophthalmologists should take the entrepreneurial approach of building the 10,000 square feet they need today, plus another 30,000 square feet to rent to other users.
• In many cases, it costs less to create a new facility from the ground up than to redesign an existing structure.
• Don’t try to save money by buying cheap, out-of-the way land; the appreciation of your facility in the coming years will be far lower, and you’ll lose the promotional value of being on a major thoroughfare.
• If you’re in solo practice and have no solid succession plan, don’t build a new facility if you plan to work for less than 10 more years. If you plan to practice for 10 years or longer, try not to rent, unless you work in a costly urban environment.
4. Don’t overlook exterior appeal. Senior patients are more likely to have an interest in gardening. A patient’s first impression of your landscaping could reflect on the quality of your medical and surgical care. Keep up the parking lot resurfacing and stripes. Purchase the largest/brightest signage local zoning will allow.
5. Don’t pursue any significant expansion or building project without first preparing a realistic pro-forma showing the cost/benefit of the project in the years ahead. There are many factors to consider:
• Will your total facility costs, as a percent of total collections, be at or under 10% immediately post-project, and fall to 6% or less within 5 years?
• Are you realistic in your projections of how fast practice collections will grow with a new facility? Don’t count on 10% annual growth if your baseline has been a steady 5%.
• Do you possess the risk tolerance to handle the prospect of having facility costs escalate as a percent of collections if fee reform leads to materially lower professional fees?
• What will be the future appreciation on your new property? Will you be able to find a buyer when the time comes, or is your area overbuilt with professional space?
• Are you properly hedged and able to carry higher facility costs in the event of a COVID resurgence, temporary disability, loss of a key provider, or similar difficulty?
• Finally, what’s the bottom line? Will your personal net worth be higher or lower in 10 years or 20 years if you expand or develop a new facility today?

About the authors

John Pinto

President
J. Pinto & Associates
San Diego, California

Corinne Wohl, MHSA, COE
President
C. Wohl & Associates
San Diego California

Contact

Pinto
: pintoinc@aol.com
Wohl: czwohl@gmail.com

Facility development in the peri-COVID era Facility development in the peri-COVID era
Ophthalmology News - EyeWorld Magazine
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2021-03-02T11:03:47Z
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