5 Concepts on Renting Surgery Center Space for Additional Revenue

Linda Peterson, MBA, CEO of Executive Solutions, discusses the finer points about renting surgery center space to outside groups. *We advise anyone looking into such relationships to consult with counsel as well as state department of health and Medicare as well as their accreditaiton bodies.

1. Benefits of renting the space
Renting space out to various groups can be a significant revenue generator if the agreement is drawn in the right way. "I've seen rent at $20,000 per month for a little pain group to use the surgery center," says Ms. Peterson. "The extra revenue could help with overhead, which the center must pay regardless of their financial situation."

In addition to the financial benefits, renting the space brings additional patient flow through the center. Even if the renters are bringing in different types of patients, the general public will become more aware of your facility and seek it out next time they need surgical care.

When it's appropriate to rent out the center
Surgery centers operate within a defined time frame every day; however, later in the evening or on days when the center isn't open, the facility can be rented out to other physicians or groups for various activities.

"You can't rent out a room to someone else while you are still operating as your surgery center," says Ms. Peterson. "You might not have patients one or two days per week, or if you consolidate cases to a few days per week, you can rent the surgery center out to another entity on the days you have off."

That other entity could include:
•    A physician group in the process of constructing their own surgery center and they want to begin bringing cases into the outpatient setting
•    An office-based physician group — such as pain management physicians — who want to perform a few cases per week in the surgery center
•    A group that wants to use the center as an infusion clinic
•    A group that wants to use the lobby for classes or other community events

"It works best if you have a multispecialty ASC and the group that wants to rent performs the same types of procedures so they would use similar equipment and workflow," says Ms. Peterson. "If you do orthopedics and they do orthopedics, the agreement could work out very well because everything is already set up and it doesn't require investment in more expensive technology or a change in workflow."

While renting the center to a non-medical community group to use the space isn't very lucrative, it still may generate some extra revenue and spread awareness of your center.

2. Coordinating the transition between groups

The surgery center owners and renters must have separate licensure and accreditation, says Ms. Peterson. They must also have a separating billing process and medical records. If the renting group doesn't already have a staff prepared, you can draw up a separate contract to "rent" your staff to them.

"If you have really experienced staff and they aren't able to provide their own, you can lease your staff to them," says Ms. Peterson. "A lot of times they want to use their own staff. Otherwise, they have to contract for paying the staff members in addition to their lease agreement."

The renting group must also have separate medical records. In some cases, their electronic medical record system is different from the one at your center and they may need to connect on line somehow, or bring their own servers. Conversely a new company would need to be created in your system for your software, so that everything is separate.  There is a cost to add this new company typically from the software provider. Other times, especially among small groups, the physicians will continue using paper charts.

3. Drawing up the contract
Work with professionals when drawing up the contract for your renters. Some will want to rent by the square foot, but that doesn't make sense from the owner's perspective because more than just the space is used; renters will be using the phone system, copy machines and hot water, among other things, already at the surgery center.

"You have to make sure you look at every possible thing within the contract," says Ms. Peterson. "It can be labor intensive to coordinate, but it's worthwhile from an income standpoint. I highly recommend the use of a comprehensive matrix of who is responsible for what and a very clear grievance process for issues that can and will arise when you 'cohabitate.'"

The contract should also address breakage or loss of instruments and equipment while the center is under the renter's care. Additional points to consider include:
•    Whether the renting group will bring their own instruments or use instrumentation in the center
•    Whether the renting group will provide their own implants
•    Terms of the contract
•    Length of time they will be renting'
•    Language to ensure the providers continue to comply with HIPAA
•    The ability to quickly  terminate the agreement under certain circumstances

Both the owners and renters should have the ability to terminate the agreement, but build in a penalty charge if the renting group decides to depart from the contract early . Before signing the contract, make sure it won't violate any federal or state regulations.

4. Renter red flags

While you might be in the ideal situation to rent out your surgery center's space, not every group will make a good tenant. Research the renting group to make sure they have a good reputation within the community and will use your facility appropriately.

"Even though they are using your surgery center under a different name on the days they are there, if they don't have a good reputation people will associate them with you," says Ms. Peterson. "If you rent to the wrong group, your quality and brand in the community can be compromised. You must make sure you are vetting potential tenants very well."

In other cases, the renters might have a good reputation within the community but may not be respectful of your space. The renters shouldn't leave a mess for your staff to clean the next morning and you don't want them removing items from the center. "There are challenges because now you are sharing your space with someone else and there will be wear and tear on the facility," says Ms. Peterson.

It's often beneficial to stage a "trial period" where the renters use the space on a very limited basis before signing the full-blown contract.

5. When renting isn't a good idea

It may be unwise to rent space in the surgery center out in some situations, even if the ASC could use the extra revenue. Owners should not rent the surgery center out to their competitors or groups that already have a shady reputation.

"If you are doing okay and your physicians are happy, don't rock the boat by taking on renters," says Ms. Peterson. Also consider whether your surgeons may want to revise their surgical practices in the future. If the center is currently closed on Fridays and you rent it out, your surgeons couldn't revise their schedule to perform cases on Fridays in the future and may decide to leave the ASC as a result.

Make sure the final contract reflects your goals as the owner first and foremost. "If you want to grow and you just need to cover the space for a short time, make a short term agreement with the renters," says Ms. Peterson. "Additionally, anything that is a compromise to your license is not a good idea."

More Articles on Surgery Centers:

15 New Benchmarks for Surgery Center Administrators

4 Tactics Payors Use to Drive Surgery Centers In-Network

7 Reasons Claims are Denied in Surgery Centers

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