10 Top Things to Know About Surgery Center Real Estate Investments

Suzy Cobin, senior vice president of Chicago-based of HSA PrimeCare, a real estate developer and private equity source with a primary focus on healthcare real estate, discusses the top ten things physicians should know about real estate development for surgery centers.

1. Don't put all your capital into real estate. Surgeons have busy clinical and professional lives, and with today's unstable healthcare environment and economy tying up all their capital with real estate is hardly advisable. Instead, surgeons investing in a surgery center may want to allow a real estate developer into the transaction.

"Our position is that physicians shouldn't be putting a bunch of capital into the ownership of the building because they aren't healthcare real estate experts and they don't have the bandwidth or the time to manage real estate," says Ms. Cobin. "They also don't want to tie up all their capital. Surgeons often want to own a building themselves, but as the economy has taken a hit they are realizing that real estate isn't the investment it used to be and now they have less money to invest."

Instead, surgeons can allow the developer to manage the building while maintaining ownership and signage. This arrangement also makes a future transition to hospital alignment or ownership easier in the future.

2. Choose the right location. Location is arguably the most important aspect of constructing a new surgery center; if the location can't support future growth or won't be easily accessible to patients, it can turn into a business disaster.

"A physician may be attached to a certain location because it is convenient for patients, but they should engage with a real estate advisor or partner who can tease out additional dynamics of the location for them," says Ms. Cobin. "Patient access is important, but there might be environmental issues, parking issues or outside projects coming down the pipe that would make it difficult for patient flow in the future. Physician owners should work with someone who can really understand their needs and do site selection."

Each arrangement with a real estate advisor is different and can be tailored to the physician's needs. "There might be financial arrangements the physician isn't aware of that would give them control over the facility," says Ms. Cobin. "We can advise and provide the full scope of opportunities."

3. Think through facility size. The size of the surgery center is crucial for future survival; if it's too big, it could cause inefficiencies and loss of revenue, but if it's too small it won't facilitate patient volume or growth in the future. Size also depends on which types of procedures will be done at the center: procedure rooms for endoscopy or pain management can be much smaller than rooms fit for orthopedic and spine surgery.

"Use population health management to help predict patient volume trends and decide where the site should be," says Ms. Cobin. "Some physicians really want the surgery center to be large and you want to make sure you are getting the right size for demographic growth."

For example, if you are a large academic hospital that decides to build a surgery center in a surrounding community where the main hospital currently attracts a large patient volume, the new facility should not only accommodate all of those patients but also attract new patients from the community to sustain itself.

4. Avoid too much customization and stick to a budget.
Physician owners often want to make their surgery center unique, but if you customize too much it will be difficult to rent or sell in the future. Potential buyers or renters will be driven away by a facility that can't be altered or manipulated to fit their future needs as well.

"If you are building or developing a medical building from scratch, it's important to not just build for your physician needs and make it too customized because it definitely makes it difficult to sell in the future or rent out," says Ms. Cobin.

It is also important to stick to the budget based on operational forecasts and market-based rent comparables. "You don't want to over-build, because you may not get your money back," says Ms. Cobin. "You can always add on later if the market dictates."

5. Plan for new healthcare technology.
Healthcare is an ever-developing field and you want your building to accommodate new technology. Moving a large X-ray or upgrading surgical equipment could be difficult unless the building is structured to accommodate the transition.

"Healthcare technology is moving fast and it can be challenging to put a piece of imaging equipment on the second floor," says Ms. Cobin. "You want to be able to swap that out easily when new technology comes along. If the building is under construction and you build the walls around the technology, it will be difficult to move it out again."

Instead of building regular walls, surgery centers should consider using panels in the ceiling or sliding walls that can be deconstructed quickly for equipment upgrades over time.

6. Consider patient access within the building.
Depending on the specialty mix, surgery centers may want to consider having all patient services on the first floor or large hallways to accommodate for geriatric patients with walkers.

"If you are an orthopedic surgeon, it's hard to have your office on a floor other than the first floor because the patients have mobility issues," says Ms. Cobin. "If you are an orthopedic surgeon with a rehabilitation component, unless you have elevators and sliding doors for the patients to get in and out of easily, you'll want those services on the first floor as well. Plan for obese or geriatric patients by using sliding doors instead of revolving doors."

7. Make sure there are enough outlets.
With the digital age upon us, extra outlets are a must in new surgery centers. You'll need telephone lines for computer access, high speed internet connections and WiFi technology. Outlets will be necessary for all the current surgical equipment as well as computers and electronic medical records.

"As practices move to EMRs and other technology they need to have an infrastructure with extra outlets," says Ms. Cobin. "Having a good building engineer is important to make sure you think through all these issues before beginning the project."

Surgery centers that depend on electricity should also purchase a generator in case there is a power outage; this is especially true if the ASC is a fertility center because refrigeration is essential to keep the temperature low.

8. Understand how different physicians can work together.
To optimize patient and staff workflow within the center, understand how different physicians and specialists work together on patient care. If the center is multispecialty, physicians may refer to one another and create more business for the ASC.

"Think through the types of physicians in that building," says Ms. Cobin. "If you are an orthopedic surgeon and a pain management physician, you can cross stream referral patterns together."

When the cross referral process is going on, you want to make sure patients can move seamlessly from one specialist to another.

9. Beware of environmental issues.
There are several red flags that should make you reconsider a building or its location, most important being environmental issues. For example, you don't want to locate the surgery center too close to the highway because vibrations from traveling vehicles could make operating difficult.

"If you are a surgeon you want to make sure there aren't any vibrations from the highway," says Ms. Cobin. "Make sure you have a good water source, especially if you are an infusion-based surgery center."

10. Design the space with flexibility.
Space flexibility is important when planning for the future of the surgery center. Make sure you are able to easily renovate the space as new ideas and technology transforms your ASC.

"Make sure the space can be re-utilized and your practice can be dynamic for change in the future," says Ms. Cobin. "A long time ago, medical buildings often had surgeon offices in the back and exam rooms up front; now they are built for group visits with examination rooms large enough for families or several patients at one time. Think about what the rooms should look like physically and how they should be flexible."

More Articles on Surgical Centers:

5 Steps to Avoid Critical Mistakes in Building and Operating a Surgery Center

13 New Proposals for Ambulatory Surgery Centers

10 Statistics on Average Percent of Medicare Rates for Best Payors

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