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Are your business systems keeping up with practice scale?
Monitor developmental hallmarks to make sure your practice stays on the right track.
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| John B. Pinto |
Young practices, to apply an analogy, “grow up” just like children. While some children are precocious, developing the ability to walk or talk much faster than their peers, some children have developmental lags. Happily, these lags are usually benign and still result in a perfectly normal adult in 18 years.
Practices can be thought of in the same way. Some grow precociously, adopting sophisticated business systems and broadening their market reach quickly. Others develop a little slower. A few practices show lags that verge on the commercial equivalent of mild to moderate retardation.
Small practices are simpler to operate. Larger practices, regardless of their vintage, demand more complex controls and systems. They need more meetings, more performance documentation and a deeper management team. And they need a lot more advance planning to avoid costly, even catastrophic, errors.
How does your practice measure up developmentally? While it would be helpful to be able to plot your practice on something like a pediatrician’s height and weight vs. age graph, practices come in so many variations that they are a lot harder to pattern than kids. So here are eight important business development hallmarks and an attempt to compare these not to practice age, but to practice scale.
1. Strategic and business planning
Even the smallest practice needs a plan. Indeed, sometimes this plan needs to be inversely proportional to scale. Brand-new practices should robustly document the path ahead, while established, stable practices can do just fine for years with no written plan for the future. Beyond these two obvious extremes — the start-up practice and the static practice — the depth of business planning should be proportional to practice scale, the complexity of your marketplace and the consequences of business errors. Multi-doctor practices with growth aspirations should have a modest written plan. To put this in concrete terms, 10 to 15 pages will do fine, covering a description of the service area, the practice’s service mix, growth targets and key tactics for the next year or two. What’s needed is enough detail so it is clear that the partners are on the same page and so the management team has a blueprint for what it is expected to deliver. For especially dynamic and large practices — let’s say those that exceed $10 million in annual collections and 10% growth aspirations — the plan should be more robust, with enough operational, financial and policy details spelled out so that board decisions are more logical and the management team has its marching orders.
2. Process documentation and checklists
A 1920s biplane probably had no more than a terse operator’s checklist; today’s jumbo jets require tens of thousands of pages and expansive checklists. The differential is not quite as extreme between large and small practices, but the comparison is apt. Solo, steady-state practices can be run just fine on the institutional memory of an experienced owner and a long-term office manager who can co-pilot the practice well enough on gut instinct. Larger practices should have a few hundred pages of documents describing how each segment of the practice is run, along with standardized checklists to make sure that critical processes and operational benchmarks are not being neglected. Practices in-between need proportionately greater or fewer checklists and process documents.
3. Financial analysis, forecasting and accounting support
Small practices with large profit margins and modest goals can get by with quarterly financial statements, a regular look at the checkbook to make sure that the operating balance is still robust and one comprehensive meeting with the accountants each year. This informality characterized the majority of ophthalmic practices a generation ago. Not so today. As profit margins thin and the profession becomes more entrepreneurial, the frequency and depth of financial analysis necessarily grows. In mid-sized practices, monthly financial statements and formal quarterly financial performance reviews are appropriate. The largest and most dynamic practices commonly require an in-house CPA-level chief financial officer who helps the owners and administrator comb through critical data. One of the fastest ways to ruin a practice is to have financial measurement and analysis resources that lag behind the organization’s scale and complexity.
4. Service scope and breadth
Smaller practices can, and often do, focus on a narrow scope of services. Such practices may be biased toward just refractive surgery, cataracts or primary care and do just fine. But by the time a practice has growth to $10 million or more in annual collections, it is important to be diversified for at least two reasons. First, to be able to enjoy continued growth — only the largest markets will support a narrowly based large practice providing just a limited number of services. Second, to be able to hedge against declines in any one service segment. The classic example is in refractive surgery, in which the economic volatility of this subspecialty is difficult enough to manage in a smaller practice, but crippling in larger businesses that have all their practice eggs in one basket. When I work with such larger “monoculture” practices, I commonly urge the owners to go to the next level and diversify to general and geriatric care, even if this does not necessarily align with their professional interests.
5. Communication and meetings
Somewhere between the “mom and pop” and “mega” stages, practices need to change the way they communicate. Developmental lags in this area are common and among the easiest to solve. It takes the investment of little time or money to shift from an informal, verbal culture in which policies and protocols are passed along haphazardly to a written culture in which information is codified and less subject to misinterpretation or policy drift. Let’s look at one dimension of this — staff meetings. In small practices, a 45-minute all-hands staff meeting every month or so is sufficient to fill in anything that might be missed in the informal, on-the-fly, in-the-hall communication. After all, it would seem odd to have departmental meetings when there are only two or three staff members in any one department. Larger practices require more meeting time and not just at the all-hands level. Meetings are needed within departments and interdepartmentally between supervisors. In the largest practices, especially those with multiple satellites, work groups are large sub-units of the total organization and require their own time to meet. In the largest practices, the only all-hands meeting is the annual holiday party.
6. Marketing and development
Every practice, including the smallest, pursues a marketing program, even if it is no more than strictly internal, providing great patient services in pleasant surroundings. The developmental stages ramp up from this basic platform. Small practices at the bottom of the ophthalmic ladder, at least in financial terms, must be satisfied with little more than extra efforts to spur internal alumni referral and sending their doctors out to call on referral sources. Mid-sized practices that do not yet have a need for a full-time marketing staffer will typically delegate such tasks to the practice manager or an outside freelancer. With no more than $100,000 a year to spend on marketing, most of the budget in mid-sized practices is dispensed on yellow page ads, brochures, a few health fairs and a modicum of consumer ads. In all but the smallest markets, such practices are not all that visible and must continue to rely largely on patient-to-patient and professional referrals. Large practices, with something on the order of three to five doctors and $5 million or more in annual collections, can often afford marketing outlays in the range of $100,000 to $200,000, which supports a mid-level marketing and outreach function. Depending on the size of the market, such practices are often the most visible in the community and the fastest growing. The largest practices are often market-driven, with a full-time in-house marketing team and annual promotional budgets approaching $1 million or more. In well-run organizations, such marketing departments are indistinguishable in their deployable resources and professionalism from larger industrial entities. Practices at any size with underdeveloped marketing functions are ultimately as disadvantaged and stunted as children with a growth hormone deficiency.
7. Training and continuing staff education
At a minimum, practices large and small should provide support staff with an hour of training and CE work for every 2-week pay period. That is only 26 hours of training a year, which seems like a pretty lax commitment. But you would be surprised how few otherwise-excellent practices fail to work in this modest amount of CE time. Practice scale can influence how you use, organize and apply this education time. Small and medium-sized practices, let’s say those in one location with 20 or fewer staff, can do well with brown-bag or delivery pizza “lunch and learns.” Delay the afternoon start-up, if you can, by compressing 4 hours of work into 3, which will allow plenty of time for deeper training or break-out sessions by functional area of the practice.
8. Departmentalization and department head development
Small practices generally have just one department (the entire practice) and one department head (the office manager or administrator). There is no ordained break point in practice scale for starting to departmentalize, but as a rule-of-thumb, by the time you get to three staff members working within any functional area of the practice (reception, patient accounts, technical services), you should select one person in the department as the team leader, department head, manager or director. This typically means that as your practice grows you will sequentially departmentalize. Commonly, the techs are the first to reach critical mass, while the business staff is still supervised directly by the office manager. Next, the front desk (or combined reception/patient accounts workgroup) needs a middle manager. Don’t let articles in the general business press about “flat organizations” and the demise of middle management steer you away from developing department heads proportional to the scale and complexity of your practice.
For more information:
- John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. Mr. Pinto 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 and The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees. He can be reached at 619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.