Sleep Centers Awaken Profit, Competition

Karen Minich-Pourshadi, for HealthLeaders Media , May 13, 2011
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Brown explains that an off-campus sleep center can be built for approximately $500,000, and the majority of the cost will go toward creating a hotel-like site for the patients to relax and sleep, as well as some basic equipment (e.g., digital diagnostic equipment and a digital video recorder).

Even with a relatively modest start-up cost, in this economic climate, Brown and Finkenbiner say there’s a way around coming up with capital for these centers. For its newest facility, Genesys worked with the property manager to create an operational lease where the build for the facility was included. Genesys was able to open with a minimal outlay up front, and will pay for the renovation over the course of a 10-year lease—eliminating the need to secure outside funds to get started.

Jennifer Romond, assistant vice president of finance for Virtua, says that Virtua’s experience has been that it takes a minimal investment to open a center. “You’re monitoring a patient, but there’s not a whole lot of technology that’s needed, maybe one piece of equipment and a sleep technologist,” she says.

Mazzoni says partnering with an established sleep lab company, such as SleepCare, helps keep start-up costs low brings in technical and clinical expertise. “They bring a level of expertise and accreditation that we wanted,” he says. “We expected our volumes to get us to the break-even point the first year, and it has. We’ve been at breakeven or above now for years.”

The same is true for Genesys, which earns a net profit of $600,000 to $700,000 and revenues of $1.7 million annually from its two sleep centers. Brown and Finkenbiner explain that part of that profit is the result of Genesys’ efforts to establish a steady referral base for the program.

Physician buy-in is crucial, Brown adds. Back in the 1980s, when it launched the sleep program, getting referrals from physicians was a problem, as sleep disorders were new and lesser-known. “We learned that a core group of supporting physicians can support you through good times and bad,” he adds.

A readily available and large referral base is an advantage that hospitals and health systems have over their smaller, independent counterparts. “You absolutely have to have a secure referral source when you are looking to open a sleep lab,” says Finkenbiner. “You have to take a critical look at how many referrals your physicians can give you per week or month and build performance based on that volume estimate.”

Once a sleep center starts seeing large numbers of patients, generally smaller, independent healthcare providers in the area see the profitability of these ventures and begin opening their own centers, Brown says. Although the payoff for a physician-owned or independent clinic isn’t as high—net revenue per patient is $700 to $800—the facilities that keep their operating expenses tight still see a reasonable profit, says Brown.

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