The Nuts and Bolts of Business Planning

Whether you're building your own practice or retooling someone else's, these tips will give you a good foundation.

The Nuts and Bolts of Business Planning
Whether you're building your own practice or retooling someone else's, these tips will give you a good foundation.
Robert J. Noecker, M.D., M.B.A.

Buoyed by clinical decisiveness and surgical skill, and motivated by a desire for independence and financial success, many young ophthalmologists ponder the pros-
pect of starting their own practice.

Whether you're considering a solo venture or a group practice, whether yours will be a completely new practice or an upgrade of an existing facility, there are two certainties among numerous variables. One, an internal business plan is crucial, and two, if it's a sound plan that's implemented with periodic reevaluation, success is inevitable.

Build a Plan

Residencies, fellowships and even experience as an employed physician may provide you with surgical and clinical expertise, but they don't supply the tools a novice ophthalmologist needs to run a viable practice. Because of this, most ophthalmologists tend to join group practices. They're intimidated by the prospect of managing a practice because they realize they're not familiar enough with the business side of medicine.

Although residency training programs are slowly incorporating practice management courses, this type of education is still a minor component of what educators do.

How do you compensate for this lack of business information? Armed with the basic framework of an internal business plan — along with advice and guidance from those entrepreneurial-minded physicians who preceded you into private practice — you can develop an efficient operation.

Don't let the terminology frighten you. Internal business plans come in all shapes and sizes. They can be as simple as a fleshed-out mission statement that defines your practice's philosophy and goals, or as complex as a step-by-step map that plots a course over several years. A more detailed plan may define your vision and mission; analyze the market; pinpoint priorities and objectives; develop a plan of action; and implement changes to the plan based on periodic reevaluation.

What's Your Mission?

When you write a mission statement, think about what you really want to accomplish. I've seen mission statements that position a practice to be "everything to everyone," which completely misses the mark. An effective mission statement is simultaneously simple and broad so you can shift directions, if necessary, without completely veering off course.

For example, the declared mission of one practice may be,"We will provide excellence in glaucoma care." The mission statement of a multispecialty practice may be even more general, striving to "improve the quality of life of patients through vision care." These are very different, but equally effective, examples of mission statements.

Gather Information

Once your mission statement is complete and you're looking for a practice location, the first step should be to assess the market. As a rule of thumb, new general ophthalmology practices should avoid areas with a population less than 10,000 because they may not able to support your practice.

The next step is to evaluate the competitive landscape. Although this task sounds complex, it can be as simple as contacting a sales representative from one of the leading ophthalmology equipment companies and asking some basic questions. These people see it all. They're in ophthalmology offices all over the country, and they know who runs efficient practices and how these practices are run. They know whose patient volume is flagging and who's about to retire, all of which can impact your future in a particular community.

Other ophthalmologists who practice in the area you're considering may not be eager to share information because, of course, they see you as potential competition. But to equipment sales reps you are a potential client, and they have a vested interest in your success. Every bit of information they can provide can help you. 

If all indications suggest your target area has a glut of ophthalmologists in your specialty, you still may be able to pick up patients if 75% of the practitioners in this area are 55 years old or older.

Don't Forget About Insurance

Insurance carriers are another possible source of local information. The medical directors of plans in your desired location probably can tell you if your target area needs another ophthalmologist. On the other hand, they may indicate the area has all the ophthalmologists it needs. This second bit of information can alert you to a potential problem — setting up shop in an area where it will be difficult to join insurance panels.

Remember, to even be considered by an insurance carrier, you need an office address, and it may take as long as 6 months to be accepted as a panel member. These panels are your main connection to eventual cash flow, so you can't do without them for very long. Too often, this is the type of real-world information other risk-taking, entrepreneurial-minded ophthalmologists acquire by the "live-and-learn" method.

Find an Office

Once you decide on a geographic location, zeroing in on your office location plays a major role in executing your practice strategy. Will you open your office in a prime location where rent is at a premium or choose something off the beaten path where rent is lower but patients may have to travel a few extra miles to see you? Will you share an office building with a large internal medicine practice to take advantage of a ready-made patient pool? If you choose the latter, you may be able to leverage the higher rent with the income you realize from patient referrals.

Once you choose a location, you have to decide how to configure your office. Will one exam room be sufficient for a while, or do you expect rapid growth that will necessitate three or four exam rooms within a year? If that's the case, can you live with the idea of one-third of those exam rooms being empty for the first several months you're in practice?

Hiring Help

Staffing decisions will be next on your to-do list. In the start-up period, before you invest in lasers and other big-ticket items, staff salaries and benefits probably will be your highest expense.

During your fellowship you may have had a receptionist, an office manager and numerous technicians at your disposal, but when you first start your own practice, employing more than one or two people is unrealistic.

The Professional Association of Health Care Office Management ( and the Medical Group Management Association ( conduct annual salary surveys. You can use their results to estimate your staffing expenses. Then, you must decide which staff positions are the most important and how you'll add these positions over time.

It's All About Budget

Decisions about office location and staff show that a budget plays a greater role in starting a practice than most of us imagine, mainly because we're not trained to think that way. We're trained to provide high-quality medical care; costs usually are secondary in our training.

Compared with most other medical practices, ophthalmology practices need a lot more start-up income. While an internist can hang up a shingle after buying a chair, an exam table and a stethoscope, we need upwards of $30,000 worth of equipment to perform a basic eye exam.

Making the transition to a dollars-and-cents mentality is difficult but necessary because the first question a banker will ask you when you apply for a capital loan is, "How much money do you need?" To answer this question, you need to know what your ongoing costs will be. You'll need to itemize the costs of rent or mortgage, furnishing, equipment, staff, utilities, clinical and office supplies, business insurance, malpractice premiums, meeting costs and professional society dues.

Set Priorities

A mistake young ophthalmologists often make is taking on too much debt, which leads them to panic. Then they start making bad deals with insurance carriers because they're desperate for patients — and cash flow. Keep in mind, if you agree an insurer will pay only 90% of what Medicare pays, you actually may lose money on those patients.

It's critical to be realistic about your costs and not let them get out of control in the start-up period. The people who get in trouble are those who want the best technology — immediately.

When you're a resident, you have access to all of the newest lasers with all the bells and whistles. Many new ophthalmologists don't want to to forgo buying new technology until their cash flow improves, only to find themselves in a situation where they can't pay their bills. This is is another reason why 99.5% of ophthalmologists coming out of residency and fellowship join group practices.

Make Contacts

Networking is part of marketing, which is an integral part of carrying out your practice mission. But marketing doesn't have to mean expensive television or radio advertisements. It could be something as simple as introducing yourself to the internist down the hall, and swapping a handful of business cards with him or her, or being active in medical societies.

You'll find better opportunities for networking and potential patient referrals in the general medical societies compared with ophthalmic medical societies because general practitioners are not competing for your patients. They are, however, in a position to share your name with their patients, especially if you offer something that your peers do not.

Sometimes the only way to distinguish yourself early in private practice is to be available. If you make yourself available to a general practitioner's conjunctivitis patient at 5 p.m. on a Friday, you can bet that physician will send other patients your way.

Solving other physicians' problems makes you the "go-to" eye doctor and helps build your practice one patient at a time. Similarly, once you earn the trust of that conjunctivitis patient, you soon may be treating her entire family.

Joining hospital emergency room (ER) panels is another way to build your patient base. This may not be what you had in mind when you set out to be the busiest refractive surgeon in town, but the ER may be another source of potential patients.

Maintain Healthy Finances

Doing your homework about the financial end of running an ophthalmology practice is important to crafting a business plan. Too often, physicians think of the financial part of running a practice as a mystery handled by someone else, somewhere else.

Have you ever given any thought to how much you'll actually be reimbursed for an exam or a procedure? When you were a resident or fellow, did you realize there's about a 6-month lag between treating a patient and getting paid? I'd venture to guess not too many residents or fellows do. But the truth is that estimating income and expenditures without that crucial piece of information is an exercise in futility.

Grow and Adapt

No business course or textbook can teach you the real-world lessons you will learn over time. No internal business plan for a start-up ophthalmology practice would be complete without consideration of these practicalities. Crunching the numbers is only helpful if your figures are based on realistic projections and estimates.

Although staying true to your business plan is important, so is periodic reevaluation and modification. How often you reevaluate is a factor of how much the business environment — such as, the economy and your competition — changes.

As a rule of thumb, you should review your business plan annually; however, if you're experiencing a period of rapid growth, you may need to realign your budget and other variables accordingly. 

For instance, if the entire practice comprises you and a front desk employee, and patient volume is increasing more than you projected, an increase in staff may be in order.

The sacrifices necessary to get a start-up ophthalmology practice off the ground are significant, but the upside is that anyone who takes the risk, crafts a practical plan and sticks to it, will be successful sooner or later. You may have only 25 patients the first few months, but if you project patient volume realistically and budget accordingly, you will have already succeeded.

Robert J. Noecker, M.D., M.B.A., is vice chair and director of the glaucoma service at the University of Pittsburgh Medical Center Eye Center, Eye and Ear Institute.