How to make disciplined decisions.

Among the consolidation of practices through private equity and acquisition, advances in technology, and a dramatically changing third-party payer landscape, there is no shortage of disruption in today’s ophthalmic marketplace. This turbulence has placed great pressure on practices, which need to determine how best to react. A successful response involves an honest assessment of two key questions:

1. Is our practice’s current model sustainable for the future?
2. If not, what are we going to do about it?

The reality is the situation for each practice is unique. Answering these key questions is not a simple, cookie-cutter exercise, especially for organizations that are not committed to a regular strategic planning process. Practices that take a disciplined approach to assessing the future of their organization know that new business opportunities are created during times of change. The specific opportunity for each practice will differ, but some common options include adding new service lines, acquiring or merging with another practice, adding sub-specialists or partnering with a strategic buyer.

KEY CONSIDERATIONS

Before moving forward with any new opportunity, organizations will need to address specific strategic, operational and financial considerations. A formal, analytical approach for these considerations is crucial to success. Unfortunately, many practices skip important steps in this process, rely on gut feel or fail to involve the organization’s key stakeholders, such as physicians, administrators, staff and professional advisors. Below, I provide tips on how to manage these key factors.

Strategic considerations. This might sound overly simplistic, but addressing the strategic considerations of any new opportunity must always be the first step in assessing any new business opportunity. Looking at the operational and financial issues first is pointless if key strategic questions have not been addressed upfront, such as:

• How will this opportunity create differentiation from our competitors?
• What impact will it have on our long-term succession plan for providers and the practice?
• Are we in a financial position to take on the new opportunity?
• Does our current patient demographics support the new opportunity?

Starting with these “must-answer” questions allows an organization to take an objective viewpoint when determining if the opportunity is even feasible. When a disciplined process is used early to address the practicality of new opportunities, tackling the key operational and financial considerations becomes a much easier task.

Operational considerations. Assuming you have addressed the key strategic considerations, the next step is to address what type of impact the opportunity will have on practice operations and, even more specifically, what type of infrastructure is needed to be successful. This step involves a careful review of current provider capacity, staffing needs, potential equipment purchases, IT needs and physical space limitations:

• What capital expenditures are needed (i.e., diagnostic testing and exam room equipment or perhaps a retina drug inventory management system)?
• How many new technicians, billers and insurance verification staff must be hired to support the expected patient volume?
• How will you market the new provider to your current patients, referral partners and the community?
• What impact will the new physician have on physical space capacity and patient flow?

These are just several of the many operational considerations that apply to this example. However, the same types of questions can be asked for any opportunity, such as integrating a new service line or acquiring a competitive practice in the community.

Financial considerations. Once the operational considerations have been addressed, the last step is to address the financial impact of the opportunity. There are multiple ways to label this phase, such as a break-even analysis or a business forecast, but the objective is the same. The goal is to project the potential revenue and expenses associated with the new opportunity and forecast the impact to the practice’s bottom line.

Projecting the anticipated cost for the new venture should be done easily, since the “heavy lifting” was done in the operational assessment. Anticipating volume and revenue can be challenging, though. In those cases, it’s helpful to use internal practice data, the Medicare fee schedule and industry benchmarks or to network with colleagues who have gone through similar situations. While this will never be a perfect science, a general tip when evaluating new project feasibility is to be conservative and underestimate revenue and overestimate costs. Performing this type of analysis is not a one-time process. Successful organizations regularly update assumptions when performing feasibility assessments.

WHY MANY NEW BUSINESS OPPORTUNITIES FAIL

Unfortunately, the reality is that many of these types of projects or ventures do not wind up being successful. As mentioned throughout this article, one of the main reasons that opportunity-based projects fail is because of lack of planning, usually due to trying to “short cut” steps in the process or relying on emotion/gut feel to make decisions. However, the main reason for failure is an inability to execute. More specifically, there is a lack of buy-in from all key stakeholders, including physicians, administrators, staff and, arguably most importantly, patients. When this happens, an organization’s ability to be successful is greatly diminished. Another common reason for failure is insufficient communication or staff training on the new opportunity.

WHAT SUCCESSFUL PRACTICES DO DIFFERENTLY

Practices that succeed in taking advantage of perceived opportunities are those committed to a disciplined process. This starts with a physician and staff leadership team that works together and begins the process by addressing strategic implications first, rather than quickly jumping to the operational and financial considerations. When this happens, it is that much easier to approach new opportunities in an objective and systematic way. OM

Andrew Maller is a senior consultant with BSM Consulting, located in Scottsdale, Ariz. Specializing in medical practice financial management and business valuations, he assists in the development of a wide variety of practical practice management tools and resources for BSM clients. Email him at amaller@bsmconsulting.com.