Posts by Allen Ohlmeyer

Purchasing an Existing Healthcare Facility: Things to Know Before You Commit

November 14th, 2017 Posted by Healthcare Facilities 0 thoughts on “Purchasing an Existing Healthcare Facility: Things to Know Before You Commit”

For healthcare services providers, buying an existing facility might be an easy way to expand services and increase market presence, but there are a number of critical questions you should ask before committing to such a purchase. With today’s constantly changing healthcare regulations, some of the biggest issues often encountered when acquiring an existing facility are related to licensing. Under certain conditions, these can end up being deal breakers.

The best way to avoid getting too far into the purchase process before discovering one of these deal breakers is to have a knowledgeable design professional perform a facility evaluation. Although a prepurchase inspection is typically done as a part of the due diligence process when assessing any potential real estate purchase, those types of inspections are not geared toward regulation compliance or suitability issues, they’re generally just an evaluation of the building envelope and infrastructure. When it comes to medical facilities, not only do you need to know the physical condition of the building and its mechanical, electrical, and plumbing systems, but you also need to know whether it can support your mission. That is, can it be used in the way you intend to use it? And if not, can it be modified to meet your needs? If it can, how much will it cost and how long will it take? These are a few of the questions that can help you quickly determine whether or not to pursue the purchase.

Let’s say you’re contemplating the purchase of an Ambulatory Surgical Center that has been unoccupied for some period of time. The facility appears to be in relatively good condition and it certainly meets your needs for expanding your outpatient surgical capacity. You intend to occupy the facility as is, and aside from a fresh coat of paint on the interior walls, you anticipate that it will require little to no work prior to move-in. After all, it was used as an ASC for many years and your plans are to use it the same way. You decide to move forward with the purchase. Later, while preparing to occupy the facility you learn that the change in ownership has triggered a full healthcare facility compliance review by the state. As it turns out, the facility was originally designed and built under regulations that have since been updated. In order to comply with the new requirements you’ll need to undertake a costly renovation to increase some room sizes and replace some of the HVAC equipment. You’ll also need to provide some additional spaces that weren’t required under the old regulations, and these spaces cannot be accommodated within the existing building’s footprint. The only option for providing them is to add on to the building. When you update your pro forma to include these unexpected construction costs along with the delay they’ll cause in occupying the building, the feasibility of the purchase becomes questionable.

So how did a facility purchase that seemed so promising at first go so far off track? Unfortunately, situations similar to this aren’t that uncommon. But, had a facility evaluation been performed prior to proceeding with the purchase, you would have been aware of the challenges involved and the additional costs associated with them. That information would have certainly been of value when you were negotiating the purchase. Because healthcare facilities are some of the most highly regulated building types that exist, and the complex codes and regulations they must comply with are continually changing, it’s difficult to know whether a facility, once it changes hands, can be used in its current configuration or if major revisions will be necessary.

Putting a healthcare property back into commerce can be complicated. Before you make a purchase offer you should always include having a facility assessment performed as part of your decision support process.

These are typically provided by healthcare architects and can usually be combined with a traditional prepurchase building inspection. While the inspection will focus on the condition of the various existing building elements, like the exterior skin, roof system, and mechanical/electrical/plumbing systems, the assessment will address the building’s planned use, even if that use will remain the same. One advantage to having a healthcare architect perform the evaluation is that they’re not only experts in the codes and regulations that apply specifically to healthcare facilities, they’re also well versed when it comes to local zoning requirements, which can be critical when developing options for a potential building expansion or renovation. Zoning requirements can limit building expansion opportunities because of floor area ratios and setback requirements, or because the expansion will reduce the number of parking spaces below a required minimum. These are some of the things your architect will assess and provide guidance on. Should it be necessary to do even minor work to the building, you’ll want to have some idea about the costs and the schedule for completing the work. Your healthcare architect can provide budget and schedule assistance, and can help give you a more complete picture of the overall financial and time investments you should anticipate.

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