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Business Advisor
When Building, Bigger May Be Better
William Lindeman
Publish Date: June 10, 2008   |  Tags:   Facility Construction and Design

Ask a panel of industry insiders to identify the biggest mistake made in the development of ambulatory surgical facilities, and you'll invariably get at least one response of "built too big" when in fact the opposite is more likely to be true. The tragedy of the too-big response is its believability — after all, buildings are expensive.

But if you think past the big check you'll have to write for construction, and consider instead the overall investment — in terms of both daily operating costs and long-term returns — you'll find the greater mistake could be making a surgical facility too small. Here are four reasons why building bigger is better.

1. The size of your facility is only a fraction of the operational costs. Yes, you can spend too much on an overly fancy or wastefully big facility (go easy on the marble and mahogany), but budgets verified with feasibility projections can avoid that. Consider three fundamentals of a thorough feasibility study or cash flow projection, be it for a clinical practice or a surgical center:

  • one of the principal operational costs is usually the building;
  • the greatest operational cost is almost always staff; and
  • the building costs usually range between one-half and one-third of staff costs.

The biggest single dollar amount you'll face in new surgical construction is probably for the facility itself, from its bricks and mortar to the major equipment and systems. But that amount isn't really significant in terms of operational costs. What matters are the periodic payments you'll make on the capital improvement loan, because those are time-based outlays. Building a smaller facility isn't the only way to reduce these operational costs. For example, if the annual payment on a 10-year amortized loan is too high, you can try a 20-year loan instead. That adjustment, in terms of operational cost, will be roughly equal to cutting the facility size by one-third.

2. You can do more cases in a bigger facility. The volume of care or treatment delivered in any given facility accounts for 90 percent of its success or failure. The point here is that profitability only occurs after you have broken even. Once the income from procedures covers all your fixed operational costs and basic staffing (your break-even volume), profitability quickly accrues due to a drop in overhead cost per additional patient.

The surest fix to declining facility fees is to use your operating and procedure rooms more fully and efficiently, which gets to the point of why building too small a facility can be a huge mistake.

Any facility design creates a ceiling on patient volume and staff productivity: You can only deliver as much health care as there are treatment spaces and staff to accommodate it. If you boost your near-term profitability by minimizing the facility size, you also forfeit the greater profitability of future increases in procedure volume. The right size for your facility will fall somewhere between stupidly and wastefully big in terms of raw real estate and construction cost, and stupidly and wastefully small in terms of adequate care and work spaces to enable full utilization of the patient base and staff resources. The key is to find that happy medium.

3. Support space must complement treatment space. The mark of good healthcare facility design is a proportional distribution of support spaces to maximize the efficient use of treatment spaces, major medical equipment and staffing. Having more treatment areas is no better than having less if the waiting space, nursing support and administrative areas can't accommodate a larger patient volume. In other words, a facility will only be as efficient as its least efficiently planned area or sub-function.

The other principal mark of a quality plan is its flow of patients and staff in a logical, orderly and efficient manner, which is only possible with close attention to the actual sequence of the treatment process, including support functions and staff. Give all these considerations higher priority than a generic space limitation.

4. A larger facility will maintain its value. Many, if not most, physician-investors expect to sell their investment in the facility once they're done with it — as a retirement nest egg, if for no other reason. Every facility needs to maintain its value through time. Any surgery center designed to meet relatively short-term needs will have little or no flexibility to adapt to changes in regulatory standards for facility design and construction, or for evolving specialty care needs. Facilities built to minimum requirements in any given year are destined to lose value because they can't be updated without extensive remodeling, if at all.

Six Signs That Your Facility Is Too Small

Some common signs of inadequate space:

  • Staff slowed by insufficient work and support areas.
  • Equipment volumes and capacity reduced due to lack of such support spaces as changing rooms outside radiology suites.
  • Patient volume limited by incompatible multi-use of a space, such as a GI endoscopy and sterile OR combination, where intermediate cleaning times can destroy a schedule.
  • Procedure volume limited by inadequate ancillary areas. For example, do you have too few prep and recovery spaces to support the number of ORs?
  • Inability to add specialty procedures due to a lack of supply and equipment storage areas.
  • Failed licensure or certification surveys because the facility has been remodeled out of compliance with regulatory standards. For example, blocking a state-mandated safety exit by converting an empty passageway into equipment storage space.

— William E. Lindeman, AIA, NCARB

Go big
So what's the surest path to both initial and long-term profitability? A facility that's designed to make full use of its staff and ORs with enough extra space and land to permit future growth or flexibility. The most valuable facilities result from an emphasis on adequately sized support areas close to the areas served in order to maximize staffing efficiency and procedural capacity — attributes that rarely, if ever, coincide with keeping it small.