(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…
From there, you add a financial accounting person, a marketing person, a purchasing person, a payroll/human resources person, a tax person (gotta get those property tax forms in on time) and so on and so on (aka the “corporate” functions). Our former chairman even wanted to hire a person to do spreadsheets (that request was turned down). Now, you’ve got 10 people doing just corporate functions and you need some place to put them, right? So, you take the next, possible fatal step and open a separate corporate office. And a corporate office has to look professional right? So, now that corporate office costs more to build out than one of your regular facilities.
Here’s the deal with these offices: they do not add value. They mostly drag down profits by adding a large layer of nonpatient cost. So, you are growing and you just add people to keep up with that growth. The additional hires frequently start with someone in the current corporate office coming up to you and saying “I am absolutely overwhelmed with all that I have to do. We need to hire someone.” These people may be ill equipped for their job or may be poorly trained. But you are too busy with your own operational or treatment issues to take time to assess the situation. So another body gets thrown into the mix.
As a person who has been and is currently in a corporate office for group practices, let me give you my own personal experience with the ever expanding corporate office. In our next post, we’ll get into the solutions to this potentially deadly problem.
Our corporate office was divided up by function. So, for human resources, we had a human resources staff, marketing had its own staff, purchasing, etc., etc. As we added services, a new department would spring up. So, when we decided to handle all accounts receivable for our doctors, we added a new accounts receivable department.
With capital coming in from the public capital markets, we were able to grow very quickly. So, as volume increased, departments were given leeway to hire their own staff as necessary. Still, every hire was challenged. Instead of adding a body, could we make things more efficient or eliminate certain duties to improve efficiency and services to the doctors? Because we allocated our corporate costs to the doctors, we had to be very sensitive to adding our own costs because that would cause our clients to be charged more. Now, you may not be allocating costs, but consider the additional cost burden you are placing on your offices as you add people.
As the company expanded, took on large acquisitions, and ventured into new markets, that focus began to fade. Now, department heads and the COO (me) were so tied up with dealing with problem areas, recruiting, investors, auditors and lawyers, we regularly – but not always – hired simply because it was requested and not necessarily because that hire made good business sense.
On top of that, the new people were being hired that did not have the skills and/or training to perform the tasks required of them. Yes, getting a degree in a certain area is nice and experience is good too, but when you are in a corporate office environment, you want people to use your systems and handle things according to your philosophy. To keep up with growth, we just threw these new people into the fire and let them learn as we went. If someone didn’t have the mentality to learn on their own in the system, they simply drowned. The result was more turnover, more potential for mistakes and poorer service to our clients. All undesirable results. On a smaller scale, this is what happens in group practices.
On top of that, we added some services that didn’t really add a lot of value. As we added states, the number of property tax, sales tax, use tax, franchise tax and other non-income tax responsibilities grew. So, we added a tax person. And yes, taxes are extraordinarily important because they fund the invaluable government services we receive, but does that add much to the development of practices? No, not so much.
Things came to a head for me personally one morning when I saw 3 people in the office that I had never seen before in my life. They were employees and not outside auditors or anything like that. Personally, I prided myself on knowing what was going on in the office at all times. This was the opposite of that.
So, we slowed everything down. A new training program was instituted. Nothing fancy, but about an hour a day after work for a few weeks to explain our philosophy, our services and our goals. Systems were re-evaluated to see if they needed to be so people-intensive. Technological improvements regularly add opportunities to provide better service at lower cost.
Ultimately, we got things handled, but the situations described here – failure to evaluate new hires, lack of training and adding nonpatient cost – all sound a death knell for group practices. And it happens all the time. Next, we’ll show you to how to make sure your “corporate” functions don’t dig the grave for your practice.
No comments:
Post a Comment