Physician groups have a variety of options for where they can practice, and they don’t always require a hospital facility, says Marisa Manley, president of Healthcare Real Estate Advisors. Here Ms. Manley offers five key insights for hospital administrators looking to fill space in their facilities.
1. Be responsive. Hospital administrators must understand that a physician group feels a sense of urgency when they are in the market for space to work. Ms. Manley once dealt with a high-end practice group looking to lease space in a hospital-owned facility and it took over a month for the hospital to respond to the physician offer. “Real estate moves quickly. To attract business you must be responsive,” says Ms. Manley. When people are in market they want to make a decision and a slow response time will lead them to take their business elsewhere.
2. Match the real estate market. It is important for administrators to understand that they need to match the market. Physicians have the option of practicing out of ambulatory surgery centers or leasing space in office buildings. These spaces may offer physicians customized space, specialized layouts and free rent periods as incentives. “Administrators must account for amenities that are available to groups outside hospitals,” says Ms. Manley.
Each physician specialty has different needs, adds Ms. Manley. Certain groups may need to open at 6am or need to be open on weekends. Will the physicians have to pay additional fees for these requirements in the hospital or can the facility accommodate them? Physician groups look at the efficiency of what they are paying for in a lease.
A hospital-based lease may initially be reasonable, but add-on charges can build. Hospitals want to recover losses, but if the physician group isn’t actually incurring the costs it will make a choice about what it’s wiling to pay when it could be much more efficient in a smaller medical office building.
3. Be flexible. Administrators should consider how they shape the package they have to offer physicians tenants. A physician group may want to lease space for its practice, but not be prepared to make a long-term commitment. A hospital with a minimum five-year lease term would be wise to allow the group to sign on for something shorter, such as three-year term, says Ms. Manley. The space still gets filled and the physicians can carry out their procedures.
Other important considerations include hours of operation and parking, says Ms. Manley. “Hospitals must be flexible to accommodate the segment of the population they are serving.” Hospitals may think ‘we have what we have,’ but they are competing with facilities that have more specialized amenities and they need to diversify themselves in order to stand out, she says.
4. Document clearly. It is extremely important to close the loop on documentation and make sure the lease commencement letter gets signed, says Ms. Manley. It is important to have a history of documentation to help explain how the terms of lease were agreed upon.
A well-negotiated transaction should consist of well-written offers and counter-offers detailing the expectations of both the hospital and the physician group. A final lease holds both sides accountable for good behavior for the length of the agreement, says Ms. Manley. “Clear documentation is always good practice and can be particularly important with hospital Stark Law.” Well-established terms that are documented can potentially save huge amounts of money.
5. Explore green upgrades. Incorporating green, environmentally friendly elements into a hospital can make it much more competitive in today’s market. “This is a good idea from an economic and an image standpoint,” says Ms. Manley. “This is the potential icing on the cake.”
Green elements in air conditioning and electrical systems are among the easier options and they can save the hospital and physician group money. “This is something people are looking for to show that they are good corporate citizens.”
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