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Finding the best real estate option for your practice

By Shannon Geis
September 30, 2016
Body of Knowledge Domain(s): Operations Management

As medical practices grow, merge and integrate, practice administrators are increasingly considering their real estate options, either by remodeling or changing locations. 

In a July 12 MGMA Stat poll, 52% of respondents said they had changed their practice’s physical space in the past two years by remodeling, adding space or changing locations. At the same time, the building and occupancy costs for multispecialty practices of all types increased by 22.77% from 2013 to 2015, according to MGMA DataDive Cost and Revenue 2016.

Balancing choices and timing

Real estate – one of the largest expenses most practices will deal with – is negotiable, according to Perry Bacalis, a broker with Carr Healthcare Realty, Denver. Don’t forget that you have choices, Bacalis says: “You can choose the size of your space, the design, the landlord you want to work with or to be your own landlord.”

With any real estate change, timing is of the utmost importance. “When starting too early or too late, you communicate to the landlord or seller that you don’t really know what you’re doing,” Bacalis says. 

Donald, J. Callahan, MBA, FACMPE, director of operations, Robert Wood Johnson Physician Enterprise, Bedminister, N.J., agrees. “Keep an eye on your lease and know your deadlines,” Callahan says. “The more time you have, the more smoothly it will go.” 

Consider your options

Callahan has dealt with several situations where a practice needed to reconsider their real estate situation. He wrote about one such experience in a case study for his fellowship. 

Callahan’s health system created a multispecialty physician group where most of the involved groups were solo physician practices. One physician in particular had an “extremely good reputation in the community and had been practicing at his location for [more than] 20 years,” according to Callahan’s paper. The problem was the practice had no room to grow in its current space despite a waiting list for new patients. “We had to think about the growth opportunities of the practice,” says Callahan. “We wanted to add providers in the future and needed a space that could accommodate that.”

Callahan outlines the three solutions he and the practice considered. The first was to remain in the current office space. Although this would be easiest for current patients and require no additional costs, it would not allow the practice to grow. 

The second solution identified was to move the practice to a new location. However, none of the locations considered were very close in proximity to the practice’s current location, which would put the practice at risk of losing some of its long-standing patients. It would allow the practice to build out the space to the exact specifications required for the group’s planned growth, but this would be the costliest option.

The third option would be to expand within the current location. With this solution, patients would not have to follow the physician to a new location while allowing the group to “design the space to its specifications while minimizing moving costs and downtime during the move,” wrote Callahan.

The group decided to go with the third option and moved into a larger suite within the same building. By doing this the group could build the space to its desired specifications while not disrupting the state of the current practice. Plus, the new space was large enough to accommodate two additional providers, allowing the practice to eliminate its waiting list.

Communicate with patients

Some of the top concerns that Callahan had regarding the move were: 

  • Communicating with patients: Callahan knew that the sooner patients knew about the move the easier it would be for them to transition.
  • Credentialing: With a change of address, Callahan had to make sure that all of the practice’s credentials were up-to-date. “Otherwise, you run the risk of not getting paid,” says Callahan. 
  • Contacting utilities and vendors: Callahan had to make sure that the utilities and vendor contracts with the old and new spaces didn’t overlap too much. 

Overall, the move was a success. As Callahan writes, “While many long-standing patients were averse to change, explaining the benefits of moving to the new space helped to put the patients at ease and look forward to the new office.”

Callahan emphasizes the importance of keeping the patients’ needs in mind in making decisions on real estate changes. “At the end of the day it’s about access for patients and making sure they get the care they need,” Callahan says. “If you decide to change your space, keep them in the loop.” 

Has your practice made a real estate change recently? We want to hear about it. Comment below, or send us a message at connection@mgma.org.

Shannon Geis, Staff writer/editor, MGMA

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