Healthcare has a great deal of complexity in terms of care delivery and clinical needs. Today, and going forward, equal complexity exists on the business and operations front. Large provider organizations and systems are likely to have the capacity and capability to acquire and internalize, expertise within the organizational structure. Smaller, single site or regional organizations, however, often cannot justify internal staffed positions for issues such as large capital/construction projects, system implementations, new product/business line starts, acquisitions, large scale, complex financings, etc. Similarly, as many of the aforementioned issues require specific leadership expertise in order for successful completion, the likelihood of any one (or group) senior executive having the historical expertise, connections, resources, record of completion/results, technical knowledge, and industry specific experience/knowledge is frankly, small.
Fewer executives today have careers long enough and careers deep enough to have a deep well of contacts across the many resource levels that for example, a complex financing transaction may require (lawyers, bankers, investment bankers, appraisers, accountants, etc.). Fewer executives still, will have a resume that includes multiple large-scale financings ranging from acquisition financing to construction financing to refinancing to working capital and perhaps, a combination of financings (new construction and working capital). The same can be true for a new business/product line launch such as a start-up hospice or home health agency. Merger and acquisition expertise is another area that may be lacking for many executives and boards.
When core expertise in these areas is missing, mistakes are often made and the same, expensive and perhaps, with long-term implications. I have seen all too many capital and construction projects completely miss budgets and completion dates. I have seen all too many projects finish with ongoing open ends that don’t ever seem to receive the attention required by contractors now that the big project is done an everyone is likely, paid. I have seen shoddy contracts, financial projections missed by a “lot”, start dates and assumptions of new occupancy, significantly missed. I have seen financings done poorly such that the front costs (legal, fees, etc.) were far more than necessary and the terms, far too restrictive to the borrower, beyond what could have and should have been within the structure of the transaction. In cases like this (and others), the business incurred costs, delays and in some cases, a final result that was overly expensive, too restrictive, and less that desired in quality and warranty.
A remedy to these (and other) risks and negative outcomes is engagement of an Owner’s Rep (representative). Essentially, an Owner’s Rep is an individual or in some cases, a firm that has specific expertise and a demonstrable history of favorable results, in the project area that the organization is undertaking or seeking to undertake. An Owner’s Rep should fundamentally, pay for himself/herself/itself via streamlining the project, reducing costs, improving outcomes, hitting targets, and proving requisite expertise that enhances the final outcome of the project. A skilled Owner’s Rep should,
- A specific history of completing projects with favorable outcomes identical to the organization’s needs. Multiple projects with multiple similarities are ideal.
- A large volume of resources and contacts that can provide best service, best fees, and unique project expertise and formulate if necessary, a preferred and qualified, list of contractors/consultants/resources for bids (as applicable).
- Skills in project management, negotiation, forecasting (as applicable), teambuilding, and leadership.
- Broad expertise to add value in terms of regulatory implications, personal/organizational connections that facilitate problem solving when needed.
Below are a couple of examples where the role of an Owner’s Rep is defined.
- A CCRC organization realizes that its nursing home/SNF is quite outdated, too large by bed count, and lacking current patient and staff accommodations that are typified in more modern, up-to-date facilities. A major project for remodeling and updating, including addressing furniture, fixtures and equipment and infrastructure such as computer systems, WIFI, HVAC and food service areas and equipment is contemplated. No one within the organization has ever completed such an extensive remodeling project for an SNF or built a new SNF building. The capital for the project exists but the project by scale, will occur over two years with periodic interruptions to full scale operations. Existing residents will need to be cared for and ultimately, census managed to a new, lower occupancy. Why in this case an Owner’s Rep makes sense (is),
- Acquire the business skill of an individual or firm that has done substantial SNF remodeling and building projects.
- Acquire the contacts and project management skill of someone who can work on behalf of the organization to build a project team of architect, contractors and consultants for the project and develop collaboratively, all project parameters, and condittions.
- Work with and lead an internal team to address care coordination issues and how the phases of construction will integrate within current operations.
- Develop financial forecasts to account for capital spending but also scenarios of revenue and expense changes during the project.
- Work on regulatory requirements that are applicable within the State and local agencies to ensure proper requirements are met.
- Work with organizational legal and audit firms to address any conditions applicable to the project within any other existing constraints (other financing covenants, project accounting, etc.).
- The Board of a regional senior housing provider organization wishes to explore expansion via starting its own home health agency. They will consider acquisition of an existing agency if conditions and terms are appropriate. No one within the organization has ever started an agency or acquired one and no one within the organization has prior executive home health experience. Using an Owner’s Rep with deep home health and acquisition experience would make sense,
- To define the parameters and conditions between acquisition and start-up.
- To quickly determine if acquisition was feasible.
- If start-up is the route, to develop a project plan incorporating all initial regulatory requirements, timelines, financial considerations, and operating steps and conditions (staffing, location, etc.).
- Develop a forecast of expected investment costs, operating plans including revenues, expenses, patient volumes, payer mix, staffing budgets.
- Utilize his/her/their resources to provide access to required materials such as policies, procedures, and accreditation resources.
- Work with State and Federal officials and accreditation agency to address regulatory and licensure/accreditation requirements.
- Assist organization in assimilating and integrating the new service line including development of marketing and communication strategies.
The role of the Owner’s Rep is complete independence of the project to the organization, representing only the organization at the levels required. There should be a complete, bright-line ROI proposition such the Owner’s Rep can easily and clearly, identify opportunities for efficiencies and savings, justifying the organization’s investment in qualified representation.