An Investor’S Guide to Developing a Private Hospital: Ten Considerations Before Committing

Copyright © 2014 Arthur Ouellette and Steven Sobak. All rights reserved.

ISBN

978-1-4828-2674-6 (sc)

978-1-4828-2675-3 (e)

All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews.

Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

www.partridgepublishing.com/india

09/25/2014

PREFACE

This booklet represents some 80 years of the authors’ combined general healthcare management experience and focuses expressly on new private hospital project development. Contained are some of our shared experiences presented as ten considerations. We believe prospective developers of, investors in, and lenders to a new private hospital will benefit by including a review of the ten considerations in their assessment before making a final commitment to proceed with or provide financial support for a new private hospital.

The considerations are gathered from our experiences working for large professional hospital ownership and management companies as well as providing advice to independent individuals and organizations planning to or actively engaged in the development of a new private hospital. Further, the experiences have been gathered from projects spanning four continents and some 20 different geographic locations that highlight their universal application.

Although every new private hospital project is unique, our experience strongly suggests similarity among proposed projects that encountered development difficulty, were never realized, and those whose performance fell far short of expectations past opening day.

The booklet is intended specifically for individuals and organizations contemplating the development of a new private hospital, and investors and lenders who are subsequently approached for financial support. It is not a detailed how to hospital development guide, but concentrates only on what the authors believe are key considerations that should be included in deliberations at the planning stage of all new private hospital projects. Our objectives are not only to share knowledge gained through experience, but also to hopefully make contributions in improving the decision-making processes that affect new private hospitals and ultimately increase the chance of their success.

There will likely be challenges to the booklet’s content and our purpose is not to engage in lengthy debate, but rather to provide readers with food for thought. Each reader, whether a Project Principal, Developer, Investor, Lender/Banker, Architect, Consultant, or Student should seriously explore the Booklet’s 10 considerations and use them to strengthen their assessment of a project’s advisability and feasibility.

We commend every effort to develop new private hospital beds and private clinical facilities when and where they are lacking in a community. We view these as responsible projects that genuinely serve the healthcare needs of their community. On the other hand, we do hope our modest effort through this Booklet will at least discourage, if not deter, unjustified projects; those that represent competition for competition’s sake and mainly serve commercial gain for a few; those that generate unneeded facilities in a community that contribute to fueling healthcare cost increases; and those that will fail to deliver promised results.

Steven J Sobak

Contact: [email protected]

Dedication

To Art, who was both a Friend and a Mentor.

It was a pleasure working with you on this book……..

(Art was called home in July 2011)

Contents

PREFACE

10 CONSIDERATONS

CONSIDERATION #1

INVESTING IN A PRIVATE HOSPITAL COMPANY VERSUS A NEW PRIVATE HOSPITAL -

CONSIDERATION #2

THE HOSPITAL BUSINESS IS VERY DIFFERENT FROM MOST OTHER BUSINESSES -

CONSIDERATION # 3

COMPANIES CANNOT PRACTICE MEDICINE, AND HOSPITAL OPERATING LICENSES ARE ONLY ISSUED TO A LICENSED MEDICAL DOCTOR WHO REPRESENTS THE COMPANY -

CONSIDERATION #4

HOSPITALS ARE LONG TERM INVESTMENTS AND ARE CAPITAL AND LABOR INTENSIVE –

CONSIDERATION #5

THE IMPORTANCE OF THE DOCTOR’S ROLE IN A PRIVATE HOSPITAL CANNOT BE OVER EMPHASIZED –

CONSIDERATION #6

INDEPENDENT, PROFESSIONAL MARKET RESEARCH IS THE KEY TO A RELIABLE FEASIBILITY STUDY –

CONSIDERATION #7

SITE SELECTION –

CONSIDERATON #8

THE DESIGN STAGE AND THE DESIGN BRIEF –

CONSIDERATION #9

THE LITTLE THINGS IN THE DESIGN OF A NEW PRIVATE HOSPITAL ARE IMPORTANT-

CONSIDERATION #10

PLANNING AND COMMISSIONING-

Conclusion

APPENDICES

APPENDIX A

SAMPLE TABLE OF CONTENTS, DESIGN BRIEF TEMPLATES

APPENDIX B

REPRESENTATIVE LIST OF KEY STAFF TITLES/TYPES ENGAGED IN A HOSPITAL

APPENDIX C

SAMPLE CHECKLIST OF KEY DESIGN CONSIDERATIONS

SELECTED TERMS, AND DEFINITIONS USED IN THE BOOK

10 CONSIDERATONS

CONSIDERATION #1

INVESTING IN A PRIVATE HOSPITAL COMPANY VERSUS A NEW PRIVATE HOSPITAL -

THE DIFFERENCE IS DEGREE OF RISK

There is constant discourse in many parts of the world about the growth prospects of the private healthcare industry. This is enthusiastically supported by those promoting investment in the industry. They cite facts such as continuing population growth; increasing middle class population along with their growing purchasing power and corresponding expectations; the inadequacies of public healthcare facilities, the lack of public resources to close need gaps; and the ever present demand for better healthcare services. The last point calls for clarification. One cannot dispute worldwide need for more and better healthcare facilities and services. However, need is factually infinite, as in addition to obvious shortages in amount and quality, what constitutes adequacy cannot be satisfactorily established; it is a determination that is largely personal and subjective, and a function of the development stage of healthcare in the given community or country.

When discussing private healthcare it is essential to focus on demand rather than need. In private healthcare, need is translated into demand, and demand is defined as and limited to defined patients who are able and willing to pay for private healthcare services. Direct reference to gross population figures as a measure of the private healthcare market potential is only partially relevant. Only a certain percentage of any given population is financially able and willing to pay, and this segment constitutes the private healthcare market. If a new private hospital has competition, it can only aspire to capture a portion of that market. The size or percentage of the total eligible