Renew or Relocate Your Medical Practice?

An office tenant weighs rent, image and commute. A practice has more at stake in the address. Patients with ongoing care, referring physicians, hospital affiliation and specialized rooms all tie it to a location. Those ties cost money to break, and your landlord knows it. That makes a practice look like a captive tenant even when it is not.

The way to avoid being treated as captive is to separate two questions. First, would moving actually be better for this practice? Second, regardless of the answer, what could you credibly do if the renewal terms are poor? Both can only be answered with real information from the market, which takes time. Start well before your notice dates, so that a build-out elsewhere remains a live option and not a bluff. Your lease and the time your program needs will set how early. For the general framework that applies to any tenant, see our guide to renewing or relocating. This guide covers what is specific to clinical practices.

Patient loss is the cost that practices fear most and measure least. Frier Levitt's attorneys, discussing long displacement after a casualty, note that when a healthcare business is displaced, patients do not simply wait; they seek care elsewhere. A planned relocation with notice is a different event, but the point about patient behavior is worth keeping in mind. Do not rely on a general retention figure. Use your own data.

1. Export patient addresses, without clinical detail, and map where active patients live and work. Have your privacy lead approve how the data is handled.
2. Compare travel time to the current site and each candidate site, at the hours your patients actually come.
3. Separate patients by type. Long-term, specialty and procedure patients may behave differently from walk-in or acute patients.
4. Map referral sources in the same way, and ask your closest referring physicians how a move would affect them.
5. Check payer and hospital considerations, such as privileges and network geography, for each candidate site.
6. Estimate a low, middle and high retention case, and see which decisions survive all three.

A short move in the same patient area may barely register for patients. A move across a toll road or a river may matter more than the miles suggest. The map tells you which of those you are looking at.

Rent differences are visible. Moving costs are spread across many budgets, so put them in one list before you compare options on any basis. We do not offer a rule of thumb here, because these costs are specific to your specialty and suite.

• Build-out above the landlord's allowance, including clinical systems and design fees.
• Equipment moves, recertification or replacement, including anything that must be reinstalled by a vendor.
• Shielding plans, permits and state approvals.
• Lost clinic days during the move and a slower ramp at the new site.
• Patient notices, updated signage and marketing, and new listings.
• Payer, Medicare and license updates, plus staff time to complete them.
• Restoration of the old space, if the lease requires it, and overlap rent.
• Staff turnover, if the new location changes commutes.

Staying has costs as well: a tired suite, a landlord's refurbishment that closes rooms, deferred equipment upgrades, and rooms you have outgrown or stopped using. Put those on the same page. Then compare the options over the same term, with allowance, free rent and escalations included.

A credible alternative moves a landlord more than an argument does. That means real tours, test fits and written proposals from buildings that would genuinely work, run by someone who is not paid to keep you where you are. In a testimonial, an OBGYN practice owner in the Midwest Center For Women's Health Care network describes that process:

Outcomes vary from deal to deal. The point is the sequence: the alternatives come first, while they are real, and the renewal talk comes after. Be careful with options and dates in your current lease. A renewal option exercised by default can give up the leverage you are building, and a late start can leave you only a holdover to fall back on.

If your landlord is a hospital or another potential referral source, add counsel to the team. The Stark law rental exception and Anti-Kickback safe harbor look for rent set in advance at fair market value, and the Stark exception allows a holdover only on the same terms and if conditions continue to be met. A renewal with new concessions or a gap in paperwork should be reviewed before you agree to it.

Partners often disagree about a move for reasons that have little to do with rent. Get those on the table early.

• ✓Do we have patient and referral maps for each option, and do the partners accept them?
• ✓How long do the senior partners expect to practice, and does the term fit that?
• ✓What services do we want to add, and can this building support them?
• ✓Would a move or a renewal affect a sale of the practice in the next several years?
• ✓Who signs a guarantee on a new lease, and who is released from the old one?
• ✓What dates in the current lease set our real deadline?
• ✓Have we priced staying, including any refurbishment we would ask of the landlord?
• ✓What is our walk-away point, and who is authorized to decide?

TAG represents tenants and buyers only, and its role in this decision is to run the market test, compare the options on one basis and negotiate with whichever landlord the practice selects. Staying is a perfectly good result if the terms are right. Your attorney and CPA should review the final option.