284285Launching a Birth Center

CYNTHIA FLYNN AND BRIANNA HONEA BENNETT

LEARNING OBJECTIVES

Upon completion of this chapter, the reader will be able to:

1.  Assess community need and create a mission statement for a new birth center

2.  Understand the different kinds of business structures

3.  Explain the elements of a business plan

4.  Project start-up utilization, revenue, and expenses for a new birth center

5.  Anticipate the unique business challenges that birth centers may face

This chapter is a brief summary of the process of getting a birth center launched. The material is divided into three major sections. The Early Planning section describes a process for assessing the community’s need for a birth center and identifying and addressing any regulatory, financial, or other barriers to starting the birth center. Next, the Start-Up section identifies all of the resources needed before the birth center opens for business. Finally, the Business Plan section describes how the revenue and expenditures of the birth center will be accumulated and dispersed during the first 5 years of operation. After 5 years, the birth center’s volume of business has either reached its breakeven or, in some cases, the volume and profitability of the center are large enough to warrant creating a larger or second center.

EARLY PLANNING

Community Assessment

286Starting a birth center requires an assessment of the community’s readiness to accept and grow the center. The Commission for the Accreditation of Birth Centers (CABC) has compiled a list of indicators that can be helpful in assessing the community (CABC, 2015). These include:

It is also useful to consider whether women are choosing to leave the area in order to receive midwifery and/or birth center services, whether women currently choosing home birth would prefer birth center birth, or whether women are receiving suboptimal care due to the high cost of accessing currently available services; these factors can indicate that there is a need for a birth center in the community. At the national level, a well-designed study showed that about a quarter of women who gave birth in the hospital definitely want a birth center for their next birth and an additional 39% would consider it (see Chapter 5). However, there are not easy ways to gather such helpful information for a specific community; focus groups or formal surveys may be needed to obtain these data.

Taking the time to do a thorough community assessment will ensure that the assumptions made in the business plan will have a sound basis in reality. The assessment will also be helpful in preparing for accreditation. Periodic updates of the community assessment make it more likely that the birth center staff will continue to be aware of any changes that may occur in the service area.

Mission Statement

A mission statement is a statement describing the purpose of the birth center and what it intends to accomplish. Typically, it will appear on the birth center’s web page, Facebook page, press releases, and similar sources available to the public (see Box 13.1). The mission statement also forms the basis of the strategic plan, which includes specific, measurable, attainable, realistic, and time-specific (SMART) goals and a design for achieving them.

McMurry University (n.d.) suggests nine components to consider in constructing a mission statement:

Structure of the Business

In most jurisdictions, a business license and/or occupancy permit is required before the business opens. In order to apply for a business license, decisions must be made about the legal structure of the business. In addition, programmatic decisions should be made about how the birth center will operate.

BOX 13.1
Sample Mission Statement

289Types of Legal Structure

The broad types of legal structure used by birth centers, some with several subcategories, are a sole proprietorship, an S-corporation, a partnership, a limited liability company, and a not-for-profit or for-profit corporation (C-corporation). Some states have an additional structure, a benefit corporation, which is a hybrid between a not-for-profit and a for-profit company whose success is measured both by sustainability and by the specific benefits it provides to society, rather than monetary returns to its investors (B-corporation).

The Small Business Administration (SBA) has extensive, user-friendly information about each type of structure, which legal structures will work best in a specific situation (requirements, advantages and disadvantages), and how to get started with each one (SBA, n.d.-a).

A question asked by many start-ups is whether to be for-profit or not-for-profit. The primary advantages of a not-for-profit are that they do not pay ordinary income taxes, and they can accept tax-deductible donations from individuals and grants from foundations. The primary challenges of not-for-profits are that there must be a board of directors that has final responsibility for all decisions, including employment of the senior management team—that is, the founder—and, in exchange for not paying income taxes, a 990 form must be filed each year. The 990 is a public document that includes detailed financial and other information about the firm, and verification that guidelines about the percentage of income that is used for various functions (including salaries) are being met. The primary advantages of a for-profit are that the founder retains control of the firm, its financials are not public documents, and the allocation of the company’s resources is determined by the center’s management team. The tax implications for the various forms of for-profit companies are discussed in the SBA monographs for each type of business structure (SBA, n.d.). Another resource is “Should Your Business Be Nonprofit or For-Profit?” (Chen, 2013).

Board of Directors

If the birth center is organized as a not-for-profit organization, a board of directors is required. Many for-profit corporations also have a board that serves similar functions. Selecting directors who possess the skill set necessary to do the job is important. Skills include being able to read and analyze financial statements, understanding contracts and the health care system, the willingness to be politically engaged on behalf of the birth center, and the ability to think about long-term goals and strategies. In the case of not-for-profits, board members are expected to make an annual 290contribution to the birth center. In the case of for-profits, boards frequently include the investors.

Professionals with the skills for the board of directors may include accountants, lawyers, people with master of business administration degrees (MBAs), business owners, and other seasoned business professionals. Although business people can be immensely helpful, one of the most important attributes of a good board member is mission buy-in and understanding of the birth center culture. Choosing board members who are supportive and offer compassion, insight, and sound guidance is most important. Board members who have been a client or family member of a birth center client have a quicker learning curve than those who have not, and are often more invested in the mission of the organization.

Birth centers are also encouraged to have a citizen’s advisory group composed of clients of the center, especially if they lack a board of directors. This group can provide feedback to management regarding marketing, client care, ease of use of the facility, and trends in the community that affect the birth center.

Open and Closed Models

Most birth centers are “closed models,” which means that the providers who practice at the birth center are its owners or employees. This model is advantageous because everyone provides care using the same protocols; the clients are all clients of the birth center, and therefore known to the providers and birth center management; and employees are required to participate in emergency drills and quality improvement initiatives as part of their job descriptions.

Some birth centers use an “open model.” This means that providers who are not employees of the birth center can attend births at the facility. This model is particularly helpful in communities that already have several independent practitioners, especially early on before the birth center is filled to capacity. These independent providers would bill insurers separately. However, the birth center can bill a service fee for the use of the facility, just as a hospital would, which is a supplemental source of income.

Open model birth centers do require additional management skills. Each midwife must be credentialed as a birth center provider, and it is recommended that they sign a contract with the birth center stating their mutual obligations. In order to ensure that space is available for everyone planning to use the birth center, outside practitioners need to apprise birth center management of their clients planning a birth center birth by 30 weeks of pregnancy. Birth center management should review the prenatal record at about 36 weeks for consistency with birth center risk assessment policies, 291and start a birth center record for the client. Original records of the period from admission to discharge remain at the birth center. When the mother and newborn are discharged from the practitioner’s care at about 6 to 8 weeks postpartum, notes from the postpartum period should be provided to the birth center so that the birth center has a record of the full episode of maternity care. All practitioners should participate in regular fire and emergency drills for mother and fetus/baby, and in quality improvement/peer review activities. A process should be documented for suspension or termination of privileges.

Finally, decisions must be made about any enhanced services that are planned (see Chapter 10). Examples of such services offered by birth centers include childbirth education and related classes (e.g., parenting, car seat safety, and so forth), retail store, breastfeeding support for women who are not clients, milk bank, doulas, patient navigators, peer counselors, massage or chiropractic care, acupuncture, yoga or prenatal exercise, nutrition counseling, and social work. Choosing which services to offer, and deciding whether to contract for the services or hire employees, depends both on the space available and community demand, as well as the availability of management time to ensure the quality of such services.

Space Considerations

Licensure

If the birth center is located in a state that requires licensure, there may be regulations about spaces the facility must include and their size. A common criterion is that birth rooms must be larger than a minimum square footage and the smallest dimension (width) must be at least a certain size. Although a birth center is a “maxi-home” rather than a “mini-hospital,” some states do require that hallways between the door that an ambulance would use and each birth room be a certain width. There may be Americans With Disabilities Act (ADA) requirements for the size of the bathroom, and other access factors. When choosing a space for the birth center, all such regulations need to be taken into consideration.

Accreditation

The CABC has indicators for space that show that the birth center is in compliance with the American Association of Birth Centers’ (AABC) Standards for Birth Centers. For example, birth centers must have adequate space for families, including a kitchen and a family room, with a place for children to play while awaiting the birth. Exam rooms must be large enough to accommodate family members. Most birth centers have 292at least one large room that can be used for classes, a reception area, a lending library, the family room, and/or staff meetings. Space is also provided for clean and dirty utility areas, laboratory equipment and supplies, a staff lounge, work areas for all staff and contractors, secure records storage, plenty of storage for supplies, medicines and equipment, adequate hand-washing facilities, and bathrooms. Some centers have one exam room large enough to include a rocking chair and supplies for breastfeeding support.

Other Space Guidelines

The American Institute of Architects (AIA) has specific building guidelines for birth centers that are different from either a midwifery office or a hospital (American Institute of Architects Academy of Architecture for Health & Facility Guidelines Institute, 2011). Another resource is the National Fire Protection Association (NFPA) Life Safety Codes, available at no cost by registering at their website (www.nfpa.org). Beginning in section 3.3.33, the Code states that birth centers that do not provide sleeping facilities, and have fewer than four patients at a time (not including infants) be classified as business occupancies (NFPA, 2015). Therefore, they do not require the same fire protection controls as hospitals and ambulatory surgery centers. Some state or local jurisdictions require adherence to AIA and/or NFPA recommendations for licensure or occupancy permits, or they have developed their own guidelines. Learning what is required in advance facilitates the constructing or remodeling of the intended space and prevents rework and delays.

Planning for Growth

Expected Volume at Capacity

The community assessment gives a good indication of the potential demand for birth center services in the service area. Consider having one birth room for approximately 100 births. If the facility is built to fire standards for a birth center (business occupancy), there will be at most three birth rooms (~300 births/year at full capacity) and possibly a “swing” room that is ordinarily used another purpose, such as breastfeeding support, and that can be used before admission for women in early labor on busy days. Some birth centers that do not provide well-woman care use birth rooms for prenatal and postpartum visits. Exam rooms can be smaller than birth rooms and do not need showers and/or tubs, or emergency and other birth equipment. It is usually more cost-efficient to plan for at 293least one exam room per two birth rooms. If the birth center provides well-woman care for its clients, consider one exam room for each birth room.

Number of Employees and Contractors at Capacity

Many birth centers begin with a single entrepreneurial midwife who has no employees or contracted help. Although this model provides a needed service to the community while containing costs, it can limit the growth of the center because the management burden in the early years is especially large. Hiring independent contractors during the early growth phase can help to provide flexibility and increased capacity until there is sufficient volume to hire regular employees. Examples of tasks that can be contracted include billing, answering service, childbirth education, doula services, birth assistants, and accounting. As the birth center grows, it becomes cost-efficient to bring some services in-house.

Birth centers that only offer prenatal and birth care can anticipate each provider will attend about six to seven births per month, or up to 75/year per midwife. Beyond this volume, quality care may be diminished. If the birth center also offers home birth, the annual number of births will likely need to be reduced in order to account for travel time to homes and the necessity to provide coverage in multiple locations. If the birth center also offers hospital birth, the need to cover two locations and to attend women who have longer than usual labors (such as induction) may again necessitate a reduction in volume per midwife.

Location

Ideally, the birth center would be located near a hospital in case there is a need for an emergency transport. Access by public transportation is a plus, as is street visibility. Parking is important and some jurisdictions have requirements about the number of parking places needed based on the square footage of the facility.

Own Versus Lease

Once an approximate idea of the space required is calculated, a decision must be made about whether to lease office space, purchase an existing structure, or build a new facility. The primary advantage of leasing space is that the initial capital necessary for getting started is significantly less than purchasing or building. Also, many amenities may already be in place, such as ADA bathrooms, parking, and floor covering, and the landlord 294may also be willing to make certain tenant improvements as a part of the contract. Longer leases ensure that the birth center will not need to renegotiate its lease or move frequently, but there will be a penalty for terminating the lease early. In considering the cost of the lease, it is important to understand which costs, such as housekeeping, maintenance, security, and utilities, are the responsibility of the landlord versus the tenant, and the conditions under which these expenses can increase. If the space is leased, the primary asset of the business is the equipment and furniture.

Purchasing an existing building or house provides a “hard” asset for the business that may prove useful if a loan is needed for construction/remodeling in order to get started, or a line of credit later. However, purchasing ties up cash that could be used as a reserve for the inevitable variations in monthly income that occur with a new business, and the asset cannot necessarily be sold easily when necessary.

Building a new facility is similar to purchasing an existing building. One difference is that it is likely to be more expensive per square foot, since it is new. Also, the time from purchase of the land to opening is longer than the time from purchase of an existing building to opening in the best of circumstances. On the positive side, a new facility can be built so as to ensure that all licensing and accreditation requirements are met, and that the desired amenities are included.

Zoning

A critical consideration in choosing property is the zoning. In most jurisdictions, commercial zoning is required for a birth center, so most residences cannot be used as a birth center. Rezoning a residential property can be a lengthy, time-consuming, expensive process with uncertain results. When a properly zoned house in a good location that meets budget constraints is found, applying the previous considerations ensures that the space is adequate and that it can be licensed and accredited. The budget will need to include all of the normal expenses of home ownership, such as taxes, insurance, yard work, pest control, repairs and maintenance, and any other local fees, such as for irrigation.

Most office space is zoned commercial, so leasing space for a birth center is not straightforward. However, some local jurisdictions have several types of commercial zoning, which may restrict where the birth center can be located. The local zoning regulations should be examined prior to negotiating the lease. With new construction, it is best to have the local zoning office provide a letter in writing that the property that is being considered can be used for a birth center.

Early Planning Budget

295Producing a complete financial plan requires time, energy, and resources, all of which require a budget. For the early planning budget, most of the time and expense budgets relate to gathering data. Formal surveys or focus groups, or the engagement of a consultant to gather information, may require cash expenditures. An example of an early planning budget worksheet is shown in Table 13.1.

START-UP

Introduction to the Financial Plans

296Building a realistic budget for a birth center presents challenges because the industry is still small and there are many variations from center to center in terms of local costs for the major expenses, the amount reimbursed by payers in different areas, the design of the space, and the programs offered. Budgeting also involves making assumptions regarding growth, inflation, staffing, payer mix, and service mix. Therefore, it is important to be clear about the assumptions that are being made. As soon as possible, these assumptions should be tested against actual experience and adjusted accordingly.

Following is an example of the process used to construct a financial plan for launching a birth center in Anytown, USA. Once the thought processes behind the elements of the plan are described, examples of spreadsheets can be constructed to incorporate these elements. Spreadsheets should be constructed using formulas that allow the assumptions to be modified as needed.

Start-Up Expenses

Expenses that will be incurred before the first day that clients are seen are grouped as start-up expenses. In the best of circumstances, once the early planning is completed, there are usually still at least 3 months of work to do prior to opening.

Certificate of Need

Many states have a Certificate of Need (CON) program . These programs were originally developed to ensure that hospitals did not overbuild, and then charge more for beds that were used in order to cover the costs of empty beds. More information about CONs and a map of the states that require a CON for health care facilities is available from the National Conference of State Legislatures (2016). Some of these states have a CON process for other health care facilities, but do not require that birth centers go through this process. Each state’s regulations have to be checked to know whether a CON is needed and the specific requirements to obtain one.

Ordinary Business Expenses

297Setting up a birth center is similar to setting up any other business. Space must be purchased or leased, and constructed or built out for birth center use, all according to federal, state, and local regulations and AABC’s Standards for Birth Centers so that CABC accreditation is possible. Regulatory fees for incorporation, occupancy, licensure, and accreditation must be paid. Accounts need to be set up to pay local, state, and federal taxes, along with workers’ compensation and unemployment taxes. Some types of revenue received by the birth center prior to opening must be treated as income for tax purposes. An accountant can help with setting up a chart of accounts and a cost accounting system. Bank accounts with appropriate signatories need to be opened. Business insurance such as property insurance (e.g., fire, hazards), general liability insurance (e.g., slip and fall), and directors and officers insurance must be purchased. An insurance broker can advise about other types of business insurance that are available, such as employee theft, data breaches, or income maintenance in case of natural disaster. AABC membership dues for a developing birth center may be paid by the time of opening, or may be paid sooner in order to be able to access the wealth of helpful information contributed by experienced birth center owners.

Preparing the Space to Do Business

A telephone system must be chosen, and accounts set up with a telephone carrier, water and sewer providers, an electricity provider, an Internet provider, garbage disposal, and a hazardous waste disposal provider. The space must be equipped with furniture, fixtures, furnishings, office equipment, medical equipment, office supplies, medical supplies, and information technology (IT) equipment. Examples of “shopping lists” for such items for a birth center with three birth rooms are provided in a sample worksheet in Table 13.2.

Hiring Staff

Once a certificate of occupancy is obtained from the local planning office, employees may be recruited and hired.

Salary Determination

For the business to be successful and sustainable, everyone—including the founder(s)—needs to be paid a fair market wage. Undercapitalized birth centers are often tempted to “defer” the salary of the founder indefinitely and/or expect staff to work for less than they are worth. A better strategy is to time-limit any deferral and create a believable strategy for repaying the “loan,” and ensure that enough capital is in place to pay staff adequately. If job advertisements state that the birth center is offering competitive wages, some idea of what those wages should be can be inferred from the current wages of the applicants. Median salaries and the range for most jobs in most market areas can be found at this website (www.salary.com).

Consider how salary increases and bonuses will be determined from the start. Besides cost of living and merit increases, consider “step” increases for longevity and/or total years of experience as a mechanism for encouraging staff retention. Providing raises for well-trained, productive, loyal employees is preferable to the higher costs of replacing an employee, especially a midwife. Employees earning less than $50,000/year cost about 20% of their annual salary to replace, and a physician or executive director costs more than 200% of their annual salary to replace. Registered nurses and midwives fall somewhere in between (Boushey & Glynn, 2012).

Benefit Determination

Most birth centers offer the same benefits to all employees. Exceptions are the vacation and continuing education benefits for the clinical provider staff, which are often larger than for the administrative staff, in order to compensate for the fact that providers will be required to work weekends and holidays, and their licenses require continuing education. Birth centers that offer a health savings account (HSA) allow the employee to have some choice in how benefit dollars are spent. It is wise to state both the salary and the approximate current combined value of the benefits in a formal job offer. Few start-ups can afford to have the combined value of the benefits exceed 20% of the salary. Examples of benefits provided by birth centers include:

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