Love risks? Then plan for them

With an adjustable annual budget, visited often and altered if needed, a calculated risk can still be a thrill.

By Robert Calandra, Contributing Editor

For Georgia Eye Partners, 2014 was “the year of living dangerously.”

No, the Atlanta-area-based practice didn’t endure 12 months of political turmoil as did those in the 1983 movie.

Still, it was “the year of living dangerously,” says Gene Gabianelli, MD, because the group added two offices, invested in electronic medical records — and bought a new laser for its aesthetics center. At one time.

Opening two offices in an era of tight profit margins qualifies as intrepid. But two offices plus two other pricey investments?

“When I look around at our market, there are very few practices that would do both in the same year,” says Dr. Gabianelli, Georgia Eye Partner’s managing partner. “I would say that the real big decisions — adding offices, buying offices — you can make the argument that you should do only one of those a year.”

Raising eyebrows

Chances are, a generation ago Georgia Eye Practice’s concurrent upgrades would have raised nary an eyebrow. Then, it wasn’t uncommon for practices to have a profit margin of 60%, so such purchases might have been termed savvy.

Not today. Expenditures vacuum up 70% of the average practice’s income, says management consultant John Pinto, based in San Diego, Calif.

So how does a practice like Georgia Eye Partners flirt with risk and thrive? By creating, then following a strategic plan that calls for building an adjustable budget that is faithfully visited throughout the year.

“Today, because things are different, we have a much more fragile operating environment with narrower profit margins and a turn-on-the-dime world,” Mr. Pinto says. “We need to look at the numbers much more frequently. Even the most stable and robust practices should do a first-half-of-the-year review looking into the second half.”

Learning how to benchmark

In the past 16 years, Georgia Eye Partners has grown from one doctor — Dr. Gabianelli — to 105 employees, including 15 ophthalmologists and optometrists. But it wasn’t until recently that the practice, due to growth, initiated a formal budget process.

“In the last five years, we have indeed had a budgeting process where we look at last year’s actual budget and make a budget for the next year,” Dr. Gabianelli says. “When we get halfway through the year we do a forecast and see how we’re doing compared to our budget.”

The budget process starts by benchmarking the practice’s numbers against other similarly sized groups, locally and nationwide. “To do this right you have to think about how your practice sets up against the benchmarks,” Dr. Gabianelli says. “That is something we are very conscious of.”

Simply put, benchmarking is knowing your business inside and out. How much money are you bringing in? What is your overhead? How do this year’s numbers compare to last year, and how does your practice stack up against other practices?

But benchmarking is more than a three-step process: If X is revenue and Y is overhead, then Z is profit. Simple, yes, but as many as 50 benchmark data points exist for the typical practice: the core benchmarks are staffing, office rent, supplies, technology and malpractice insurance.

“Benchmarking provides another input to budget development,” says Robert E. Wiggins, Jr., MD, senior secretary for ophthalmic practice at the American Academy of Ophthalmology who practices at Asheville Eye Associates in North Carolina. “Practices can use specific benchmarks from the Academy’s financial benchmarking and salary surveys to obtain statistics from comparable practices as a factor to help them budget what should be collected and spent annually.”

The next benchmarking step is making a year-to-year comparison. There probably will be some variance — salaries could have increased one year to the next, the practice may have paid 13 months of rent this year as opposed to 11 months last year. But overall, how do things stack up? Are expenses in line with last year? Is something out of kilter?

With no significant changes — if you didn’t hire or fire staff, expand to a new office, or buy new equipment — you shouldn’t see much variation. The important thing is to plug the small holes before the dam breaks.

Prioritizing, executing — and rolling

A budget plan isn’t just about numbers; it’s also about vision. Practices need to ask if they are prioritizing their goals and services as they are specified in the plan, and whether reality matches the plan’s desired effect.

“For example, do we have adequate resources in terms of equipment and everything we need for the practice?” Mr. Pinto says. “Do we have the staff and training to carry out the practice’s mission? The best managers and boards are rolling through that check all the time.”

Scott Bullock, Georgia Eye Partners’ CEO, regularly rolls through his practice’s budget. Every month Mr. Bullock compares actual budget numbers against projections. And every July he sits down with Dr. Gabianelli to do a semi-annual budget review.

A good budget, Mr. Bullock says, is based on assumptions. It tries to anticipate what might be coming next. For instance, last year the practice budgeted for “a lot of new things” — like expanding the number of offices and adopting new technologies.

“Now we evaluate,” Mr. Bullock says. “Were we correct? Was it what we thought it was going to be? Are we doing what we should have done? Are the numbers coming in as we thought they would? The possible solutions always involve money.”

If projections to actual budget or benchmarks are off — and surprise, that sometimes happens — the duo examines each area to look for a red flag. For instance, are the doctors producing what was expected? If not, why not? Are they spending too much or too little on marketing? Is it a staffing issue? Is it an equipment upgrade issue? “Usually, after you figure out where the areas of improvement are needed, it starts to tell a story of what the possible solutions are to that problem,” Mr. Bullock says.

A common tale

“We’re getting ready to do our second half retool of the budget based upon the first half numbers just to see what has happened,” Mr. Bullock says.

What has happened is the usual: Overtime issues.

“That has been the common problem that we have found,” Dr. Gabianelli says. “So even when we have tried to do the budgeting process as well as possible, it is hard to really know exactly how many people we are going to need. “We seem to continue to exceed by a little bit by what our revenue projections are. Yet our challenges for our staff-costs outstrip what we predicted by more.”

Rather than lay off employees, the budgeting duo have studied ways to cover the hours. First, the practice added Saturday morning hours. And, office managers were instructed to examine overtime use.

What they found: “One employee can help another employee so that they won’t have to do overtime,” Dr. Gabianelli explains.

But that meant overlapping shifts. The practice began balancing the technical staff’s arrival and departure times. Each manager and doctor now review their team’s overtime expenses every two weeks and provide Bullock with suggestions for scheduling changes.

The plan went into effect in January. Over the last three months overtime dropped 10% to 15% each month — the amount spent on overtime has fallen 30%, first quarter to second quarter.

Block and tackle

The practice is also saving money by maximizing its resources. That means keeping patient schedules booked and ensuring the operating room scheduler knows when doctors go on vacation.

“We have instituted some measures to make sure that all the doctors, including the partners, really have a well-thought-out vacation schedule so we are not surprising our administrators on a surgery day and we’re not there,” Dr. Gabianelli says. “That is the basic blocking and tackling of business.”

But some budget issues are just unforeseeable. Take, for instance, cash flow. If a glitch in the system causes monthly receipts to slow down, or worse, stop completely, it can result in huge budget problems, including missing a loan payment or payroll.

“We can be doing everything right but if the insurance company is having problems we need to make sure we have enough of a credit line available to maybe subsidize payroll and keep our vendors up to date so they keep shipping to us,” Mr. Bullock says.

Having that credit line is vital for a growing practice like Georgia Eye Partners. To expand, a practice floats loans to pay for office space, equipment and staffing. Bullock has to balance current operating expenses against the monthly principle and interest payments on loans, and still have money left over to pay salaries — all based on budget projections.

“You have to have a good credit line open just in case the monthly reimbursement, the monthly cash flow coming from collections, slows down, which is a major concern,” he says. “We find maybe two or three hiccups each year. Either Medicare has some changes, or one of our private big payers has a problem with processing.”

All that gets taken into consideration during the practice’s semiannual budget review. And while a six-month review allows a practice to identify and fix small problems before they become costly issues, becoming the groundwork for the next budget, Pinto says that it isn’t enough in today’s world of tighter profit margins.

“This isn’t like a game of football where you assess at halftime how are we doing,” he says. “This is much more moment by moment. If it is a new drug being tried on a patient or a new management tactic tried on a business, it’s not ‘just do it and walk away.’ You have to continually monitor and make sure it’s working.” OM