Time For Renewal:

Time For Renewal:
Build New or Expand?

By Jennifer Schraag

Business is booming and your facility is no longer providing up to par. This is one fork in the road that every center owner would be fortunate to come to, but it is also one filled with great confusion and often hidden consequences.

The ambulatory surgery center (ASC) industry is booming, with new centers sprouting up all over the nation. If your center has more cases than room to handle them, then this is one topic you should study closely. Many growth options are available, but knowing which avenue is most feasible to follow can be a challenge. Proper planning, thorough investigation, and extreme caution all must first be taken because, after all, you certainly don’t want to ruin the success you’ve worked so hard to create.

Jeffery Eckert, AIA, principal and founding partner of Eckert Wordell, an architectural group that specializes in surgery centers, says there are many variables that go into deciding whether to build new or expand existing facilities, but he asserts, the very first and foremost consideration is the financial feasibility of the project.

“People will call us and say ‘We need a third operating room (OR)’ or ‘We think we’re going to buy this facility that used to be a surgery center and we’re going to renovate it. Can you tell us if that makes sense?’ Well, the first question we have is what are you going to use it for? What types of cases, how many cases, and what is the financial feasibility? That is the first step. What does the financial feasibility indicate? It is from that operations bucket that we can assess building new or expanding an existing facility or renovating an existing facility. We can assess whether it makes sense toward those programmed questions.”

He explains that he sees surgery center projects founded around two “buckets” of services. “The first bucket is more the operations side,” he says, “the stuff that is the business side of it. Then you have the facility bucket, which we work in. We feel strongly that you have to look at all of these avenues, the operations/business side and the financial/ facility side. Those two buckets have got to work and function together.”

“One of the things we look at after the financials is the technology that is in that facility,” Eckert continues. “Are they operating in ORs with one boom and one surgical light or do they have multiple booms and technology that is in place in the facility? Or do they have to come in and renovate the entire facility to bring it up to current technology levels to provide the state-of-the-art care that their counterparts are providing to make them competitive?”

This comes back to the two questions: What types of case and how many? The type of cases is going to determine what type of ORs are needed, how many ORs are needed, and what type of technology it is going to take to fill them.

“It is also going to tell you how many pre- and post-op rooms you are going to need in order to meet the schedule and handle the volume of patients that are coming in there,” Eckert adds. In ASC design, there is a certain flow that must be developed into every architectural plan of a surgery center. Most importantly, there has to be an ample amount of pre- and post-op rooms per surgery suite.

“Most people look at the core, which is the OR,” Eckert shares. “They think they can just add one more OR and everything’s going to be great. Well, they’re not too far off as far as equipment goes. If you are a two-OR and going to three, you are probably not going to have to add a lot more new sterilizers or equipment storage, but where you really get hurt is in the pre- and post-op wards. That becomes the bottleneck. You have to have enough pre- and post-op so you can handle the volume of patients to feed the ORs and then to empty the ORs. I have seen way too many times doctors spend millions of dollars on building one OR onto an existing facility and equipping it only to come in and find that OR vacant because every pre- and post-op room is full. They can’t get a patient in there for pre-op and once the case is done, they won’t be able to get the patient into post-op. Understanding the program and the limitations are very important.” Not really understanding your needs and making sure it is financially viable is where the trouble begins, he adds.

Gordon J. Bruinsma, CPA, owner of Physician Planning and Consulting, says expansion is the way to go in many cases. He says that leaving your existing facility would be a poor choice. “I can’t imagine abandoning an existing facility, from a real estate standpoint,” he affirms.

He points out that in most cases centers that have been built relatively recently usually has enough land to accommodate an expansion. “Very, very infrequently we result in a situation where we don’t have enough land to expand,” he says.

“The problem you run into,” he continues, “especially if the physicians own the center, is who are you going to sell it to? Are you going to sell it to a competitor? Or are you going to use it for a different use? Well, surgery centers cost a lot more than what a medical office building would cost, so what you are saying is ‘I’m going to take my real estate investment and cut its value down by converting it to something else.’ Now if you’re just renting the space, then that’s an easier decision because your lease may be coming up, and you can say ‘at the end of my lease I am leaving and I’m going to go do something different’ and you have more flexibility, but if you have ownership that’s a whole different situation.”

If the surgery center is located in a multi-tenant building, Bruinsma says it is wise to negotiate the initial lease to include some clause whereby expansion into an adjoining space is a future option. “That would be the best scenario,” he offers. “You must plan for this type of thing by ensuring that the leases next door are shorter term leases, so at certain intervals (i.e. three-year or five-year intervals) you will be able to expand. We always try to encourage physicians to have expansion capabilities in their lease if it is a multi-tenant building. If you don’t, you can run into a landlocked situation and then what do we do?”

For expansion or renovation of a freestanding center, Bruinsma says all you’d have to basically look at is your land size and ensure you would have enough room to expand out.

However, Mike Gordon, AIA, owner and chief executive officer of Mount Dora, Fla.- based Gordon and Associates Architects, says the biggest issue in expanding a surgery center is that you also have to expand its infrastructure. “If your infrastructure is only designed and constructed to facilitate two ORs to begin with, to throw in a third or a fourth OR without changing your infrastructure means that ASC is not going to work,” he asserts.

His solution is to place functions of a surgery center that would be expandable on the exterior of a building, such as the ORs and the sterile corridor. If the ORs are in a line and you want to expand the building or a space within that area then you can easily continue your line of ORs and sterile corridor through the expansion. “Similarly,” he adds, “with the pre-op and the post-op, if we put one of them on the exterior wall and we expand what we’ve done in the past is to just build a new recovery and convert the existing recovery and pre-op to all pre-op. So they’ve almost doubled their capacity without having to change a lot of the infrastructure.”

Geographic location is also a consideration in deciding whether to build new, expand or renovate an existing facility. The No. 1 difficulty in some areas is if there is any land readily available in the area you are hoping to acquire? Bruinsma says land on the East coast and on the West coast is so expensive that in most cases there is no choice but to go into an existing facility and renovate the existing building. Eckert agrees, adding that in certain areas one can buy a whole lot more facility for less expensive than one can build, so in those cases it makes more sense to buy and renovate – even with the additional costs renovations will present. “But then there are other communities among the Midwest states where land is readily available,” Bruinsma interjects. “You can build what you want as well as have enough land for expansion down the road.”

Gordon also points out that certain locations pose individualistic considerations. For example, in Florida it is very difficult to expand a surgery center because of the moisture, he explains. “There are many facilities in Florida in existing buildings that don’t have the proper vapor barrier and if you try to expand a facility that does not have the proper vapor barrier you are forcing the situation,” he says.

A fourth alternative, as Bruinsma offers, is a satellite center. “The reason you need to expand, obviously, is because the center is doing so well. Would you be better off putting up another one, a mirror one, 10 to 15 miles from there and taking advantage of servicing maybe a different market,” he asks.

Gordon says his firm recently worked with a client who had an existing two OR surgery center on the East coast of Florida and was in need of larger amenities. The owners ultimately decided to build another surgery center continuous to the existing facility in an available space next door. The new center featured two ORs, thus providing the additional operating space they had needed.

Hidden costs and additional considerations exist for both sides of the coin, but in renovating caution must be taken. Eckert says close attention must be paid to building code regulations, for example. “When doing a renovation of a building you must comply by the current codes,” he offers. “But oftentimes, and it depends state by state and even local jurisdiction, you do have to bring the entire building up to current codes, not just the portion of the new construction,” he warns. “This is often the case,” he continues, “and you may find that when your existing OR rooms were done, they were 800 square feet and you’re in a Class C operation (for example, orthopedic cases). You’re grandfathered in the existing code. They can’t make you update the building. But if you update the building, they can make you bring it all up to current code. So make sure you follow the existing codes. Make sure you are going to meet and/or exceed the requirements of who has jurisdiction over the project (i.e. local building departments, public health, and your third party reimbursement).”

The center Gordon spoke of in Florida had chosen the satellite facility because it would have cost the owners a substantial amount of money to comply by current codes. The existing center had been licensed seven years prior and thus no longer complied with the codes for that area. In order to update the facility to the point it did comply, Gordon says the entire building would have had to been shut down. “Sometimes the cost of shutting down is far more than the cost of renovating,” he adds. Adding the satellite center next door, he points out, was a more financially feasible choice in this case because “they may be able to share some resources and we don’t touch the existing center. Therefore it doesn’t have to comply with current code. It maintains its grandfathered status.” This is good in states where you don’t have a certificate of need (CON) requirement, he adds.

Eckert also reminds those expanding an existing facility that an infection control risk assessment (ICRA) must be completed and adhered to throughout the process. “In fact, you have to file letters and contractors have to be certified, you have to watch the air quality and quantity, and all of those things add additional expenses to the bottom line.”

When building new this is not necessary, he adds. “It’s quicker, it’s more efficient, and it has lower costs.” He says building new reflects lower costs because it is generally easier to come in and start fresh than to pull it all apart and piece it back together.

“I think in both cases, the thing I see people missing the most is they do not really assess the values that need to be assessed before they begin,” Eckert asserts. “In other words, what am I going to need for pre- and post-op, what am I going to need for technology, what am I going to need for all areas that impact what you are thinking of doing and what it will cost.”

Bruinsma agrees that many do not plan correctly and he warns that the repercussions can be substantial. “It is very expensive to alter what you’ve already constructed or equipped,” he points out. “That is why the planning process and the integration between the surgery center company, the architect, the developer, the physicians, and the equipper is very important. Everyone is on the same page so that everyone is talking and we’re not missing anyone’s expectations. If you have the right consultants involved, they will give you the proper advice of how to stage your project as you grow.”

If the mistake of not planning for the future is inflicting a center now, it is as important or more so to carefully consider for the new project. All too often this is a mistake that is made over and over again. There is a fine line as to what may be feasible and what is not when building to accommodate the future. Bruinsma recognizes that it is more expensive to build onto your building, but if you pre-build, he says you have to weigh the costs the center will have to absorb over say a five-year period while sitting on unproductive space. “If you’re not going to do anything for five years or so then you are better off, I would think, to expand later,” he says. “If you’re going to do something in two or three years, then I would shell out the space and then finish it later.”

Building for the future gets further detailed. To stay competitive and to stay in providing state-of-the-art healthcare, you’re going to need to be in the position where you can implement new things into the facility relatively easily, according to Eckert. “You have to be careful how you put in duct work, how you put in access for electrical systems, access for future expansion,” he advises. “You always want to be able to expand so you can add more OR rooms and you want to make sure that you can add ancillary spaces – particularly pre- and post-op rooms.”

Integration of technology is another good example to prove the importance of future planning, as well and one that is often overlooked according to Eckert. “I think all surgery centers being built should be anticipating the changes technology brings. To bring in the technology that is current you have to do some major renovations to existing conditions.” This brings additional, unplanned costs he says, and could be a repetitive hindrance as technology continues to change at increasingly rapid speeds.

Marion K. Jenkins, PhD, chief executive officer of QSE Technologies Inc., a Colorado- based firm that specializes in the design of information technology infrastructures for ASCs and medical office buildings, says a thorough assessment of technology needs is imperative -- for now and for the future.

“Anytime you are doing major work on a facility, whether it is new construction or a major remodel, it is very important to take a look at the technology infrastructure that is in the building and make sure that it allows for what’s coming next or what is available now, but not yet implemented. Specifically, this concerns things like imaging, dictation, case documentation, external interfaces to and from hospital systems, and external interfaces to and from physician practices, and lastly, secure work from home or work remotely.”

Keep in mind, he warns, that these technology needs are not solely isolated to the business office, it also is becoming increasingly important in the OR. “In the ORs there are more and more medical devices that want to or need to talk to the network,” Jenkins explains. “For example, the ability to capture images from a scope or from an overhead boom and have those images either stored or relayed to say a conference room in the building or captured for the patient for patient education. More and more software packages are allowing that and enabling that.

“The main thing here, I think, is that’s what hospitals have and ASCs need to get on the same playing field as the hospitals they are competing with. Patients are equating good, visible technology with favorable outcomes. If you go to a hospital with a broken leg, you come away with a CD of your information, of your images. People are expecting more and more to have that and to see that. So that requires that things like network access and security issues be addressed in the ORs.”

Jenkins points out that because bandwidth and storage costs are currently very low, the technology is now available at a much more reasonable price point for surgery centers to become very advanced.

We’re a little bit in a Rodney Dangerfield kind of mode because things like fireplaces and aquariums or some of the creature comforts get really emphasized and things like electronic medical records are coming, they are inevitable, so automation and good technology is vital to plan in from day one. It’s all about the data. You can’t manage a business without data and unless you have the ability to capture, restore, and retrieve the data then you’re just kind of practicing old school. The software is absolutely there, there’s many, many packages that do it very well, but you have to have some infrastructure in place in order to take advantage of that software.

The building systems – both mechanical and electrical – also are commonly overlooked aspects. Eckerd says oftentimes the mechanical system isn’t considered until it is too late. “You’ll have all this bright space and everything just perfect so that you can add that extra OR room and expand the pre- and post-op rooms only to find that the mechanical system was large enough just barely to handle what is there. Now you have to redo the mechanical system or add onto the mechanical system. The emergency generator is only big enough to handle the (original) requirements and that was done 15 years ago. Now you’re going to have to have it handle these changes and upgrade it for that too.”

Overall, Eckert says the key in deciding which avenue to take is by exploring all of the variables and making sure you are comparing apples to apples. “The bottom line is make sure you know the costs of one vs. the other and that you are really looking at not just what I think I need, but what I am really going to need to get me to the area where I am going to be able to do it,” he says.

“It all goes back to the feasibility of the business,” adds Bruinsma. “Can the business support building on? That is how we start every project. What can the facility afford to pay on a monthly basis and be able to give a profit that is good enough to attract physicians to be owners? You have to look at it the same way when you’re expanding. The incremental cost of putting that 2,000, 3,000 or 4,000 square foot addition on; can it be absorbed into the feasibility of the surgery center and still get the doctors the return that they want? That is the bottom line. It has to go back to the feasibility of the business. That is what should drive every real estate decision.”

Plan for the future, plan for changes to happen – both in renovation and in new construction, Eckerd concludes. 

A More Simplistic Approach

ASC owners can take heart in knowing that there are a few hidden secrets in finding more space within a facility without having to do too much or excessive reconstruction.

The easiest aspect to consider is the schedule, according to Jeffery Eckert, AIA, principal and founding partner of Eckert Wordell. “What we have found, and this is typically a non-architectural element, concerning as it is, but when you’re looking at it, we can find where physicians aren’t really doing good box scheduling. They are mixing cases that are using two ors (operating rooms) in a three or facility because they have maximized pre- or post-op whereas if they pulled them apart or scheduled them different, they might be able to use all three ors with the same amount of pre- and post-op areas.”

Eckert also says a center may do well to consider expanding the days or the time periods of operations to get more out of an existing facility. His example involves doing cases on Saturdays. “now, I know that is not what physicians like to hear and not the ‘norm,’ but there are a lot of types of procedures that we have found that patients are more willing to have them done on Saturday in an outpatient setting than having to take time off during the week. I think it is something you got to look at,” he says.

Looking at it from a facility side, Eckert says there are a couple of things that he has seen that can provide more space with minimal renovating. He shares that in some of the older centers the ors are often built larger than what may be needed for certain physician groups. For example, if they have built a couple of 600 square feet ors and the group consists of maybe two ophthalmologists, they could be doing procedures in a class B or rather than in a class C or. “So, you don’t need that much room,” Eckert asserts.

He also recommends perhaps closing a door off to the corridor of a procedure or treatment room and renovating it into a class B or, thus freeing up the existing or for the bigger or more complex cases. Eckert says this would take “basically minor modifications. so, you’ve turned it around without making too many modifications.”

Another potential area is the sometimes overly large pre- and post-op rooms that are private. Perhaps making them less private and adding curtains can facilitate more room.

Steve Dickerson, AIA, principal at Eckert Wordell, adds that a good look at some of the staff functions may pay off in gaining more usable space. oftentimes these areas can be combined or transformed into patient-based rooms. The lounge may be another area of interest as is the ancillary staff areas, he says. “Look at the space and how they are using it,” he suggests.