Real estate costs make launching a practice unaffordable for some

Young-Female-DoctorAmong the many costs associated with launching a clinic, rapidly escalating real estate prices in major cities are often the primary reason that new doctors are unable to open their own practice. But some young physicians have financed a practice with family money, and have even secured bank loans.

Key Point: Ask family and friends for financial help to offset the escalating real estate costs that physicians who are starting a clinic face.

Sharad Gogate, MD, a Mumbai-based gynecologist, obstetrician, and perinatologist who would like to open his own clinic, is thinking about relocating to a less pricy area outside of the city.

Aniruddha Malpani, MD“Real estate is so exorbitantly priced that it makes no financial sense for a doctor to buy and run a clinic in Mumbai today.”
—Aniruddha Malpani, MD, medical director of Malpani Infertility Clinic in Mumbai

“If the clinic is in Mumbai it will be very expensive, as real estate costs here are sky high,” he says “Even a small apartment in central Mumbai will cost Rs 20 million. Commercial establishments will be more expensive. Rental accommodations will cost at least Rs 150,000 per month.”

Physicians who intend to launch their own clinic should consider[s2If !is_user_logged_in()]…

[/s2If][s2If is_user_logged_in()] the following tips from experienced private practice doctors:

  • Look for investment from family and friends.
  • Consider locations outside the major cities where real estate is more affordable.
  • Study the potential locations and assess the potential patients’ medical needs and ability to pay for services.
  • Consider living with family the first few years, if possible, to offset costs.

In 2005, a report by the National Commission on Macroeconomics and Health, a division of the Ministry of Health and Family Welfare, estimated real estate and staffing costs for several different size medical clinics. For example, a 1,500-square-foot Primary Health Center (PHC) would cost Rs 900,000 for the building and Rs 111,500 for the equipment, according to the report. The staffing costs for the PHC, if there were one medical officer, a pharmacist, three staff nurses, and a few office workers, would be Rs 1,077,670 annually.

Although these projections are several years old and based on government facilities, they significantly underestimated the actual costs at the time, says Aniruddha Malpani, MD, medical director of Malpani Infertility Clinic in Mumbai. These estimates are even more inaccurate today.

“The figures they have used for their cost structure are unrealistic and outdated,” he says. “The government only talks about promoting healthcare, but in real life, they do very little to help. In fact, they often end up creating hurdles which interfere with the doctor’s ability to provide cost effective care by passing rules and regulations which are practically impossible to comply with.”

Relying on family and friends when starting out

In spite of governmental regulations, Malpani was able to start practicing in 1991 because his first clinic was owned and run by his parents, who are both doctors.

“Real estate is so exorbitantly priced, that it makes no financial sense for a doctor to buy a place and run a clinic in Mumbai today,” he says. “It would actually be more cost effective for me to sell the clinic and live on the interest after depositing the money in the bank. This is why most doctors move into family-owned premises.”

Likewise, Dhiraj Gada, MD, DGO, DFP, FICMCH, who specializes in reproductive endocrinology and infertility, was able to open his clinic in Indore in 1976 thanks, in part, to help from family.

“I purchased an operating laparoscope as in this area at that time there was nobody trained in laparoscopy,” he says. “I wanted to become first in this area and that gave me an edge in setting up my practice.”

The 3,900-square-foot former hospital building cost only Rs 250,000, plus Gada spent approximately Rs 100,000 for furniture, fixtures, instruments, and other equipment. Staffing costs—Rs 5,000 per month back in the mid-1970s—have climbed to 150,000 per month due to inflation and clinic growth, even though Gada stopped offering obstetrics services 12 years ago.

Study potential locations before investing

Gogate estimates that he, too, will pay up to Rs 150,000 monthly for staff—based on employing a doctor, a receptionist, an imaging specialist, and several medical assistants. He also projects that his upfront ultrasound equipment will cost Rs 1.5 million to Rs 2 million.

“The biggest challenge will be raising money to set up the clinic, and then attracting enough patients to recover the costs and make a decent profit,” Gogate says. Before moving forward, however, Gogate intends to carefully survey the area where he wants to set up his clinic. In particular, he’ll look at the population he will cover and their ability to pay for medical services.

While individual and family investment may be the only option for some physicians who are just starting out, bank loans are an option once a clinic has enough revenue and stable patient volume.

“We were very fortunate,” Malpani says. “We didn’t have any financial challenges since we had financial support from my parents. We also had plenty of patients from day one, which is an anomaly.”

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