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Coming Problems In Medical Office

The economics of medical practices is decling rapdily

By Joel Ross | Updated on August 12, 2012

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.

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