Medical & Dental Office Feasibility Study

Patient volume modeling, payor mix analysis, and specialty-specific financial projections for SBA-financed healthcare facilities

Standard physician offices and dental practices are not special purpose properties under SBA rules: their build-out is specialized, but the space converts to other professional uses. Some healthcare facilities are different. SBA's special purpose examples name hospitals, surgery centers, urgent care centers and other health or medical facilities, so an ambulatory surgery center or urgent care is special purpose by classification, not by the lender's preference. On a 504 loan, special purpose property raises the borrower's contribution from 10% to 15%, and to 20% if the business has also operated for two years or less (13 CFR 120.910). Dialysis centers and veterinary hospitals are not named, but a CDC can treat a heavily built-out clinical facility as special purpose under the 'other health or medical facilities' category. The feasibility study settles the classification at the start, because it changes the equity, the appraisal and the loan structure.

Healthcare feasibility studies differ from every other property type in one fundamental way: the revenue model is driven by patient volume and payor reimbursement rates, both of which are influenced by factors outside the operator's control. Medicare and Medicaid reimbursement rates are set by government agencies. Commercial insurance rates are negotiated but constrained by network participation requirements. Out-of-pocket patient payments are limited by what the local market will bear. The feasibility study must model revenue through this payor lens, not simply project gross billings.

SBA Rules That Change a Medical or Dental Loan File

These are the SBA rules a medical or dental study has to satisfy. The rules for buying an existing practice changed under SOP 50 10 8.1, effective October 1, 2026. For a walkthrough of how these rules shape a full report, see inside a medical and dental office feasibility study.

Patient Volume Projections by Specialty

Patient volume is the foundation of the revenue model. Each medical specialty has different visit patterns, revenue per encounter, and capacity constraints that the feasibility study must reflect.

The feasibility study projects patient volume using a combination of population-based demand modeling (patients per 1,000 population by specialty, sourced from AHRQ and CMS data), provider supply analysis (existing specialists per capita compared to national benchmarks), and referral network assessment (for specialists dependent on primary care referrals). A trade area with 50,000 residents, 15 primary care physicians, and zero orthopedic surgeons within 20 miles has a demonstrable demand gap that supports a new orthopedic practice. The ranges in the specialty table are planning ranges, not survey results; the study replaces them with MGMA benchmarks for physician specialties, or ADA Health Policy Institute data for dental practices, for the subject's specialty and region.

Revenue Per Provider Benchmarking

Revenue per provider (RPP) is the healthcare equivalent of revenue per square foot. It normalizes practice revenue by the number of clinicians generating that revenue and allows direct comparison against specialty benchmarks published by MGMA (Medical Group Management Association), AMGA (American Medical Group Association), and specialty-specific surveys.

We benchmark projected RPP against the 25th, 50th, and 75th percentile of MGMA data for the specific specialty and geographic region. A projection at the 75th percentile or above requires strong justification: an underserved market, a unique service offering, or a demonstrated referral pipeline. A projection below the 25th percentile may indicate that the market or practice model cannot support viable economics.

Collections vs. billings. The feasibility study projects collections (what the practice actually receives), not gross billings (what it charges). The collection rate, the percentage of billed charges actually collected, varies by specialty and payor mix. Primary care practices collecting 95% of Medicare allowable and 85% of commercial billed charges will have a different effective revenue per visit than the gross fee schedule suggests. The financial model uses net collections, not gross billings, as the revenue input for DSCR calculation.

Payor Mix Analysis

Payor mix is the distribution of a practice's revenue across different insurance categories. It is the single most important variable in healthcare feasibility because each payor reimburses at dramatically different rates for the same service.

The trade area's insurance coverage profile determines the likely payor mix. A practice in a community with a large Medicare-eligible population (65+ age cohort above 20%) will have a Medicare-heavy payor mix with lower per-visit revenue but reliable payment. A practice near a military base will include Tricare. A practice in a low-income area will have higher Medicaid and self-pay exposure, requiring the revenue model to account for lower reimbursement and higher bad debt. Two changes matter for projections now. Medicaid work requirements start by January 1, 2027 in 44 states, including the District of Columbia, with eligibility rechecked every six months for expansion adults, so a Medicaid-heavy practice should expect more patients to cycle between coverage and self-pay. For dental practices, Medicare excludes routine dental services, so the payor mix rests on commercial dental plans, Medicare Advantage supplemental benefits, adult Medicaid dental (which states choose whether to cover) and self-pay.

The feasibility study models revenue by payor category: projected visit volume multiplied by the payor-specific reimbursement rate, adjusted for the collection rate within each category. This produces a net revenue figure that is significantly more accurate than a single blended rate applied to total visits. A practice projecting $175 per visit on a blended basis may actually collect $200 from commercial patients, $120 from Medicare, and $80 from Medicaid. The weighted average depends entirely on the mix.

Build-Out Cost Per Square Foot

Medical and dental build-out costs significantly exceed standard commercial office finishing due to specialized infrastructure requirements.

For SBA borrowers, the build-out cost is a significant portion of the total project. A dental practice building out 3,000 SF at $175/SF invests $525,000 in tenant improvements alone, before equipment. The feasibility study integrates build-out cost into the total capital budget and models the debt service on the full project cost, not just the real estate. The per-square-foot ranges in the table are planning ranges; the study uses contractor bids for the actual project.

Equipment Financing Integration

Medical and dental equipment represents a major capital component that is often financed separately from the real estate. Dental operatory equipment runs $50,000 to $100,000 per chair. A cone beam CT scanner costs $100,000 to $250,000. A digital X-ray system runs $50,000 to $150,000. An MRI machine can exceed $1 million.

Under 504, equipment must have a useful life of at least 10 years and stay at a fixed location. Shorter-lived equipment such as digital X-ray, intraoral scanners and computers belongs in a 7(a) loan, a conventional equipment loan or a lease, or only as a minor part of a 504 project. Regardless of the financing structure, the feasibility study must include all debt service obligations in the DSCR calculation. A DSCR that includes only the real estate mortgage but excludes $200,000 in equipment lease payments misrepresents the practice's true debt burden.

Equipment depreciation schedules also affect the long-term financial model. Most medical equipment has a 5 to 10 year useful life, creating a recurring replacement cycle. The feasibility study includes a technology/equipment replacement reserve (typically 2% to 4% of gross revenue) in the operating expense model to ensure the DSCR projection accounts for ongoing capital needs.

Certificate of Need Requirements

According to the National Conference of State Legislatures, 35 states and the District of Columbia operate Certificate of Need (CON) programs that require state approval before certain healthcare facilities are built, expanded or equipped with major capital items, and 12 states had fully repealed their programs as of January 1, 2024. What each program covers varies widely by state and facility type, and several states have narrowed CON for surgery centers and imaging in recent years.

Standard physician offices and dental practices are generally exempt from CON requirements in most states. However, ambulatory surgery centers, imaging centers (MRI, CT), dialysis facilities, and any project involving hospital beds are commonly subject to CON review. The review process can take many months and may result in denial if the state determines that the market already has sufficient capacity.

The feasibility study identifies whether the proposed facility type triggers CON requirements in the subject state and, if so, assesses the competitive landscape through the CON lens. In CON states, the existing supply is partially protected from new competition, which can actually strengthen the feasibility case for an approved project. Conversely, a project that requires CON approval faces timeline and approval risk that must be factored into the financial projections and the SBA loan timeline.

Health Professional Shortage Area Designation

HRSA (Health Resources and Services Administration) designates Health Professional Shortage Areas (HPSAs) for primary care, dental, and mental health. Medicare pays a 10% bonus on physicians' professional services in primary care HPSAs, and on psychiatrists' services in mental health HPSAs. The bonus does not apply to dentists or non-physician practitioners, so a dental HPSA designation is evidence of demand but not a revenue lift. Providers working in HPSAs may also qualify for National Health Service Corps loan repayment.

The feasibility study identifies whether the subject location falls within a designated HPSA and quantifies the financial impact. A primary care practice in a geographic HPSA receiving a 10% Medicare bonus on a payor mix that is 30% Medicare sees a meaningful revenue lift that improves DSCR. The HPSA designation also provides demand evidence: the federal government has formally determined that the area lacks sufficient healthcare providers, which directly supports the market demand case.

SBA Lending for Healthcare Facilities

Owner-occupancy. Under 13 CFR 120.131, the practice must occupy at least 51% of an existing building, or 60% of new construction, under both 7(a) and 504. A real estate company owned by the practice owners (an Eligible Passive Company) can hold the building and lease it to the practice. A multi-tenant medical office building qualifies only if the practice's space meets the occupancy threshold. When physicians lease space to their own practice, the lease should meet the federal Stark rule's office space exception: a signed written lease of at least one year, rent set in advance at fair market value, and no link to referrals. The study flags this as a structuring check for the borrower's counsel.

Practice acquisition vs. real estate. SBA loans can finance the acquisition of an existing practice (goodwill, patient records, equipment) in addition to the real estate. The feasibility study for a practice acquisition validates the revenue sustainability of the existing patient base and assesses retention risk when ownership changes. The financial model accounts for patient attrition during the transition period and tests coverage after realistic retention losses. Under SOP 50 10 8.1, an acquisition needs at least 10% equity that cannot be reduced, 1.25x debt service coverage on historical results, an independent business valuation above a $350,000 purchase price, and a quality of earnings report at a $3 million or higher purchase price.

Multi-provider practices. Practices with multiple physicians or dentists present a key-person risk that the feasibility study must address. If one of three partners generating 40% of practice revenue departs, the DSCR impact is severe. The study should model provider departure scenarios and assess whether the practice can service its debt with reduced provider capacity.

Cost and Timeline

Medical and dental office feasibility studies typically range from $4,900 to $16,000. Single-provider general practices or dental offices in metro markets with well-documented demographic and provider supply data fall toward the lower end. Multi-specialty group practices, urgent care facilities, surgery centers requiring CON analysis, or projects in underserved markets with complex payor mix modeling push toward the upper end.

Standard delivery runs 10 to 15 business days. HPSA verification and CON research can extend the timeline if the regulatory landscape is complex. For detailed pricing across all property types, see our cost and timeline guide.