The coronavirus reinforced the importance of always planning for the next crisis.
As this article goes to press, we are all deeply fatigued by the coronavirus and its impact. However, these events are a powerful reminder of what practices, large and small, should be doing all the time: planning, planning, planning.
One of us, Corinne, started her career in hospital administration, an environment in which half the job is planning ahead for the worst-case scenario. Based on that, our current battle with COVID-19 and our more than 75 years combined of dealing with crises large and small, we present a few ways to adjust to and mitigate the present environment.
ACCESS TO CAPITAL
Practices don’t go out of business because of a temporary drop in customers, loss of a building or illness of the doctor. Practices only go out of business when there are not enough capital resources to ride out a crisis.
As of this writing, the present crisis will be of unknown duration. But before the pandemic broke out, good financial hygiene meant having at least 3 months of operating expenses (before MD-owner compensation) at the ready. By the time this crisis is over, 6 months of operating expenses or more may be deemed the prudent backstop.
This capital takes many forms but includes recoverable A/R, cash on hand in working bank accounts, lines of credit and, of course, the personal wealth and borrowing power of the owner MDs themselves.
If your capital access falls short of these standards, do what you can to make more capital available — or redouble the energy you apply to cost-containment efforts.
Most practices have been growing steadily through the years, some doubling in size in a decade or less. Such reliable, year-over-year growth is wonderful, of course, but it doesn’t afford the MD entrepreneur with the lessons from periodic contractions that most other business owners experience.
In the present environment it has become necessary to get as good at sharply downsizing as upsizing. The most prudent practice owners and administrators (and their advisors) always have a staged downsizing plan in mind and on paper. Without too much effort, you can do the same thing for your practice even though we are mid-crisis.
- Step 1. Write down three possible trajectories for your practice over the balance of this year: the worst-case, best-case and expected-case scenarios.
- Step 2. For each of these scenarios, make a forecast of what your revenue and expenses are likely to be.
- Step 3. Under the expected-case and worst-case scenario (especially), list how you might improve your circumstances. Unfortun-ately, most of these improvements will likely fall under the category of cost containment. This is regrettable, because most practice expenses are fixed and painful to reduce.
Just as there are many ways to boost revenue when your practice is growing, there are many ways of containing costs if your practice is undergoing a period of contraction. Here are some cost containment tactics (as you review your own expenses line-by-line, you will find more):
- Review payroll expenses compared to industry benchmark norms (see more details below)
- Review and renegotiate contracts (eg, office and medical supplies, equipment maintenance agreements, corporate insurance products, facilities services, answering services, etc.)
- Re-evaluate the need and/or timing of capital equipment purchases
- Evaluate policies and procedures throughout the practice with the goal of streamlining the staff time they take and ultimately reduce staff hours.
We commonly think of lay staffing costs as the highest practice expense, but in most settings, it is actually physician compensation. If the practice’s providers are also its owners, this is the first place to look when trying to accommodate falling revenue. In times such as these, it is common for owners to forego some or all of their paychecks and even contribute their personal funds to keep the practice operating. (This is why practice owners, like practices themselves, should have well over 3 months personal living expenses on hand.)
Turning to lay staffing costs, which are the largest non-owner cost of doing business, we have both practical and ethical challenges. It is never pleasant to terminate employment of even the worst performing staffer. But, when you have to trim hours or dismiss high-performing staff because there isn’t enough work, it is very painful.
Most practices experiencing a temporary downsizing phase — as we all hope is the case with the coronavirus — will most commonly trim hours rather than positions. This will allow the practice to retain staff after the crisis passes.
In good times and bad, staffing levels are indexed to patient volumes. The table below shows typical ratios.
|DEPARTMENT||TYPICAL STANDARDS IN A GENERAL OPHTHALMOLOGY PRACTICE|
|Techs/scribes/testing||+/-1.0 tech payroll hours per patient|
|Reception/phone/records||+/-0.5 clerk payroll hours per patient|
|Billing/patient accounts||+/-0.3 biller payroll hours per transaction (adding up both clinical and surgical encounters)|
Imagine a practice that has five techs and 865 patient visits per month. As you can see from the table above, most general practices need about 1.0 tech hours per patient visit. If this same practice fell from 865 patient visits to 520 visits, tech FTEs should then drop from five to three.
You could do this by reducing entire positions, reducing hours across the board or reducing staffing unevenly by retaining more hours for the most critical workers.
Depending on how deeply the national economy is impacted, you may also have to consider other cuts, including:
- Reduced staff benefits
- Reduced hourly wages
- Closing less productive satellites
- Reducing the hours of associate providers
- Re-negotiating facility and equipment leases
- Sharing office facilities with compatible outside providers
- Paring down utility costs
- Deferring maintenance
- Substituting high quality medical and office supplies with lower cost items of acceptable quality
It now seems likely that practice volumes and revenue will soften for a longer period and may extend well beyond the acute pandemic. If fewer patients access your services, you must attempt (within the boundaries of appropriate utilization rates) to increase the number of services each patient purchases.
In the relaxed, prosperous years leading up to the pandemic, even otherwise well-run practices have been less than vigilant about their testing and treatment patterns. Examine YAG rates, paid refraction rates and special testing rates against national norms. Look at the surgical density of your practice and your criteria for recommending cataract surgery.
Finally, orbit your billing department closely. For many years, with falling fees, it has been critical for practices to be paid as close as possible to 100% of allowable fees — this is more important now than ever. OM