Most people have an idea of what you do, if you say, “I’m in commercial office management,” but the reaction is very different when I tell people I manage a medical office portfolio. When I tell someone what I do, the reaction is usually something along the lines of, “I’m sorry, what? What is Medical Office Management?” or “You run a doctor’s office?” or my favorite is, “You manage a hospital?”
The answer to the last two questions is “No” and then is usually followed by, “Sometimes, when you go to the doctor, his/her office is in a building located on a hospital campus…Those buildings are often owned by that hospital. Hospital Administration is in the business of running hospitals, not real estate, so they hire a 3rd party real estate provider to manage the buildings for them.” That explanation helps get the point across, but there’s still generally a look of confusion on their face.
In some ways, Medical Office Management and Commercial Management are not that different. We still have landscaping, janitorial, HVAC, and Maintenance Contracts to oversee. We still have budgets to prepare and CAM Reconciliations to do each spring. The biggest difference is that we also do the Construction Management and Leasing. We don’t usually have to market the buildings, as the hospitals have recruiters who are constantly working to bring new doctors to campus. Occasionally, a physician will contact us directly to get leasing information; however, we are typically brought into a deal once the hospital is close to signing a contract with a new doctor. At this time, we start working to find a location on campus that meets the physician’s needs. Those needs vary by practice. In order to provide the best service to the doctors, we need to understand the differences between the practices… For instance, Internal Medicine doctors need sinks in every exam room to wash their hands before, during, and after exams. Cardiologists, on the other hand, don’t need sinks in every exam room because their exams aren’t generally “invasive.” Bariatric Surgeons need larger exam rooms to accommodate larger exam tables and larger chairs. OB/GYN’s need larger waiting rooms and exam rooms because additional family members often come for those visits. Once these specific needs are established, a meeting is scheduled with an architect. Space planning and construction budget pricing can be done, and the lease can be prepared.
The day-to-day tasks associated with managing the buildings, as well as Construction Management, certainly consume a good part of our time; however, our primary focus, for our Client, is ensuring that the leases are compliant with all Federal Stark and Anti-Kickback laws. These laws were established in the late 1990’s when it was discovered that some hospitals were providing extremely discounted, if not free, rent to the physicians who were referring the most patients to the facility, while other doctors were paying high rent if they weren’t referring patients at all.
To avoid potential violations of these laws, we perform annual market surveys to establish a fair market rate for each building. These rates are set for one year, unless there are major changes in the market that require the numbers be re-evaluated mid-year. Once the rate is set, it is not negotiated from lease to lease. This ensures that each doctor is paying “market rate” and that, in case of an audit, there is no possibility of a violation of the Stark or Anti-Kickback Laws. If it is determined these laws have been broken, the hospital is required to return all Medicaid and Medicare reimbursements, associated with the violating physician, to the government for the entire period the violation took place. Additionally, the government adds financial penalties for each violation. Depending on the violation, and the length of time over which it occurred, these penalties can total millions of dollars. Unfortunately, since more than half of most hospital’s income comes from Medicare and Medicaid, these refunds and fines have meant that some hospitals have had to close, leaving communities without hospital facilities nearby. As Medical Office Building Managers, it is critical that we stay current with the ever changing Federal laws so our Client can do what they do best, that is, to run hospitals and provide excellent healthcare services to the community.