With new regulations coming from seemingly every direction, the looming implementation of ICD10 and the far reaching effects of the Affordable Care Act practices often overlook a significant source of bottom line savings, their lease renewal. When your practice has a lease which is a year from expiration you should begin the process of planning for a successful renegotiation.
That process involves many of the same elements you consider in looking for new space. You must first examine the clinical needs of your practice at that location in terms of your current needs but more importantly in terms of your needs over the renewal term. Based on that evaluation you must determine if your current space is able to meet those needs. If your current space does not meet those needs you must determine what changes are needed and the cost and practicality of those changes. You will be signing a long term high dollar commitment which will have a significant impact on your practice’s bottom line. Many practices fail to start the renewal process early enough and they fail to consider the renewal as an opportunity to plan for the efficient operation of that location into the future. The renewal gives your practice the chance to consider how changes in healthcare will change the requirements for that particular location in terms of the amount of space needed and in the layout of the space.
To examine your current and future needs you need to begin asking questions.
- Do you plan to add or reduce the number of providers at that location during the term of the renewal?
- If you plan an increase or a decrease in the number of providers how will what effect the number of exam rooms, restrooms, and doctors offices needed?
- What changes should or could be made to the support areas based on the changes to the clinical areas which would necessitate either an increase or a decrease in the space needed?
- Will changes in your practice change the number of staff needed (either by addition or subtraction) throughout that office?
- Have equipment changes either in the front office or elsewhere caused the need for a redesign of the effected area?
- Has the patient base either current or projected changed in such a way as to necessitate the need to re-examine the geographical location of that office?
Once you have asked sufficient questions and obtained sufficient answers you can determine whether your current space can accommodate your future needs both in terms of square footage and layout. This information can then be used to make design changes to your current office and to select alternatives to your current space which meet your current and future needs. The alternatives you select serve a dual purpose. At the end of the analysis one of them may provide a better alternative than your current space and they will provide valuable leverage which you can use in negotiations with your current landlord.
Once you have picked realistic alternatives you should work thru the process just as you would if you were looking for a new space in a new area. You request proposals from your current space and the initial alternatives you selected. Based on a comparison of the responses you will choose one or two of the alternatives as finalists. These finalists are then asked to prepare preliminary floorplans and construction pricing so that each of the finalists can provide an updated proposal which reflects the lease cost and the construction cost for that alternative. Using these proposals and the updated proposal you received from your current landlord, which reflects any proposed tenant improvements, you will negotiate between options to achieve the best possible offers from each. Remember that negotiation is a process not a one time request for terms. After you feel you have negotiated the best terms obtainable from each of the options, including your current space, you compare the options and select a winner. Once chosen you negotiate a final lease document with the winner.
The process of negotiating between your current space and the alternatives provides critical leverage to make sure that whether you choose to remain in your current space or choose an alternative you have a space that will meet the changing needs of your practice over the renewal term and you have negotiated the most cost effective terms. Too many practices skip this process and as a result leave significant money on the table but with prior planning you can make a positive difference in the outcome of your next renewal.
Stan Sharp is founder of HealthOne Realty Advisors. He can be reached at 770-578-4996 .