RAMT Task 1
Service Line Development
Trinity Community Hospital
New Orthopedic Line
The following is a summary of advantages and disadvantages of building, buying and leasing space for the new orthopedic line at Trinity Community Hospital. Included in this summary, is the option I recommend and my basis for this choice.
When considering building, buying or leasing space for the new orthopedic service line, one must consider current trends in healthcare. Hospital construction continues to struggle to recover from years of unfavorable economic news. As hospital building activity has spend the last few years under the shadows ...view middle of the document...
Additionally, to generate extra income, the excess space could potentially be leased to outside service providers. Leasing costs for the 5,000 square-foot medical office building adjacent to the hospital are $20/square foot (including necessary renovations). This is a triple net lease so Trinity Community Hospital would be responsible for taxes and repair costs. The advantage to this option is less cash is required up-front (as compared to building). This would leave additional monies to fund the orthopedic line start-up and allow for the purchase of state-of-the-art equipment and technology for the facility. Also, with leasing there is no risk of large investment losses as with building or purchasing. The volatility of the current real-estate market makes this advantageous. Many questions concerning the future of commercial property and their values remain unknown (Spohn, 2010). Additionally, lease payments are a valid tax-deductible business operating expense and leasing requires significantly less paperwork at tax time than owning (Spohn, 2010).
There are multiple disadvantages to building space for the new orthopedic line. There is a large cash outlay or debt accumulation upfront. The need to construct the building would severely delay the hospital’s ability to open the new orthopedic line. If the building requires selling in order to raise cash, current real estate market conditions may make this impossible. Additionally, there is risk that the project would exceed budget and completion timeframes. As with building, the disadvantages to buying space for the new orthopedic line are similar. There is a very large cash outlay upfront. Also, there is the risk the property would not maintain its’ value long-term. The alternative to this would be to finance but results in the accumulation of long-term debt....