Finding the Value in On-Campus Medical Buildings

The recession caused many of us to take a hard look at our bottom line
in the midst of a downward-trending market. With reductions in income driven both by healthcare reform and macroeconomic factors, healthcare providers certainly were not exempt
from this exercise. The downturn prompted many providers to question the total value of their location and the necessity of being immediately adjacent to their affiliated hospital,
as opposed to simply being in the proximity. The primary factor in determining whether or not to be on campus is linked to the age old rule of real estate – location, location,
location. However, more important is the value derived by that location. In many cases, the time saved by being close to the hospital does not outweigh the additional amount spent
on rent each month when considering only convenience. In many cases, physicians see their monthly rent expense as an independent factor in their business, ignoring the soft costs
of time spent driving and parking. This time could allow for the treatment of an additional one to two patients per day depending on the distance and time involved. Beyond the time
spent away from practicing medicine, many physicians decided to move to properties where there was a perceived cost savings or even purchase their own units. There are several
important items to consider when weighing decisions such as these.

A salient discussion about the “bottom line” must begin at the “top line” when
considering operational decisions that could impact the revenue of a practice. If moving to a location further from the hospital saves $2,000/month in rent expense, it may seem to
be a material savings. However, if this savings comes at the expense of just one patient visit lost per operating day, assuming four days per week and four working weeks per month,
a provider would quickly see the value of seeing sixteen more patients per month as opposed to spending time in transit.

There are other hidden expenses in “cheaper
rent” that many practices do not consider when evaluating an office relocation including the additional staffing expense and labor burden of client-managed operations. Simply
put, the costs attributable to having your own staff process and pay non-medical invoices can easily be overlooked. Many building owners have a different approach to billing
utilities, janitorial, air conditioning, and general repairs and maintenance. The soft costs of managing vendors, processing and paying invoices, maintaining and repairing
suite-specific systems are difficult to see and even more difficult to quantify. Often times an indicator of this additional expense can be found in the labor expense of the office
administrative personnel. If these employees are hourly, we might find that the overtime expense has increased over previous periods due to the additional burden of managing
repairs, maintenance, and payments for office building operations.

Do not be tricked into thinking that these costs will always manifest themselves in the form of
additional labor expense. As many patients will attest, the satisfaction of a physician visit has much to do with the demeanor and responsiveness of the staff in the office. With
the additional burden of managing tasks and invoices not related to your medical practice, the mood and workload of your staff could be negatively impacted. As patient satisfaction
can translate into referrals and increased loyalty, it is an incredibly important consideration when facing the burden of additional and often unknown

Relocating a practice is something that confronts many groups as they weigh their options near lease expiration. With a number of medical building markets
facing a variety of different economic challenges, the many options and complexity of terms can make this decision increasingly difficult. The importance of this decision should
not be underestimated because there are often unseen costs and lost revenues at stake. While it may not benefit each practice equally, an on-campus medical building with full
service operations can provide physicians with the proximity to help drive increased throughput while alleviating the burden of operations management on personnel. The end result
is a building that allows a physician and his staff to focus on their core strength: healthcare delivery.

- Andrew Saba, Director of Leasing & Marketing