The Million Dollar FTE

math equation

By John A. Hrivnak, AIA, MBA, NCARB, LEED AP, ArCH
Hrivnak Associates, Ltd.

It began as a simple request for a second opinion –– a second opinion as part of due diligence before investing seven figures in a new medical clinic.

(Yes, physicians seek second opinions before investing very large sums of money just like their patients do.)

The only way to get past the inherent awkwardness of providing a second opinion is to focus not on what was initially determined but rather on what is best for the patient. In this case, the patient is the building and the architect is observing what initially appears as competent professionalism on the part of the other architect who provided the initial design. Then it gets interesting.

The good news is that the building is reasonably sized for the family practice clinics that will occupy the space. The design aesthetic, while subjective, is good. The functionality, however, can be more objectively measured and hidden within is the aforementioned “million dollar FTE” (Full-Time Equivalent, which equates to full-time employment of one person).

A new design solution will end up being the same size building at nearly the same cost. The goal of the second opinion effort is to move “cost” to “investment,” from competent to operationally efficient and cost-effective.

The skeletal system (structure), the pulmonary system (HVAC), the circulatory system (plumbing and gasses) and the nervous system (electrical and IT) can all be tweaked with an ROI (return on investment) approach to architecture. Similarly, physicians and architects both need to look at all components/systems, beyond the presenting symptoms in order to do the pathology.

Enter the Architectural Pathologist.

In an era of uncertainty in medical care (understated enough?), one certainty is that reimbursements continue to be squeezed and costs continue to rise. Incremental savings on the systems mentioned do matter. Every dollar of savings is equal to $20 of revenue. (ASHRAE) Consequently, incremental savings opportunities are recommended, from energy efficient mechanical systems to LED lightbulbs.

But where is the million dollar FTE?

Having operated a clinic as Executive Director/Practice Manager and using his MBA in finance as well as his architecture training, John Hrivnak looked for patient and process flows that might improve efficiency of operations … and found them.
The initial design (three stories of 10,000 s.f. per floor) had a main corridor that split the building in two, resulting in two main suites per floor, all suites to be occupied by University-run family practice clinics. The central corridor approach, typical for an office building but not particularly effective for medical design, meant that there was a reception area on each side of this wide hallway.

Where there is a receptionist, there is also at least one cashier and at least one medical records clerk (3 FTEs per reception areas x 2 suites per floor x 3 floors). Lab and X-ray were also located as a mini diagnostic suite on each side of the main corridor (2 FTEs each suite x 2 suites per floor x 3 floors).

The physician/nurse ratio appears appropriate, but multiple nurse stations could be combined for space savings, improved communication and staff sharing.

The second opinion recommends eliminating the corridor that split the building in two, thus saving space and … finding the million dollar FTE. Eliminating redundancies (reducing 5 FTEs per floor x three floors = 15 FTEs) would obviously improve operational costs –– but by how much?

With the assumptions of $60,000 compensation package per year per FTE including benefits, a 4% cost of living adjustment per year and the 39-year tax life of a building, the following formula is generated:

math equation

FTE Equation

The formula takes the annual cost of an FTE, increases it 4% per year for 39 years, and then derives the net present value of that accumulated number to today for the value of saving one FTE at a cost over the lifetime of the building of $1,175,069.

The result? Saving one FTE, by design, represents more than $1M over the life of the building. We’ve found the one million dollar FTE!

In this case, the second opinion study found 15 of them. The revised building layout still results in a building shell that would still cost approximately $8M as before. The revised, operationally efficient layout, by reducing the required number of FTEs, yields a savings of $15M … on an $8M building.

Can you find your million dollar FTE? A fraction thereof? The search requires a team effort among providers, practice managers, staff and an architect/engineer partner who understands healthcare and who celebrates the heroes and heroines of caring by supporting them in what they do best. To all of you providers, practice managers and staff reading this, thanks for being the real healthcare heroes.

john hrivnak

John A. Hrivnak, AIA, MBA, NCARB, LEED AP, ArCH

For more about Hrivnak & Associates, click here: http://hrivnakassociates.com

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