Partnering with other doctors to form a physician group may be the greatest risk that a doctor will take with his or her professional career. Still, making a significant investment in a group practice to drive growth and profitability takes a close second. When considering an investment in an existing practice, depending on the age and success of the existing practice, getting buy-in to finance growth involves a more challenging process than starting anew.

Face it, a newly minted physician who is starting out in practice does not question whether he or she will go into practice. If not, a great deal of time, effort, and money has gone into creating nothing more than an incredibly interesting person. Rather than “if”, the key decision rests on going it alone or joining an existing group. And largely, the decision comes down to the chemistry between doctors, their expectations, and their motivations.

Conversely, an existing group – whose members presumably have equal say in its investment decisions – must contend with the diverse investment objectives of each doctor, each doctor’s current financial status and tolerance for risk, each doctor’s personal upside from the investments, obligations to others outside the practice, and unrelated investment opportunities, before approving and deciding on a course of action for growing the practice.

When investing in a physician group’s growth and profitability, even the process of making the investment complicates the individual motivation issues noted above. In today’s healthcare environment, empirical evidence suggests that one road to higher physician profits is paved by ownership of the technologies and ancillary businesses that support the procedures being performed or prescribed by doctors. What’s less evident is determining HOW physicians should move from their current business model to one that vaults them into ownership of MRIs, CAT Scans, linear accelerators, and even surgical centers.

Mechanically, the process seems manageable. The group decides which ancillary businesses to acquire (based on their specialty areas and return on investment (“ROI”) projections), how to finance its acquisition, and make certain that incremental profits derived from the new business will be distributed equitably to those making the investment. However, the biggest threat to executing a profitable acquisition successfully lies in the detail, ancillary decisions, that grow out of the relatively straight forward decision about which technology(ies) and businesses to invest in. Decisions like those that follow determine whether, and how successfully, a group’s profitability will grow through acquisition:

• Will new corporate entities need to be created to limit liabilities and effect appropriate tax strategies?
• How will the expanded business model affect staffing, workflows, patient and visitor flow, and profitability?
• What if some of its doctors prefer real estate ownership while others opt to lease?
• What special structural requirements are required to house the technology (e.g. floor loads, availability and delivery of fresh air, and back-up power systems)
• How much additional space will be required to house the business and related functions?
• Is the space available in the physicians’ existing location, is a separate location more appropriate, and should the physicians consider ownership of the new facility?
• What’s the best geography for this enhanced practice? What type of building will support the functions of the practice? What type of interior design will best support patient needs and promote the operational, technological, cultural, and financial objectives of the physician group?
• How will the project ensure that regulatory, municipal, and insurer-defined certifications are secured efficiently?
• What types and levels of financing are available, and what type of security will lenders look for to secure any loans they make?
• As doctors leave or join the practice group, how, and at what price, will they be able to buy into or divest themselves from their ownership position in real estate and equipment?

Without exaggeration, physician groups that seek to mitigate risk while making profitable decisions for their future practice can expect to require advice related to …

• corporate and tax law
• financial planning
• real estate and equipment financing
• estate planning
• architectural design and efficiency
• structural and mechanical engineering
• strategic real estate
• medical business planning
• construction costs and construction cost management
• and more

…while battling regulators, municipalities, landlords, builders, hospitals and managing the expectations of referring physicians and patients before fully executing the project and resuming a normal practice of seeing and treating patients.

Although advisors capable of coordinating the diverse resources of such an undertaking are generally geared to support such expansions among the largest regional and national medical institutions, certain advisors have developed service models to support the decision making processes of a broad range of practitioners with fee schedules that accommodate their needs and resources.

ACTION POINTS:

Before any physician group embarks on a significant investment in medical technology,

1. Consider the questions cited previously in this article to identify potential problem areas.
2. Understand that most of the decisions that you will make related to your entrée into ancillary businesses are interdependent and must be balanced against one another. More important than making individual decisions is the creation of alternative solution scenarios that can guide your decisions.
3. Decide, up-front, who will coordinate the process of collecting information, model the financial impact of alternative courses of action, and present suggestions to the group, and how your group will make decisions.
4. Decide what types of service providers will be engaged by the group and outline the decision criteria for selecting each type of service providers. Further, decide whether to identify and coordinate the efforts of the solutions team up-front or engage them reactively as need arises.
5. Establish a budget and timeline for the process.

CONCLUSION:

Every doctor should know that, just as certain as one can assume that owning technical diagnostic and treatment equipment can drive the profitability of a practice to new heights, the challenges associated with getting there can threaten the success of any practice and the relationship of its doctors. Countless groups of doctors want in and countless others are caught up in cycles of indecision and positions of risk because of inadequate advice or lack of appreciation of the risks before jumping in. Any doctor contemplating such an initiative should set objectives, understand the process, determine how his or her group will make decisions, seek advice wherever appropriate, and move confidently toward success.

Real Estate Strategies Corporation, located in Kenilworth, New Jersey, and serving clients throughout the country, helps companies create and execute Business DRIVEN Real Estate Solutions...and Opportunities, faster and with less risk. Visit www.realstrat.com.

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