To Expand or Not to ExpandTo Expand or Not to Expand

That is the Question….That is the Question….

Some General Observations….Some General Observations….

WHYWHY do you want to expand? do you want to expand? • Request from a Physicians group (s) ?Request from a Physicians group (s) ?• Request from a Hospital (s) ?Request from a Hospital (s) ?– Proposed site (s) for the new locationProposed site (s) for the new location

WHYWHY test the bubble ? test the bubble ? Itchy to generate new / More revenue ?Itchy to generate new / More revenue ?

So….. You’ve decided to look further into So….. You’ve decided to look further into ‘‘Expanding Your PresenceExpanding Your Presence’ !’ !

You’re ‘You’re ‘To-Do-ListTo-Do-List’….’….

* Review existing population (Census) of the area* Review existing population (Census) of the area

* What are the ‘Potential’ patient demographics?* What are the ‘Potential’ patient demographics?

* Look at future growth / business opportunities* Look at future growth / business opportunities• New HospitalNew Hospital• New Major employers coming to the areaNew Major employers coming to the area• Speak to Chamber of CommerceSpeak to Chamber of Commerce• Join local groupsJoin local groups

– e.g. Lions, Rotary, Chamber of Commerce etc.e.g. Lions, Rotary, Chamber of Commerce etc.

So….. You’ve decided to look further into So….. You’ve decided to look further into ‘‘Expanding Your PresenceExpanding Your Presence’ !’ !

Are you already treating patients within the proposed Are you already treating patients within the proposed expansion area?expansion area?

What type of referral base are you anticipating within this What type of referral base are you anticipating within this new area? new area?

Do you already have the expertise ‘In-House’?Do you already have the expertise ‘In-House’? Trauma Center? Will this require ‘On-Call’ staff?Trauma Center? Will this require ‘On-Call’ staff?

Prosthetics?Prosthetics? Amount? Amount? Elderly ?Elderly ?Orthotics ?Orthotics ? Amount? Amount? Elderly?Elderly?

(Can your lab / tech be able to handle the anticipated (Can your lab / tech be able to handle the anticipated volume?)volume?)

Will you need to develop new relationships with C-fab Will you need to develop new relationships with C-fab labs?labs?

So….. You’ve decided to look further into So….. You’ve decided to look further into ‘‘Expanding Your PresenceExpanding Your Presence’ !’ !

NOWNOW…. Where should I locate my NEW …. Where should I locate my NEW practice?practice?

IF IF allall of your answers are of your answers are YES!YES! Then investigate some additional Then investigate some additional issues.issues.

Where is the most suitable location for your new satellite? Where is the most suitable location for your new satellite? When is the BEST time to expand?When is the BEST time to expand?

End of your FY?End of your FY?Anytime?Anytime?

FT office?FT office?Satellite?Satellite?Stand Alone facility…Stand Alone facility…Share office space…..Share office space…..

With Whom?With Whom?Referral?Referral? Pro’sPro’s Con’sCon’sUnrelated practice?Unrelated practice? Pro’sPro’s Con’sCon’s

How will this proposed expansion impact How will this proposed expansion impact your EXISTING revenue / operations?your EXISTING revenue / operations?

Will it yield a reduction in Will it yield a reduction in EXISTINGEXISTING revenue? revenue? Remember, revenue allocated to your new facility Remember, revenue allocated to your new facility

oftentimes is represented as part of your existing revenue oftentimes is represented as part of your existing revenue base.base.

You need to ask yourself ‘How long will it take to You need to ask yourself ‘How long will it take to REPLACEREPLACE this lost revenue in my current location’? this lost revenue in my current location’?

Will I need to move / reduce staff until the levels are back?Will I need to move / reduce staff until the levels are back?

If I keep the current staffing levels, will it result in loss of If I keep the current staffing levels, will it result in loss of Net Net revenue / profit?revenue / profit?

How long until we need to make definitive changes?How long until we need to make definitive changes?

How will this proposed expansion impact How will this proposed expansion impact your EXISTING revenue / operations?your EXISTING revenue / operations?

Growth has it DownsidesGrowth has it DownsidesWhat does this mean?What does this mean?

Increased costs in almost Increased costs in almost ALLALL areas ! areas ! StaffingStaffing

How much staff is needed? How much staff is needed? Will I need to hire a New practitioner?Will I need to hire a New practitioner?

Do I know of one that has the skillset needed?Do I know of one that has the skillset needed?Do I enlist the assistance of a headhunter?Do I enlist the assistance of a headhunter?

Related Costs? Related Costs? When do I need to advertise for a practitioner?When do I need to advertise for a practitioner?Relocation Expenses?Relocation Expenses?

Are they ready to make the move?Are they ready to make the move?If not, When? Do I have them sign a letter of intent?If not, When? Do I have them sign a letter of intent?How long to get them up to speed with your How long to get them up to speed with your

procedures?procedures?Front office personnel?Front office personnel?Billing personnel?Billing personnel?Computer, Office, Additional Supplies?Computer, Office, Additional Supplies?

You’re new office!!You’re new office!!

Anywhere O & P

RentsRents

How much space is needed?How much space is needed?

What type of facility will support my new What type of facility will support my new site?site?

Medical complexMedical complex Storefront (Shopping center)Storefront (Shopping center) CondominiumCondominium??

Fees?Fees?

LeasesLeases

(A lease is not always (A lease is not always JUSTJUST a lease!) a lease!) Types of leasesTypes of leases

Month to MonthMonth to Month Net LeaseNet Lease Triple NetTriple Net ParolParol PercentagePercentage

LeasesLeases

Don’t get Don’t get STUNGSTUNG by signing an by signing an inappropriate LEASE……inappropriate LEASE……

Net Net Net (Triple Net)Net Net Net (Triple Net)

A lease in which the lessee (you) pays all A lease in which the lessee (you) pays all the expenses, including mortgage interest the expenses, including mortgage interest and amortization; leaving the lessor with and amortization; leaving the lessor with an amount free of claims (Condo fees, an amount free of claims (Condo fees, Taxes etc.)Taxes etc.)

Parol LeaseParol Lease

A Parol lease in an Unwritten (Oral) LeaseA Parol lease in an Unwritten (Oral) Lease

e.g. e.g. At a clinic, Dr. Smith asks you if you would At a clinic, Dr. Smith asks you if you would like to move into a vacant room within his office like to move into a vacant room within his office for $ 50.00 per month.for $ 50.00 per month.

Percentage LeasePercentage Lease

A lease in which the rent is based on the A lease in which the rent is based on the amount of amount of GrossGross (or Net) sales or profits (or Net) sales or profits with a with a minimumminimum rent. rent.

(This type of lease is common within strip (This type of lease is common within strip malls, shopping centers and the like)malls, shopping centers and the like)

Lease TermsLease Terms

A typical lease can be for any term limits (A typical lease can be for any term limits (months months or yearsor years). Usually, 3 years is the most common ). Usually, 3 years is the most common with (one) 3 year renewal. with (one) 3 year renewal.

Leases can have built in escalation clauses, Leases can have built in escalation clauses, automatic renewals, hidden charges, automatic renewals, hidden charges, mandatory lessor improvements (mandatory lessor improvements (e.g. paint and e.g. paint and carpet every rent cyclecarpet every rent cycle), monetary payments to ), monetary payments to the landlord for improvement costs.. (the landlord for improvement costs.. (inability to inability to deduct as you do not have needed receipts deduct as you do not have needed receipts etc.etc.))

Think Out of the Box!Think Out of the Box!

Consider SublettingConsider SublettingCaution, Caution…Caution, Caution…TheThe primary concern with shared office primary concern with shared office

space is the same as the concern for sharing an space is the same as the concern for sharing an apartment. There is the risk that the other parties apartment. There is the risk that the other parties involved may not be able to keep up their part of the involved may not be able to keep up their part of the rent. Business can fail at any given time, for a number of rent. Business can fail at any given time, for a number of reasons. If one of the businesses sharing the space is no reasons. If one of the businesses sharing the space is no longer able to pay their share of the rent, that places the longer able to pay their share of the rent, that places the burden on the other tenants.burden on the other tenants.

* Use caution sharing space with Physician referrals….* Use caution sharing space with Physician referrals….

Think Out of the Box!Think Out of the Box!

Consider Consider sharing the lease sharing the lease with a related with a related Healthcare Professional Healthcare Professional

(a great way to ‘(a great way to ‘Test the WatersTest the Waters’ with minimal risk)’ with minimal risk)

Benefits include:Benefits include:

Low (Low (or no costs if in an already or no costs if in an already established locationestablished location) for Furniture, ) for Furniture, Telephone, Basic Utilities etc.Telephone, Basic Utilities etc.

Think Out of the Box!Think Out of the Box!

Time should be taken to consider the Time should be taken to consider the BenefitsBenefits against the against the DrawbacksDrawbacks of such a of such a relationship before making a final decision.relationship before making a final decision.

Utilities IncludedUtilities Included

What is normally included with this lease What is normally included with this lease option?option?

All of the previous plus Housekeeping (All of the previous plus Housekeeping (trash, trash, maid services etcmaid services etc.).)

UtilitiesUtilitiesThe term ‘The term ‘Plus UtilitiesPlus Utilities’ normally requires the ’ normally requires the

tenant (you) to pay for the following:tenant (you) to pay for the following: ElectricElectric Gas (Natural or Propane)Gas (Natural or Propane) Heat / Air ConditioningHeat / Air Conditioning TelephoneTelephone WaterWater Trash RemovalTrash Removal

Office Products / SuppliesOffice Products / Supplies

A new office location means additional expenses A new office location means additional expenses for:for:

• Stationary SuppliesStationary Supplies• LetterheadLetterhead• EnvelopesEnvelopes• Business CardsBusiness Cards• Yellow Pages / Internet / Website changesYellow Pages / Internet / Website changes

•Journal / Newspaper advertisingJournal / Newspaper advertising**

• Etc. Etc.

On a Positive note…On a Positive note…You have made the decision to expand your practice You have made the decision to expand your practice

footprint; footprint;

• Discussed the Pro’s and Con’s Discussed the Pro’s and Con’s • Weighed the Associated CostsWeighed the Associated Costs• Determined the most Appropriate Square Footage for the Determined the most Appropriate Square Footage for the

revenue projectionsrevenue projections• Negotiated the Best possible Lease termsNegotiated the Best possible Lease terms• Determined IT, Waiting Room furniture, Exam / Fitting Determined IT, Waiting Room furniture, Exam / Fitting

room needs, Lab tools and equipmentroom needs, Lab tools and equipment• The Appropriate number of additional personnel and The Appropriate number of additional personnel and

associated costs associated costs • Marketed to potential Referral SourcesMarketed to potential Referral Sources• Presented and Secured contracts from Third Party Presented and Secured contracts from Third Party

PayorsPayors

Downsides to ExpansionDownsides to Expansion

• More time spent away from the primary office More time spent away from the primary office growing the ‘growing the ‘New Office LocationNew Office Location’; resulting ’; resulting in decreased patient care time in existing in decreased patient care time in existing locations.locations.

• Loss of revenue base Loss of revenue base in existing locationsin existing locations• Increased management ‘Headaches’ due to Increased management ‘Headaches’ due to

more staff, daily operational issuesmore staff, daily operational issues• Increased IT needs Increased IT needs yield oftentimes yield oftentimes

expensive upgrades / equipment needsexpensive upgrades / equipment needs

Downsides to ExpansionDownsides to Expansion• Increased related costs Increased related costs for all types of for all types of

Insurance Insurance – Malpractice (Liability)Malpractice (Liability)– PropertyProperty

• Increased daily costsIncreased daily costs for for – AutomobileAutomobile– Office SuppliesOffice Supplies– TelephoneTelephone

The UpsidesThe Upsides

• IncreasedIncreased revenue revenueIncreasedIncreased Presence within the target community Presence within the target community

• IncreasedIncreased staff, resulting in freeing you up to see staff, resulting in freeing you up to see ‘Special Patients’, Focusing on the types of ‘Special Patients’, Focusing on the types of patients you have a special interest inpatients you have a special interest in

• The ability to The ability to service a greater number service a greater number of referrals of referrals more efficientlymore efficiently

• By doing this, you can By doing this, you can better serve better serve the referral the referral source (s) to grow even mosource (s) to grow even more!re!

In Summary:In Summary:

I hope that today’s discussion has enlightened I hope that today’s discussion has enlightened you as to the Pro’s and Con’s of;you as to the Pro’s and Con’s of;

‘‘Expanding your PresenceExpanding your Presence’’

Remember…Remember…Whatever your reasoning is for growing your Whatever your reasoning is for growing your

practice; Prestige, Revenue Increase or the practice; Prestige, Revenue Increase or the Self Satisfaction of multiple locations and Self Satisfaction of multiple locations and growth. growth.

Look at all related areasLook at all related areas. .

It will help you to make a Well Informed decision It will help you to make a Well Informed decision and help you to have a Positive Outcome from and help you to have a Positive Outcome from it. it.

I assure you that it will be some of the most I assure you that it will be some of the most rewarding time you have spent in practice!rewarding time you have spent in practice!

John F. Schulte CPO FAAOP

The End….