Pinto’s practice development guidelines: Five easy rules to help you stay out of trouble as you grow
Avoiding business errors is critical because of softening profit margins, which make it difficult to recover from mistakes.
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“The fewer rules a coach has, the fewer rules there are for players to break.”
– John Madden
“Be careful what you wish for because you will get it. Be even more careful what you work for because you will get it even more quickly.”
– Colin Cunningham
Here we are in 2020. An auspicious year — although more exacting surgeons might say that 2015 held greater promise.
Every fresh year — and perhaps this one more than others — quite reasonably prompts practice owners and managers to ask, “What’s next? Should we grow faster this year? Should we get serious about development?”
Having seen my share of ill-conceived ophthalmic development plans over the past 40 years, I have long used a simple set of orienting questions to help eye surgeons decide how they should proceed strategically. I had help coming up with these questions from General Colin Powell, who nearly three decades ago published an article in Foreign Affairs Magazine setting forth the principles of what became known as a “when-to-go-to-war” doctrine. As you may recall, Powell wisely urged a surgical strike and brisk withdrawal in the first Gulf War. A decade later, his counsel was ignored, and we are still fighting the second Gulf War.
At the time, Powell described a series of relevant questions, including: Is the political objective we seek to achieve important, clearly defined and understood? Have all other nonviolent policy means failed? Will military force achieve the objective? At what cost? Have the gains and risks been analyzed? How might the situation that we seek to alter, once it is altered by force, develop further, and what might be the consequences?
Out of these questions came a series of determinants, which came to be known as the “Powell Doctrine.”
First, borrowing shamelessly from Powell, there are some basic orienting questions to ask.
Are the clinical or business objectives important? Realistically, the overwhelming majority of tactical decisions made by practices are driven by opportunity, not by plan. Doctors are more likely to acquire a competitor in a gleeful, impulsive pounce than with any thought about the longer-term consequences.
Are the clinical and/or business objectives clearly defined and understood? One of the first questions I ask new clients is, “What’s your clinical and surgical volume now, what’s your revenue now, and where would you like these numbers to go in the next 3 to 5 years?” I have long since stopped being surprised that very few surgeons have accurate answers off the cuff to any of these questions. What’s more, only a few exceptional administrators know the answers by rote, either.
Have alternative clinical or business tactics been considered? As one example only, consider the number of redundant excimer lasers languishing across the country now that LASIK case volumes have softened. If competitors in most markets had looked ahead and joined forces to develop cooperatively owned laser centers, they would not be doing any more cases in today’s weaker LASIK market, but they would be sharing high fixed costs over a much wider user base.
Questions like these — and the answers I have heard for decades — have led me to create the following five-point “Ophthalmic Development Doctrine.”
One: You must understand and prepare for the cash flow consequences of any proposed initiative before you act. If such analysis indicates you may be treading financial water for a while, you must assure in advance your access to any needed capital. Here is a pertinent and common example. A two-surgeon practice hires a new subspecialist. There are immediate costs for marketing, equipment and generally setting up a new place for the doctor. Then problems hit. There is a clerical snafu and a holdup in securing a Medicare provider number. Credentialing for managed care contracts are slow in coming. In situations like this, especially in a low profit margin practice, carrying a new associate can make it hard to make payroll for the existing doctors. The time to go to your banker to negotiate a line of credit is before you need the money.
Two: If you aim to make your business larger or more diverse, you must be prepared to manage the resulting complexities. Even small, simple, solo practices have lots of moving parts and squeaking wheels. This enterprise complexity grows logarithmically with scale. You and your management team should master your current practice first. In the case of a merger or acquisition, you hardly have any standing to run another doctor’s practice if you have not yet mastered your own company.
Three: Every practice initiative should, within an acceptable time frame, be accretive to the net earnings of the owners. Another way of saying this is that your business decisions should be made with the aim of eventually resulting in more profit per hour per owner doctor. Let’s take an example. In a five-surgeon practice, Dr. Smith’s pod is going to be built out with two more exam rooms at a cost of $75,000, charged evenly to the partnership. On the face of it, seems like Smith is getting a great deal and his partners are not, right? Wrong. If in the next year Dr. Smith uses these rooms to produce an extra $500,000 in collections, both Smith and his partners will get a pay raise; Smith gets the money directly as a producer, of course, but he and his partners also get an indirect benefit by having more of their fixed overhead covered. Following this rule does not promise that every doctor will get an equal benefit from every development decision, but that every doctor will be better off.
Four: When developing, you must align the incentives for all of the stakeholders in your practice. As a surgeon-owner, it is reasonable for you to ask first, “What’s in it for me?” But just after this you should also ask, “What do my partners get? What do my staff get? What does the doctor whose practice I merge with get?” If the incentives are markedly unbalanced, your plan may be destined to failure.
Five: Remember that health care is a local business. Do not overextend your supply lines to distant operations unless you have abundant capital and proven operational competence. For most surgeons, staking out satellite operations more than 25 miles away without planting a homeroom doctor in the subject market is becoming a diseconomic business model as fees continue to erode and practice costs continue to rise. Muster the discipline to keep remembering that success should be measured in profit per surgeon-hour (including travel time), not cases per month.
Follow these simple rules, and you will avoid the most common eye care business errors. That is critical in the current environment with softening profit margins, when it is becoming all the more difficult to recover from mistakes.
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- 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, Simple: The Inner Game of Ophthalmic Practice Success and a new book, UP: Taking Ophthalmic Administrators and Management Teams to the Next Level of Skill, Performance and Career Satisfaction. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.