Back to basics: Three common business cases
Case histories from other settings can help you gain management expertise.
“Managing is like holding a dove in your hand. Squeeze too hard and you kill it, not hard enough and it flies away.”
– Tommy Lasorda
“The secret of successful managing is to keep the five guys who hate you away from the four guys who haven’t made up their minds.”
– Casey Stengel
Medicine, engineering and law are so-called “learned professions.” You go to school, take a big test, get a license, and then society lets you operate, build bridges and write contracts.
Managing your practice is not a learned profession, even if there is so much to learn — more than ever before. Management expertise comes largely by collecting hundreds of personal case histories over the course of a career and learning from your mistakes. Fortunately, the mistakes cost less in business than in medicine — nobody dies if you misread a balance sheet.
One of the more effective ways to accelerate your learning as a practice manager or managing partner is to read up on case histories from other settings. What makes management consulting such a fast learning curve is that we get to examine hundreds of practice management cases a year. The same can be said of administrators who do not stay at the same job for 30 years but work at several clinics over the course of their career.
Here are three common business cases seen at some point in the career of every practice leader. Each of these has been abstracted and recomposed from a number of client settings and applied to a single invented practice to illuminate a few key points.
Adding a new provider
The typical hard-working full-time general ophthalmologist can see about 500 patient visits per month. If you have three such doctors, the practice should be able to comfortably see 1,500 or a few more visits in a month. If the practice grows and you are the leader of the practice, you have to make at least three decisions: At what point do we need to add a doctor? What kind of doctor do we need? And how can we make sure the new doctor sticks around and becomes successful? (Half of all new associates hired leave before ever making partner.)
Background: Let’s call this composite client practice Davis Eye Care, or DEC for short. DEC had the following characteristics:
- Three owner-MDs in a single office in suburban Florida.
- One of the doctors was just 3 years away from retirement; the other two were still in their early 50s.
- DEC was growing at 8% per year (about two times the average practice in America) despite little marketing.
- DEC was booking out new/nonurgent patients 4 weeks or longer.
- Most new patients came in through word of mouth, but an increasing number of new patients were referred by community optometrists.
- The practice saw 1,750 visits per month, so on paper the docs were working at about 115% of nominal capacity. At current growth rates, the three MDs would be at 2,000 visits per month in 2 years (133% of capacity) and be just a year away from losing their senior partner.
- The practice had 12 exam rooms, so facilities were not yet limiting growth; on paper, a facility this size can accommodate more than 2,000 visits per month.
What were the options to get patient volumes back in line with provider capacity? A practice such as DEC had several, including:
- Stop admitting new patients and let volumes fall back to comfortable levels.
- Add one or more optometrists.
- Add one or more MDs or DOs, either generalists or subspecialists.
- Pivot to more optometric co-management, shifting patients back to their referring primary care doctors after surgery, which would trim patient volumes.
- The administrator and three partners knew they had to act.
- Taking action was relatively low risk; between organic growth and the senior partner’s looming retirement, they could easily keep a new doctor busy.
- Unlike many practices in America today, DEC’s attractive location made it easy to recruit new talent, so that was no barrier to their choice of options.
- Profit margins had been improving in recent years, and the two mid-career partners decided they could tolerate the risk of bringing in not one but two new providers.
- Also, they knew that the odds of a new doctor sticking around were only 50-50, and they did not want the possibility of the practice shrinking down to just two providers.
- So DEC chose options two and three, and hired two new providers, one MD and one OD.
- The MD was a generalist with an interest in medical retina.
How it turned out:
- Onboarding and supporting two doctors at the same time raised operating costs by $55,000 per month.
- For the first 9 months, the three partners took an average 30% pay cut.
- Starting in the 10th month, practice volumes had grown so that the two new doctors were covering their costs and starting to generate a small profit.
- Eighteen months later, the optometrist was generating an incremental $75,000 per year in new passive income for the owners.
- The new MD made partner after 2 years, and with the addition of new retinal services, practice net revenue grew by more than $1 million annually.
- The original three partners enjoyed a pay raise (after a brief period of losses).
- The senior partner decided to slow down to half time but delay his retirement a few years.
- In the span of just 2 years, a $5 million three-provider practice had grown to 4.5 providers with $6.3 million in net revenue.
- But the next problem to address was a lack of office space.
Opening a satellite
The practice was now at 2,300 patient visits per month. But with only 12 lanes, the office was running out of space and was at about 110% of comfortable clinic capacity on paper.
How could the practice get patient volumes back in line with facility capacity? DEC’s administrator and partners examined the options:
- Move to a larger facility.
- Expand operating hours.
- Have the providers work less than a full schedule or otherwise reduce volumes.
- Open a freestanding satellite office.
- Satellite part-time as guest providers in the office of a compatible colleague.
- Taking one of these five actions was imperative.
- A new facility would take a couple of years to develop.
- Expanding hours would be cheap and fast, but none of the providers were keen to work evenings and Saturdays, and this fix would only be temporary.
- Cutting back on patients was considered but discarded: The demand for eye care was growing, and the three younger partners were keen to keep growing.
- Opening a new satellite office was strongly considered. It would be faster and less expensive than developing a larger office.
- Ultimately, the partners decided to launch the first of what would become four part-time satellite offices located in private optometric clinics throughout DEC’s service area.
- DEC paid nominal rent, and the MDs rotated through a satellite location one day a week each, which took pressure off of the home office.
How it turned out:
- This approach had several advantages. It was low cost, fast to start up and reversible, and it had no long-term commitment.
- An unexpected advantage surfaced: Although host optometrists only saw a visiting DEC MD weekly, they ramped up their referral activity all through the month. Practices that had been referring casually to DEC were now a loyal source of patients, and closer collaboration between doctors translated into better patient care.
- The performance of each satellite was tracked in terms of profit per MD-hour and was found to be significantly higher than profit per MD-hour in the home office.
- So the partners solved their space squeeze quickly, with no risk and few logistical or administrative burdens, and they received an hourly pay raise in the bargain.
Let’s finish this series of three case histories with something a bit more in the trenches and common: elevating a technician-worker to “technical services manager.”
Promoting a worker to manager
DEC’s labor pool was growing, and the practice’s department heads were feeling the strain. The technical services manager (TSM) was particularly stressed.
How could the practice get leadership skills in this critical department back in line with growing scale and operational demands? DEC’s administrator and partners examined the options:
1. Provide further coaching and management training to the current TSM.
2. Hire a new TSM from outside of the practice.
3. Give one of the existing technicians a promotion.
- The administrator had made several attempts to boost the current TSM’s performance over the last year without result.
- There was an opportunity to hire a senior tech away from a competing practice in town, but some of DEC’s staff had already worked with this individual and had concerns.
- The administrator and managing partner decided to approach a promising, newer technician in the department and offer her the TSM job.
- “Annie” had not been in the practice long enough to develop any close friendships, so there would not be the common problem of a new manager having to sever friendships in order to be a neutral supervisor.
- The providers liked working with Annie; she had been the head tech in a much smaller practice many years earlier, and she clearly liked teaching and loved her patients.
- The other department heads supported Annie’s advancement.
- Annie had concerns about whether her peers would accept her leadership but agreed to take the position of “acting” TSM. With this approach, she could go back to the tech pool if she failed as the leader.
How it turned out:
- This approach had several advantages: There were no recruiting costs; Annie’s wages as TSM would be lower than hiring a seasoned leader; Annie could be immediately advanced, and there would be no recruiting delays; doctors and co-workers liked Annie and supported her advancement; and it was reversible.
- Annie took to her new responsibilities well, in large part because her administrator set the stage for success: There was buy-in from doctors, lay leaders and peers; the position description was updated to fit with practice growth and change; Annie was networked to the head tech of a larger, friendly practice for mentoring; Annie and the administrator met weekly to check on progress for the first year; and any doctor complaints about Annie were delivered by the administrator to keep Annie from being unduly discouraged during her first year.
Here are the take-home lessons from these composite common cases. Whenever sorting out a management problem, ask, “How have I successfully solved a problem like this before?” Make a list of all of the options. Finally, examine each option and ask, “Which of these ...”
- has the support of the stakeholders?
- can be pursued quickly?
- can be pursued at lowest cost?
- can be reversed if it doesn’t work?
- can be scaled up if it works?
- 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, 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: email@example.com; website: www.pintoinc.com.