Maybe downsizing is not the answer

Industry experts say to thoroughly evaluate and consider all alternatives before scaling back your practice.

By Zack Tertel, Senior Associate Editor

Are you on the home stretch toward retirement and debating if it’s time to see fewer patients? Has your practice experienced an unexpected drop in revenue and you’re considering cutting staff?

If you’ve answered yes to these questions, you might think the obvious move would be to downsize; the experts will tell you that move might be wrong. The decision to downscale should not be made lightly. Here, industry experts give their opinions on downsizing and recommend potential alternatives.

DECLINING REVENUE

Evaluate the problem first

You might be sensing that your practice’s profitability is trending downward, but that trend should be apparent if you’re regularly combing through your practice’s monthly financial statements, says John Pinto, president of J. Pinto & Associates Inc., an ophthalmic practice management-consulting firm in San Diego.

“Just like in medicine, it’s better to catch these business problems when they’re a sniffle instead of a full-blown flu,” Pinto says.

But even if your problems resemble flu-like symptoms, your first instinct should not be to downsize, says Michael Parshall, a consultant in Schwenksville, Pa. The first step is to determine the underlying causes for these numbers.

“Doctors tend not to think about what is causing this, why they’re not seeing as many patients,” Parshall says.

Where to cut?

If you think cuts need to be made, solo practitioners may find it difficult to pinpoint where, says Mark E. Kropiewnicki, a principal attorney and president, Health Care Law Associates, P.C., and principal consultant and president/treasurer, also with The Health Care Group.

“A lot of solo guys are sort of ‘mom and pop’ operations in the sense that they may have a lot of volume, they may bring in a lot of income, but they already keep the overhead low,” Kropiewnicki says.

To start, some expenses cannot be ignored: Up to 70% of a practice’s expenses are fixed expenses, such as rent, utilities and malpractice insurance, and remain the same regardless of the level of patient flow, Kropiewnicki says.

Even if you voluntarily slow down, you have to produce enough income to cover these expenses. “You can’t go to the landlord and say, ‘I’ve been working five days a week, but I really want to work three and a half now and reduce my rent,’” Kropiewnicki says. “It doesn’t work that way.”

Are staffing levels too high?

Rather than take the time and effort to make processes more efficient, too many practices think adding staff will fix problems, causing staffing levels to unnecessarily balloon, Parshall says. Personnel expenses grow, and the processes remain inefficient.

Before you consider cutting staff, determine where your staffing levels stack up. Many organizations, such as the AAO, provide benchmarking information that allows you to compare your staffing levels with similar practices.

“lf I’m a retina practice, I don’t necessarily want to benchmark myself against a comprehensive ophthalmology practice,” Parshall says. “I have different types of patients and there are ratios that are different. It’s not just number of staff — it’s where they’re working and what type of roles they’re in.”

Once you’ve analyzed similar practices, review your financial statements and staffing level trends to find potential correlations, Parshall says.

“Take a look at how things were run a few years ago,” he says. “Review those ratios you had before, and see why there are differences. Then, you can reduce head count and not lose any throughput, and you can make the business work better.”

While staffing costs are the largest chunk of expenses for most solo practices, cutting key personnel, Kropiewnicki says, can cost the practice money in the long run. A technician, for example, can save the physician a lot of time. If eliminating the technician’s position would cost the practice more than the technician’s salary, it doesn’t make a lot of sense to let her go.

Another example: the office manager. Think twice before dismissing staff who do the nitty gritty work that you do not wish to do: hiring and training new staff, creating schedules, monitoring inventory and performing accounts receivable tasks.

“I hear all the time, ‘I don’t want to be doing this management stuff. Let me practice medicine — that’s where I make my money,’” Kropiewnicki says.

Also, reducing the entire practice’s hours may not work — unless your employees are about your age and willing to work fewer days, Kropiewnicki says. And replacing them with part-timers would require you to train new employees, which might make things more difficult than you’d like.

Staff opinions

When deciding whether to cut staff members, you should seek advice from unlikely sources — other staff members. Staff can be forthcoming when they think changes need to be made, Pinto suggests, and he recommends asking in a setting where they ought to feel safe, such as a one-on-one meeting. They will be more willing to chat.

“I’ll ask open questions such as, ‘Is there anything you would do to manage this practice more effectively if you were the doctor or administrator?’” Pinto says. “Quite often the staff will say, ‘Here’s a person who is not pulling their weight,’ or ‘We have too many people at the front desk.’”

Cutting staff advice

If your analysis leads you down the staff-cutting road, Pinto recommends making all the changes at once. Otherwise, staff members will worry whether they could be next.

“It’s obviously very unsettling if in week one a person leaves and in week two a second person leaves and so on,” Pinto says.

Pinto also recommends that you inform staff as a group immediately after making up your mind. Describe in an appropriate level of detail what has been done, why it has been done and how the team that’s left is the team that’s going to go forward.

While you may anticipate mixed feelings from staff regarding downsizing decisions, Pinto says he’s found that staff morale goes up once a plan is in place and executed. “Quite often, way before doctors, consultants and administrators know that we have too many staff, the staff knows we have too many staff, and they’ve been trying to scurry around and look busy.”

You will likely want to inform some people that the practice has become leaner, but stick to information that is necessary to disclose, for example you are moving to a smaller suite or a doctor who has left was a primary provider. The same applies to informing other doctors of your decision.

“If you have important key referral sources outside of your practice and have been in a financial pinch and had to reduce staffing to some extent, or a key doctor is gone, it may be important to communicate to them, ‘It may take a little longer to get your patients in to see us,’ or whatever is appropriate,” Pinto says.

VOLUNTARY DOWNSIZING

Ease your way into retirement

As some practitioners approach retirement, they may think that downsizing is the best approach. Many baby boomers gradually reduce their patient flow rather than abruptly retire, say those interviewed.

“They’re still healthy, but they don’t want to work as hard,” Kropiewnicki says. “They like what they’re doing and want to keep doing it.”

A client, Kropiewnicki recalls, developed a health issue that prevented him from working a full-time schedule. He was not ready to retire, so he elected to downsize. After slimming down his practice and seeing patients fewer days each week, he realized this wasn’t an effective strategy. As the condition worsened, he decided it was best to sell the practice and retire.

Sell, don’t downsize

Regardless of health, those interviewed believe selling is a better approach for physicians of pre-retirement age. This allows them to still work while taking away the responsibility of running the practice, Kropiewnicki says. They sell to a group and work for a few more years until they retire.

He has a few clients in similar situations. One 60-year-old client in particular recently sold his practice and plans to walk away within six months. Another is selling his practice and plans to practice for five more years, slow down and eventually stop performing surgery along the way. The option of working part-time is not as likely when selling to another solo practitioner, Kropiewnicki says, as a solo practitioner is not as capable of handling the income needs of two ophthalmologists.

“In a group practice, you can bide your time to a much greater degree, knowing that, in the future, that group will hire a younger guy to take your place,” Kropiewnicki says. “But, in the meantime, you can afford to make a decent living… as you slow down.”

Selling philosophy

Another reason not to downsize: If you are contemplating selling or merging your practice at some point, reducing revenues devalues your business, which gives a negative impression to potential buyers, Parshall says.

“The buyer buys based on optimism and based on the fact that tomorrow will be better,” Parshall says. “However, if you have a trend line of revenues that are decreasing year to year, that gets the buyer less excited. It makes them afraid that they’re not going to get their money back, that this is not a good investment. You don’t buy something when you expect its value to fall apart tomorrow. If you start establishing those types of trend lines, you arouse fear within the buyer.”

BUY A CRYSTAL BALL

Expecting the unexpected

Much of running a successful practice is staying on top of all areas of the business. Whether you choose to downsize, retire or sell, continuously monitoring the state of your practice helps ensure there are no surprises.

“You should have a forward-looking sonar installed …. so that you can see problems [from afar],” Pinto says. OM