Relocation or Renovation: How to Evaluate Your Practice Space

In John Marasco's world, medical office space would come with a warning label: Cramped digs are bad for your bottom line. The head of medical architecture and design firm Marasco & Associates in Denver, says managers get so hung up on the costs associated with relocating or expanding that they're often willing to live with inefficiencies that effect both revenue and morale. "A lot of practices are really hesitant to add square footage because the theory is that it adds dollars to overhead, but if you can see more patients per hour with the same staff you'll catch up on that additional cost really quickly and you'll actually become more profitable than before," he says, noting profitability in medicine is based on the number of patients you can move efficiently through the office.

In most practices, he notes, rent accounts for roughly 8 percent to 12 percent of overhead, while staffing accounts for 35 percent to 45 percent. "A lot of my clients make judgments based on that big rent number, but when you whittle it down to a percentage of overhead it's actually quite small," says Marasco. "If your office situation is causing inefficiencies that create the need to add additional staff, you're really doing yourself an injustice."

You're also asking for trouble with your employees. "If you take away their break room to make room for more patients, and replace their nice desks with a work station in a little closet, you start to get a very unhappy staff," says Marasco.

Assess your current space

But how do you know when it's time to move on? It all depends on your practice, your plans for future growth, and whether opportunities exist to do more with what you've got.

Does your strategic plan include adding more providers? Are you in a specialty that will see increased patient flow as a result of the aging baby boomer population, such as cardiology, orthopedics, gerontology, rheumatology, or urology? Would additional exam rooms enable your doctors to treat more patients per day?

For a general idea of where you stack up on the square footage front, you should refer to a national benchmark for nonhospital-owned practices, like the Medical Group Management Association's "2010 Cost Survey for Single-Specialty Practices." According to the survey, family practices use a median 2,132 square feet per full-time equivalent (FTE) physician, while urology groups use 2,189. Cardiology practices, meanwhile, utilize 1,931 square feet, orthopedic surgery groups use 2,749, and pediatric practices use the least at 1,722.

It's also important to get rates for medical office space in your market and compare how much more it'll cost you per month versus how much more your practice could generate by expanding.

For Ventura Ophthalmology in sunny (and pricey) Southern California, the cost benefit analysis produced a surprising result. The practice, which is currently housed in a "tight" 2,600 square-foot office, owns undeveloped property adjacent to its surgery center and spent last year evaluating whether it made sense to embark on a construction project that would increase its square footage by nearly 70 percent.

"We did a space analysis that determined that while we would have benefited significantly from increased space, the cost involved far outweighed that benefit we would have gained," says administrator Keith Wintermute. "I don't think we thought it was going to be as cost prohibitive as it turned out to be, but it was helpful to go through the process. The analysis helped to clarify our decision-making process."

For now, Wintermute says his practice plans to stay put, but that he'll revisit the issue again should market rates or staffing levels change. "Office space is very expensive and once you're in, you're in," he says. "It's a long term fixed cost no matter what happens to your business, so it needs to make sense from a strategic standpoint."

Indeed, before you make any decisions about relocating consider first whether a simple reorganization of your current space might free up the square footage you so need. It might be cheaper, for example, to move your administrative office off-site, or relocate one of your subspecialists to a nearby office if it won't disrupt your practice, says Marasco. "Let's say you're an ophthalmologist and one of the doctors in your group is an oculoplastic surgeon," he says. "You might move him into a new suite that can be customized for his needs, which would open up space for the general ophthalmologists and allow for expansion capabilities."

Put patients first

Ultimately, any move to new offices should not only benefit the physicians and staff but your patients as well, says Patricia Carrasco, administrator of Southwest Gastroenterology Associates in Albuquerque, N.M., which consolidated two offices into a single location in 2007, more than doubling its combined square footage.

The 14-provider practice, which plans to add two more doctors this year, also brought its endoscopy lab in-house. "We had run out of the support space we needed for our physicians and their staff, but the main reason we moved is patient satisfaction," she says. "Our prior locations were not as conveniently located, the parking was always a big problem, and this way patients can go to our endoscopy center right inside the building instead of having to go to the hospital."

Being housed in a single location has produced other benefits, as well. Not only has the practice been able to eliminate several duplicate staff positions, which helped offset the higher cost of moving, but the doctors were able to see more patients since they're no longer wasting part of their day in transit between offices. Carrasco has also enjoyed an added element of control.

"From a management perspective, when you're dealing with multiple facilities, it's harder to lead and control processes, like billing, admitting, and all those things that pertain to patient flow," she says. "If the receptionist is admitting patients at one location differently than they are at the other, it can be hard to manage and measure."

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for more than 17 years. Her work has appeared on CNBC.com, CNNMoney.com, and Bankrate.com. She can be reached via editor@physicianspractice.com.

This article originally appeared in the June 2011 issue of Physicians Practice.