I do not have any expertise in healthcare, doctor practices nor legal practices, so my comments reflect various conversations with professionals in those fields and reading considerably about the issues. Medical office has always been considered an excellent safe investment, and in some cases it will likely remain that. Renting to law firms and accounting firms was also considered relatively safe. Then of course there was the best of the best, Arthur Anderson. Or lately Dewey Le Boeuf. There are now severely disrupting changes in doctor practices that will make medical office potentially much more risky. Law firms spent heavily in mid decade to upgrade offices, add lawyers, and generally over spend. Doctors formed groups and built practices.

Today there are numerous lawyers who are unemployed, fees are under pressure, legal costs are a target of the cost cutters, and all of that overhead is no longer sustainable. What many non lawyers do not understand is that law firms, like other professional firms, start the year by paying basic draws to partners and as the year goes on, building up a potential cash reserve for partner distributions at year end. To get through the early months, professional firms use a bank line of credit which is guaranteed by the partners in the practice. Well run firms use the early fee revenue to payoff the line as soon as possible. However, as in the case of Dewey, and many medical groups, partners do not want to wait until the line is fully repaid, and want to use it to pay themselves bigger draws. That is fine in years like 2007, but a disaster now.

Medical practices are undergoing completely disruptive changes, and Obamacare is making that much worse a lot faster. Costs to operate a medical practice are going way up due to many new regs and much more record keeping, and other requirements. This not only runs up overhead, but it requires the doctors to spend more time on admin and less on revenue generation. At the same time, there is a huge squeeze on revenues. Insurance companies are now limited in their profit margins, so they are crushing down on reimbursements. Companies are raising deductibles and co-pays. So employees are carrying a much bigger cost. That means they will go to the doctor less often. Under Obamacare this is going to ramp up dramatically after 2014. On top of this, it requires coverage, so some companies will end coverage and just pay the penalty. That leaves more people with minimal coverage or on Medicaid. Most good doctors don’t take Medicaid and a rapidly growing number do not take Medicare. Many now don’t even take insurance and make the patient pay up front. More limits on number of patients and revenue. So the result is a terrible squeeze coming already to many medical practices. This is going to get a lot worse. Add to these costs, the Obama tax increase on the “rich’, as in many doctors, and the huge burden of student loans to get through medical school, and you start to see that the balance sheets and the income statements for doctors are rapidly deteriorating.