News&Insights

Healthcare Facility Feasibility Expertise: A Comprehensive Overview

We recently shared a series of issues that often affect the feasibility of new ambulatory facility projects and our approach to successfully addressing these issues. If you missed any of these topics, we have provided a list of the issues and a link to the discussion below.

🛠️ Capacity Planning Essentials: Effective capacity planning is essential for determining healthcare facility size and scope, ensuring project success while mitigating long-term economic risks and planning for future growth. Link

📍 Strategic Site Selection: Applying retail strategies, conducting the necessary due diligence, and protecting your confidentiality are often the key drivers of acquiring the right site for the right costs. Link

🏗️ Redevelopment Opportunities Transforming existing retail and office buildings into healthcare facilities requires a thorough upfront analysis to determine the suitability, cost-effectiveness, and timeliness of achieving the healthcare delivery goals. Link

📊 Cost Management Strategies Applying effective cost-management, quality, and schedule management tools set the foundation for a financially viable and timely facility. Link

💰 Optimal Financing Strategies Determining the optimal financing strategy for a new facility project requires a thorough understanding and balancing of the underlying business plan, capital, and physician alignment goals. Link

🤝 Real Estate Joint Ventures. Appropriately structured real estate investment opportunities can serve as an effective physician recruitment tool by providing physicians with a long-term investment opportunity. Link

If any of these issues apply to your situation, our team is available to help identify and implement the solution that is best for you.

🔗 MedCraft.com
✉️ mcmarketing@medcraft.com
☎️ (952) 829-3488

🤝 Maximizing Value Through Real Estate Joint Ventures 

In this series, we have focused on the critical issues that often affect the feasibility of new facility projects and how to address barriers to drive to operational results. In this final post, our focus is on the key considerations for how to apply real estate investment as an effective strategy to create long term value for physician and hospital investors including:

• 👨‍⚕️ Recruitment tools to attract independent and employed physicians to your organization
• 💰 Steady returns that increase physician compensation
• 🏥 Long-term alignment through an economic investment in a facility
• 💼 Reduced up-front capital costs

To effectively utilize and apply real estate investment for realizing this value, there are several key considerations that should be considered to ensure its success.

Key Considerations 

1. Business Plan Objectives 📑 Often an optional real estate investment is primarily driven by the development or relocation of a joint venture such as an ambulatory surgery facility, diagnostic center, or other venture. Because the true success of the real estate is directly tied to the performance of the underlying service, the real estate economics should support the required return on investment within the operating entity business plan.
2. Regulatory Compliance ⚖️ Real estate is one of the most regulated and risky of the contractual relationships that involve hospitals and physicians, especially as it relates to the adherence to the Stark Law and federal Anti-Kickback statutes. All transactions must be structured so that they meet fair market value standards to avoid being interpreted as creating value in exchange for patient referrals. To address this risk, it is often best to utilize a third-party real estate firm that is not considered a healthcare provider. This effectively nullifies the risk and ensures full compliance with the various laws and statutes.
3. Financial Leverage 📈 New ventures typically require a significant up-front investment for the design and construction of new facilities, medical equipment, financing costs, working capital, and other start-up costs. Leveraging capital provided by a real estate partner often lowers the up-front cash investments required by individual physician, physician groups, and hospital partners while optimizing physician and hospital returns.
4. Long-Term Commitment 🏢 The greatest value of a real estate investment is primarily generated over the long-term through asset appreciation and the paydown of debt. Structuring a real estate investment for long-term value creation results in lasting commitment to a facility and collegiality amongst the various investors.

Our team has years of experience and a track record of structuring successful real estate partnerships. To learn more about how to effectively apply this strategy to your next facility project, contact us:

🔗 MedCraft.com

✉️  mcmarketing@medcraft.com       

☎️ (952) 829-3488

💰 Determining the Optimal Financing Strategy

Selecting the optimal financing strategy for a healthcare facility project is a multifaceted process that depends on several key factors.

• The level of business risk with the underlying programs or services, particularly if they are a start-up venture with a high-risk profile
• The location of a new facility and proximity to a hospital campus
• The demographic composition of a market
• The building occupants and the inclusion of independent physicians, joint ventures, or other third-parties
• An organization’s creditworthiness
• Access and availability of capital and other competing needs

The right financing strategy for a specific project is often shaped by these and many others factors. Fortunately, there are a variety of financing sources that can provide the optimal value for the specific needs of the project and organization.

Financing Sources  

1. Traditional Debt 🏦 The debt and bond markets for many healthcare providers with strong credit ratings and balance sheets continue to be a reliable source of capital.  As the financial markets enter what is anticipated to be a period of de-escalation, interest rates and terms should become more favorable for the right facility project.
2. Government-Supported Programs 🏛️ For healthcare providers in rural communities, the USDA provides highly competitive financing for new facility projects that might not otherwise be available. Because it is a government funded program, it does bring certain complexities that must be navigated and managed.
3. Alternative Financing ⚡ Financing projects with a preferred development partner can be an efficient and cost-effective source of financing particularly when there is a high level of business risk, the building occupancy involves third-party physician or joint venture programs, or speed to market is critical. Because the value of the financing is based on the terms of the lease, it may preserve balance sheet capacity for other strategic investments.
4. Charitable Lease Structures 💵 For not-for-profit providers with investment grade credit, bondable lease structures that provide the balance sheet benefits of a traditional lease at lower interest rates, exemptions from property and sales taxes, and beneficial purchase options are a worthy consideration. The provider’s total occupancy in the building, long-term ownership plans, and credit rating are key factors that determine the appropriateness of this financing option.

Throughout the feasibility planning effort for a new facility project, our team helps healthcare providers model and determine which financing strategy best meets their financial and business plan goals. Contact mcmarketing@medcraft.com to discuss your next project and how MedCraft can help you determine the optimal financing source.

📊 Cost Management for Healthcare Facility Project Success

Laying a solid financial foundation early in the planning process is critical to the success of any new facility development. It sets the stage for effective cost management, ensuring that all aspects of the project are financially viable and well-coordinated from the outset. By establishing a comprehensive budget early on, project leaders can accurately estimate costs, allocate resources efficiently, and anticipate potential financial challenges.

In this series, we have provided insights into capacity planning, site selection, sizing facilities and below we are delving into the crucial role of planning for cost management to ensure a project’s success.

Key Components of Planning and Cost Management

💰 Budget Control – Cost estimation and early budgeting allows for a more accurate estimation of the overall project costs and cash flow, including construction, materials, labor, and potential contingencies, as well as when funds will be required. We consider each phase of the process as an opportunity to manage, refine, and reduce upfront project costs and ultimately long-term operating costs, while maintaining quality and performance.

🕒 Time Management – Establishing a detailed timeline and critical path schedule serves as a foundation to any project. It also ensures transparency and consensus on key-milestones – allowing for actively managing the schedule and budget versus being reactive.

🛡️ Quality Assurance – Maintaining quality standards and conducting consistent reviews throughout helps maintain a high quality and the ability to address issues promptly.

🔄 Flexibility and Adaptability – A well-planned project with a clear scope can adapt more easily to changes or unforeseen circumstances without significant disruptions and can flex in size based on project needs or external factors.

🧩 Improved Decision-Making – Engaging key stakeholders in the decision-making process to ensure an informed, data-driven, and transparent process. This early alignment also allows for strategic adjustments throughout the course of a project.

⚙️ Enhanced Performance and Efficiency – Streamlining processes with clear planning and cost management reduces waste, optimizes operations, maximizes productivity, and drives positive results.

We cannot underscore enough the importance of having an established budget and timeline early in the process. Having these key considerations as the foundation of every project helps mitigate unforeseen challenges. By investing time and effort in these foundational steps, you’re paving the way for a successful project execution and achievement of desired outcomes.

Contact us to learn how our team can help you with your next project mcmarketing@medcraft.com

🏗️ Redevelopment of Existing Retail and Office Buildings 🏥
As healthcare organizations evaluate potential locations for a new ambulatory care facility, the redevelopment of existing office and retail buildings can provide a viable option with several potential benefits:

• lower overall development costs than a ground-up development
• speed to market by leveraging existing building and site infrastructure
• buildings located in attractive areas with high traffic, visibility, and abundant parking
• community support to redevelop vacant or underutilized buildings

To fully realize these benefits, we recommend a thorough evaluation that involves the following key areas of focus.

🔑 Key Considerations for Repurposing Retail Space
1. Due Diligence and Testing: It is essential to learn about the building’s current state and historical uses. Obtain as-built plans, conduct environmental assessments, site surveys, title searches and investigate asbestos, lead paint, mold, and indoor air quality issues to determine the costs, timing, and impact of any required environmental remediation.

2. Program Functionality: Since retail and office locations are not typically designed for healthcare, it is important to determine how well the healthcare programs fit within the existing building configuration. Develop programmatic fit plans that help to determine whether the building supports optimal operational efficiency and functionality for the specific program uses.

3. Building Structure: Retail and office structures are often designed to lower structural loading criteria. Additional structural steel modifications may be required to support additional loads required for major medical equipment, operating rooms, and higher intensity uses. Evaluate the roof and walls for load capacities, insulation, and structural integrity. And finally, consider if energy efficiency upgrades and necessary modifications for floor-to-roof heights and new windows can be implemented cost-effectively.

4. Building Systems: Commercial buildings typically have basic plumbing and HVAC systems that require significant enhancements to meet the requirements of healthcare uses such as exam room pluming, sterilization needs, and more stringent HVAC ventilation for infection control. Healthcare facilities also require an intricate lighting plan, a robust low voltage system, and abundant power to support specialty equipment. Assess the existing electrical system for capacity and safety and plan for necessary upgrades to support healthcare operations and back-up power needs.

5. City Approvals: Investigate zoning requirements and engage with city stakeholders early in the process to assess their level of support for a new healthcare use and potential economic incentives. Engage a civil engineer familiar with local regulations to provide a clear understanding of the challenges, approval timeframes, and issues that will have to be addressed in the redevelopment.

🔍 Informed Decision-Making: As described, a thorough analysis will help determine if a redevelopment is cost-effective, achieves speed to market, and effectively positions healthcare providers in a target market. To assist with evaluating a redevelopment opportunity, we have a multi-disciplinary team of experts that can guide you through the process.
📄 Learn how we partnered with Yale New Haven Health on acquisition and redevelopment considerations for a vacant Macy’s in Connecticut. [Link to article here]

🏥 Strategic Site Selection: The Importance of Timeliness and Market Awareness in Healthcare Expansion

As ambulatory services and community outreach grow, healthcare providers are increasingly seeking convenient locations, whether in emerging greenfield communities or infill sites in urban and suburban markets. Providers are adopting a strategic approach similar to traditional retailers, prioritizing prime locations.

⏳Timeliness in Planning

A key but often overlooked aspect of strategic planning is the timeliness of implementation. Retailers typically identify target markets years in advance, allowing flexibility to adjust based on changing business and market conditions. However, many healthcare organizations rush into execution without fully considering local market dynamics or the value of patience in acquiring new sites.

📊 Market Awareness

By carefully tracking market conditions, organizations can secure prime locations at reduced costs or uncover opportunities requiring a longer timeline, such as property aggregation. For example, on behalf of a health system client, we recently facilitated the strategic acquisition of 110 acres of greenfield land, comprising 19 parcels, over 2.5 years for a future hospital campus relocation. Careful considerations in the negotiation process ensured the parcels were acquired for less than their aggregated value, providing both savings and greater flexibility in expanding services at the site.

🛠️ Recommendations Site Planning New Facilities:

1. Implement multi-year planning: Forecast potential needs and continuously monitor the local market conditions. Whether planning for one or multiple locations, the principal remains the same – exercise patience and remain flexible, as the right location may emerge at any time. Being willing to “swap” locations may be financially and operationally advantageous.

2. Create and Align Your Team: Engage experts early to identify the process, costs, and timeline of any potential real estate transaction. Early involvement allows them to anticipate and navigate potential roadblocks, ensuring they’re ready to execute as priorities shift.

3. Control your message: When communicating long-term intentions, maintain flexibility in location priorities. The ability to adjust the order of site implementation ensures the acquisition of the best sites at the best price.

Let us help you navigate the complexities of finding the ideal site for your future development project. Leverage our team of experts, exclusively committed to healthcare, backed by decades of  experience. Contact us for an informal conversation about how we can partner to meet your needs and make your life easier, reach us at mcmarketing@medcraft.com

🚀 Capacity Planning for Healthcare Development Projects 🏥

A successful healthcare development project always starts with a sound business plan that clearly defines a project’s success, the underlying risk factors, and the investment of capital and human resources that are required to get the project off the ground.  There are several components of a business plan that are particularly important for helping shape a facility plan.  The first of which is capacity planning.

📈 Volume Projections: An essential and critical driver of facility capacity planning that ultimately determines the overall size and scope of a healthcare facility.  Most often, a new facility project is intended to support the growth of an existing service or the establishment of a new service.  There are many factors that help shape the projections such as:

• the unmet need in a particular service area
• physician recruitment and utilization
• market demographic trends
• consumer preferences
• technology and medical advances

While we would expect volume projections to be a precise science, we know from experience that the actual performance can vary widely for a variety reasons. Building it too small risks outgrowing the facility within a matter of a few years. Conversely, building it too large and you risk carrying excessive fixed overhead costs without the necessary supporting revenue.

📐Recommendations for Sizing Facilities:

1. Apply Efficient Practices: Utilize efficient operational and best practices for future state planning, rather than relying on current methods. We often find that the design process is delegated to user groups that may have limited experience outside their current facility, leading to carrying forward workarounds or misplaced assumptions that leads to more capacity as the solution rather addressing the underlying operational issues.

2. Avoid Unnecessary Shelled Spaces: Only build shelled spaces if there is solid data that the additional capacity will be needed within the next 2 or 3 years.  While there are some advantages of constructing shelled spaces for economies of scale and speed to market when the additional capacity is needed, unutilized spaces that do not generate revenue can create a drag on operational performance and affect overall project viability.

3. Plan for Horizontal Expansion: Where possible, design and plan your facility so that you can construct a building expansion when the volumes justify a program expansion.

4. Think Like a Retailer: When contemplating future growth, consider new locations in an adjacent market that allow you to further expand your market share. Seldom do we see traditional retailers adding to an existing facility, instead they see growth as a launching pad for a new location that allows them to draw an expanded customer base.

Stay tuned for expert advice from a team that has been developing healthcare real estate for 40+ years. Contact us for an informal conversation about how we can partner to meet your needs and make your life easier, reach us at mcmarketing@medcraft.com

Over the next few weeks, we’ll be diving into key topics to help healthcare providers navigate the complexities of ambulatory care projects. Here’s what you can look forward to:

🛠️ Pre-Development and Capacity Planning
A successful project starts with a good plan. Learn how to benefit from a developer-led process even if you plan to fund the project yourself.

📍 New Ambulatory Development/Site Selection
Learn about selecting the perfect site for your new ambulatory project, validating the need for development, and the key factors to consider.

🏗️ Redevelopment in Place/Repurposing of Existing Building
Explore how to effectively redevelop or repurpose your current facilities to meet new demands.

📊 Cost Management
Get insights into effective project management that saves you time, money, and resources.

💰 Capital Planning
Understand the essentials of capital planning to secure funding for your ambulatory initiatives.

🤝 Joint Ventures
Discover the benefits of joint ventures and how to create long-term alignment with independent physicians and provider organizations.

Stay tuned for expert advice from a team that has been developing healthcare real estate for 40+ years. Contact us for an informal conversation about how we can partner to meet your needs and make your life easier, reach us at mcmarketing@medcraft.com

Through years of delivering cost-effective healthcare facilities across the country, we know how to overcome the challenges that often impede the successful development of ambulatory facilities. Prior to our involvement, we often hear from our clients that:

• The project is too expensive
• The project scope does not support their underlying business plan
• The development schedule does not achieve speed to market
• The project needs to drive greater physician alignment
• There are a lack of cost-effective sites within our target market

When these and other challenges arise, MedCraft is here to help! We offer our development expertise as a thought partner to help you identify and address the fundamental issues that may be affecting the feasibility of a project and offer creative solutions that give you the confidence to move forward.

Contact us to learn how our team can assist you mcmarketing@medcraft.com