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By Leo Griffin | June 12, 2013
As healthcare reform and Medicare funding changes unfold, physicians are paying more attention than ever to their operating expenses. In addition to patients, they must examine their medical office needs with the goal of maintaining the most flexibility possible in these changing times.
Strategic leasing could potentially be the vehicle to accomplishing the much-needed business flexibility. Lease terms can range from three to 10 years (the initial period having a definite impact on the rates and tenant-improvement allowance). Although rent is typically 6 percent of a practice’s budget, the expense has a tremendous effect on both the top and bottom lines. It impacts the location, patient flow and staffing requirements for the office.
We recently discovered an opportunity for a practice to move less than a mile away to capture rent savings of $2,000 per month. The short geographical move yielded substantial long-term benefits. The physicians could maintain current staff and reduce overhead in addition to enjoying the new digs.
It helps to think of a medical practice’s month-to-month decision making as an internal competition for cash. As they examine the business model to adjust to the changes in healthcare, the principals have to consider the best allocation of available funds. Will it be for new equipment or another provider or staff member? Could it be for an additional office in another location that offers the desired patient demographics? Interwoven with the decision on how cash will be dispersed is the measurement of the return on investment. The proverbial “Cash is King” mantra rings true as ever for medical practices.
One key tactical maneuver has been to take the practice off campus to a medical office building offering lower occupancy costs. Baby Boomers want their off-campus facilities to cover all the services available in one facility, just like the retail center they grew up with. In the example above, the practice had nine months remaining on its current lease term. We found an opportunity that was much better for the business’ bottom line, and current patients only had to make one additional turn to get to the new location.
Reduced costs are just one part of strategic leasing. When planning to keep your practice on the road to success, think triple A: Access, Agility and Assets. Strategic leasing can allow the practice to better reach its desired patient demographics, while providing the ability to react to the aforementioned major market forces. The biggest asset is the business itself, so making a move that boosts its availability, versatility and bottom line makes plenty of sense.
Securing the most favorable occupancy costs through strategic leasing allows doctors to focus on their patients, people and, of course, the pursuit of business value.
— Leo Griffin is vice president of Healthcare Real Estate Services at Atlanta-based Bull Realty.