For all the disruption that has redefined health care in the past decades for private practice physicians, the biggest disruptor, by far, has been consolidation. The trend of local hospitals merging into massive health systems has significantly impacted private practices. The AMA’s Physician Practice Benchmark Surveys in 2020 revealed that 49.1% of physicians are working in practices wholly-owned by physicians, but that figure has fallen from 60.1% in 2012. Nevertheless, private practice remains a popular choice for many physicians.
Ever-larger health systems affect the flow of patient referrals a private practice needs to stay in business. They change the competitive dynamic for independent physicians, who must find more creative ways to grow their practice and remain profitable. Still, just as we are seeing the crest of the wave of physicians selling their practices to healthcare systems, we are also beginning to see a lot of the reverse trend – physicians leaving healthcare system employment and starting their own practices. As healthcare systems and hospitals drive down physician salaries and tighten the reins on institutional conformity, more and more physicians are seeking independence and financial viability.
The key question for those currently in, or considering, independent practice is how to structure a business model that provides your patients’ access to cost-effective, high-quality care within your available resources. To make the numbers work for new and existing practices, you need to find ways to bypass the crushing financial burden of start-up costs and cut expensive overhead.
It’s no surprise given these market dynamics that, for the first time, 75% of independent physicians are considering leasing, rather than owning, their medical facilities. This, along with competition from local healthcare systems, has created a surge in demand for existing facilities making this the perfect time to consider divesting your current real estate holdings and converting to a lease option.
Signs that Selling/Leasing Back Your Medical Offices May be the Right Strategy for You
- Your facility is well located in proximity to one or more large healthcare systems. Healthcare systems like to consolidate their ambulatory care providers within a fairly tight geographic radius from their primary facilities. The resulting competition for space can drive up values for local real estate, allowing you “cash out” at the height of the market without having to relocate.
- To maintain or grow your current practice you need to expand or update your facilities. A competitive market requires that you offer the most up-to-date services and technologies and that your facilities are consistently well-maintained. These factors, not to mention unexpected repairs, can result in huge capital expenditures that negatively impact your short-term cashflow and overall bottom line. Leasing transfers these types of expenses and risks to a 3rd party.
- You are looking to grow your patient base by partnering with other providers in the same medical specialty or a related specialty. There is strength in numbers and independent physicians can benefit from joining forces with other physicians in complimentary practices. However, the process of assembling the right mix of providers, finding and outfitting a facility, resolving the interests of multiple businesses, and providing ongoing management is daunting. Working with outside property management that understands the need of healthcare providers, can accomplish all the same goals with far fewer headaches.
- You’re a new physician looking to take over a practice or looking to open your own independent practice. Maybe you are a new physician looking to start your career in private practice, or perhaps you’re considering leaving a salaried position with a healthcare system to go independent. Either way, the startup costs for a new practice, or to purchase an existing practice, can be out of reach for many. Leasing your facilities, including leasing with an option to buy, can help minimize your initial cash outlay and control your monthly expenses while you establish your patient base.
- You anticipate an upcoming change in the partnership/ownership of your practice. Well maintained facilities are essential to your ability to deliver healthcare to your patients. So, no matter whether you are just starting out, looking to grow your practice, or anticipating retirement soon, a comprehensive real estate strategy should be part of your long-term business plan. Change is inevitable. A strategy that includes leasing your facilities, or leasing with an option to buy, can give you the flexibility to take advantage of new opportunities as they arise or to outlast adverse situations.