“Keeping the Pressure Up (on Practice Performance) in the Great Recession”
John Pinto
ASCRS Glaucoma Day, 2009
John Pinto from J. Pinto and Associates, Inc. shared his views on how to maintain ophthalmology practice performance during the current recession.
First, he described the current financial climate as a resetting to a lower level of business and personal spending based largely on the debt in the economy. This will lead to a new “normal” for the world economy and also for Ophthalmology in the United States. After describing the current economic state of the country, he predicted that spending on medical care must be changed and reduced. For example, we spend approximately 17% of the Gross Domestic Product on healthcare, and this will likely fall to a level of about 12% in the future. He outlined a list of strategies to maintain a healthy practice in this scenario:
18 Recession Proof Strategies
1. Review lay staffing levels and costs. Push benchmarking responsibilities down to department head levels. Adjust staff hours and wages downward as needed. Reward supervisors for labor cost containment.
2. Don’t reduce staffing to a degree that harms patient accounts work, reduces provider efficiency or diminishes customer service to the point of being diseconomic.
3. Continuously review and improve care pathways and utilization by provider.
4. Ramp up partner and provider communication. Economic challenges in a practice commonly result in a sharp reduction in doctor to doctor harmony.
5. Eliminate business and clinical processes that don’t add proportional value. Eliminate data gathering not used to make management decisions. Reduce patient movement. Make sure that doctors and technicians are not duplicating history taking or testing steps. Don’t eliminate value-added services to patients that could lead to better care or (appropriate) higher charges.
6. Limit capital outlays. Until the trajectory of the current recession is clear, table non-essential purchases. Retard the pace of equipment acquisition by using either an annual budgeting process or requiring a “cooling off” period, rather than allowing impetuous providers to buy the latest non-essential item.
7. Examine the value added by each member of middle management. Ask: are all of these positions required? Would the talents of the current practice team allow them to do more with less? Could we have a “flatter” organization?
8. Focus on the top line: revenue production. Since most practices today are already careful about expenses, key profit gains are largely driven by incremental revenue gains. For example, practice revenue is driven by raw patient volumes. Just serving three more patients in a day can result in a six-figure boost in annual net profit.
9. Don’t shortchange marketing. Your practice’s marketing costs as a percent of collections should remain the same in good and bad years alike: 1 to 3% in the typical subspecialty practice.
10. Examine satellite profitability. As professional fees soften and travel costs climb, your remote service sites may no longer be profitable. Calculate the average profit per surgeon hour by location. Find sites that should either be eliminated, put on a “watch list”, or more vigorously turned around.
11. Review and revise professional staffing and recruitment plans. If patient growth falters, the existing provider base may be able to handle patient volumes. Also, factor in that the typical provider may decide to work longer than planned to offset worries about the sufficiency of retirement funds in a falling equity market.
12. Brace yourself for drastic fee reform. Write down your “Plan B” and “Plan C”. a prolonged recession will provide the political cover needed to make slated Medicare fee reductions stick. Absent an act of Congress, a 21% fee cut is obliged by statute in January, 2010. This approach to staged practice responses should be mirrored in your family’s financial planning as well.
13. Review tax strategy and personal financial planning. Personal and corporate tax reform will change your tactics for minimizing adverse tax exposure and taking the greatest possible advantage of any emerging stimulus package benefits.
14. Assure liquidity. Examine your balance sheet for a quick ratio (current assets divided by current liabilities) that materially exceeds 1.0.
15. Lock in access to capital. Secure credit facilities equal to not less than three month’s core operating expenses.
16. Review insurance coverage. Think through all the what-if scenarios. For example, if you lost a high-revenue provider, could the remaining doctors cash-flow the business?
17. Review practice contracts. Buy-sell agreements are commonly negotiated and then left to molder in the files until a doctor leaves. Are the buy-sell provisions still reasonable in the context of practice scale and the generally falling value of goodwill?
18. Examine the strength of your commercial and personal banking establishments; to the extent practical and appropriate, arrange per-account balances to conform with FDIC insurance limits.
In summary, he advises us to stay informed. Just as you would follow a sick patient closely and frequently, one should also follow the US economy, on which we are dependent for our practice’s success. Read widely. Educate your board. Limber up your ability to respond to both threats and opportunities.
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John Pinto is president of J. Pinto & Associates, Inc., an ophthalmic practice management consulting firm established in 1979. John is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice, The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees, The Women of Ophthalmology and a new book, Legal Issues in Ophthalmology: A Review for Surgeons and Administrators. He can be reached at 619-223-2233, e-mailed at [email protected] or found on the web at www.pintoinc.com.