On Your Way to Dream Street

Vol. 17 •Issue 2 • Page 48
On Your Way to Dream Street

Creating a business plan is the first stop on the road to opening a successful sleep lab.

The spike in interest in opening sleep labs and sleep centers indicates health professionals are acutely aware of the serious nature of untreated sleep disorders. It also indicates sleep medicine can provide a profitable business opportunity.

Getting a sleep lab or center started requires work, but as with all things in life, if it is worth doing, it is worth doing well. Developing a business plan is an important first step. The plan creates a well-defined path that can be followed to realize the goal of opening a sleep facility. It provides an opportunity to think through specific details including the size of the facility, the target market, needed finances, and staffing mix.

Whether you are a physician in private practice who needs funding for start-up costs or employees of a large organization who must convince senior leaders to start or expand a lab, you need a business plan. You will gain significant advantages by putting forth the effort. A solid business plan brings credibility to the presenter and to the overall proposal. It shows the details have been thought through and the homework has been done. And it provides decision-makers with the information they need to identify risk versus reward.

Capacity issues

The main components essential to any business plan include an executive summary, a market analysis, the strategy and implementation, a web plan summary, a description of the management team, and the financial analysis.1 Business planners in large organizations would do well to add “available resources and capacity” to that list. Let’s look at a few of these categories in more detail.

Available resources and capacity are particularly important if the plan involves expanding an existing sleep facility. The plan should identify the current resources and staffing, and what additionally will be needed to support the expansion.

Current appointment access for a consultation or a sleep study will identify capacity. For example, if the lab already does studies seven nights a week, has a bed-fill rate of 90 percent or better, and books lab appointments six weeks in advance, then capacity is a concern.

Doing home studies also should be reviewed as a potential way to address some capacity issues, given the new guidelines recently issued by the American Academy of Sleep Medicine. Note, however, these guidelines incorporate stringent standards that should be followed. In addition, as of press time, Medicare and many other payers do not reimburse for home studies, although this rule is being reconsidered.

Senior leaders of hospitals will want to know if all the ways to maximize capacity have been tried, whether they have been successful, and if not, why not.

Market analysis

Doing the market analysis goes hand in hand with identifying the location of a new facility. For example, will the practice include pediatric patients? If so, determine the areas where younger families are predominant. In my hometown of Albuquerque, N.M., young couples starting families primarily can be found west of the Rio Grande where housing is less expensive.

However, if the practice will focus on adults, consider a more developed part of the city where middle-aged to senior populations typically may be found. The city’s Chamber of Commerce website usually is a good resource for providing the local census data needed for pinpointing segments of the population by age, socioeconomic status, and education, among other factors.

Try to map out referral patterns for sleep services. Do not be shy. Talk to the representatives of DME companies; these individuals thrive by knowing their market and staying on top of community developments. Visit primary care physicians, hospital administrators, and health care managers in the area, and pay special attention to cultivating relationships with these providers.

While it can be difficult to change referral patterns, it is important to know about any dissatisfaction with current services because it could provide great opportunity.

Identifying the competition is an important piece of the business plan. Check phone books and the internet to identify other sleep facilities in the target area. Remember to assess hospitals that may have sleep labs.

Determine if the population in the proposed location is underserved. This can be done through “secret shopping.” One of my administrative assistants was exceptional at pretending she was new to the area and trying to find a sleep specialist. She would call each lab or center and ask about the number of beds, their current access, whether they saw pediatric patients, and what insurances they accepted.

If you uncover that the competition has long waiting lists, then that would indicate another facility might be needed in the area. On the other hand, if existing facilities are able to schedule a patient within a short period of time, the market may relatively be saturated and another location may be better.

Once you have pinpointed a location, take a drive there at various times during the day and especially at night. This will provide the experience patients will encounter as they travel to the site. Is it in a safe, well-lit area? Does it have easy access? Pay attention to environmental noise at night.

These factors will affect patients’ experiences and whether they will speak well of the facility to their family, friends, and referring clinician.

Threshold investment and financial analysis

This section of the plan will project the start-up costs, operating budget, and time it will take for the center to break even and turn profits. Start-up costs will be one-time purchases, such as furnishings and equipment. (See Table.) The operating budget considers ongoing expenses such as salaries, rent, utilities, insurance, and supplies.

Remember to consider services such as accounting, legal, billing, polysomnogram scoring, and marketing. In order to help with start-up costs, you may need to limit the number of staff you hire. If so, you may wish to consider the option of outsourcing PSG services. Doing this will save the cost of benefits and additional pay for shift differential and overtime.

While there are labs that have experienced success doing this, be sure to thoroughly research the company and the qualifications of their staff. It is important to make sure they will meet your quality standards.

The break-even analysis often is predictive of a plan’s probability of success. When determining how much to finance, consider using this helpful formula: Total start-up costs less contributors’ funds equals financing requirements.2

Be conservative. No one was ever disappointed by business being better than expected, but running out of money prematurely has been the downfall of many new enterprises.

Lay out the ‘story’

The final section of the business plan should restate key points that highlight the likelihood of success. When discussing the market opportunity, be sure to review the prevalence of undiagnosed sleep disorders in the target population. Use these prevalence figures to justify the estimated potential patient base. The key is to persuade investors or senior leaders of the value the business will bring not only to the undiagnosed population but also to their bottom line.

Reiterate the potential volume of patients and how you will market to those patients and the referring physicians in order to achieve that volume. Be sure to restate the time projection for achieving the break-even point. The summary should be designed to lay out the “story” in such a compelling manner that the reader is convinced the plan represents a great opportunity that should not be missed.

Keep your audience in mind. Even if they are mainly medical professionals, keep the medical jargon to a minimum. Sleep medicine is a relatively new field, and many physicians are unfamiliar with its terms.

Monitoring quality and the bottom line

Once up and running, it is important to pay close attention to the business’ financial health. On a monthly basis, track and review total revenues and total expenses. Compare them to the previous months to note any changes that cannot be attributed to seasonal expenses or changes in productivity. Other fiscal monitoring techniques include monitoring ratios such as profit ratio [(revenue less expenses) divided by revenue] and net collection ratios [receipts divided by (charges less contractual adjustments)]; paying close attention to accounts receivables; and setting the goal of a 70 percent to 80 percent gross collection ratio.2

It also is important to keep an eye on quality indicators for the business in general. Some areas to consider monitoring on a regular basis include access, bed-fill rates, turnaround time for scoring and reporting results to patients, continuous positive airway pressure compliance, and patient satisfaction.

There always are areas that can be worked on to improve the business and subsequently provide exceptional medical care.


1.Berry, T. A standard business plan outline. 2004 July. Available from: http://www.bplans.com/dp/article.cfm/26

2.Breus, MJ. How to start a sleep lab or center. Sleep Center Management Institute, 2004.

Nancy L. Polnaszek, MBA, is the unit director of the University of New Mexico’s Sleep Disorders Center and has more than 15 years experience in starting and administering sleep disorders centers in Albuquerque.

Table. Facility and equipment standards

The American Academy of Sleep Medicine lists the following facility and equipment standards for accreditation of sleep disorders centers:

  • The program must maintain an identity as a unified center, including separate phone lines, stationery, and signage that identify the program as a “sleep center.”
  • Patient testing rooms must afford comfort, privacy, safety, and accessibility and allow for effective data acquisition.
  • Patient testing rooms must be of sufficient size, generally having a minimum of 140 square feet and no dimension less than 10 feet.
  • Clean bathrooms must be available and conveniently located within the center.
  • At least one bedroom and bathroom must be handicap accessible.
  • The control room must be adequate in size, design, location, and comfort to allow for effective function and comfort of technologists.

    The center also must maintain adequate and safe equipment for sleep studies. This includes:

  • A two-way communication system between the patient bedroom and center personnel
  • A mechanism for visual monitoring and recording of patients during testing
  • Polygraphic equipment capable of recording and storing a minimum of 12 channels of data
  • Equipment for the delivery of continuous positive airway pressure and bilevel positive airway pressure, including remote control of pressure.