Enhancing Your Practice's Revenue - California Orthopaedic ...

Space-sharing ArrangementsWhether you own or lease your real estate, having a goodlocation is paramount to the success of a practice. Qualityoffice space is desirable by all medical practices. Your spacewill therefore have value to another physician or medicalgroup looking to expand to a satellite office.Sharing your space with another physician or group ofphysicians has numerous advantages. First, the additionalsource of income will offset your own overhead. You willbe able to justify additional staffing that previously mayhave been under-utilized. Second, sharing with a subspecialistwithin your field will be a good marketing tool foryour own practice. In essence, you will be expanding yourservices with no investment. Third, sharing with a synergisticspecialty, such as rheumatology or pain managementwill enable you to broaden the types of referrals you accept.The terms of your space-sharing agreement will have tobe approved by the lessor. In a small group, sharing spacewill improve utilization of idle office space and staff. Spacesharingarrangements may be made on a per diem basis,weekly, bimonthly, or monthly depending on need andavailability.Considerations in space sharing arrangements include:1. Number of rooms to be shared (Calculate on squarefoot basis.)2. Dedicated staff (Consider salaries on hourly basis andhow appointments and calls for the new practice will behandled by the existing staff.)3. Availability/utilization of ancillary services; e.g., x-ray4. Utilities and Internet access5. Use of computer hardware6. Insurance (Will the liability carrier require addition ofthe new physician’s practice on the certificate and willthere be additional cost?)Bear in mind: in a space sharing scenario you are providing‘turn-key’ office space with staff. All of these amenitiesshould be considered when you determine fair market value(FMV) for the arrangement.There is no universal formula to determine FMV.Evaluating the space using the criteria given and using localcomparables or ‘comps’ will give you the best valuation ofyour space. ‘Comps’ are available from real estate professionalsbut also by doing your own research. Again, consultwith a health professions attorney before you move forwardwith any space-sharing arrangement to determine how thearrangement should be documented.SubleasesSubleases (subordinate leases) are similar to space-sharingarrangements. In a large office setting, additional spacemay be available for subleases. Identifying vacant space inyour building and leasing the space for subleasing is alsoan option. You may be in a unique bargaining positionto negotiate a reduction in rent as an existing tenant andthen sublease the space to one or multiple tenants for aprofit.If you lease space for the purpose of subletting, you willassume the responsibility as landlord. Although generatingadditional revenue through rent is the goal, there issignificant responsibility assumed by you as the landlord.Be aware that your tenant has no responsibility to yourlandlord under these circumstances as a sub-lessor. Thesublease should be very specific regarding the tenant’sresponsibilities and charges. If the tenant defaults on a paymentor damages the space, you are ultimately responsibleto the landlord.Considerations in subletting space include:1. The amount of rentable square footage2. Will the space be ‘turnkey,’ (completely furnished),partially furnished, or unfurnished?3. Will the space be partially staffed or unstaffed?4. If you’re leasing space with the intention of sublettingto another tenant will there be any build-out costs forthe space?5. How will the utilities, phone system and Internet accessbe apportioned?6. Liability insurance for the space as far as the leaseholder is concernedIt is important in any subletting arrangement that accuratedocumentation of the condition of the space and aninventory of all tangible items be made and acknowledgedby the tenant. Security deposits of 2-4 months are consideredcustomary in commercial real estate. Credit checksand references are also standard.Finding the right tenant is not easy. A good, stable tenantis worth a reduction in rent. The landlord/tenant relationshipneeds to be cultivated and constantly reassessed. Agood landlord will be proactive and anticipate problemsbefore they become unmanageable.Real Estate DevelopmentMedical office space in the right location can be veryvaluable. If you are considering moving your own grouppractice, developing medical space may be a good optionfor you. The advantages are ownership, space built to yourspecifications, and the ability to bring multiple practicestogether in one location. As an owner, you have rentas an additional source of income. For your own space,you would be able to develop a floor plan based uponyour specific workflow as opposed to retrofitting one in38© 2011 American Academy of Orthopaedic Surgeons