Practice Economics
Before You Add a New Service
Get a handle of these variables, which determine whether it's a good fit.

To stay competitive within your market,you may want to consider introducing a new service or procedure. But don't act hastily. There's a right and wrong way to make such an important decision.

Many ophthalmology practices will add a new service or procedure by simply buying a new piece of equipment, obtaining additional training -- and then hoping that patients show up. But the business side of medicine is now complicated, and merely offering a new service is no guarantee of success. These days, profit margins are thin, competition is tough, and practice goals are harder to reach.

Smart practices incorporate a strategic plan into the launch of new services. They determine whether a need for the service exists, then assess the feasibility of offering it, and finally, after making the decision to go ahead, develop a focused marketing plan and put it into action.

IS THIS SERVICE NEEDED?

You need to know whether you have enough potential patients within your practice's marketing area to justify developing a specific service.

First, determine the type of patient who requires this service. Then, evaluate the demographics of your marketing area. This information can be obtained from various Internet sites. One of the best ones is www.census.gov. You can also obtain information at www.state.(your state).us.

Evaluate your existing patient base and decide whether many of your patients would benefit from the new service. How about the number of patients you refer to specialists and subspecialists? These figures might show a need for a new service within your own practice.

Once you've decided that the demographics are right for adding the specific new service or procedure you've chosen, assess the potential competition. If you can determine which professional competitors are already offering this service -- or may do so in the future -- you can begin to construct a plan for initiating the service and obtaining the market share you need for it to succeed.

CONDUCT A COST/BENEFIT ANALYSIS

Before making your final decision, you need to be fairly certain that the revenue from a new service will exceed your cost of providing it. Weigh the time and effort you'll use to develop the service and have a realistic idea of what market share you can obtain. Know the cost of any new equipment or extra space you'll require. Less upfront investment means less financial risk.

Consider the impact of the new service on your practice's overhead. Certain costs are fixed, but others are variable and rise in proportion to the number of additional patients seen.

Staff costs are one example of this: A given number of staff members can handle increases in patient load until a certain threshold is reached. Then, a new staff member must be added. Profit estimates for a new service may depend on how close your practice is to reaching this threshold.

Reimbursement is another crucial factor. Find out if Medicare, HMOs and PPOs will cover the service. If not, the fee will be absorbed solely by the patient.

Significant changes may be necessary when adding a new service. You'll need to consider issues such as:

• the financial investment required

• the time needed for planning

• the need for specially trained staff

• the possibility of having to buy a new computer system to handle the increased workload

• the possibility that you'll need to expand your telephone system to handle additional calls.

NEXT MONTH: A MARKETING PLAN

If you've weighed all the factors I've presented, and you still have a new service you're eager to launch, you'll need a winning marketing plan. I'll discuss that in next month's column.

Mark E. Kropiewnicki, J.D., LL.M., is a principal consultant with The Health Care Group, Inc., and a principal and president of Health Care Law Associates, P.C., in Plymouth Meeting, Pa. He regularly advises physicians and practices on their contracting matters and business law obligations. He can be reached at (800) 473-0032.