Math and Medicine
In this edition of the Practice Pain Relievers, Dr. Neil Baum discusses hard economic truths when it comes to running your own practice. Now that you’ve come to terms with these realities, how do you use them to get the most out of your business?
As healthcare professionals, we doctors are well aware of certain laws of science that we can’t change. The most obvious law of science, of course, is that all humans are mortal. Perhaps equally obvious is that patients need oxygen, nutrition and fluids to survive. In a similar way, in the business of medicine there are immutable laws of math that can’t be changed. Specifically, three mathematical and economic realities have guided me over the years.
Patients come at a cost
The first economic reality is that every new patient comes at a cost. I agree that it is less expensive to keep an existing patient compared to attracting a new patient. However, nearly every practice requires new patients to maintain its viability. Of course, you can wait for word of mouth to attract new patients. However, this approach can take three to five years or longer to accomplish.
Let’s not forget that it took lots of money, many years of education and training, and an abundance of energy to become a doctor. But those alone are not usually enough to succeed in private practice. You can expect it to cost additionally to educate and inform the public about your services. How much should it cost?
The Small Business Administration has a good rule-of-thumb answer: As a general rule, any small business – including healthcare provider groups – with revenues less than $5 million annually should allocate from 7-8 percent of collected revenues to marketing expenses. This budget should be split between 1) costs to promote your practice digitally and in print through a website, blogs, brochures, and so on), and 2) the costs of community marketing such as advertising, sponsorships and hosting special events.
The budget for my own practice is 5 percent of total expenses after physician salaries. For example, let’s say the practice bills $4 million in a year and collects $2 million in revenues. If half the revenues go toward physician compensation, that means 5 percent of the remainder leaves a budget of $50,000 for marketing and practice promotion each year.
The right staff costs (and earns) you more
Economic reality number two: The right staff costs you more. However, the right staff also earns you more. The right staff is well-trained and makes every effort to exceed patients’ expectations. Most practices pay about 17 percent of their total expenses for staff salaries. That’s average.
I find it necessary to pay above the average to attract and maintain an excellent staff. Turnover can be the bane of a successful practice. You can avoid turnover by paying staff above average in your community and then treating the staff as family. For example, if a staff member has a medical problem and can’t see a doctor in a timely fashion, I make a call on behalf of my staff member to the doctor and request an appointment, and then call the staff member at home after the doctor’s appointment to check on their condition. This kind of response makes the employee feel valued and cared for.
You can’t do it all
Economic reality number three: You can’t do it all. We went to school to diagnose and treat medical problems. We don’t have the skills for creating websites, writing blogs, making videos to post on YouTube or acting as human resource directors. We must learn the art of delegating to others, including consultants. It is important to understand that even with our best of intentions, it is not possible to micromanage our practices. It is far better for doctors to practice medicine and leave the marketing, practice promotion and the business aspects to others who do what they do best.
Finally, it is imperative to manage your practice by the numbers as much as possible. For example, it’s not enough to know how many visits your website receives each month. You should also correlate website visits to rate of growth in new patients. Taking that another step further, it is important to know how increases in new patients correlate to procedures that resulted in improvements to the bottom line.
I know that most physicians have a poor opinion of marketing and practice promotion. But ethical marketing is an effective method of educating potential patients and motivating them to become part of your practice. It does require spending money to find out what works and do more of it – and to find out what DOESN’T work and avoid it. Remember, you’re not just a caregiver but a business owner, and business owners cannot avoid risk.
Which brings me to a bonus and fourth economic reality: while science offers many certainties, the price for being your own boss is that there are no guarantees. Yet I have never regretted the freedom and pleasure I’ve experienced in owning my own practice. I can say from personal experience, it’s been worth every risk and the few set-backs I have incurred.