By the NumbersPublication Exclusive

The rise of ‘practice collapse disorder’

Take steps now to stave off smaller problems that can contribute to a practice downfall.

“For something to collapse, not all systems have to shut down. In most cases, just one system is enough. For example, the human body is a system of systems. If just one system, such as the cardiovascular system, shuts down, death follows.”
— Robert Kiyosaki

In bee-keeping circles, the most worrisome trend is a rise in “colony collapse disorder,” in which a heretofore thriving hive withers and ultimately fails. Scientific consensus is that there is no single cause of CCD but a combination of causes, each working together to leverage the susceptibility of the hive to failure: pesticides, bee mites, environmental decay, immunodeficiencies and the like.

Perhaps something analogous is afoot in ophthalmology, in which an increasing number of practices are distressed and some are failing outright, leading to early retirements, consolidation with larger, stronger competitors or complete shutdowns.

Some 40 years ago, early in my consulting career, most new clients said, “We’re good. We want to be great.” That’s less often the case now, and surgeons more often call saying, “We’re faltering. I’m concerned about our survival as a private, independent practice.”

Modern ophthalmic practices are not plagued by bee mites or pesticides, but they are succumbing to at least seven compounding economic and environmental equivalents:

  • Stagnant fees and slowly rising operating costs;
  • Rising regulatory complexities and unfunded reporting obligations;
  • Alluring new treatment modalities that are expensive to launch but generate marginal incremental profits and distract from core business interests;
  • The consolidation of providers within markets, obliging “with us or against us” loyalties and lending a sense of professional isolation if you have not been picked to join the team;
  • The seemingly inexorable shift in control from patients acting as consumers and picking your practice to institutions and their proprietary insurance products owning blocks of patients;
  • Partner-to-partner frictions, as colleagues argue over how to slice up a dwindling pie;
  • And finally, an oppressive sense that all of these trends will be deepening in the years ahead.

These stresses will increase, and as in CCD, combine synergistically. No single stressor can cause your practice to collapse, but several acting together could readily do so.

Gauging your vulnerability

Here are a few sample signs of incipient practice collapse:

  • The management team rarely sets deadlines or sets deadlines but routinely overshoots them.
  • The number of new patients, established patients or both is falling year over year. You should graph the monthly variance in new and established patients, comparing, for example, this month’s established patient count with the number of established patients in the same month of the prior year.
  • Despite efforts to stay afloat, practice owner income is falling year over year.
  • You have no annual budgeting process and are often surprised by unanticipated mid-year expenses.
  • Partners routinely overdraw their accounts and have to hold back future payments or skip disbursements to allow the practice to make payroll.
  • The administrator spends an inordinate amount of time coaxing the doctors to not take funds out of the operating account or pushing off vendors well beyond normal accounts payable time frames.
  • Providers compete with each other to take time off or lighten their schedule, while patient waiting time backs up.
  • Every successive first quarter, classically the weakest in health care services, you have to dip deeper into your line of credit to make ends meet.

What can be done

The most important thing you can do as a practice owner to prevent “practice collapse disorder” is to acknowledge that it could happen to your practice and take steps at prevention. What do these steps include? Here are 10:

1. Get personally involved as the surgeon-owner in the business affairs of your practice. Learn your computer system. Study revenue cycle nuances. Visit more advanced peer practices for lessons on how they are thriving and then copy their success factors.

2. Make sure that your management team is up to contemporary standards. I commonly run into office managers and administrators who lack the financial, regulatory and IT chops to be effective in the current environment.

3. Examine the economic and volume performance details of your practice. You should know by rote the answers to questions such as:

  • At what rate is our revenue growing?
  • What is our profit margin?
  • What percent of our collections do we spend on staffing? Facilities? Marketing?
  • What is our surgical density?
  • Are the above values within normal limits for a practice such as ours?
  • What action should be taken if our stats differ from the norm?

4. If you are sliding toward commercial oblivion, do not just watch in fascination, but take action to reverse course. If you have lost control over your practice’s performance and destiny, draw together a task force of practice leaders to develop an action plan to pull back from the brink.

5. Know what is happening in your market. Meet with local hospital officials and clinic directors. Who is joining up with whom? Do you need to pick sides yet, or can you remain independent and “Swiss?” How soon will the next stage of managed care and utilization oversight come to your market?

6. Develop allies. You do not have to do this alone. You and your administrator should have several peers on speed dial whom you can contact with questions. In the present environment, you should be making one or two site visits a year to colleague practices in non-competing markets.

7. Establish higher and more objective standards for your management team. Be specific. Do not say, “We need to do more with less in our technical department.” Instead say, “We need to reduce the average amount of tech payroll time per patient visit from 1.4 hours to 0.9 hours, while preserving the quality of our work-ups.”

8. Improve control over new patient access. New patients are the feedstock for a vibrant, growing practice. Diversify your source of patients instead of relying on a few key referral sources. Foster and acknowledge greater referral loyalty from existing patients, who are the most important new patient source in most general practices. Dial in enough marketing dollars to be able to meet new patient targets. Keep the cultural focus in your practice on great patient care and caring.

9. Commit to boost your personal productivity. As a fixed-cost enterprise, profit enhancement in ophthalmology is more a matter of revenue growth rather than cost containment. Three additional patients seen a day can generate a six-figure income boost.

10. Scrutinize your personal finances more closely. You may have no control over cataract payment rates in the future or the hourly cost of a front desk clerk, but you have absolute control over lifestyle costs and savings rates.

“For something to collapse, not all systems have to shut down. In most cases, just one system is enough. For example, the human body is a system of systems. If just one system, such as the cardiovascular system, shuts down, death follows.”
— Robert Kiyosaki

In bee-keeping circles, the most worrisome trend is a rise in “colony collapse disorder,” in which a heretofore thriving hive withers and ultimately fails. Scientific consensus is that there is no single cause of CCD but a combination of causes, each working together to leverage the susceptibility of the hive to failure: pesticides, bee mites, environmental decay, immunodeficiencies and the like.

Perhaps something analogous is afoot in ophthalmology, in which an increasing number of practices are distressed and some are failing outright, leading to early retirements, consolidation with larger, stronger competitors or complete shutdowns.

Some 40 years ago, early in my consulting career, most new clients said, “We’re good. We want to be great.” That’s less often the case now, and surgeons more often call saying, “We’re faltering. I’m concerned about our survival as a private, independent practice.”

Modern ophthalmic practices are not plagued by bee mites or pesticides, but they are succumbing to at least seven compounding economic and environmental equivalents:

  • Stagnant fees and slowly rising operating costs;
  • Rising regulatory complexities and unfunded reporting obligations;
  • Alluring new treatment modalities that are expensive to launch but generate marginal incremental profits and distract from core business interests;
  • The consolidation of providers within markets, obliging “with us or against us” loyalties and lending a sense of professional isolation if you have not been picked to join the team;
  • The seemingly inexorable shift in control from patients acting as consumers and picking your practice to institutions and their proprietary insurance products owning blocks of patients;
  • Partner-to-partner frictions, as colleagues argue over how to slice up a dwindling pie;
  • And finally, an oppressive sense that all of these trends will be deepening in the years ahead.

These stresses will increase, and as in CCD, combine synergistically. No single stressor can cause your practice to collapse, but several acting together could readily do so.

Gauging your vulnerability

Here are a few sample signs of incipient practice collapse:

  • The management team rarely sets deadlines or sets deadlines but routinely overshoots them.
  • The number of new patients, established patients or both is falling year over year. You should graph the monthly variance in new and established patients, comparing, for example, this month’s established patient count with the number of established patients in the same month of the prior year.
  • Despite efforts to stay afloat, practice owner income is falling year over year.
  • You have no annual budgeting process and are often surprised by unanticipated mid-year expenses.
  • Partners routinely overdraw their accounts and have to hold back future payments or skip disbursements to allow the practice to make payroll.
  • The administrator spends an inordinate amount of time coaxing the doctors to not take funds out of the operating account or pushing off vendors well beyond normal accounts payable time frames.
  • Providers compete with each other to take time off or lighten their schedule, while patient waiting time backs up.
  • Every successive first quarter, classically the weakest in health care services, you have to dip deeper into your line of credit to make ends meet.

What can be done

The most important thing you can do as a practice owner to prevent “practice collapse disorder” is to acknowledge that it could happen to your practice and take steps at prevention. What do these steps include? Here are 10:

1. Get personally involved as the surgeon-owner in the business affairs of your practice. Learn your computer system. Study revenue cycle nuances. Visit more advanced peer practices for lessons on how they are thriving and then copy their success factors.

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2. Make sure that your management team is up to contemporary standards. I commonly run into office managers and administrators who lack the financial, regulatory and IT chops to be effective in the current environment.

3. Examine the economic and volume performance details of your practice. You should know by rote the answers to questions such as:

  • At what rate is our revenue growing?
  • What is our profit margin?
  • What percent of our collections do we spend on staffing? Facilities? Marketing?
  • What is our surgical density?
  • Are the above values within normal limits for a practice such as ours?
  • What action should be taken if our stats differ from the norm?

4. If you are sliding toward commercial oblivion, do not just watch in fascination, but take action to reverse course. If you have lost control over your practice’s performance and destiny, draw together a task force of practice leaders to develop an action plan to pull back from the brink.

5. Know what is happening in your market. Meet with local hospital officials and clinic directors. Who is joining up with whom? Do you need to pick sides yet, or can you remain independent and “Swiss?” How soon will the next stage of managed care and utilization oversight come to your market?

6. Develop allies. You do not have to do this alone. You and your administrator should have several peers on speed dial whom you can contact with questions. In the present environment, you should be making one or two site visits a year to colleague practices in non-competing markets.

7. Establish higher and more objective standards for your management team. Be specific. Do not say, “We need to do more with less in our technical department.” Instead say, “We need to reduce the average amount of tech payroll time per patient visit from 1.4 hours to 0.9 hours, while preserving the quality of our work-ups.”

8. Improve control over new patient access. New patients are the feedstock for a vibrant, growing practice. Diversify your source of patients instead of relying on a few key referral sources. Foster and acknowledge greater referral loyalty from existing patients, who are the most important new patient source in most general practices. Dial in enough marketing dollars to be able to meet new patient targets. Keep the cultural focus in your practice on great patient care and caring.

9. Commit to boost your personal productivity. As a fixed-cost enterprise, profit enhancement in ophthalmology is more a matter of revenue growth rather than cost containment. Three additional patients seen a day can generate a six-figure income boost.

10. Scrutinize your personal finances more closely. You may have no control over cataract payment rates in the future or the hourly cost of a front desk clerk, but you have absolute control over lifestyle costs and savings rates.