This article is more than 5 years old. Information may no longer be current.
What is your practice’s fragility score?
Find out which areas of your practice are strongest and which areas need to be shored up.
Click Here to Manage Email Alerts
“Life is strong and fragile. It’s a paradox … it’s both things, like quantum physics: It’s a particle and a wave at the same time. It all exists all together.”
– Joan Jett
“Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”
– Nassim Nicholas Taleb
Until recently, one of the least fragile kinds of business in America was a medical practice. With an abiding demand and high profit margins, private practices have flourished for most of the last 100 years.
Compare the practice of healing people with the practice of feeding people. After 5 years, 95% of new restaurants are out of business. It is essentially the reverse statistic in health care.
But this is changing.
The private, independent practice of medicine is in a defensive crouch in response to several overlapping pressures. And the raw pace of change is accelerating. The list of practice stressors is uncomfortably familiar by now. Stagnant and falling fees in an environment of slowly rising costs. Comprehensivists are being nipped at from below by medical optometrists and from above by subspecialists, while subspecialists are facing competition from generalists. Deeper scrutiny of care pathways, record-keeping methods and charges are obliging a larger and smarter management and advisory team than at any time in the past.
A drop in the number of new grads is making it harder to meet growing patient demands or to arrange a smooth succession plan when retirement arrives. Technological development is centered on small relative advances in surgical outcomes with attendant great increases in cost and financial risk, which is moving in the opposite direction of the frugal innovation needed to deliver better care at lower costs. Twenty years ago, the expectation was that the golden age of ophthalmology would be upon us by 2015, with more seniors demanding more care and the availability of materially better, thriftier treatments. Instead, we see practices that are more costly to run and more fragile, and doctor-owners who are more anxious.
Here is a 12-item “practice fragility test.” Score your practice on its relative strength in each dimension below based on the following:
0: We are quite weak in this dimension.
1: We are merely OK in this dimension and could stand to be stronger.
2: We are exceptionally strong, even the opposite of fragile, in this dimension.
See how close you come to the maximum of 24 points, and then start this month to shore up those areas where you are the weakest.
1. We have a history of stability and in transiting past difficulties when they arise. We are not surprised very often. We notice problems and challenges at their onset, and quickly muster the practice resources needed to surmount them. This experience gives us both the ability and the confidence to face the future.
2. We have a great command over our regulatory obligations. As a federal contractor, we follow a formal compliance plan and know the right side and wrong side of the line. Nobody likes to be told what to do, but we have become masters at reading each new regulation and mustering an internal team to handle it.
3. We have a managing partner or president who is much more than a figurehead. He or she is nearly as engaged in the details of the practice as our administrator and management team, and is the eyes and ears of the board, assuring that the goals of the owners are being pursued by the management team.
4. We have a strong and long-tenured administrator who is as skilled being the practice’s “doctor” as our doctors are at treating patients. Our administrator orbits the partners closely and understands our reasonable expectations, while managing to accomplish even some of our most unreasonable expectations.
5. We have a very strong bench of mid-level managers. Our department heads are not only technically competent, but they combine this expertise with excellent teamwork and collaboration. Because our mid-level managers are so strong, our administrator can delegate avidly, leaving time for higher-level strategic thinking.
6. We have a good balance between the size of the practice and the number of owners. We have enough owners so that if we lost one or two, the remaining owners would still provide enough leadership and cash flow to keep us moving forward.
7. We have high relative profit margins (40% or higher), which give us a cushion in the event of payment hiccups or the loss of any one provider. We are definitely not in the position seen in some practices of a low-margin, single-owner practice, which is fragile and would briskly fail if anything ever happens to the one key doctor.
8. We have ready access to all the capital we could reasonably need. Our banking relationships are excellent. If we did hit a business reversal, such as a Medicare payment delay or abrupt reduction, we could get our hands on enough cash to buy ourselves the time needed to figure out what we should do next.
9. We are intelligent when it comes to debt. We do not avoid debt when it is used for safe practice investments or to stay up with evolving community care standards. We score our debt levels formally (eg, measuring the debt-to-equity ratio or debt service coverage ratio) and stay at or below conservative thresholds.
10. We maintain strong institutional and community ties. These make us less fragile in at least two ways. First, we are “in the know” and will not be surprised by changes in the health care delivery system regionally. Second, our community relationships virtually guarantee that if there were any alliance of providers in our market in the future, we would be invited to the table and not left out.
11. The personal financial position of each of the owners is both strong and transparent to every other owner. If necessary, due to a business reversal or payer hiccup, the owners as a group could forego incomes and even get out their personal checkbooks and cover operating expenses for many months.
12. We have a very good level of service diversity, so that if LASIK or elective plastics faltered, as they might during a general economic slump, we would have other patient services to fall back on.