Weighing The Options

As I continue to travel throughout the country, although it is just as obvious in my own backyard of Michigan, I become more and more concerned as to the loss of revenue opportunities for healthcare. I feel compelled to urge the collective healthcare community to "stop the madness" of giving away these revenues that are benefiting, so lopsidedly, the third party retailers.

I am watching as the quality efforts, and millions of dollars, that each of these systems have spent to communicate their mission of care and "branding" of their offerings, in their given communities, benefit those that have not contributed a dime to that fund. I compare this, very loosely, to the Walton family spending the past 50 years building their retail empire and mass traffic flow via extensive investment in technology, marketing and services. Then they say to Procter & Gamble, "we are going to give you prime real estate in our lobby, before the visitors even get into the core of what we offer, and after you cover YOUR cost for being there we will take a small lease rate and an even smaller % of sales".

I am not suggesting that there be an adversarial relationship with the vendor community, just that there be a transparent mindset of sharing for the greater good. I am listing below actual information that shows this type of comparison in real numbers. This information compares what one particular hospital campus agreed to with a third party to what they could have done. The scary aspect to this information is that I am under cutting the annual sales number, to be ultra conservative, when I know that it is more likely that they are generating far more than this. This third party group was given control over the coffee shop, lobby cafe, gift shop and ATM's! Let me know your thoughts. Am I crazy for thinking this way?!




Third Party financials


Annual Revenue: $850,000.00
Square feet 1,250
Annual Lease: $45,000.00 @ $36 PSF/nnn

Annual % of Sales* Given back to hospital: $4,500.00
Total Annual Return for hospital: $49,500.00 / 5.80%



*Based on 3% payback to hospital for any revenue AFTER the first $700,000.00 is realized by third party owner. This is an actual contract structure.



Hospital Ownership w/third party management assist
Annual revenue: $850,000.00
Cost of goods*: $255,000.00
Cost of labor via TMS**: $297,500.00
Total annual return for hospital: $297,500.00 / 35%



*includes all aspects of product and supplies (30%)
**based on a 35% allocation for all labor costs including benefits, taxes, etc.