Letter from the President

As a much younger person, I was always told that time goes faster the older you get.  That is really the last thing that you want to hear, because at that time it feels as though time will not move nearly fast enough.  Now that I am considerably older, I can attest to the fact that time truly does seem to move much more quickly.  Almost two years ago, January 2020, I started my term as President.  Next month I will transition to Past-President and the Organization will be in the very capable hands of Shelley Rhine as your new President.  We joke that I was the “Covid President”.  Because of Covid we have been unable to meet in person during my tenure.    As it is said “When life gives you lemons, make lemonade.”  We continued to offer educational content and opportunities to connect with colleagues, despite offering no in-person meetings. We were hopeful that we would have the opportunity this past fall to meet in person again.  But again, Covid spikes in illness continued to limit our in-person opportunities.   Facing more of the same Covid challenges of maintaining patient, staff and community safety, plus adding ways to do more with less, we have come up with various alternatives to our “norm”.  Many predicted that the pandemic would take 18 months to come through it.  I believe that estimate was a timeline based on the last pandemic in the early 1900’s.  But, here we are 20+ months in and still counting.  We are definitely closer to getting back to “normal”, but not there yet.

At the end of this month we will celebrate moving from 2021 into 2022.  A new year with new possibilities.  Every year it seems that I look forward to the New Year in anticipation of wonderful new possibilities.  New Year’s resolutions set every year may need to be revisited or reworked, but always signify a fresh start or renewal.  My wish for all of us in 2022 is to find refreshment/renewal and dig out of this current cycle.  Perhaps we will finally find ourselves moving forward with renewed purpose and enthusiasm.  As I said earlier, I leave you in very capable hands with Shelley as your President and Michelle stepping in as Vice President.  Both have years of experience and will have the best interests of all of the membership in mind as they help us make plans for 2022 and beyond and to one day (hopefully) meet in person again.  I will continue on the board as past-President for two more years, so you won’t be rid of me completely.  In fact, one role of the past-President is to reach out to the membership and recruit volunteers for board vacancies. Never one to miss an opportunity, please consider participation on a committee this year.  We have a number of opportunities available which really don’t consume a large amount of your time.  Each committee meets once a month for 30-60 minutes.  All meetings are conducted via zoom.  Honestly, it is a small investment that pays large dividends. I highly recommend participation.  It offers opportunities to get to know others from around the state; opening up your network of resources.  For me, I not only developed networking resources but also formed many lasting friendships.Before I sign off, I also want to acknowledge Holly Deiter who will depart the board at the end of December.  She served as President before me.  We will miss her input on the Board and thank her for her years of contribution to Pennsylvania MGMA.  She has been an invaluable resource and one of those I consider a friend.  Holly, thank you for your years of service to PA MGMA and wishing you continued success.  I also would like to thank Peter Constantinou and his team for their years of support of the organization.  Peter and his team contribute enormously to the success of our organization and are always available, not only as a resource to the Board, but also to the membership.  When we are finally able to meet in person again, anyone attending will get to hear Peter trying to encourage all of the “yellow tag” attendees (non-members attending a conference) to join Pennsylvania MGMA and turn that yellow badge into a clear one.  He brings years of experience to the organization including a background as a Healthcare Administrator not to mention his acting expertise.  In all seriousness, he and his team provide much needed support and guidance for which I am eternally grateful.

For now, best wishes on a successful completion to the end of 2021.  May everyone have a safe and happy holiday season and ring in 2022 safely.  I wish you all good health and future success.  Thank you all for your support and friendship through the years, it has been an honor to serve.   

Traci Evans, FACMPE
President, Pennsylvania MGMA


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Real Estate: Good Offense, Better Defense

By: Shay Vogg

Whether your favorite sport is football, foosball or fútbol, you can’t win the game unless you have both a good offense and good defense. Bear Bryant echoed this by saying “Offense sells tickets, but defense wins championships.”

The same can be said about winning in business and personal finance. In the classic personal-finance book, “The Millionaire Next Door,” Thomas Stanley and William Danko liken offense to income and defense to how you spend (or do not spend) that income. Their premise is that to win at personal finance and become wealthy, you must be excellent at producing income (offense) and even better at retaining it (defense).

Clearly, it takes money to make money and some expenses are unavoidable.  However, it is important to focus your attention on saving money the right way and looking at big ticket items.  That focus can have a huge impact on your personal finance and financial well-being of your healthcare practice.

We recently had two clients who were excellent practitioners; able to produce high revenue for their practice and create significant take-home income. They were great at offense, bringing in income; however, upon reviewing their leases, we found their defense to be lacking.

Client #1

Our client was leasing space in a multi-tenant building. Her lease was set to expire in just over twelve months, so she was considering relocating her practice or purchasing her existing leased space. After reviewing her lease, we noticed she was paying rent on the entire building (nearly 6,000 square feet), rather than her 4,000 square foot space she was practicing in.  She was paying for 2,000 square feet that her practice was not occupying, while the landlord was collecting double rent on the adjoining 2,000 square foot leased space.

Consider the ramifications of this. For the sake of round numbers, let’s use a fifteen-dollar per square foot lease rate over a ten-year term.

$15 x 6,000 sf = $90,000 (annual rent) x 10 years = $900,000 total rent

vs.

$15 x 4,000 sf = $60,000 (annual rent) x 10 years = $600,000 total rent

The difference in this scenario is $300,000 over a ten-year lease term. It turns out, there was no malicious conduct or deceptive intent on the part of the landlord (just an honest mistake), but this lease was reviewed by a practice broker, an attorney, two or more doctors and others before it was signed. The space was a part of a practice purchase, so the lease unfortunately was an afterthought. 

How long would it take to make up for a mistake like this by cutting back on supplies?

The reality is, no matter how many pennies you pinch on cotton rolls or materials, it’s unlikely you could make up for this type of an oversight. Simply assuming that the math on a lease will work out fairly or believing that it is not worth the time or money to have a professional review the terms of a deal may end up being the costliest mistake of your professional career.  This is an example of poor defense: not having someone there to protect your bottom line.

Client #2

The other client was nearing the expiration of his lease, so we reviewed the negotiable terms; namely tenant improvement allowance, free rent, lease rate, operating costs and escalations. The one that stood out the most was the tenant improvement allowance.  On the past lease, the landlord’s terms were at least ten dollars lower than what the client should have achieved. Doing the math here ($10 per SF x 3,500 SF = $35,000).

Another example of poor defense. One negotiable term that seems minor or even “fair” could cost you tens of thousands of dollars.

The hard part about these transactions is that you want to believe you are being treated fairly. The reality is, your definition of fair is most likely very different than that of an opposing party. You must realize you have competing interests with the landlord, broker or investor that is a professional negotiator with full knowledge of their trade. You could say, a landlord’s offense is better than an unrepresented tenant’s defense.

Real estate is the second highest expense for most practices.

With this much at stake, it’s not something you want to take a risk on.

The good news is that buyers and tenants have every opportunity to create a good defense by seeking professional help.  Often times healthcare professionals will have an attorney review the legal ramifications and consequences of a lease, but the legal side of a lease and the fair-market-value side of a lease are completely different. Very few attorneys know the going rate for tenant improvement allowance, free rent, escalations or lease rates in a healthcare-real-estate transaction.

Another common mistake is hiring the wrong real estate professional. Be sure to hire a broker or agent with healthcare real estate experience. Failing to understand the electrical, mechanical and plumbing needs of a healthcare practice on the front end can be extremely costly. Additionally, there are many other business deal points that are vastly different in healthcare real estate vs. general commercial real estate.

In summary, a successful practice focuses on production to increase revenue while investing in resources that drive business without neglecting to protect what has been earned or could be lost.  Professional representation protects your interests and the valuable revenue you work so hard to attain. You don’t have to choose between having a good offense or better defense; you can have both.


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About the Author

Shay Vogg - CARR

Shay Vogg

Shay Vogg is a Broker with CARR, exclusively helping healthcare tenants and buyers in the Pennsylvania area achieve the most favorable terms on their commercial real estate purchase and lease transactions.



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