At least once a month our firm is contacted by a physician looking to become a “vein doc” and start a new practice. Others contact us looking to open a satellite office, often 20 – 2000 miles away from their current location. This article will cover the necessary steps that I would recommend physicians follow prior to making a commitment to open a new or additional office.
The long list of tasks to accomplish when starting a medical practice can be overwhelming to anyone, especially for a physician who is simultaneously maintaining their current practice, planning a satellite office, moving to a new state or raising a family.
Do Your Market Research
Before entering a new service area, take time to conduct proper due diligence regarding the financial and clinical feasibility of this initiative. Such a process provides assurance to both yourself, as well as your bank, that the market exists and can be successfully developed to establish a new vein practice. Before signing a real estate lease and developing an architectural space plan, attention needs to be directed towards developing a strategic business plan with stated financial and clinical goals and objectives.
A new vein practice requires administration and physician management to plan for success. It is recommended that the detailed planning stage be initiated as early as possible. The market research and development of a strategic plan is often completed by a practice management professional. The first step in the essential planning process is to conduct Market Research. The Strategic Business Plan should include the development and analysis of the following components:
- Define the reasons and expectations of a new vein practice;
- SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) of existing vein practices;
- Demographic Analysis of target market;
- Analysis of potential referral physicians;
- Desired space plan of new facility;
- Financial Pro-forma outlining expected revenues and expenses; and
- Time line from start to completion
Pro-Forma Financial Statements
Since a start-up vein practice has no historical financial information, most banks will require a (3) year Pro-Forma. A Pro-Forma looks at the best case, worst case and most likely financial scenarios for your new vein practice. The use of an Excel spreadsheet is ideal for this analysis. Other relevant financial information outlined below may be required by your bank to look at the financial stability of your current practice.
- Net Income (Profit and Loss) Statement
By reviewing your current practice’s profit or loss statements, banks or investors can identify profitable revenue centers and unprofitable costs drivers. An analysis to identify gross profits is vital. Other non-cash expenses (i.e., depreciation, amortization and deferred taxes) are then deducted from revenues to determine overall net income. All is included in the income statement.
- Cash Flow Statement
The Statement of Cash Flow projects estimated cash flows by month, quarter and year, along with the anticipated timing of cash receipts and disbursements. The practice’s bills and contractual obligations are paid out of cash flow, not net income. A Statement of Cash Flow is very important for accrual based accounting practices, especially in terms of Medicare, commercial and other reimbursement models producing insurance payment time delays. Cash flow reflects the internal generation of funds available to supply operating capital.
- Balance Sheet
The Balance Sheet forecasts the financial condition, assets and liabilities, of your current medical practice at a singular point in time. The Balance Sheet projects the practice’s ability to meet financial obligations and the capacity to absorb financial setbacks without becoming insolvent.
If the required financial statements are to be prepared by your accountant without the assistance of a practice management professional, it is recommended that the accountant be one that is experienced in business matters, as well as healthcare.
When considering the opening of a new or satellite medical office, the largest expense item, outside of capital equipment, is usually the construction costs incurred to build-out a vein specific practice with larger treatment rooms than required by a primary care office. If the build-out cost is financed by a loan to be repaid over 3 to 5 years, the amortization of the loan and the interest will also represent a large part of your recurring costs. It is critical that you assess the impact your build-out cost will have on both your short and long-term financial objectives, and that you don’t construct a facility so large that it will zap the profitability of your current practice.
Finding a location for your new office can be a daunting task. With numerous choices available in today’s economy, choosing the right location at the right price with the right terms should be left to the professionals who know how to not only negotiate the terms but are also highly trained to watch for loop holes and pit falls that often disrupt the process.
Assuming you prefer the practice of medicine to weekly sightseeing excursions to survey the real estate market, utilize the services of a practice management professional or a commercial real estate broker to identify 2 to 3 sites for your new vein practice. These professionals understand medical requirements, healthcare construction, staff and patient parking needs and local zoning ordinances. Your final choices should include an analysis of each site containing information on traffic counts, building photos, proximity to competitive vein practices and details on real estate leases, rent abatement, and/or purchase options. Experience is the key.
Design Elements In A Space Plan
Patient Management Style. A physician’s patient management style is determined by their personality, the way they were trained, and how they prefer to practice medicine. Identify your patient management style and then design your practice to fit your comfort level. Think about how your time is consumed while seeing patients and whether this time is:
- Time consumed by functions only the physician can perform;
- Time consumed for no productive benefit, such as not having a patient ready to see; or
- Time consumed by functions that could be delegated to a staff member.
Staffing. Staffing is a touchy subject in a vein practice. Practice management articles have been written about the correct number of staff, how overhead must be managed, and how staff salary is most likely the highest line item making up your practice’s overhead. But at the same time, if a vein physician does not have staff available to whom they can delegate tasks, they will have to perform those tasks, causing their patient volume to drop and revenue to suffer.
When trying to determine whether or not additional staff member is needed, look not just at an increase in overhead, but also look at what staff could do to your practice’s revenue by allowing the physician or sclerotherapy nurse to be more productive and see more patients. Remember, the only line of your financial statement that truly matters is Net Income. The focus of your staffing model is to put the right staff in the right positions. The staff’s number one priority is to always have the next patient ready to see.
Patient Flow. Patient flow seems simple … allow patients to feel comfortable and understand the flow of your office, ensuring their ability to self-exit so the staff and physicians are not needed to guide the patient back to the waiting room. This is much simpler said than done, but when good patient flow is achieved, it can be a huge benefit both in terms of time savings and increased production of the physician and staff.
Office Layout. This is often the first thing practices look at. But without first determining the physician’s patient management style and how he/she likes to practice, how many staff will be required, and the protocols that guide staff, it is impossible to determine the correct amount and layout of office space needed. The patient per hour rate of the physician determines the square footage and office design needed.
For instance, the physician that delegates what he/she can to staff, uses scribes in a consultation to note the chart, and sees 25 to 35 new patient consultations per month will need more space than the physician that does not delegate well and only sees 10 new patient consultations per month. The style of the physician determines the way the spaces get allocated and arranged. For instance, do you like to mix your consultation, laser, sclerotherapy and ultrasound follow-up patients during the same clinical day and therefore need additional exam and procedure rooms? Or do you schedule procedure-only days?
Office Size. The next consideration is size. Does the physician need a private office? Does the office manager? What is the size needed for your laser rooms? Sclero rooms? Ultrasound rooms? Business office? Supply room? Staff break room? # of patient and staff bathrooms? A functional, efficient office layout plays a vital role in improving the delivery of health care. With careful thought and a well-executed plan, your new facility will do just that.
Choosing A Contractor. Choosing a General Contractor (GC) to handle your build-out can be a very pleasant or draining experience. “Cheap but never on schedule” vs. “beautiful work but prices to match” seem to be the norm. GC’s are given a set of prints to work from and if the prints are wrong or drawn incorrectly in any respect, the favorite two words in any contractors vocabulary comes up “CHANGE ORDER”. This is when the client gets to pay three, four, five or more times the value of something that should have been correct the first time.
Before you begin your project, meet at length with the architect and GC together to discuss the scope of the project. Make it clear to both parties that your business plan and pro-forma requires the project to be completed on time, on budget, and without any change orders.
Insurance Credentialing. Now that the build-out is underway, it is time to focus on the business and clinical aspects of the practice start-up that need to be completed once the building is complete. Once you have signed a real estate lease securing a permanent office address and have a working telephone number, the insurance credentialing process may begin. Depending upon your market, this process may take 4-6 months and last longer than the build-out.
Medical Equipment and Office Furniture. Whether it’s the boom lighting in your treatment rooms or the magazine racks and what magazines you provide in the waiting room, each piece of furniture in your office reflects how you think and how you want to be perceived by patients and others.
Marketing. A marketing plan for a vein practice is a strategy that is designed to facilitate the achievement of specific growth goals. It is not simply scheduling an occasional free vein screening or patient event. It is an overall strategy that encompasses advertising, media relations / PR, physician referrals, patient referrals, as well as patient events (free screenings, PCP lunch n learns, community education seminars, etc.).
To be effective, your marketing plan must be S.M.A.R.T:
S – Specific: What do you want to accomplish?
M – Measurable: How will you measure success?
A – Attainable: Are your goals achievable?
R – Realistic: Unrealistic goals are never met!
T – Timely: What is your timeline for completion?
A successful vein practice does not happen by itself. Your vein marketing plan is much like a flower garden; it must be nurtured, weeded, replanted and watered before you can enjoy the benefits of new business growth!
Success is not achieved by ignoring your vein competitors but rather by anticipating competitive issues and influences so that you can always have a proactive plan and strategy for staying ahead of your competition. There are many ways to compile research on your competition.
- Internet Research. With today’s Internet availability, access to information has never been better or easier. For the primary competitors in your market, a simple Google search with the name of the practice or the name of the physician(s) and that will usually lead you to their website. In many cases, their website will feature how they are attempting to position and differentiate themselves, as well as listing the scope of programs, services and/or products they offer. In addition to a competitor’s website, you may also find other interesting information about the provider(s) or the practice. This information might include articles they have authored, media interviews, etc.
- Media Research. There are many ways you can study your local media to get additional competitive information. You can scan and collect competitive advertising from local newspaper ads, direct mail, TV commercials, radio commercials, billboards or other media. When you pay more attention, you will also begin to notice any articles, publicity or other public relations exposure that your competitors may achieve in the media.
SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats). SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. A periodic evaluation of your internal and external environment is an important part of the strategic planning process. Strengths and Weaknesses are the internal evaluation components of the SWOT. Opportunities and Threats comprise the external evaluation. One of the more interesting definitions of marketing is that “Marketing is the process by which resources are brought to bear against opportunities and threats.” In order to determine which resources you can bring to bear against opportunities and threats, you have to understand your strengths and weaknesses.
Strengths are your capabilities and resources that can be used as the basis for developing a competitive advantage.
Strengths could include…
- your special expertise and/or clinical training (ACP)
- a new, innovative product or service
- location of your practice(s)
- any other aspect of your medical practice that adds value to your product or service.
Weaknesses include areas you need to improve and/or avoid. Weaknesses can sometimes be considered as the absence of certain strengths. In some cases, a weakness may actually be the flip side of one of your strengths.
Weaknesses could include…
- lack of marketing expertise, plan or system (or all three)
- undifferentiated products or services (i.e. in relation to your competitors)
- location of your practice
- poor clinical quality goods or services
- damaged reputation
In addition to new or significant trends or other opportunities you may already know, additional opportunities can spring up based on your external environment analysis.
Opportunities could include…
- a developing market (such as the Internet)
- a new technology, service or procedure you can offer
- mergers, joint ventures or strategic alliances
- moving into new market segments that offer improved profits
- a market vacated by an ineffective competitor
- change(s) in population profile, social patterns, lifestyle changes, etc.
A threat could be anything that stands in the way of your success. No practice is immune to threats, but too many practice owners miss or ignore these threats, often at great cost.
Threats could include…
- a new competitor in your service area
- price wars (Sclerotherapy) with competitors
- a competitor has a new, innovative product or service
- competitors have superior access to PCP referrals
- economic slowdown
- changing insurance plans and/or contracts for major area employers