Group practice roadmap: the #1 group practice killer

                                                               (Image credit:  skinzweb.wordpress.com)

As we look back on history, we see an absolute graveyard of group practices that have accumulated debt, expanded rapidly, burned brightly for a period of time and then disintegrated quicker and more spectacularly than a Newt Gingrich presidential campaign (insert Howard Dean there if you lean red).  

And if you look closely at the tombstones of these practices, the epitaph for many will read something along these lines: “Here lies practice x – killed by an out of control corporate office.”

Here’s an example of what typically happens.  You have a member of your front desk staff handling your accounts payable in addition to his/her regular responsibilities at the front desk.  And for one office, it’s not a big deal.  You don’t have a very large volume of bills, the number of vendors are small, all expenses relate to that office (making the accounting for bills very easy) and all tasks can be fit in during slow points in the schedule.  Now, if you have 10 offices, that dynamic changes.  The volume of bills is 10 times what it was (maybe more), each bill may have some coding and allocation issues to get the accounting correct, erroneous bills may take more time to correct because those bills may be more complicated, etc., etc.  Most significantly, that person needs to spend more or maybe all of his/her time on accounts payable now due to the sheer volume and complexity.  So, you switch that person to become a full time accounts payable manager and hire someone to take over the front desk duties.  And so it begins…

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Group practice roadmap: 5 tips for super staffing and scheduling

As your office count grows, one of the costs that most frequently grows out of control is employee costs.  This happens for 2 reasons.  The first is that poor information  and scheduling strategy leads to a disorganized schedule, confused staff and patients and spiraling costs.

The second is that adding staff seems like an easy, quick way to solve a particular problem, especially a problem that relates to your patient and office volume increase.  The thought process goes along these lines: “With one office, I didn’t need a person to handle [function x], but with 10, I’ll need someone full time to do that.”  So, for doing the financial accounting, you add an extra person.  For handling the marketing, add a person.  Tech support?  Need a body.  And so on.  We’ll deal with this issue in our next post.

Here is how you keep your schedule and staff organized to keep that cost under control.

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Group practice roadmap: More offices, more problems

To this point, we’ve painted a nice, white picket fence, daffodils and roses view of opening a group practice.  If you have a good system, find new locations, get financing, open the offices using that system, monitor results, lather, rinse, repeat.  Of course, life isn’t that simple.  Yes, no matter how many offices you have, supply orders will get screwed up, employees will quit and a patient or two will have an unpleasant experience.  On top of that, certain problems unique to a group practice setting will loom over you at some point or another.

Here we discuss some of the problems that you will see as you develop and operate a group practice.  We’re not going to discuss the most frequently occurring problems, but a number of the ones that tend to cause negative emotions to swell, hard feelings to harden and chairs to get thrown (OK, I haven’t seen any chairs actually thrown, but a few were grabbed in anger before cooler heads prevailed).

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Group practice roadmap: Your most important hire(s)

Among the most important personnel decisions you will make as your group practice grows is which associate doctors you will want to employ in the practice.  On patient days when you are not there, this doctor represents not just the attitude and environment you want to convey to patients, but also have to treat patients with a level of quality that is satisfactory to you.  Clearly, you want this person or people to fit the treatment style for all of your patients and have an amenable personality.

Beyond that, there are a number of other important considerations when identifying and employing associates (not that I use the term employing here – if you and your tax advisor feel that an independent contractor arrangement is superior and IRS-friendly, the considerations described in this post do not change).

Here are the items to consider with an associate:

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Group practice roadmap: 3 changes to your marketing

At this point the in the process, we’ve been through the process of identifying locations, getting financing, determining where to start in the process and establishing systems to monitor how the everything is going.  We’ve covered what you need to know about building those offices in our podcast on new office development.  Now, we turn our focus to some operating issues.   

The way you look at general practice operations will necessarily change in a group practice setting.  Effects of decisions are now multiplied not just by the number of offices you have, but by the staff people working the practice and the enlarged patient base positioned under your umbrella.  Just as your role changes, so must your way of approaching operational decisions.

In this post, we focus on marketing and how strategy and decision making shifts from a 1-2 office practice to a larger scale.  Here are 3 major considerations now for your marketing campaign:

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Group practice roadmap: Weak Data, Big Problem

When we began this roadmap, the self-assessment discussion included a brief note about the changing role of the owner doctor in a group practice setting.  In essence, your role evolves from day-to-day operator, technician and handler of minutiae to manager and custodian of a much larger operation.

The catalyst for this shift is obvious.  As you move from 1 location and 1,000 patients to, say, 10 locations and 10,000 patients, you cannot possibly look in the mouth of every patient, review every chart or personally resolve every insurance filing discrepancy.  And, just as clearly, you cannot be in every office on every operating day.  If you want to maintain your same role as before, either have a strong manager to run the business side or be prepared to hear an analogy about Nero and Rome burning.  Yes, information is vital and you know how we feel about the importance of it.

Right from the start, you need a methodology to monitor your operation on a larger scale.  Keeping track of individual payments in a one office model is very doable.  In a group practice, it is nearly impossible.  You need to look at summary numbers and exceptions to determine whether or not a problem exists and what you should do to resolve the problem.  In sum, quality information and reporting becomes vital to the life of your business.

Without it, you will potentially miss a problem and get buried underneath the rubble from the avalanche it creates.  If you recall our history post, a doctor trying to build a group practice in Florida did not have good collection information, got robbed and had to give up the practice.  In another, a doctor in Colorado ignored the information that told him that consultations were in steep decline in one of his offices.  Current collections were just fine because he had a solid existing patient base, but he did not see the crash in collections looming on the horizon when the existing patients finished making payments and new patients were not there to replace them.

If you are going to have a successful group practice, your reporting needs to have the following characteristics:

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Group practice roadmap: Nail your first new location

Our group practice process is now starting to kick into a higher gear.   A lot of the prep work has been done.  You’ve identified your locations, put together a business plan and gotten financing in place or at least started that process moving forward.  

Now, it’s time to start with the less tedious, theoretical part of the process.  We’re going to start putting offices into place and dealing with the operational part of building our group practice.  In other words, now it gets fun and nerve-wracking all at the same time.  Let’s take a look at some of the key considerations at this point in the process:

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Group practice roadmap: how am I going to pay for this?

At this point in the process, you’ve got your locations selected and your projections are done.  The obvious question looms: how am I going to pay for all of this?  This is usually the limiting factor in your growth.  If you had $10 million of cash or available credit and 8 locations you wanted to add, you would certainly be able to add them all at once.  Since most of us are not in such a position, other options need to be examined.  

As you learned from our new office development podcast, costs for a new office are probably going to run $300,000 - $600,000 per facility so keep that in mind.

Let’s take a look at the various options out there for you:

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Group practice roadmap: 5 steps to the bottom line

Now that you’ve gotten revenue looking exactly like you want, it’s time to set up your projection for those expense items.  As you go through your expense projections, keep 2 things in mind.  First, are my numbers conservative.  In other words, in the face of uncertainty, have I somewhat erred to the high side of the cost amount.  For example, if I ask for an insurance quote and the agent gives me a number of $753 per month, to be conservative, I would round that number up to $800.  Second, do the final numbers make sense to me?  If my employee cost number comes out to 5% of revenue in the first 6 months, that result does not make intuitive sense.  Something is wrong and must be revised.

Here are some tips as you create your individual expense items:

Employee costs (don’t worry, we’ll explain the *** at the end of the post)

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Group practice roadmap: top line projections

At this point in the process, you’ve compiled a list of your potential locations.  Whether or not you select 5 locations, 7 locations or 10 locations or another number is up to you.  It largely depends on what your numbers tell you and how much you want to be able to grow.

With that information in hand, you want to take the next step in the process: putting together a set of projections.  You’ve heard that anyone who enters into a new business or new line within an existing business puts together a business plan before investing any material sums in that business.  When you go from an 1-2 office practice to a practice with double-digit locations, you are entering into a new business.  Heck, in life, you wouldn’t make a major move without a plan.  Here is your chance.  The business plan usually consists of written descriptions and a financial projection.  Here, we’ll focus on the projection.  Your projections do 2 things for you:

First, putting together projections allow you to think through the different issues that will affect your business.  You’ll be able to consider what you expect patient volume to be, what will total advertising spending be for the whole practice, how many total employees will you need (we’ll get into all these topics as the roadmap progresses).  Once you’ve thought through everything and done your projections, you can decide if your plan makes sense.  If your projections tell you that you need to invest $4 million to earn an additional $150,000 per year, the reward may not justify the risk and effort.  Second, if you need financing at any point in the process, a business plan and projections are required.

Keep in mind that the projections are simply your best estimate.  Things almost never work out exactly as anticipated, but at least you have a plan going into it.  If and when events change, you can either revise the model or change your decision to fit the model you set up.

Despite what you may be told, outside of needing to include the basic financial statements – balance sheet and income statement-- there is no magic as far as format or time required for a projection.  Our initial projections were compiled during a weekend sequester at a Ramada Inn in Gulfport, MS.  We prefer the same income statement format as we do for our analysis of results.  Link to that is here.  In this case, the numbers are simply projected instead of historical.

For us, the most challenging part of constructing a projected income statement is coming up with a projected revenue number, also known as the top line.  Once you have that done, all of the other pieces of the puzzle fall into place.  I’d strongly suggest that you use a spreadsheet application like Excel to prepare this because once you do the first set of projections, you will probably want to revise your assumptions, especially if your initial assumptions result in projections that do not make sense.

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Marketing Monday: It's the economy. Or is it?

Friday’s jobs report produced another reminder of the state of our economy: sluggish, uneven growth with a large portion of our country’s job creation taking place among part-time jobs.  Predictions for future look similarly uninspiring.  Less than a stellar picture, indeed.  Regardless of whether you lean red, blue or neither in figuring the cause of this malaise, as a practice owner, you have to deal with the situation.

In well over half of the cases in our recent history, when we talk with a doctor about the reasons for a decline in revenue or new production, the answer is along the lines of: “it’s the economy, stupid.”  Well, it’s not always so obvious.

Certainly, no one has any doubt that the overall economy affects orthodontic and dental practices.  If a person’s income goes down, he or she begins to look for costs to eliminate or push back until better times return.  Orthodontic treatment certainly fits that category.  Delaying treatment typically does not cause pain, spreading infection or related health issues.  For dental treatment, while some procedures can and will be delayed, some severe cases have to be handled immediately.  

On the other hand, the economy-as-total-problem answer may obscure other issues in the practice that will need fixing regardless of GDP.  Here are some of the key considerations:

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Group practice roadmap: location, location, location

You’ve read our last post and decided that you are the type of person to dramatically expand on the size of your practice.  Now, you’re ready to get rolling.   Where to start?  For us, you begin with finding potential locations for your office.  If you want to add 5 offices, you want to target 5 areas in which to place an office.  You may not be building in that particular area immediately, but you want to identify the best areas and then focus in on the top ones in that group for immediate investigation.

There are a number of ways to go about picking areas.  Here are some of the methodologies and considerations.

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Group practice roadmap: Is this for me?

Today, we commence with a discussion we referenced last week.  In it, we lay out a roadmap for orthodontists and dentists to grow their practices substantially.  No, we’re not talking about 25-30% growth a year from your existing practice or pushing some maybe-it-works-maybe-it-doesn’t marketing hook.  We’re talking about adding multiple locations to the point at which you are now the owner/main renter of anywhere from 5-15 individual, fully functioning, locations.  So, if you have an office generating $500,000 per year in revenue and you are able to do that 10 times over, you are talking about a $5 million annual revenue practice with the attendant potential profit.  If you have 10 offices and take home a paltry 20% after paying everyone else, that still leaves you with a $1 million personal annual income.  

This is no get-rich-quick scheme.  It is a process that takes planning, effort, support and organization and plays out over a period of time.  

In the past, we’ve seen quite a numbers doctors build their own “group” practices –and guided a decent percentage of those all the way through the process-- run under the doctor’s own philosophy regarding treatment, facility design and patient experience.  We’ve seen these types of practices become wildly successful and we’ve seen some fail miserably.  We want to give you the information you need to put you in that first category.

The first assessment you must make is whether or not you have the desire or mentality to go through the process.  Here are some questions to ask yourself before jumping in to becoming a group practice.

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Podcast: Conversion doesn't have to hurt

When you decide to convert to a new practice management software, the process can be challenging.  New terminology, new processes, data errors and software hiccups can and often do leave staff frustrated, patients disillusioned and doctors feeling like they are stuck in the middle of constant crossfire.  Things don't have to be that way.  You just need to prepare, get organized and listen to this podcast to eliminate the conversion pain.

We bring back Mike Cusimano to follow up on our earlier podcast to discuss how to end your conversion experience with a trip to your favorite after work spot instead of a trip to the emergency room (true story!).  Check out the podcast here.

Of course, if you have additional questions or comments about your planned or contemplated conversion, please do not hesitate to contact us.