Development Scenarios

This section documents the development scenario deliverables for the project, including capital estimates and evaluation matrices.

DEVELOPMENT SCENARIOS

SUMMARY

Scenario 2 maximizes the Building B for clinical function using the efficient Two-Door universal clinic layout.

Building B

Levels 2 and 3 are renovated for clinical use. Level 1 is renovated for clinical use, office use, and other functions such as cafe, pharmacy, and a clinical suite for employee health and dental with a private courtyard entrance. The lower level accommodates faculty academic centers, administrative offices, building functions, and the current imaging department.

Building B Expansion

This scenario does not require any deviation from the current Building B Expansion/Eye Center program distribution.

Building A

In this scenario, Building A will be used for Academic Centers and Out of Clinic MOSCs.

Building C

All clinics in Building C will be absorbed into the Building B and Building B expansion. Offices will be relocated to Building C and/or the Building B. Building C will be demolished in 2021.

Off-Site Offices

In order to create space for adequately sized renovation footprints, some temporary off-site offices may be required.

Clinical DGSF

Two-Door Layout

Dept	# Exam	DGSF	# Proc	DGSF	Total
CTS&C	10	433			866
Cardiology	25	435			10,881
Dental	2	433			4,330
Employee Health	7	433			3,301
ENT	23	447	5	447	12,525
Family Medicine	26	303			7,887
Internal Medicine	27	322			8,684
OB-GYN	25	315	4	315	9,148
Orthopaedics	18	421			7,579
Pain Management	9	438	5	1,027	9,074
Peds	26	324			8,427
Rehab Clinic	6	431			2,584
Surgery	15	339			5,085
Transplant	12	405			4,865
Urology	12	594	4	594	9,501
Vascular Clinic	7	498			3,483

Page 1 of 1

+65K

DGSF Building A Officing

$413M*/$455M**

Cumulative Capital

Estimated Total Project Cost and Occupancy Cost

*Building A Leased **Building A Purchased

SCENARIO 2 PHASING: GANTT CHART

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Complete Building B Renovation $207M

Neurology + Neurosurgery Faculty Temporary Relocation

Building C Renovations $16M

Phased development across 6 years
283,000 impacted BGSF

2 years (estimated)
66,000 impacted BGSF

1 year (estimated)
(-33,000) BGSF

Building B Expansion $62M

2 years (estimated)
+54,000 BGSF
includes 2nd and 3rd floor TI

Vacate + Demolish Building C $500K

Relocation Assumptions

Neurology Clinics and Faculty
Neurosurgery Clinics
PM&R Therapies (clinics remain)
Cardiology (half of faculty relocating to North Addition)

2030

16,000 BGSF
+ $7.50 Per SF Occupancy Cost + $35 leasing cost per SF, $510,000 annual cost

SUMMARY

Scenario 1 maximizes the Building B for clinical function using the efficient Hybrid Convergent universal clinic layout.

Building B

Building B Expansion

This scenario requires the Eye Center program to be redistributed on Building B Level 2: In order to maximize the universal clinic layout, the Eye Center program shifts into the Building B expansion. Level 3 is dedicated to the Pain clinic and procedure suite. This department requires stringent architectural separation due to the procedures being performed in this space. The natural separation of the expansion is the ideal location for this department.

Building A

In this scenario, Building A will no longer be required for ambulatory clinics, MOSCs, or faculty academic offices after 2026. Though the BluePacific real estate group recommends purchasing Building A for strategic reasons, we have taken it out of the capital estimations for the purpose of this master plan.

Building C

All current clinics and offices in Building C will be absorbed into the Building B and Building B expansion. Building C will be demolished in 2021.

Off-Site Offices

In order to create space for adequately sized renovation footprints, some temporary off-site offices are required. In this scenario, Neurology and Neurosurgery academic offices and Cardiology academic offices will be relocated to a temporary facility until 2025. After that, these academic offices will be right-sized and accommodated within the Building B.

Other Precepts

In order to accommodate all the space needs for clinics and offices, some space allocation concessions are required:

MOSCs- Currently MOSCs are provided with 120nsf per office, 56nsf per workstation, and an overall DGSF grossing factor of 60%.

Scenario 1 requires a decrease in space allotted to 40nsf per workstation, a 45% grossing factor, and a 50% reduction of private offices to shared offices.

Faculty Academic Centers- Currently faculty are provided with 120nsf per office, 56nsf per workstation, and an overall DGSF grossing factor of 100%. Scenario 1 requires a decrease in space allotted to 40nsf per workstation and a 75% reduction of private offices to shared offices. The grossing factor remains 100%.

Scenario 1B only differs from Scenario 1 in the phasing approach to Building B renovation: All Building B renovations begin after completion of the Building B Expansion project.

Clinical DGSF

Hybrid Convergent Layout

Dept	# Exam	DGSF	# Proc	DGSF	Total
CTS&C	10	343			3,433
Cardiology	25	433			11,071
Dental	2	343			687
Employee Health	7	343			2,403
ENT	23	461	5	461	12,913
Family Medicine	26	312			8,110
Internal Medicine	27	332			8,953
OB-GYN	25	329	4	329	9,544
Orthopaedics	18	451			8,188
Pain Management	9	507	5	1150	10,310
Peds	26	337			8,751
Rehab Clinic	6	478			2,865
Surgery	15	336			5,042
Transplant	12	401			4,811
Urology	12	572	4	572	9,151
Vascular Clinic	7	516			3,615

Page 1 of 1

+21K

DGSF Temporary Off-site Officing

$381 M

Cumulative Capital

Estimated Total Project Cost and Occupancy Cost

SCENARIO 1 PHASING: GANTT CHART

2018

2019

2020

2021

2022

2023

2024

2025

Building B Expansion $62M

Relocation Assumptions

Vacate + Demolish Building A $500K

Complete Building B Renovation $220M

Phased development across 7 years
300,000 impacted BGSF

1 year (estimated)
(-33,000) BGSF

2 years (estimated)
+54,000 BGSF
includes 2nd & 3rd floor TI

Neurology Clinics and Faculty
Neurosurgery Clinics
PM&R Therapies (clinics remain)
Cardiology (half of faculty relocating to North Addition)

2026

2027

2028

2029

2030

Vacate Building A

1 years (estimated)
(-66,000) impacted BGSF

SCENARIO 1 PHASING: ANIMATION

PHASE 1

Pre Construction Relocations

Temporary Relocation

Neuro Academic Offices

Cardio Academic Offices

Permanent Relocation

PM&R Therapies and Academic Offices

Building B Level 3 Consolidation

Shift Ortho and Imaging academic offices to create a clear renovation footprint at Building B level 3 north

PHASE 2

Construction/Renovation

ACC Expansion

Building B Levels 1 & 3 Partial Renovation

Move (Permanent):

Ohpth Clinic/Offices

Pain Clinic

Cardiology Clinic

Surgery Clinic/Offices

Transplant Clinic/Offices

Emp Health Clinic/Offices

Dental Clinic/Offices

Move (Temporary):

CTS&C Clinic/Offices and Vascular Clinic move into former Cardio Clinic (unrenovated)

OB/GYN Clinic and Offices shifted to former Ohpthalmology Clinic (unrenovated) to create clear renovation footprint Building B level 2 north

Building C Demolished

PHASE 3

Renovation

Building B Level 2 Partial Renovation

Move (Permanent):

Fam Prac Clinic/Offices

Int Med Clinic/Offices

Vascular Clinic/Offices

Move (Temporary):

CTS&C Clinic and Offices move in to former Fam Prac clinic (unrenovated).

PHASE 4

Renovation

Building B Levels 1 & 3 Partial Renovation

Move (Permanent):

Imaging Offices

Urology Offices

Pain Offices

Cardiology Offices

Admin Offices

Move (Temporary):

Ortho Offices

Ortho and PM&R Clinics

PHASE 5

Renovation

Building B Levels 1 & 3 Partial Renovation

Move (Permanent):

Ortho & PM&R Clinic/Offices

CTS&C Clinic/Offices

OB/GYN Clinic/Offices

Urology Clinic

Neuro Offices

PHASE 6

Renovation

Building B Level 2 Partial Renovation

Move (Permanent):

ENT Clinic/Offices

Pediatrics Clinic/Offices

Adult IV Infusion

Building A Lease Terminated

Scenario 1

Scenario 2

FINANCIAL DEVELOPMENT SCENARIOS

To guide the BluePacific Ambulatory Master Planning effort, a financial assessment was completed modeling varying revenue and cost drivers of alternative master planning scenarios. Each scenario utilized a long-term projection through 2030 (12 years) and calculated the cumulative financial impact. The goal of this assessment to identify an optimal scenario that mitigates occupancy and capital expenditure while providing adequate space and capacity to meet projected patient activity.

OVERVIEW

Through the master planning process, three distinct scenarios were developed and reviewed with the BluePacific Steering Committee (supporting details and test fit diagrams can be found on this page):

Scenario 1 – Clinical, Support and Academic consolidation into Building B while vacating Building A and Building C
Scenario 2 – Clinical consolidation into Building B while converting Building A to officing for Clinical Support and Academic functions
Scenario 3 – Building B receives partial renovations to continue medical specialty services while surgical specialties will be relocated into a new Ambulatory Surgery Center (ASC) destination

Each scenario has unique phasing and capital cost implications that were sensitivity tested over a 12-year timeline. The following graph represents the cumulative financial performance of each scenario as defined by the following calculation:

Cumulative Contribution Margin – Cumulative Facility Based Cost (Occupancy + Capital)

*DRAFT – final capital estimates are under further refinement. Financial performance metric selected to represent a comprehensive performance indicator of revenue with increased volumes, occupancy cost variances and capital expenditure over the projected timeline.

From this financial analysis, Scenario 1 – ‘Building B Consolidation’ is the financially preferred direction with a favorable 12-year cumulative variance from the alternative Scenarios 2 and 3 ranging from ($35M-$93M); (Occupancy and Capital cost detailed provided below in the ‘Key Inputs’ section). As this was a financially driven assessment, activation of the preferred direction requires further considerations:

Organizational strategic drivers and synergetic opportunities (development of incremental OP ORs)
Phasing and future flexibility
Incremental capacity if growth accelerates beyond projected estimates
Operational value of consolidated clinical support and academic officing

APPROACH

A bifurcated effort was pursued to understand and differentiate varying levels of cost between alternative master planning scenarios. The two types of cost that were focused on throughout this effort include Capital Cost and Occupancy Cost (defined below). Detailed operational cost (e.g. staff ratio changes, enhancements to productivity, supply cost, etc.) were not assessed throughout this effort due to the preference to remain at a higher master planning altitude and current labor contractual agreements.

Capital Cost – cost associated with master planning phases, identified as ‘Total Project Cost’ and applied to zones of space based on the renovation/development level required

Occupancy Cost – defined as any expense that is required to keep space ‘online’ and available for use, this excludes operating cost required to provide clinical, support or administrative services. Total annual cost was compiled and divided by ‘Useable SF’ to establish an annual cost per useable SF.

Total project cost estimates are per Building Gross Square Foot (BGSF) and have been calibrated to the market. Cost are in current dollars – 2018 valuation. Modeling efforts escalated project cost by 4% per year by assumed scenario phasing developments

Once baseline costs were established, the following equation was utilized to integrate a revenue metric to provide a comprehensive approach that considers the impact of incremental patient activity over the projected horizon:

Cumulative Contribution Margin – Cumulative Facility Based Cost (Occupancy + Capital)

Contribution Margin – a financial indicator derived from [Direct Revenue – Direct Cost]. This indicator was utilized to focus on ‘direct operations’ and exclude indirect cost and UC Health system overhead. Contribution margin was calculated as an aggregate variable, agnostic of service line performance to avoid preferential facility-based solutions. See ‘Contribution Margin Qualifying Section’ for additional detail.

CONTRIBUTION MARGIN QUALIFYING PROCESS

Qualifying factors of direct cost and revenue:

Services received from Revenue Centers in the Building B, Building A and Building C Buildings. Surgical Day Care, Physical Medicine & Rehabilitation treatment and Chemo infusion are excluded.
All activity in the clinics (provider visits, procedures, treatments, vaccines, etc.) has been included. Also included are activities performed in non-clinic departments (lab tests, diagnostic imaging, etc.) for clinic patients.
Estimated net revenue is based on Total Charges multiplied by the actual payments/gross revenue percentage for all activity for qualified visits.
Medical Center direct department costs (salary & benefits, supplies, equipment maintenance, instruments, purchased services, office supplies, equipment depreciation, mail, conference registrations, travel, central sterile supply, clinical engineering services, cafeteria services, parking, telephone) are included.

Overview of establishing the baseline contribution margin per ambulatory visit:

For the 254,615 Clinic Department visits, clinic and ancillary services performed July 2017 through May 2018 in the Building A, Building C and Building B buildings are included. Excluded are Same Day Surgery, Rehabilitation treatments and Chemotherapy administration.
The Average Clinic Visit Direct Contribution Margin is ($139). The components are: Average Net Revenue = $139; Average Direct Cost = $278.
The Average Ancillaries Direct Contribution Margin is $202. The components are: Average Net Revenue = $316; Average Direct Cost = $114.
The Average Total Direct Contribution Margin per ambulatory visit is $63. The components are: Average Net Revenue = $455; Average Direct Cost = $392.

EVALUATION MATRIX

Space

People

Planning Principles

Scenario Eval Criteria

Scenario 1.1

Building B Clinical Consolidation,

No Building A

Scenario 2.1

Building B Clinical Consolidation +

Building A

Scenario 3.1

Building B Partial Renovation Surgical Specialties to ASC

MOSC

(in clinic)

MOSC

(out of clinic)

Academic Offices

In-clinic MOSCs accommodated in clinics

Out-of-clinic MOSCSs accommodated in ACC "Center Chairs" or ACC LL

Academic offices accommodated in ACC "Center Chairs" or ACC LL

In-clinic MOSCs accommodated in clinics

Out-of-clinic MOSCs accommodated in ACC "Center Chairs" and ASC

Academic Offices accommodated in ACC

In-clinic MOSCs accommodated in clinics

Out-of-clinic MOSCSs accommodated in ACC "Center Chairs", ACC LL, and Glassrock

Academic offices accommodated in ACC “Center Chairs”, ACC LL, and Glassrock

Overall Efficiency (w: 4)

Political Challenge (w: 3)

Planning Princ. Alignment

(w: 4)

Phasing Duration

(w: 3)

Capital Expenditure

(w: 4)

Occupancy Cost

(w: 4)

Total Cap. + Occ. Cost

(w: 4)

Scenario Eval. Score

$328M

$94M

$422M

92

$417M

$98M

$515M

61

$349M

$108M

$457M

71

ACC

ACC Exp

Glassrock

Cypress

ASC

FSSB/ Off site

Maximized for clinical use

Gut Renovation on ACC Levels 2 & 3

Partial Renovation Levels 1 & LL

Eye Center second floor program located in ACC expansion. Third floor reserved for non-ophthalmology clinic uses.

Lease terminated (post ACC renovation)

Clinical moves to ACC

Academic offices and MOSCs move to ACC

Building Demolished

N/A

Some academic offices temporarily relocated for renovation. Neuro academic offices relocated permanently.

Level 3 light renovation of existing offices

Level 2 maximized for clinical use

Level 1 partial renovation for offices and clinics

Lower level partial renovation to offices

Eye Center program accommodated as shown in current test fits. Third and second floor of expansion reserved for non-ophthalmology clinic uses.

Lease terminated (post ACC renovation and ASC Construction)

Clinical moves to ACC

In-clinic MOSCs move to ACC

Out-of-clinic MOSCSs accommodated in ACC “Center Chairs” or Glassrock

Academic accommodated in ACC “Center Chairs” or Glassrock

Building Demolished

Universal Clinic Modules Implemented in ASC for Surgical Specialty departments: Ortho, ENT, Pain, Surgery, Transplant, Urology, Diagnostic Imaging (2030 Projection - 130k visits, excluding DI), Vascular and Vascular Lab

N/A

Maximized for clinical use

Gut Renovation on ACC Levels 2 & 3

Partial Renovation Levels 1 & LL

Eye Center program accommodated as shown in current test fits. Third and second floor of expansion reserved for non-ophthalmology clinic uses.

Purchased for Academic Offices and/or out-of-clinic MOSCs

Clinical moves to ACC

Academic offices and MOSCs move to ACC and Glassrock

Building Demolished

N/A

New clinic exams will be developed with flexibility to accommodate a range of specialty services*

(w: 4)

The number of outpatient facilities will be programmed to balance the needs for convenient patient access with the increase in fixed costs (e.g., IT, facility related costs) associated with each site developed and operated

(w: 2)

Soft space will be minimized to contain capital and operating costs

(w: 3)

Space needs to be affordable, functional, clean and efficient; not opulent

(w: 3)

Each ambulatory care site will have a planned scope of services, with specialty services more concentrated in a few “hub” sites

(w: 2)

Hours of operation will be expanded to accommodate patient preferences, make better use of facilities, and lower overall facility construction and operational fixed costs

(w: 2)

Clinic design will reflect best patient experience and efficiency and not be constrained by current funds flow models

(w: 4)

Research, including clinical research, will not be included in clinical buildings, and will be resourced and supported in designated facilities for clinical research, with the exception of cancer clinical research which is largely standard of care.

(w: 3)

Planning Principle Alignment Score