The prospect of carrying out a several-million-dollar surgical construction project can be overwhelming. But breaking your start-up costs into bite-sized chunks can help make it more manageable. Plus, the budgeting process impels you to think through your plan in a step-by-step fashion. There are six major fixed expenses involved in building an ambulatory surgical center from scratch: land acquisition, site development, design, construction, equipment and furnishings. Here are some guidelines for figuring your costs.

1. Land acquisition
Real estate costs will vary widely depending on your geographic location, urban proximity and site condition. In general, the average ASC parcel costs about $800,000 to $1.2 million, except in certain high-end markets like Naples, Fla., or certain areas of California, says Jerry McLauchlin, president and CEO of J. McLauchlin & Company in Ocala, Fla. This is based on a generic price of about $10 to $12 per square foot and a parcel size of two acres, which is what you'll need to build a 15,000-square-foot facility, the average size of a new ASC.

Facility size - and, thus, the parcel size - will vary depending on your case mix. A multi-specialty facility may average closer to 20,000 square feet, whereas a single-specialty endoscopy center may be 8,000 to 12,000 square feet, says Mr. McLauchlin. Check your municipality's building and parking requirements, but plan on about 25 percent of the property's square footage for buildings, and on one parking space for every 250 square feet of building, says Mr. McLauchlin.

2. Site development
One physician who paid $400,000 for a parcel thought he had a really good deal - until he realized that it was heavily laden with clay and debris and had steep slopes that required significant grading and construction of retaining walls. The site development costs turned out to be $800,000, twice the cost of the land itself. The doctor sold the parcel and started over.

In general, site prep of a decent parcel (including routine grading, paving and landscaping) will cost an average of $3 per square foot in the south-central United States, $4 in the central and midwest states and $6 or more in the northern coastal regions for a 20,000-square-foot facility, says John A. Marasco, AIA, NCARB, with Marasco & Associates in Denver. Since there's typically 4 square feet to 5 square feet of site prep required for every square foot of facility, total costs for a typical ASC can range from $15 to $30 or more per square foot of facility.

3. Design
Architects traditionally present their fees as a percent of construction costs. The cost of architectural and engineering services, then, typically ranges from about 7 percent to 10.5 percent of construction costs, depending on the scope of services and degree of architect involvement. "It depends how often the architect visits the site and how involved he is throughout the construction process," says Mr. McLauchlin. The bigger and more expensive a project becomes, the lower the percentage of construction costs you should pay for architectural services, says Mr. Marasco.

Design costs should be on the lower end if you opt for a design-build approach, says Mr. McLauchlin. Design-build means you hire a third party to oversee the design and construction. This relieves the architect of oversight duties and often helps contain cost overruns. "Physicians shouldn't have to play referee between architects and contractors, and this approach puts single-source responsibility on the design-build provider," he explains. "You could end up paying $225 a square foot for combined design-build services as opposed to a total of $300 when paying separately."

4. Construction
Two major factors determine construction costs.

• Location. As with site preparation costs, construction costs tend to increase as you move from the south-central United States northward and outward, says Mr. Marasco. In addition, the more urban a project setting, the higher the costs. For example, the same new ASC built in Abilene, Texas, for $150 to $200 per square foot will cost $260 to $350 in New York City. Cities in the northern midwest such as Chicago, Columbus, Des Moines, Detroit, Indianapolis, Milwaukee, Minneapolis and Saint Louis see a spike in construction costs due mostly to organized labor unions, says Mr. Marasco.
• Size. In general, the bigger the facility, the lower the construction cost per square foot. "It's simply less expensive on a square-foot basis to produce a large facility than a smaller one," says Mr. Marasco. "As with any consumer product, the more of the same item you purchase, the less costly each unit becomes. This holds true for concrete, steel, drywall and most other building materials." In addition, he says, larger facilities are easier to construct on a square-foot basis than smaller ones because more area can be finished in less time. "In a competitive-bid situation, all of these savings should be passed on directly to you," he adds.

Other factors that can influence construction costs include natural disasters, such as hurricanes, spikes in energy costs and material shortages.

"The recent hurricanes in the Gulf Coast region not only affected gas prices for us all, but the same disruption of petroleum manufacturing also affected the costs of asphalt paving, PVC piping and insulation, not to mention the availability of big-ticket items like transformers and generators," says Mr. Marasco. "Generally escalations like these are temporary, but if you're unfortunate enough to be bidding a project during a spike, your construction costs will undoubtedly rise."

Any changes you make mid-construction that require an alteration in plans will also add up fast, so you need to budget for these contingencies, too. Build quality has an impact, too. For a middle-of-the-road, 15,000-square-foot facility, then, a general construction cost would range from about $183 per square feet in the south-central United States, $230 in the central and midwestern states and $320 in the northern coastal regions, says Mr. Marasco.

5. Equipment
Equipment costs can vary tremendously depending on the specialty, level of technology and whether you buy basic items new or refurbished. "A high-grade manual OR table can run about $10,000 whereas a modern power OR table can cost $35,000," says Wade Byerly of Med-XS Solutions, an equipment remanufacturer based in Mentor, Ohio.

Count on spending at least $100,000 to equip a new OR with your most basic commodity items - the OR table, surgical lights, stainless steel carts, IV stands and other standards, says Larry Hampton, the CEO of HELP International in Plano, Texas. Add on the specialty equipment you might need, such as an endoscopy system or operating microscope, and an equipment boom system, and you'll quickly reach $250,000 to $500,000 or even significantly more per OR.

6. Furnishings
Finally, don't overlook furnishings. "This shocks a lot of doctors," says Mr. McLauchlin, "because they don't realize how expensive it is." Waiting room furniture, file cabinets, desks and wall hangings will cost about $15 per square foot of facility to furnish it well, or $225,000 for a 15,000-square-foot facility, he says.

Put it in perspective
While the cost to build and equip your new ASC may seem exorbitant when you're adding up these numbers, amortize these costs over 10 years to 15 years and estimate how they'll fit into your operating budget. You should find that they're not as overwhelming as you may have thought. According to FASA, only about 11 percent of the typical ASC revenue goes to building, occupancy, equipment and furnishings expenses (see "Effic-iency is Key" on page 26).

The real costs to you down the line, say our experts, will come in lost efficiencies if you don't design and build to run quickly and smoothly. "If the design of your ASC allows for less square footage but is at the cost of staff efficiency, you're not saving," says Mr. Marasco. "The efficiency of your surgeons and staff and maximum throughput of your patients are key, not minimization of the facility."

Given this, Mr. McLauchlin recommends that you budget high. "You don't have to spend it, but it gives you the freedom to make better decisions," he says.