Gabriel Otheguy M.E. Rinker Sr, School of Construction Management Honors Research Paper Abstract 4 /2 5 /2018 This paper will delve into an overview of completing and running an urgent care center from conception to facilitation. Knowledge over the financial feasibility of starting an urgent care center allows a potential owner to subsequently design, build, and run the urgent care center successfully The pr oper design and construction process frees a potential owner of a service offering building to achieve success financially and in functionality Financially, understanding over the construction process can save the owner money through material and labor co sts. Scheduling over the construction process is also a key determinant of financial savings as the earlier the building can open, the earlier the owner can begin receiving a cash flow through the services they provide which allows the owner to achieve pro fitability earlier. As the urgent care center market is growing and becoming an increasingly i mportant aspect in the heal th care industry, it is worth analyzing it s form ation and operations.
Gabriel Otheguy M.E. Rinker Sr, School of Construction Management Honors Research Paper 4 /2 5 /2018 Urgent Care Center Start up A financially viable service process largely depends on the budgetary assumptions made in the initial phases of conceptual development. This is particularly true when planning to develop and run an urgent care center Knowledge over the financial feasibility of starting an urgent care center allows a potential owner to subsequently design, build, and run the urgent care center successfully The pr oper design and construction process frees a potential owner of a service offering building to achieve success financially and in functionality. Financially, understanding over the construction process can save the owner money through material and labor co sts. Scheduling over the construction process is also a key determinant of financial savings as the earlier the building can open, the earlier the owner can begin receiving a cash flow through the services they provide which allows the owner to achieve pro fitability earlier. Proper design allows for smooth functionality for those who are providing the service as they can perform their skills without constraint. On the other side, careful design increases satisfaction for those who are receiving the service as every physical component of the building frames the service provided. This paper will delve into an overview of completing and running an urgent care center from conception to facilitation. Urgent care centers are alternatives, sometimes stand alone, to emergency rooms, providing care for patients with non life threatening conditions. Urgent care centers offer a convenient treatment option that is fast and affordable in nature. Though urgent care centers services are rapidly expanding, typical services i nclude medical attention for non critical injuries, physicals basic bloodwork, and even X ray capabilities to diagnose and treat musculoskeletal issues. Typically, patients would normally visit a primary physician office or hospital for these service s bu t this can create an overflow of patients, adding wait time for the patients and cognitive load for the health care providers. This occurrence has pushed a growth in urgent care centers adding to their rise in popularity. The growth of urgent care centers has sharply increased in the past decade due to changing medical insurance policies and their lucrative nature. There are currently about 11,000 urgent care centers across the nation. Of these 11,000 urgent care centers, about 55% of urgent care centers ha ve been operational for at least five years and approximately 4,400 of these facilities are currently planning on expanding their current center or open another branch. Urgent care centers have a competitive, growing hold on in the nationwide health market The goal of this paper is to show what it takes for a prospective owner of an urgent care center to start being profitable after taking design, construction, and initial staffing/facilitation
costs. In order to do this, we will walk through the financia l feasibility of proper design, construction, and facilitation of an urgent care center as well as the finances associated with each stage. Before a prospective owner of an urgent care center continues with the process of embarking on the project, he or she must first determine i f such a project is financially feasible In order for a project to be financially feasible, the net operating incom e must be greater than the required debt service coverage. In order to calculate the feasibility several factors must be assumed based on market research, including patient volume, revenue per patient, gross potential income, effi ci ency loss, gross income operating expense, taxes, and replacement reserve. These factors are then used to calculate the net operating income and the max annual debt service. These variables can then be used to determine the max amount of money needed to spend on the development of the project. More detail will b e shown later Accurate budgetary assumptions must be made in order to ensure the viability of the project. Estimating revenues must be the initial step in creating a budget. The project patient volume must be supported by the budgetary operating model. Creating an operating model centered around patient volume is key because patient volume will govern the fixed expenses of an urgent care center such as medical personnel needed. Revenue for an urgent care center can be de termined using the formula below: Revenue = (Number of Patient Visits) X (Average Charge Refunds Contractual Allowance Bad Debt Expense) For the sake of simplicity, this paper will focus on revenue as number of patient visits multiplied by the averag e charge per patient visit, which is $118, according to the Advisory Board Company. Because the urgent care business model is volume driven, each subsequent visit after covering tical to understand the expenses that take away from the bottom line such as rent, utilities, upkeep, cost of labor, and cost of marketing A simplified feasibility analysis is one of the best ways to determine if an owner should go through with the proje ct based on their budgetary assumptions. See below for a sample simplified feasibility analysis based on statistics of an average urgent care center. 1428 Patients (monthly) $ 118 Charge/Patient $ 2,022,048 Gross potential income (annual) $ 84,926 Efficiency losses $ 1,937,122 Gross income $ 933,670 Operating expenses $ 80,000 Taxes $ 17,200 Replacement reserve $ 906,252 NOI 3.25 DCSR
$ 278,847 Max annual debt service $ 0. 27 Loan constant $ 1,050,000 Bank Loan 0.7 LTV $ 1,500,000 Min. value of project $ 1,500,000 Max. spend on development Though patient volume may vary widely depending on the location of the center, time of the year, and services offered, the average urgent care center receives 357 patients per week, according to Urgent Care Center Association of America. This translates to roughly 1428 patients per month. Each patient accounts for an estimated $118 per visit, according to the Advisory Board Company. Multiplying average monthly patient visits (1428) by the average charge per patient ($118) by 12 months we arrive at an annual Gross Potential Income (GPI) of $2,022,048. However, like any real business, complete effi cien cy can never be achieved so a cons ervative 4.2% efficiency loss rate is assumed and applied to the GPI to arrive at the Gross Income of $1,937,122. In order to continue with the Simplified Financial Feasibility Analysis one must determine the operating expenses of the urgent care center wh ich is a critical step in estimating the current NOI. The key factors in an urgent care facility include rent (if it is tenant build out), basic utilities, maintenance, staffing, and marketing to achieve initial patient volume during its first year of op eration Below is a break down of the operating expenses. Operating Expenses Quantity Unit Yearly Total Rent 1.75 $/SF/Month $ 63,000 Utilities/Maintenance 40 % of Rent $ 25,200 Physician 220973 $ $ 220,973 Physician 220973 $ $ 220,973 Nurse 88419 $ $ 88,419 Nurse 88419 $ $ 88,419 Nurse 88419 $ $ 88,419 Nurse 88419 $ $ 88,419 Other Staff 49848 $ $ 49,848 TOTAL $ 933,670 Once operating expenses have been estimated, taxes and reserve replacement can be assumed. Reserve replacement refers to the upkeep of building components that outlast the building itself. The Gross Income is then subtracted by the Operating Expenses, Taxes, and Replacement Reserve to determine the Net Operating Income (NOI) which is $906,252 in this case. Taking the NOI and dividing it by a standard Debt Service Coverag e Ratio of 3.25 we arrive at the annual
debt service of $278,847. Dividing the annual debt service by the bank loan amount we arrive at the loan const a nt of .27 with a bank loan of $1,050,000. As is standard, the bank will finance about 70% of the value of the project leading to a minimum value of the project of $1,500,000, which is the maximum that should be spent on this average urgent care center. After determining the financial feasibility and the max that should be spent on the development of the urg ent care center, coming up with the start up funds is the next step. According to Ambulatory Advisor, it is recommended that the owner have $500,000 of liquidity, which fits the budgetary model of the simplified feasibility analysis in which the bank loans 70% of the project value of $1,050,000 which gets us to our total max development of $1,500,000. If the owner chooses not to use his or her own liquidity, he or she will have to rely on outside investors. However, in doing this, the owner must give up a c ertain level of control and could lead to higher costs in terms of operations and control long term. This initial start up cash will be used to fund the build out construction of the urgent care space, furniture, fixtures, equipment, initial supply invent ory, legal and consulting fees, marketing, and operating loss coverage until break even. The sample urgent care center used in this paper is based on a standard 3000 square foot tenant build out, or leased space. With any build out, usually the landlord wi ll provide a tenant improvement allowance a fixed monetary amount based on square footage that is usually agr eed upon with the lease agreement. The typical tenant improvement allowance (TIA) is around $30 $50 per square foot. This amounts to $90,000 $150, 000 in landlord contributions. However, this will only cover a portion of your construction build out costs. The nation wide benchmark for leasehold improvements, or owner contributions is typically $100 per square foot for urgent care centers, which amou nts to about $300,000 in additional build out construction. Furniture, not including construction millwork, medical fixtures, and initial supply inventory will cost an average of $117,000. Legal fees and consulting fees for design and finances will run up to $90,000. In order to ensure the urgent care center achieves necessary patient volume, money must be allocated towards marketing the health services. This critical aspect should be allotted an estimated $100,000. The rest of the bank loan and the owner/investor liquidity will be used to service the initial operating loss coverage until the b reak even point has been reached. This cash on hand is necessary to weather initial operating losses since the assumed NOI in the feasibility analysis will not be reached originally due to the low, but gradually increasing, patient volume. Below is a break down of the start up costs for an average 3000 SF urgent care center buildout. Start up Costs Amount Build out (tenant improvement) $ 90,000 Build out (leasehold improvement) $ 300,000 Furniture $ 50,000 Fixtures $ 37,000 Equipment $ 200,000 Initial Supply Inventory $ 30,000
Legal/Consulting Fees $ 120,000 Marketing $ 100,000 Operating Loss Coverage until Break even $ 573,000 Total $ 1,500,000 This $1,500,000 is the same figure determined by the simplified financial feasibility analysis. It is important to note that the simplified financial feasibility analysis done in this paper reflects the y patient volume has been achieved. Once the owner acquires the necessary start up funding after decid ing that the urgent care center project is both feasible a nd desirable, the owner can begin the design consultation phase. Careful design and functional first impression towards the urgent care center, which is a critical factor in determining patient satisfaction and return rate. This patient centered approach to design is also critical in deter mining physician and nurse staff satisfaction, which creates a holistic positive feedback. Ultimately, patient and healthcare personnel satisfaction are necessary for the owner to achieve his or her bottom line over the design, construction, and staffing c osts to achieve a profitable healthcare service. Planning the right layout and developing the proper design for an urgent care center is crucial in creating an atmosphere that fosters care, promotes patient privacy, safety, and well being. Urgent care desi gn is the first line of helping to ensu r e repeat visits and generate patient referrals. Proper medical design also ensures that the medical personnel can perform their job comfortably efficiently, and professionally. In this way urgent care design goes a esthetic value and creative design The proper design should amplify patient and staffing needs. Also, because urgent care centers are in the medical realm, design must pay special attention to meeting compliance codes and industry standards regarding HIPP A, ADA, and AHCA. Medical professional design practitioner, qualified by education, experience, and examination to protect and enhance the health, life safety, Interior Design. From a patient perspective, mounting evidence from sources such as the International Interior Design Association, show that proper medical design improves patient results. For e xample, increased natural daylight quickens patient recovery and selecting the correct finishes minimizes the chance for infection. From a physician and nurse perspective, developing the correct urgent care layout can bolster personnel workflow whi ch allow s physicians to see more patients each work day, and increases efficiency. Historically, healthcare design was mirrored around a sense of stoicism and centered around medical equipment and building mechanics rather than those who provide and receive care However, medical design of urgent care centers has been transitioning to a more patient centered approach to design with the human factor integrated in all facets of planning and
layout. This approach replaces the historic dull assembly line process of s eeing patients with one that respects patient safety, comfort, and dignity. Careful consideration to functionality integrated with this human factor should be implemented to all design elements of an urgent care facility: reception desk, waiting room, exam rooms, nurse station, procedure rooms, radiology room, lab, employee area, office, and toilet rooms. Each of these design elements will be analyzed individually in order to get a detailed concept of urgent care center design. The reception area is the design component where patients can have a positive first impression as it typically the initial patient to staff interaction. It is also an opportunity to introduce new technology within the urgent care center such as an optional interactive touch screens with data input capabilities which output your wait time, reducing bottlenecking at the reception desk. However, many patients, especially in the older demographic still look for the human touch with the front desk and prefer a receptionist. Also, some patients feel the need to discuss their medical issues with the nurse receptionist as well. For this reason, it is necessary to maintain a level of privacy for patient comfort and satisfaction. In order to preserve patient privacy, measures can be taken such as counter partitions, separation of waiting area seating and staff computers, sound masking systems, and sound proofing staff telephone areas The intermediary hub of the urgent care process, the waiting room, should reflect ca lmness and comfort while allowing for activity needs for technology, education, and work. It should be carefully designed to uphold the integrity of the patient centered approach. In the past, many waiting rooms reflected that of a bus station, rows of sha rp, impersonal chairs. Furniture arrangements should be made to soften the environment while maintaining a no fuss medical environment. To help soften the environment, waiting rooms are the ideal area to utilize a curtainwall system in the urgent care cent er allowing for natural daylight to permeate the area adding to the relaxation of the patients. This should all be done to help put patients at ease and create a healing environment from walk in to exit. To accommodate for patients trying to get work done, communicate with loved ones about their condition, or t r ying to keep themselves entertained, walls should be lined with multiple outlets along the seating area. Waiting room configurations can be quartered to one area of the center, but can also be expand ed to a central waiting area with a reception desk at one end to further promote patient privacy, such as the one utilized by Golden Gate Urgent Care. Exam rooms need to be a perfect marriage between a patient centered approach and physician enabled acces s, as these will be where the patient will be diagnosed and where the physician will practice his professional craft. The level of comfort can directly influ ence patient satisfaction. Examination and consultation, the two primary functions of an exam room must be supported in the design configuration. Careful designation of furniture and tools can ensure that examination and consultation zones are properly established. Conforming to ADA requirements is critical at all points of urgent care design, but is especially critical in the exam room as this will be where the patient screening is most intensive. There must be a five foot turning radius for wheelchair bound patients. Also, the exam table must
lower to a height of 17 19 inches to ensure that all p atients can get into position properly and safel y. Nurse staff satisfaction is tied to the value of patient care and satisfaction. Therefore, the proper design of a nurse station should cater to their functional professional needs while supporting their psychological needs and health. There are to approach es in design when it comes to a nurse workplace: centralized and decentralized nurse stations. In the centralized model, the nurses station is the central hub of the urgent care center, as the name suggests. All individual stations are conglomerated here a s well as the unit assistants and many of the office machines. This allows for resource consolidation and fosters mentoring and clear lines of communication as the urgent care staff is located in one central location. However, a centralized nurse station m ay increase congestion and have less proximity to patients when compared to the decentralized design. In a decentralized nurse station design, there is no central hub and the individual stations are locate throughout the building outside of each patient ro om. This allows nurses to be close to their patients, but could create a sense of isolation for the nurses and less opportunities for informal learning among coworkers. The decentralized design would more likely be found in a larger healthcare setting such as a hospital emergency room.
Successfully Ini ti ating an urgent care center startup is only possible if start up costs are carefully understood and cautiously watched to align with budgetary needs. For this reason, it is critical that construction costs match with budget intents. There are several ways that construction costs can be managed and calculated depending on which construction delivery method and analytical tools are used. In a design bid build delivery system, typically a prospective owner will commission an architect to design an urgent care center with a conceptual budget already in place. Using experience and expertise, the architect will design the urgent care center to match the budget to the best of his or her ability. The urgent care center is then put out for bid to several prospective construction management firms, where their in house estimators quantitively take off the building materials and price them using various methods as well as including their mark ups and fees. In a design build delivery method, the architect and contractor a re under one contract and typically work together in some fashion during the design phase. This allows the design and construction professionals to get closer to the owners budgetary intent. However, under this delivery method, an owner may face higher mar k ups and fees so it is important for an owner to weigh his or her options and make a business decision based on their end vision and scheduling needs. Typically, in order to calculate an accurate material take off for estimation purposes, a set of contr act drawings is necessary. The more accurate the drawings, the more accurate the estimate can be. Two modern approaches will be discussed regarding how to pull a material quantity take off from the urgent care center design. One such method is using a take off software such as On Screen Take Off. Another method that is becoming increasingly sophisticated is to draw material quantities from the 3D rendered BIM model of your urgent care center. Scheduling the project accurately with attention to detail is a vital aspect of building the urgent care center. Delivery method may also effect the schedule of your project. In, design bid build the construction process is dependent on the design completion so this may lengthen the total process compared to a design b uild approach. In design build, because the designer and contractor are under one contract, the construction process can be started before final design documents have been completed. Identifying the critical path for the urgent care center design process i s key to developing a successful schedule. (discuss an example of a critical path for an urgent care center). Taking the schedule seriously is essential as it may eat into the owner s bottom line if construction goes over the budgeted completion date. Ther e are several methods to develop a proper schedule. (discuss Primavera p6 and Microsoft project. Not only is it critical for the owner and contractor to live by the schedule, but also for subcontractors and vendors involved in the construction process. Th is can be done through daily subcontractor meetings and LEAN construction methods. It is typical for an urgent care center build out to be completed within 8 9 weeks. Below is a simplified sample schedule.
It is important to understand some specia lty construction systems that are unique to urgent care centers compared to a standard office building. For example, X ray rooms in urgent care centers must be lead lined in order to protect personnel from harmful radiation. Below are construction de tails and images of such a specialty system. Isometric Wall Section of an X Ray Partition
Photograph of an Actual Urgent Care Center X Ray Partition Construction Detail of X Ray Room Telescopic Control View Window
After the urgent care center is buil t, there are still many requirements that must be met in order to legally run it. The governing body that helps the urgent care center industry differentiate itself is the UCAOA which provides Certified and Accredited Urgent Care designation programs Alth ough these programs are not requirements, they are being increasingly required by payers as a part of the contracting process. In order to run an urgent care center, a prospective owner must pay attention to ho w t he Corporate Practice of Medicine Doctrine is applied in their start. Under the doctrine, only physicians can practice medicine, not corporations, which means only a physician can be the owner of an urgent care center. However, this only applies to California, Ohio, Texas, Colorado, Iowa, Illinois, New York, and New Jersey In Florida, for example, an owner can be a non physician and hire physician employees and use their medical license to operate the center Another requirement to operate an urgent care center is the type of insurances. According to Douglas Grimm, Health Care Chair at Stradley Ronon Stevens & Young, LLP, there are three must haves in urgent care practice insurance: general liability, directors and officers (D&O) and medical malpractice. Physicians and any healthcare professionals working inside the urgent care center must have medical malpractice insurance. typically the urgent care center business will provide it for the physician if the he or she is an employed physician by the owner. Also, nurses must have medical malpractice insurance as well since can practice relatively independent of a physician. Once an owne r is ready to open the urgent care centers doors for the first time, it is important for the owner to understand that staffing during the initial months should be at its minimum since patient volume will be at a minimum. Overtime, with marketing and market presence, patient volume will rise to desirable levels in which a full staff must be present appro priately. During these initial months to over a year, the net operating income will be less than the operating expenses due to the lower patient volume. Below is a financial analysis example during this first year of operation in which the patient volume i s much less. 600 Patients (monthly) $ 118 Charge/Patient $ 849,600 Gross potential income (annual) $ 35,683 Efficiency losses $ 813,917 Gross income $ 933,670 Operating expenses $ 80,000 Taxes $ 17,200 Replacement reserve $ (216,953) NOI As seen above, the lower patient volume greats a negative operating income. This is where the cash allocated from the loan for operating loss coverage and care center to stay afloat. If the market research was properly done when choosing the location, patient volume should ramp up naturally and mirror the financial analysis done on the beginning of this paper and allow for the urgent care center to break even and begin turning a profit.
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