Considerations for Opening a Practice in a Low-Income Area

April 3, 2017

There are a lot of challenges to opening a practice in a low-income area. However, it's doable - here are some things to consider if you are weighing this route.

Opening a medical practice - whether it's a primary care office, ambulatory surgery center or office-based surgery center - in a low-income area is challenging at best. However, it can be extremely beneficial to the community and profitable to physician owners if they understand the challenges and take proper action. And with many hospitals in these economically challenged areas have closed, there is truly a need for modern healthcare-related infrastructure and services.

A 2014 Pittsburgh Post-Gazette/Milwaukee Journal Sentinelanalysis of data from the largest U.S. metropolitan areas shows that "poor" neighborhoods are more likely to have physician shortages and closed hospitals. More than half of the federally designated "primary-care shortage areas" in 52 major metropolitan areas fall in areas with the highest poverty rates.

Challenges

In addition to the usual challenges physicians face when establishing a practice, launching in a low-income area adds the following issues:

Lower reimbursement rates. Because patients in low-income areas are mostly on Medicaid, doctors must deal with reimbursements that are lower than those from private insurers or even Medicare.

Reimbursement delays. Medicaid reimbursement schedules are much longer than private insurance, and surgery centers can wait between 12 months and 18 months for ambulatory patient group codes.

Higher rate of cancellations. Medical practices in low-income areas encounter high rates of patient no-shows than their suburban counterparts, making daily patient flow more unpredictable and staffing more difficult.

Thinner "financial" margin of error. Finances, at least in the beginning, tend to be tight. Overspending on construction, staff or rent could create business-disrupting cash-flow issues.

Patient communications are more difficult: Lower-income areas typically have heavy immigrant populations and lower accessibility to technology. In other words, they don't speak English, don't use computers and may not have phones.

Path to Success

Physicians have one major asset that can be leveraged to overcome the variety of obstacles on their path to success: They'll open an office or surgery center in a location with overwhelming need. This demand, combined with sound business decisions and management practices, will help ensure the ongoing operations of a profitable facility.       

Here are some considerations you should have if you are going this route:

• Determine the viability of the type of practice to be opened. A plastic surgery center, in an economically challenged area, is obviously not a great idea. Physician owners need to understand the demand and size of the market for their services in a given location. Ambulatory surgery centers, for instance, are often good healthcare options in low-income areas because they offer high-quality care at a lower cost than hospitals and are more specialized than hospitals.

• Because of Medicaid and Medicare reimbursement delays, the medical practice should pursue a certain percentage of commercial procedures to generate cash flow when it first opens.

• Recruit "local" physicians (and staff) from the area. These community members will have a better understanding of what it may take to turn a profit in their areas.

• Bring in enough physician partners to ensure the center is always busy. Work to ensure that the practice has a wide patient portfolio.

• Physician owners should plan on support from their partners (financial and otherwise) and staff during the first two years, when money and cash flow will be tightest. As owner, ensure you and partner physicians have the financial capabilities to handle periods in which revenue falls.

• Take great care in developing a financial forecast, and be conservative in your estimates. If possible, have access to additional funding during the first two years.

• Hyper focus on managing expenses in the first year, considering that delays in reimbursement will put pressure on cash-flow.

• Make sure staff is on hand to communicate in several languages; and be prepared to communicate more often than usual. Patients are more comfortable with someone who speaks their language.

• Create larger waiter rooms, more flexible staffing resources and place an even greater emphasis on pre-procedure patient communications.

Many physicians open centers in local communities for altruistic reasons. Some do it to give back to their community. Others make the choice based on the potential for financial success. Whatever the motivation, the many challenges are far from insurmountable. With the right planning and preparation, success can be achieved.

About the Author:

Roy Bejarano is president of Frontier Healthcare Holdings, a New York City-based ambulatory surgery center management and development company. Roy has overseen the launch of several centers in economically challenged areas throughout the greater New York City region. He can be reached at rbejarano@frontierhh.com or 212-874-0107.