Physicians scrambling for capital

September 30, 2002 - As the valley grows, so do its medical needs.

But unresolved issues, such as medical malpractice insurance costs and the persistent struggle with managed care reimbursement rates, are catching up to doctors looking to start their own practice.

Simply put, it's not as profitable to be a doctor anymore, and banks are taking note.

Rod Dunnet, president of Irwin Union Bank, has been working to help put together financing deals for doctors and medical centers in the valley for the past 12 years. He has seen the doctors' plight in having to assume the role of knowledgeable business man as well as medical professional.

"Being a doctor is not as economically rewarding as it was 10 years ago," he said.

In today's environment, doctors need to hire business managers and staff to deal with managed care groups and negotiate reimbursement costs, said Dunnett.

The result increased staff costs and lower managed care reimbursements is discouraging doctors from buying their own buildings. Also, more doctors are forced to come out of college and work for someone to pay down debt and build up a savings nest before starting their own practice, Dunnett added.

"It used to be that if you had an M.D. at the end of your name, banks were falling all over themselves to finance you. That's not the case anymore," he said.

Jerry Martin, senior lender for Nevada State Bank, said lending to doctors is still "reasonably solid" despite some weakness in the area in recent months.

"We have seen some credit issues in recent months, which could be attributable to a multitude of things, but it's still a pretty strong (lending) area," he said.

What is of concern to lenders now is the patient caps physicians face from their medical malpractice insurance carriers, which limits the amount of business they can conduct. Concurrently, the time it takes for doctors to get paid can be drug out for months, added Dunnett.

Joseph Nicola, a chiropractor who recently opened Integrated Healthcare of Nevada, a multi-discipline clinic in Las Vegas that also employs an M.D., said that when it came to the $80,000 he needed to finance the start up of his new medical center, slow reimbursements was a topic of conversation with lenders.

"It's one of those things that makes it a little hard because you're not always dealing with a cash business. With managed care, it reflects that kind of income. It's a long lag time before getting a return on investment," he said.

But Nicola said most lenders are still looking for a solid business plan more than anything.

"What I've seen in my own estimation is that most lenders wanted to see a good business plan, where you've thought through what you're doing," he said.

Economists are also seeing the difficulties in the medical arena and their potential impact on financing, particularly as they research the local medical office space market.

"Probably in the past two years, I've received 10 phone calls from banks and financing institutions as far as the medical market. In the last four months, I bet I've received twice that many," said Jeremy Aguero, principal of Applied Analysis, a locally based economic research firm, whose firm also provides financing consulting services.

"I can't tell you whether they're doing more diligence, or there's more research going on out there, but they (lenders) are at least taking a closer look at the market and evaluating it much more stringently than they did before."

Aguero said that he has advised area office complex projects to diversify their space and not be so dependent on medical office space to survive, or in some places to not go ahead with plans for a medically based facility in the short run. But he added that in the long run, the demand for medical office space will remain quite high.

"It's an industry that really has no choice but to grow, given the demographics of the area. We know the marginal propensity to demand services is going to continue to go up," he said.

Aguero was also said that the local medical industry is a real mixed situation because while employment growth is only up about 1.2 percent this year, health and medical services are growing at about 4 percent.

"On the one hand you have the medical services growing exorbitantly faster than the balance of the economy, but on the other hand we have all of these uncertainties with the medical malpractice crisis and OB/GYNs leaving the state," he said.

Aguero said the trend in the industry have led to consolidations, or more physicians in an office space, sharing expenses and risk.

But Dunnett also said he sees the current situation as a temporary problem and views it as a one or two year "blip" that the medical industry will work its way through, once the medical malpractice insurance situation shows signs of stabilizing.

"We really do believe this is a temporary situation," he said.

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Article Copyright ©: B. Sodoma, LV Business Press