Protect yourself from the “Silent Money Killer.”
The biggest threat to your savings and practice assets is inflation. Consider this: If inflation is 4% over three years, then your $1,000 of savings is now worth only $880 in relative purchasing power. Another example of value loss with market inflation of the U.S. dollar is when your $1 million practice may sell for this price but the value after these three years of inflation of the same rate is now relatively only $880,000.
We can’t control, avoid or easily get ahead of this erosive economic indicator of inflation. You’re stuck, so it’s time to tighten the belt in your practice and find other ways to secure and preserve your current value over time.
A SHORT HISTORY OF THE U.S. CENTRAL BANK
To John D. Rockefeller, Jr., and others in America’s richest 1%, the panic of the 1907 financial crisis made one thing crystal-clear: If the banks failed, their savings and company’s value would be severely compromised. They viewed the crisis as a wakeup call to be proactive. As a result, a select team of private bankers met to outline a plan that would best protect the elite’s future. The result was the recognition of the need for a central federal bank to back the private ones. This new entity would strive to control inflation and combat failure of the private banks.
And so the United States Congress established the Federal Reserve bank (the Fed) in December 1913. The institution was a last resort to protect the private banks with liquidity in times of economic crisis. Additionally, its mission has included conducting the nation’s monetary policy to maintain a stable dollar, promote full employment and moderate long-term interest rates.
ESTABLISH YOUR OWN “FED”
As a medical practice, your core business is delivery of eye care. This is your widget. However, with growth your practice evolves into a business and a shifting economic landscape will affect it. Though your thriving core practice still exists within, you should take steps to protect the business. The financial security necessary to continue growth and delivery of care is dependent on this.
In short, your practice needs a core “Fed” to stabilize it for the long haul. Here are some examples of things to consider.
COLLECTION OF THAT LAST NICKEL
Your practice has established systems to bill and collect. However, it is the last 5% of insurance or patient receivables that have the greatest value. It is pure profit. It should become a focus to increase this remaining portion of your receivables.
Some crucial steps we have implemented are calculating and collecting a patient’s deductible prior to visits, procedures and surgeries. Finding the staff and computer programs — and creating the time — you need to understand and collect this amount before delivery of services drastically reduces your patient receivables, especially for surgical procedures.
Another possibility: Some practices store a patient’s credit card and offer a consent to bill balances, as a convenience for patients.
EVERYTHING IS NEGOTIABLE … UNTIL IT’S NOT
Pull those vendor and insurance contracts out of the drawer and shop. You will be surprised at the impact renegotiating could have on expenses and collections with minimal effort on your part.
Our EHR contract became quickly out of line with market in the third year of a five-year deal. After getting other quotes, we renegotiated with our current company and signed a new contract for four years at market. Our leverage was staying two years at current rates and then definitely leaving or correcting costs to market, and our practice would stick with the company another four years. The result was a huge savings for our practice, and the EHR company gained significant loyalty from us for engaging in this conversation.
Insurance companies are huge businesses and rigid in their terms. We tend to only think in terms of defense in getting claims paid. But, try an offensive strategy and you may find they blink, even budge some, in their position. It is worth trying in order to increase your billable fees. Granted, the process is slow and somewhat painful, but even a 2% increase in across-the-board current fees adds up quickly. And why wouldn’t fees match cost of living or inflation rates? Sometimes a consultant can assist with negotiations or providing market research to attain a new asking amount.
A VENDOR COULD EASE THE COST OF GROWTH
A growing practice can kink your cash flow even when you know you are heading in the optimal direction. Lean on a significant vendor to partner in this burden. Negotiate with your local representative to increase the time for accounts receivable from 30 days to 90 or 180 days.
When we added surgical rooms to the OR, we incurred major costs for the buildout and equipment. I negotiated with a vendor with whom we spend over $1 million each year to allow bills to be paid in a six-month cycle, without interest for the first year. This let me borrow less from the bank and put these interest-free dollars to use.
At the end of the year, insurance collections had stabilized, and cash flow corrected. Ultimately, this vendor will benefit by selling me more goods to supply the busier center. Establishing this partnership to ease growth of the surgical center was a win on both sides.
Similarly, reach out for a meeting with your local bank representative. It is not ideal to borrow money when interest rates are high, but randomly working with companies when you buy equipment or expand is more expensive. Instead, establish a relationship and let the rep understand your goals for growth. Start with one you currently keep accounts with.
Their understanding of your practice will allow them to offer products specific to your needs, hopefully avoiding high interest rates. It is a two-way street. Your keeping up to date on market loan and credit line rates may give you options or incentives as your practice grows.
LISTEN FROM WITHIN
Talk to your staff — and then listen to them. The “street” can give you valuable feedback. A billing member reported to me — only because she was asked — that she was spending hours on the phone trying to get paid by a specific insurance company that typically either denied payment or paid only 50% of Medicare rates. Since this company was only 3% of the practice income and taking 40% of an employee’s time, we decided to drop this insurance and two others like it. You have to sort through a lot of noise to get real information to impact change, but dedicating time toward this quest pays.
GIVE YOUR OWN FED THE REINS
Set this core business model focused on value, and let it guide you while building a team that encourages growth independent of your practice of eye care. Ultimately, this will protect the practice as outside economic pressures or policy changes impact the business.
A strategy to balance risk of inflation will keep you a step ahead some days and less behind other days. OM