Practice decline syndrome: Fighting the dwindles

A number of national and local conditions contribute to a practice decline, but steps can be taken to minimize long-term damage.

Issue: August 10, 2016

ByJohn B. Pinto

“There is at least one point in the history of any company when you have to change dramatically to rise to the next level of performance. Miss that moment — and you start to decline.”
– Andy Grove

“Success comprises in itself the seeds of its own decline ... .”
– Pierre de Coubertin

Based on what I am seeing in my client travels around the country, an increasing number of once-great practices are undergoing PDS: “practice decline syndrome.”

The syndrome can go something like this composite from several practices over the years:

Stage 0: It is 2001, and a large practice (let’s say with seven MD partners, two associate ODs, two locations and $11 million in annual revenue with 42% profits) is healthy and in the pink. All partners are still in their peak earning years. Strategic planning is little more than a list of priority actions for the administrator in the next 12 months. And one of the doctors says, “Why worry about the future? I’ve got 23 cases on for this Thursday.”

Stage 1: It is 2008. The Great Recession is taking hold. Refractive surgery is abandoned, replaced only in part by more senior care. The practice’s first awkward EMR conversion, because of insufficient planning and a poor vendor choice, has led to an 8% drop in production and a 15% drop in profits. And the doctors say, “What the heck, a 36% profit margin is still pretty good, right?”

Stage 2: It is 2012, and practice profits are now 30%. Of the five remaining partners, two are edging toward retirement, and one has a sick spouse curtailing his clinic time. In order to maximize partner profits (for this year only, of course), they pass up hiring a young partner-track surgeon, which means that within a couple of years there will only be three owners. There is still no succession plan. And the doctors say, “Hey, why bring on another surgeon when any two of us can handle all the cases by ourselves?”

Stage 3: It is 2016, and practice profits have now fallen to 26% for the two remaining partners. Board squabbles over resources and policy are increasingly common and harder to resolve with just two votes in the boardroom. Frustrated by conflicting demands from the owners and increasingly impossible demands from Medicare, the administrator resigns. He is replaced by a pleasant but inadequate naïf. And the doctors say, “This isn’t what I was hoping for in a practice or a partner, but I only have to hang in here another 9 years and my retirement plan will be fully funded.”

Stage 4: It is 2018. The practice fails, splits up or sells to a better organized competitor, or starts a turnaround process to bring it back from the brink.

Four factors of practice decline

PDS is driven by a number of underlying national conditions and local failings. Most of these can be prevented or cured. Like some diseases, a few have to be lived with. Let’s run through the four primary factors.

1. The first is a lack of advanced business planning, which has been chronically present in ophthalmology. In the good old days, running a practice was like gardening in Hawaii — just about anything you tried, worked. We are now in an era in which perfectly sensible investments can fail, and thinner profit margins make failure more painful to the owners. Even the smallest practice should have a written 5-plus-year plan outlining the desired service area, service mix, provider mix and growth rate. Larger practices, and especially those in which the average owner age is 50 years or older, need a formal succession plan showing a realistic timeline for when new providers will have to be onboarded (even if this leads to transient profit reductions for owner-physicians).

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2. Second is the logarithmic growth in complexity and leadership demands as a practice expands. A practice growing from four doctors to eight needs four times as much management oversight, not twice as much. Curing this problem rests equally on four pillars:

The board of directors, which in modern times can no longer meet a couple of times a year and rubber-stamp the practice manager’s work, or worse, meet weekly, usurping the administrator’s and managing partner’s roles and power.
The managing partner, who has to move beyond being a figurehead-leader to be (and stay) more engaged. In practical terms, this can mean 8+ hours per week in a larger practice with a strong executive director, and even more time in a modest practice in which administrators are typically more junior.
The administrator, who needs to put more raw time and more care than ever before into the job. Few can accomplish this without working 45-plus hours per week, attending a week or more of continuing education classes every year, and having the support of numerous outside professional experts (as well as everyone else on the management team).
The mid-level managers, department heads and supervisors, who must grow to the level of responsibility once held by office managers a generation ago. They need to know the key performance indicators for their departments and be accountable for hitting their numbers, not just making sure their people arrived at work this morning.

3. The third decline factor is the baby boomer bulge of late-career surgeons and the lack of replacement ophthalmologists. It is not unusual to find practices in which the average age is older than 60 years, and the practice has been searching for years to find successor doctors. Succession planning has to occur earlier, owners have to think outside of the box, and expectations have to be tempered by contemporary realities. A few considerations:

Labor substitution is a practical cure for a lack of MD candidates. One-third or more of the typical ophthalmologist’s daily clinic load can be handled by an appropriately trained and selected optometrist. And the country is drowning in optometrists at present.
If your practice is located in the fly-over states, you either have to be very patient, very lucky or pull out the big guns (professional recruiters, very high starting salaries, signing bonuses, discounted buy-ins, etc.).
If you own a small practice in a less desirable community, your personal financial planning should anticipate the likelihood that you will close down your practice one day without a successor, extracting nothing more from your practice at the end than its residual accounts receivable and the salvage value of your medical equipment.

4. And fourth (and most vexing), regulatory burdens that are stealing time from bread and butter business management. Depending on the year, each new pronouncement from CMS represents the business equivalent of herpes or multiple sclerosis — something to be lived with but never cured. This is particularly true for smaller practices, which, frankly, if they remain small, will not have the resources needed to respond to each new obligation coming over the horizon. Some of these practices are fighting fire with fire: staying more informed, hiring experts and getting providers more engaged with the new obligations of regulatory reform. Others are conceding and trying to find ways they can mitigate the expected penalties of noncompliance with greater top-line revenue, lower practice costs or new models of practicing.

For more information:
John B. 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, The Women of Ophthalmology, Legal Issues in Ophthalmology, Ophthalmic Leadership: A Practical Guide for Physicians, Administrators and Teams and a new book, Simple: The Inner Game of Ophthalmic Practice Success. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.