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To Expand or Not to Expand That is the Question….

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Presentation on theme: "To Expand or Not to Expand That is the Question…."— Presentation transcript:

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2 To Expand or Not to Expand That is the Question….

3 Some General Observations…. WHY 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 location WHY test the bubble ? Itchy to generate new / More revenue ? Itchy to generate new / More revenue ?

4 So….. Youve decided to look further intoExpanding Your Presence ! Youre To-Do-List…. * Review existing population (Census) of the area * What are the Potential patient demographics? * Look at future growth / business opportunities New Hospital New Hospital New Major employers coming to the area New Major employers coming to the area Speak to Chamber of Commerce Speak to Chamber of Commerce Join local groups Join local groups –e.g. Lions, Rotary, Chamber of Commerce etc.

5 So….. Youve decided to look further intoExpanding Your Presence ! Are you already treating patients within the proposed expansion area? Are you already treating patients within the proposed expansion area? What type of referral base are you anticipating within this new area? What type of referral base are you anticipating within this 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? Amount?Elderly ? Orthotics ? Amount?Elderly? (Can your lab / tech be able to handle the anticipated volume?) Will you need to develop new relationships with C-fab labs?

6 So….. Youve decided to look further intoExpanding Your Presence ! NOW…. Where should I locate my NEW practice?

7 IF all of your answers are YES! Then investigate some additional issues. Where is the most suitable location for your new satellite? When is the BEST time to expand? End of your FY? Anytime? FT office? Satellite? Stand Alone facility… Share office space….. With Whom? Referral?ProsCons Unrelated practice?ProsCons

8 How will this proposed expansion impact your EXISTING revenue / operations? Will it yield a reduction in EXISTING revenue? Remember, revenue allocated to your new facility oftentimes is represented as part of your existing revenue base. Remember, revenue allocated to your new facility oftentimes is represented as part of your existing revenue base. You need to ask yourself How long will it take to REPLACE this lost revenue in my current location? You need to ask yourself How long will it take to REPLACE this lost revenue in my current location? 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 Net revenue / profit? How long until we need to make definitive changes?

9 How will this proposed expansion impact your EXISTING revenue / operations? Growth has it Downsides What does this mean? Increased costs in almost ALL areas ! Staffing Staffing 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 enlist the assistance of a headhunter? Related Costs? Related Costs? When do I need to advertise for a practitioner? Relocation Expenses? Are they ready to make the move? If not, When? Do I have them sign a letter of intent? How long to get them up to speed with your procedures? Front office personnel? Billing personnel? Computer, Office, Additional Supplies?

10 Youre new office!! Anywhere O & P

11 Rents How much space is needed? What type of facility will support my new site? Medical complex Medical complex Storefront (Shopping center) Storefront (Shopping center) Condominium ? Condominium ?Fees?

12 Leases (A lease is not always JUST a lease!) Types of leases Types of leases Month to Month Month to Month Net Lease Net Lease Triple Net Triple Net Parol Parol Percentage Percentage

13 Leases Dont get STUNG by signing an inappropriate LEASE……

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

15 Parol Lease A Parol lease in an Unwritten (Oral) Lease e.g. At a clinic, Dr. Smith asks you if you would like to move into a vacant room within his office for $ 50.00 per month.

16 Percentage Lease A lease in which the rent is based on the amount of Gross (or Net) sales or profits with a minimum rent. (This type of lease is common within strip malls, shopping centers and the like)

17 Lease Terms A typical lease can be for any term limits (months or years). Usually, 3 years is the most common with (one) 3 year renewal. Leases can have built in escalation clauses, automatic renewals, hidden charges, mandatory lessor improvements (e.g. paint and carpet every rent cycle), monetary payments to the landlord for improvement costs.. (inability to deduct as you do not have needed receipts etc.)

18 Think Out of the Box! Consider Subletting Consider Subletting Caution, Caution…The primary concern with shared office space is the same as the concern for sharing an apartment. There is the risk that the other parties involved may not be able to keep up their part of the rent. Business can fail at any given time, for a number of reasons. If one of the businesses sharing the space is no longer able to pay their share of the rent, that places the burden on the other tenants. * Use caution sharing space with Physician referrals….

19 Think Out of the Box! Consider sharing the lease with a related Healthcare Professional Consider sharing the lease with a related Healthcare Professional (a great way to Test the Waters with minimal risk) Benefits include: Low (or no costs if in an already established location) for Furniture, Telephone, Basic Utilities etc.

20 Think Out of the Box! Time should be taken to consider the Benefits against the Drawbacks of such a relationship before making a final decision.

21 Utilities Included What is normally included with this lease option? All of the previous plus Housekeeping (trash, maid services etc.)

22 Utilities The term Plus Utilities normally requires the tenant (you) to pay for the following: Electric Electric Gas (Natural or Propane) Gas (Natural or Propane) Heat / Air Conditioning Heat / Air Conditioning Telephone Telephone Water Water Trash Removal Trash Removal

23 Office Products / Supplies A new office location means additional expenses for: Stationary Supplies Stationary Supplies Letterhead Letterhead Envelopes Envelopes Business Cards Business Cards Yellow Pages / Internet / Website changes Yellow Pages / Internet / Website changes Journal / Newspaper advertising * Journal / Newspaper advertising * Etc. Etc.

24 On a Positive note… You have made the decision to expand your practice footprint; Discussed the Pros and Cons Discussed the Pros and Cons Weighed the Associated Costs Weighed the Associated Costs Determined the most Appropriate Square Footage for the revenue projections Determined the most Appropriate Square Footage for the revenue projections Negotiated the Best possible Lease terms Negotiated the Best possible Lease terms Determined IT, Waiting Room furniture, Exam / Fitting room needs, Lab tools and equipment Determined IT, Waiting Room furniture, Exam / Fitting room needs, Lab tools and equipment The Appropriate number of additional personnel and associated costs The Appropriate number of additional personnel and associated costs Marketed to potential Referral Sources Marketed to potential Referral Sources Presented and Secured contracts from Third Party Payors Presented and Secured contracts from Third Party Payors

25 Downsides to Expansion More time spent away from the primary office growing the New Office Location; resulting in decreased patient care time in existing locations. More time spent away from the primary office growing the New Office Location; resulting in decreased patient care time in existing locations. Loss of revenue base in existing locations Loss of revenue base in existing locations Increased management Headaches due to more staff, daily operational issues Increased management Headaches due to more staff, daily operational issues Increased IT needs yield oftentimes expensive upgrades / equipment needs Increased IT needs yield oftentimes expensive upgrades / equipment needs

26 Downsides to Expansion Increased related costs for all types of Insurance Increased related costs for all types of Insurance – Malpractice (Liability) – Property Increased daily costs for Increased daily costs for – Automobile – Office Supplies – Telephone

27 The Upsides Increased revenue Increased Presence within the target community Increased revenue Increased Presence within the target community Increased staff, resulting in freeing you up to see Special Patients, Focusing on the types of patients you have a special interest in Increased staff, resulting in freeing you up to see Special Patients, Focusing on the types of patients you have a special interest in The ability to service a greater number of referrals more efficiently The ability to service a greater number of referrals more efficiently By doing this, you can better serve the referral source (s) to grow even mo re! By doing this, you can better serve the referral source (s) to grow even mo re!

28 In Summary: I hope that todays discussion has enlightened you as to the Pros and Cons of; Expanding your PresenceExpanding your Presence

29 Remember… Whatever your reasoning is for growing your practice; Prestige, Revenue Increase or the Self Satisfaction of multiple locations and growth. Look at all related areas. It will help you to make a Well Informed decision and help you to have a Positive Outcome from it. I assure you that it will be some of the most rewarding time you have spent in practice!

30 John F. Schulte CPO FAAOP The End….


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