In today’s practice of medicine, seeing patients requires space. The amount and type of space a practice needs are based on the volume of patients to be seen, services provided, and the number of providers in the practice. To evaluate whether or not your current practice space effectively houses your practice or if a new building could better support your practice, the amount and type of space the practice needs must be determined. Once this space needs assessment is done, it can be used to evaluate the current practice environment, and if need be develop preliminary drawings to evaluate new space. Both operational flow and the economics of creating the new improved practice (whether it is a renovation of existing space or brand new space) should be compared.
Figure 4. Planned office expansion that would have elongated the flow patterns.
This article is the second part of a three-part series.
The following article is the second in a three-part series that will help medical practices go through the proper process to determine if a new facility is needed and, if so, to create a new practice environment. The series will generally follow the following outline:
Do an assessment of your current practice to make sure you do not have logjams built-in to your current practice flow. Logjams can be identified that could change the direction of your overall practice needs. These logjams could be in the form of too few staff to handle the volume of patients the provider can see, mis-allocated staff or equipment, IT (electronic health records [EHRs], communications, appointment template, etc.) slowing the flow, etc.
Verify any proposed growth to the practice providers.
Identify the need for new services.
Space Needs Assessment
Quantify the amount of space needed to support the new practice environment operating at peak efficiency and patient volume, with new services and providers to be added.
Make sure to know the parking needs of the practice. If your patients cannot park, they will not show up.
Evaluate your current facility versus a new practice environment.
Design the New Practice Environment
Design it right the first time based on the practice and space needs assessment.
A good design costs the same as a bad design to construct, but pays dividends for the life of the facility.
This second article will address how to determine the space needs to solve the flow issues identified during your practice flow assessment (covered in the first article in this series in the May/June 2017 issue), and evaluate whether or not your current facility can successfully allow you to accomplish the changes needed from both a space and an economic perspective.
How Much Space Do I Need?
In the previous article, there was an example of a four-doctor practice that by performing a time study determined the doctors’ time was being used at only about 70% efficiency. In a similar situation, assuming a practice has the patient demand to increase patient volume, the practice has the potential for a significant increase in patient volume and revenue if the doctors’ time is better able to be used. If the efficiency of the providers in a practice is in the 90% range, however, then the evaluation process can stop unless the practice wants to add providers or services and/or wants to relocate for other reasons.
To determine the need for space, create a space needs spreadsheet that lists every room or space, the number of those rooms or spaces needed, and the size of each room/space.
In either case, with more patients comes the need for more space, staff, and equipment (assuming the facility was not overbuilt initially). To determine the need for space, create a space needs spreadsheet (Figure 1) that lists every room or space, the number of those rooms or spaces needed, and the size of each room/space. Add to this a hallway factor to account for circulation paths and queuing space. Depending on the type practice and the area of the practice, this hallway factor could range anywhere from 20% to 40%.
Figure 1. Part of a space needs spreadsheet.
This list and total area does several things for you. While evaluating your current practice environment, you can simply compare the list of rooms/spaces needed to what you are working in now. Do you have the right number and complement of rooms/spaces to accommodate the additional growth in volume/providers/services to your practice? If you do have the right amount of spaces, then maybe a reallocation of space or small renovation is all that is required. If you do not have enough space, then you will need to expand your current office or relocate to new space. If this is the case, the total area of space needed is the factor that the practice needs to focus in on more. Can your existing facility be expanded by the amount needed to reach the total amount of space needed? If so, then the next question is, “Is it ‘good’ space?’” Meaning, does the additional space allow your practice to create a more efficient and productive practice environment? Or does it make the configuration of your space and flow patterns less efficient and productive? Not all square footage is created equal!
Figure 2 illustrates the space a practice had to expand into. In this case, the shape of the existing space was somewhat odd—long and narrow at places. By adding a new suite, the shape and size of the expanded space becomes much more regular and able to accomplish growth plans of the practice. However, one issue the practice had with this expansion was required exit locations in case of a fire. The size of the expanded suite required a second exit, and the design of the base building did not allow for a second fire exit to meet code requirements in terms of how far apart (“as the crow flies”).
Figure 2. Space the practice could use to expand.
The lesson learned with this example is just because the space is the right size and the shape is good, does not always mean it is good space. Check code requirements and restrictions to make sure what you want to put in the space will be allowed.
The practice shown in Figure 3 was designed to have a future ambulatory surgery center expansion. In this case, the size, shape, and location of the additional area were determined at the initial concept of the clinical building. This is an important point—if your practice anticipates further growth down the road, project as much as you can anticipate initially, and plan for that larger facility. Then back down the design to what you need at the present stage. This will keep the initial design from hampering the future growth.
Figure 3. Practice designed with a future ambulatory surgery center (ASC).
In both these examples, the additional space fits nicely with the practice’s existing space. However, if space is added on in the wrong location or has an improper shape, the end result may be counterproductive to an efficient practice environment. For instance, Figure 4 shows a planned expansion to a suite that, as the graphic illustrates, would have made the existing suite much longer. This only elongates the flow patterns and causes the practice to be less efficient and effective due to additional walking.
Figure 4. Planned office expansion that would have elongated the flow patterns.
How Do I Find and Decide on a New Location?
Finding a new location for your office environment must follow a logical and nonbiased process. Armed with the information developed in the space needs spreadsheet, you should know how many square feet your practice needs. The parking needs also should be projected. This parking need should be based on a total hourly volume of patients (maybe 1.5 hours if visits are longer), staff, and doctors. Do not rely upon zoning or code requirements to determine parking numbers. Those most often require less parking than medical practices NEED.
These criteria should be given to a real estate broker experienced in the local market, who should be directed to find all locations, be it raw land or existing buildings, that fit the needed criteria. It is imperative that the broker provide data on all locations and not eliminate options based on the broker’s beliefs. This will allow an objective review of each site so if one is eliminated it is based on objective data and all involved understand why. Data that should be gathered by the broker are:
Building/lot plans illustrating size and configuration;
Cost: rental cost broken down to base rent, operating expenses, increases for term of lease, and construction allowance;
Any restrictions; and
Additional costs that may be incurred, such as after-hours HVAC service.
Based on this information, the options identified should be ranked, starting with points such as shape of the space/lot and cost, then the intangibles, such as location, look of building/surroundings, access, etc., should be factored in. The list should be narrowed down to two or three sites, and negotiations should begin with all.
If your current location has an option to expand, then it needs to be compared with the new locations. Since it is assumed the new locations will be able to address all the space and flow needs of the practice, the current facility should be evaluated as if it were to be renovated so it too addressed all the practice’s space and flow needs. This is not an easy task, because some level of design work will need to be done to determine the level of the renovations and the estimate of construction costs.
Staying in the Current Location versus Buying New
The following is an example of a practice that went through the process of comparing staying in the current location versus building new. The practice rented space in the hospital’s medical office building. The practice needed to add doctors and correct current flow problems while already occupying the entire floor it was on. The practice identified two main options to pursue: one option available was to take additional space in the existing building on another floor; the second option was to buy raw land just down the road and build a new facility.
Option I: Stay in Current Building and Take More Space on Another Floor
During the practice’s flow assessment, it was determined that it was best if all clinical space stayed on the same floor. It turned out that if all the nonpatient, business office space was moved to another floor, that freed up enough space to add the needed clinical space to house the growth and correct some of the flow problems. Figure 5 illustrates how the clinical floor was to be revised.
Figure 5. Redesigned clinical floor.
Moving the existing business and administration spaces required taking an additional 3000 square feet on another floor. Based on the renovation sketch in Figure 5 and building out a new 3000-square foot suite, the following economical projections were made.
Renovate and take more space:
In today’s economic climate, most financial institutions are requiring around 25% equity in the project by the owners. Based on a 25% equity contribution, the doctors in this practice would have to come up with approximately $175,000 (25% of $690,000). The practice currently paid about $180,000 in rent each year for its 12,500 square feet, so the annual rent would increase to approximately $224,000 when the additional space is rented.
The remaining $515,000 cost ($690,000 - $175,000 of equity contribution) of the construction/renovation would need to be recognized as well. The annual effect of this depends on how the practice wanted to structure the loan. Assuming a 10-year lease and loan structure, including taxes, cleaning, professional fees, etc., the $515,000 loan would add approximately $90,000 in annual cost. So the projected annual cost of this option would start out at approximately $315,000 and increase annually from there based on escalation rates for the rent/taxes/utilities, etc.
Option II: Buy Land and Build New
The following are the projected costs for a new building.
Based on the same 25% equity contribution, the doctors in this practice would have to come up with approximately $1,100,000 (25% of $4,425,000) of equity contribution and finance the remaining $3,325,000. Based on the loan being amortized over 20 years, the annual cost of occupancy including taxes, utilities, cleaning, professional fees, etc. for this option would start out at approximately $415,000 and increase annually from there based on escalation rates for the rent/taxes/utilities, etc.
As the comparison above illustrates, buying land and building a new building would cost the doctors roughly another $1,000,000 of additional equity contribution and the practice approximately $100,000 more each year. In addition to this basic economic review, the practice’s accountant should also figure in tax benefits and a host of other ownership versus leasing factors to give the owners a full economic picture of the two options.
If at this point the economics of the two options have not swayed a practice in one direction or another, the next step is to evaluate the operational flow aspects and intangibles of the two options. Here is where other issues such as access to the site/building, ability to address unique needs of the practice (such as a post-procedure exit or HVAC needs), and location, look, etc. come into play.
Pros and Cons
Following this same example, the following are the pros and cons this practice identified.
Renovate and Take More Space
Timing; could be in renovated space sooner; and
Stay in same location.
Still would have some patient-, staff-, and doctor flow issues, therefore still not able to maximize revenue potential;
Less flexible for future growth;
No identity in multi-tenant building; and
Parking not adequate at times. This is creating negative comments in satisfaction surveys and adding doctors will make parking worse.
Buy Land and Build New
Return on investment;
Start from scratch and get flow patterns specific to practice’s needs, therefore able to maximize revenue potential;
Better flow would mean less staff for same patient volume;
Land and construction costs low at this time; and
Additional land would allow flexibility for future growth.
Longer time until ready to move in and would have to negotiate a lease extension;
New location confusing to elderly existing patients at first; and
May lose some staff due to change of location.
Following a process such as this, objectively assessing the current facility and new location options’ ability to house the practice, will allow your practice to amass the same type of data as the practice in this example did, and allow your practice to make the right decision. One key to making the proper decision is to keep emotion out of the equation so facts drive the decision.
Once the decision has been made, the next step is to design and build the new environment, whether that is a renovation and expansion of the existing or a brand new practice environment. The next article in this series will cover the design and construction portions of this process.
Critical Appraisal Skills
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