Growing the Multi-location Practice

Expansion can be a double-edged sword.

By Jerry Helzner, Senior Editor

Probably nothing challenges the business acumen of practice leaders more than successfully navigating the process of expanding into new locations. The complex issues involved in operating a multi-site practice should never be taken lightly, as critical decisions will involve such key areas as site selection, staffing, additional overhead, increased administrative load, real estate (rent, buy or build), assessing the competitive landscape and even bringing the practice culture to the new location. A poor decision in any one of these areas can doom a new location to failure.

In this article, practice leaders will discuss their experiences in opening new offices and provide guidance as to the potential and the pitfalls that go with operating a multi-location practice.

Correcting Some Misconceptions

Practice leaders who have never gone through the process of adding one or more new sites may be under the impression that expansion is all about achieving those magic words—economies of scale. To that end, they may seek a quick path to growth by buying a nearby practice operated by an ophthalmologist who is about to retire or by opening an office in a neighboring town where residential development has been strong.

They may reason, and sometimes correctly, that additional locations will create those much-hoped-for economies of scale in such areas as marketing, billing, staff rotation, information technology and human resources while also feeding more patients into the practice ASC, where profit margins tend to be greater than office-based services.

While all of this sounds good in theory, Brad Houser, practice administer of the multi-location St. Luke's Cataract & Laser Institute, based in Tampa, has a great deal of experience in opening new sites and cautions against over-optimism in projecting potential economies.

“There is a financial burden in expansion,“ says Mr. Houser. “You can eventually realize some economies of scale by opening satellite offices, but you are definitely adding costs when you take that step.”

Practice leaders who have been successful in adding satellite locations point to the importance of attractive signage, as these offices in Mesa, Ariz. (left) and Rock Island, Ill., attest.

While Mr. Houser allows that, for example, it is often possible to spread marketing costs such as newspaper ads, radio commercials, Web sites and billboards among a few offices that are in the same media market, he says that is a small saving compared to the real goal of successful expansion.

“The key to successful growth is to gain market share,” he asserts. “In that way, you keep your physicians busy and productive.”

Mark Rosenberg, CEO of Barnet Dulaney Perkins Eye Centers, a large statewide practice that operates 14 locations in Arizona, including eight ASCs, also sees expansion as having one primary goal.

“The basic idea behind our satellites—or what we prefer to call ‘clinic only’ locations—is to generate surgical volume. While clinic visits are an important part of our practice, they are labor intensive. Our surgeons are very efficient, so the more patients that you have overall, the more are going to at some point be candidates for surgery.”

A River Runs Through It

Any practice that contemplates expansion into new geographic areas has to be prepared for the possibility of unanticipated obstacles. In some cases, established eyecare providers in your new location will band together to withhold referrals from a newcomer, or a community hospital will feel threatened by the possibility that they will lose surgical cases to your ASC. Amir Arbisser, MD, founder and president emeritus of Eye Surgeons Associates PC, based in Bettendorf, Iowa, has encountered both of those situations in the more-than-25-year process of expanding Eye Surgeons Associates from one small office to its current five locations spanning two states. But of all the challenges he has had to meet, it was expanding an Iowa-based practice into the neighboring state of Illinois that presented the most problems.

“I started our practice in Muscatine, Iowa, while I was waiting for my wife (Lisa Brothers Arbisser, MD) to finish her residency in ophthalmology at the University of Iowa,” Dr. Arbisser recalls. “When she joined the practice, we moved to Davenport, Iowa, which is part of what is called the Quad Cities area of Iowa and Illinois. This gave us a much larger patient base to draw from.”

Dr. Arbisser says that as the practice and its reputation for providing superior eyecare grew, he received requests from community hospitals and others to expand into under-served cities in Illinois.

“There is a geographic barrier—the Mississippi River—that separates Iowa from Illinois,” he says. “And though the distances are small, what we learned from experience is that many people living in Iowa just do not cross the river to do any business in Illinois, and vice-versa. In fact, they may never cross the river at all. The good news was that by moving into Illinois (the practice now has Illinois locations in Rock Island, Silvis and Geneseo), we were developing an entire new patient base. The bad news was that some people in Iowa could no longer identify with us as an Iowa-based practice.”

In addition, by operating in two states, Eye Surgeons Associates had to deal with two separate sets of regulations and two Medicare carriers.

“When we bring a new physician on board, it now requires about 30 different applications,” says Dr. Arbisser. “It can take a doctor four to six months to get licensed.”

Site Selection Is a Key Issue

When St. Luke's looks for a new site to expand the practice or relocate a satellite office, it chooses nearby areas in which the practice already has at least some patient base.

“In opening a new office, we aim to grow market share where we have a presence, some goodwill, are somewhat known and have referral sources,” Mr. Houser says. “We have a full-time medical ophthalmologist in our satellites. We don't have an optical or optometrist in the satellite offices because it is easier to co-manage.”

In terms of physical site selection, Mr. Houser's priorities are visibility from the highway, convenient access, ease of parking and attractive, eye-catching signage.

It is interesting that these practices all avoid placing their satellite offices in secluded office parks or traditional bland multi-story medical buildings. They want their offices and signage to stand out and be seen from the highway, where thousands of drivers pass by each day.

“We do not locate in office parks,” asserts Mr. Houser. “We have an older patient base and want them to be able to find us easily.”

Dr. Arbisser concurs.

“In terms of locating new offices, we have thought about easy access from the highway, convenient parking and memorable signage from day one. It's somewhat similar to how you would choose a site for a branch bank,” he says. “We have one office that is in a shopping mall and people appreciate that they can come in for their eye appointment and at the same time pick up their dry cleaning, shop for groceries and visit the bank, all in one stop. Our staff likes it as well, as we can run out and pick up lunch only a few steps away from the office. It's one of our most successful locations.”

Regarding the importance of having easily accessible and highly visible offices, Mr. Rosenberg asserts that “we do everything we can to enhance the patient experience. A good experience is what creates referrals.”

Downturn Creates Opportunities

The real estate slump that began in 2007 has enabled practices to upgrade, relocate and/or own their satellite offices by taking advantage of distress sales of commercial building. St. Luke's on the west coast of Florida and Barnet Dulaney Perkins in Arizona have been especially active in this regard, though Dr. Arbisser reports that commercial properties are also available at bargain prices in the relatively stable Iowa/Illinois marketplace. He says Eye Surgeons Associates has a strategic growth plan in place and has been looking to expand into additional communities.

“We have five projects going on right now,” says Mr. Rosenberg of Barnet Dulaney Perkins. These range from upgrades of existing offices, relocations to more desirable sites and even new construction.

Mr. Rosenberg says Barnet Dulaney Perkins, being a statewide practice, pursues a “hub-and-spoke” growth strategy in which a clinic-only office is first placed in a key market such as Tucson. When the clinic-only office generates sufficient surgical volume, an ASC follows. Thus, Tucson now has two clinic-only offices and an ASC. It has grown into a hub of its own. The Flagstaff office now has both an ASC and a retina specialist. Mr. Rosenberg says this pattern of growth can be repeated throughout the state, with ASCs and subspecialists added to offices when the patient volume warrants it.

“Your satellites—the spokes—can work for you or against you,” cautions Mr. Rosenberg. “The hubs needs to be fed by the spokes, which are essentially the tentacles that allow you to see more patients and which generate surgical volume.”

St. Luke's currently has offices in four counties on the west coast of Florida (Hillsborough, Pinellas, Hernando and Pasco) and will be opening a newly constructed and practice-owned office in Clearwater next year.

“We are a well established practice that's been around for a long time, so the downturn has been an opportunity for us to gain market share,” says Mr. Houser. “We are also well-positioned in the new communities where population growth has been strong, though competition has also moved in to try to claim these growth areas.”

But while St. Luke's has been in an expansion mode, its satellite offices have all been located within a relatively short 30- to 45-minute drive of its single ASC in Tampa.

St. Luke's office in Tampa, Fla. (left) and rendering of a satellite office that is currently under construction in nearby Clearwater.

“We would build another ASC if we opened a satellite office that was further away, say a two-hour drive from Tampa,” says Mr. Houser. “In that case, there would be a need for another ASC to serve that market.”

Projecting the Practice Culture

One priority that draws strong agreement from Mr. Houser, Mr. Rosenberg and Dr. Arbisser is that the practice culture and good reputation must be nurtured in any new office. This means rotating your best surgeons and subspecialists through the new facilities on a regular basis.

“The thinking used to be that when you opened a new office you hired a new physician to run it,” says Dr. Arbisser. “That is absolutely the wrong thing to do,” he suggests. “First, your practice has earned its good reputation with its senior staff and they need to be rotated into the new office and have a presence there to build on that reputation. Second, if you put a new hire in a new office, he or she can easily start to think of himself/herself as an independent practitioner. So the new office then becomes disconnected from the existing practice culture and you soon find that the doctor you have hired has left you and become your competitor.”

Mr. Rosenberg says that senior staff constantly rotates through the Barnet Dulaney Perkins clinic-only offices and ASCs.

“Your satellites must be actively managed and must feel engaged with the overall practice culture,” says Mr. Rosenberg. “This is a critical issue. “We have held all-staff meetings that brought everyone together and that were a combination of work and play. We are also aware that you don't want to outfit your satellite offices with all “hand-me-down” equipment from your other offices. We are constantly seeking to upgrade the equipment in all of our offices, though there is an economic balancing act involved in terms of how much you can do.”

Mr. Rosenberg says the point of all these policies is that you don't want your satellite staff to feel like they are being viewed as second-class citizens in the pecking order of the practice.

The OD Factor

Both Mr. Rosenberg and Dr. Arbisser note that one good way to expand the practice footprint is to affiliate with a popular and well-established optometrist who can operate a satellite office and produce numerous referrals for the parent practice.

“We have an affiliated office that is run by an OD,” says Mr. Rosenberg. “He has a strong practice, so we built a surgery center next door. His patients know that this OD is connected to a major ophthalmology practice, so that helps him as well.”

Dr. Arbisser says that Eye Surgeons Associates' Silvis, Ill., strip mall location has a constant in the person of a popular OD who is in the office five days a week while the MDs rotate in and out of that office. The OD was previously employed by a chain eyecare center. When the chain wanted out of its 15-year lease after only nine months, Eye Surgeons took the lease over at pennies on the dollar and the OD stayed on.

“Silvis is one of our biggest successes,” says Dr. Arbisser. “It's a very convenient mall location and the OD has done a great job for us.”

Some Caveats

By any measure, Dr. Arbisser is a highly successful entrepreneur (both inside and outside of medicine) as well as a well-respected ophthalmologist. However, even his practice has experienced a couple of failed expansions.

“We had one new office, a downtown location where we doubled the patient volume, did everything right and the economics just didn't work out,” he recalls. “In another community, a well-established primary practice/multispecialty group strongly opposed non-affiliated practices.”

But as complicated as any expansion can be, Dr. Arbisser cautions that future expansions for ophthalmology practices will be even more problematic.

“With the medical system currently in a state of flux, planning is more difficult and projecting future reimbursement is less predictable,” he warns. “There is a cost for opening up multiple locations. You can make more money but you will be dealing with a lot of administrative hassles, and these issues will only be increasing in the future.” OM