The business of medicine becomes more challenging each day. Throughout the country, physicians are experiencing organizational changes in the delivery system, reimbursement for demonstrated value rather than quantity of care, enhanced technology, and an ever-changing regulatory environment. Strategic business planning is more important than ever. Here’s our advice on why it’s important and how to do it successfully.
Why bother with strategic business planning?
Imagine building a house without a blueprint or taking a family vacation without a destination. Your practice is no different. Without a formal process to identify your mission, values, goals, projects, timing, barriers, opportunities, and strategies, you are likely to miss good opportunities and make serious and expensive mistakes.
What are the potential benefits of strategic business planning?
A well-structured strategic business planning process can help your practice in both the short and the long term. Let’s start with immediate value. First, strategic business planning provides clear direction, preventing the haphazard occurrence of activities that may actually work against each other. Second, the process offers an opportunity for practice owners, managers, and other workforce members to collaborate in setting the future direction of the practice. Participation in planning enhances the likelihood of successful implementation of agreed upon projects and priorities. Third, it allows the practice to set priorities. Everything can’t be done simultaneously, so consensus on a logical order makes more sense than launching multiple initiatives simultaneously. Fourth, strategic business planning offers the potential for enhanced financial performance. Fifth, clarity of focus can improve the quality of patient care.
In addition to all these short-term benefits, strategic business planning has great long-term value. After it’s done, a practice can use it as the benchmark against which to measure progress in achieving agreed upon goals. New opportunities for program expansion and operational improvement can also be vetted against the plan for consistency.
NEXT PAGE: How does the strategic business planning process work?
The strategic business planning process is straightforward, regardless of whether you are a medical practice or a corner store. Start with an honest assessment of all aspects of your current practice by asking these types of questions of all owners, senior managers, and other workforce members:
- Mission: is your mission statement current, and does it accurately reflect the practice’s direction for the next 5-10 years?
- Values: what’s important to your practice, and do you deliver care, interact with patients and colleagues, and manage your workforce in ways that are consistent with those values?
- Strengths, Weaknesses, Opportunities, and Threats (S.W.O.T.): given your practices, mission and values, in what areas do you excel? Where are you weak? What opportunities and threats to those opportunities do you see?
- Goals: what are the practice’s specific goals with respect to organization and management, financial management, human resources, marketing, information technology, operations, quality initiatives, and compliance? Have the owners and senior managers reached consensus on those goals? Have you made progress toward reaching the goals?
- Projects: within each category listed under goals, what are your major projects, and have you prioritized them? Plans come with a price tag; have you estimated the estimated cost of each project? Do workforce members have the ability and time to accomplish the projects on your list?
- Barriers, Opportunities, and Strategies for Each Project: be honest about the hurdles, opportunities, and ways to get where you want to go. Two barriers that often impede progress are lack of staff time to do a project or lack of internal skill to do something that’s not been done before.
Who should be involved in a strategic business planning process?
We recommend both strong internal involvement and external facilitation by an experienced professional. Internally, greater involvement by owners, senior managers, and other workforce members bodes well for reaching consensus. External facilitation has many advantages over internal facilitation. In any practice there are likely to be differences of opinion, and someone outside the organization with no personal stakes in the outcome can best guide the discussion. An experienced external facilitator can also bring to the table lessons learned from other similar engagements.
What are typical steps in a strategic business planning engagement facilitated by an external consultant?
Assuming your practice has decided to engage an external consultant, begin by clarifying the scope of the consulting engagement. What will you do, what will the consultant do, and what will you do together? Next, collaborate with the consultant to develop a standard list of questions that can be asked of key individuals in face-to-face or telephone interviews. Make a list of important data that needs to be gathered. Following the interviews and information gathering, have the consultant aggregate the responses to the questions, maintaining confidentiality so no opinion is attributed to a specific individual. Schedule an off-site strategic planning retreat (either one half day or an entire day). Following the retreat, have the consultant summarize the results for the practice both in writing and in a face-to-face meeting. Agree to move ahead, making sure to delegate responsibilities to specific individuals and setting reasonable timelines.
What’s the cost of strategic business planning?
The cost for externally facilitated strategic business planning depends on the size of the practice and the number of people who will participate in the process. For example, we spent many more hours working with an eight-physician cardiology practice considering acquisition by a healthcare system than we did with a four-person internal medicine practice wrestling with ways in which to improve access to patient care. The more important question about cost is what’s the cost of not engaging in strategic business planning? It might be far more than what you would pay to have it done!
NEXT PAGE: An example of a strategic plan
We help medical practices start new practices or assess the feasibility of introducing a new program or process into an existing practice. The strategic business planning process is the same in both situations, with the exception of the fact that with start-ups, we’re generally dealing with an individual, not a team of clinical and administrative people.
We strongly advise starting a vision, not with numbers. After you know what you want to do and how you want to do it, add dollar amounts. If the financials look unreasonable, revisit your vision, adjust the numbers, and reiterate the process until you are satisfied with the result.
If we were helping a physician create a strategic business plan for a new practice, we would ask the following questions or request specific information. Everyone’s outcome is different. Some physicians look at the strategic business plan and move ahead. Physicians that need a bank loan take the plan to various lenders. Other physicians decide that the plan and supporting financials are not sustainable.
- Mission: Why are you investigating the feasibility of setting up your own practice? If you decide to go forward, how would you like your practice to look in five – ten years?
- Values: Successful medical practices are value driven. In a few words, what are the personal and professional values that you want to demonstrate in your new practice?
- Goals: What are your goals with respect to the scope of services that you provide, the size of your clinical and administrative team, and the number of locations?
- Legal Issues: What corporate structure will the practice have?
- SWOT: From your perspective, what are the strengths that you bring, your weaknesses, the opportunities, and the threats to opening a new practice in your specialty in the geographic area you have selected?
- Time Frame: What services will you provide at the outset and over time as you grow the practice?
- Anticipated Start Date: When would you like to begin seeing patients in your new practice?
- Depreciation of capital equipment: 5 years (60 months).
- Days revenue outstanding: We will use an average.
- Days payable outstanding: We will use an average.
- Non-Patient Revenue (if any): Will you generate income from teaching, clinical research, or any other sources beside patient revenue?
- Volume of Clinical Services: We will build up the volume of new and existing patient visits over time. Provide your anticipated annual vacation time, time out of the office for professional education, and expected number of holidays.
- Gross Revenue by Type of Service: Given your specialty, we expect that you will provide in-office care and not do procedures at other locations. What E & M codes will you use most frequently? Will you do any testing in the office, and if so, what?
- Payers: Identify the public and private payers with which you will have contracts.
- Special Relationships: Will you participate in an Accountable Care Organization (ACO)?
- No inflation for revenue, given uncertainty of reimbursement environment
- Contractual Allowance and Allowance for Bad Debts: 50% gross revenue
- Accounting: Ask your CPA to estimate the cost for providing assistance at start-up and on an annual basis.
- Advertising and Public Relations: See Marketing
- Billing and Collections (Outsourced): Some practices outsource billing and collection to an external vendor. Are you considering this option? If so, we’ll estimate the annual cost as a percentage of net revenue.
- Books and Subscriptions: Estimate the annual cost for years 1-5.
- Contributions and Public Relations: Estimate the annual cost for years 1-5.
- *Consulting Fees: Items in this category include practice management consultation, IT support, credentialing, and any other consultants that you expect to engage in years 1-5.
- Continuing Medical Education: Estimate the annual cost for years 1-5.
- Capital Equipment: Develop an itemized list and obtain vendor estimates.
- Coverage: Will you share call with another physician?
- Dues for Professional Societies and Hospital Privileges: Identify the professional societies to which you will belong and the annual dues for each; identify the hospitals to which you will admit patients and the annual dues for each. If you belong to an ACO, add the annual dues.
- General Business Liability Insurance: Obtain several estimates of the monthly cost.
- Information Technology: Although you don’t need to select an IT vendor for purposes of strategic business planning, obtain estimates from several companies that you anticipate investigating.
- Lab Fees: if you are doing testing in the office, what are the fees?
- Lab Interfaces: Depending on the E H R vendor that you select, you may need to purchase an interface.
- Legal Services: Ask your attorney to estimate start-up costs and the annual cost for legal services in years 2-4.
- Loan payments and interest: If you borrow money, assume a 5.5% interest rate.
- Maintenance, Repairs, and Cleaning: Estimate the cost/square foot.
- Malpractice Insurance: Estimate the annual cost.
- Marketing, Advertising, and PR: Estimate the cost in year 1 and subsequent years, allowing for creation of your logo, business cards, announcement of your opening, forms, other printed materials and website design. The cost of website programming is a separate item.
- Medical Supplies: Include the initial purchase in capital expenses and estimate a monthly cost going forward.
- Miscellaneous: Add a cushion for unexpected expenses.
- Office Supplies: Estimate the monthly cost.
- Rental/Lease Expenses: Estimate the monthly rent and up-fit cost if there is one.
- Salaries, Wages, and Benefits: Identify the workforce members that you will hire at the outset and over time, and we’ll use salaries from our state survey. If you provide benefits, add 30%.
- Taxes – Payroll - included in salaries/wages/benefits above
- Taxes – Probably none given legal structure of practice
- *Telephone/Telecommunications: Obtain estimates from several companies.
- Travel: included in CME category – none in Year 1 and will be in-state in years 2-5.
- Equipment rental, copiers, postage: Insert monthly cost.
- Depreciation (Building and Equipment): 5 years
- Professional Services: If you will purchase any other professional services, add them here.
- Website: Assuming that the Website has 6-8 pages with a link to a secure patient portal, the cost for building, hosting, domain name, email set-up, and project management is approximately $x,xxx.xx. In subsequent years, the annual cost for hosting and domain is $xxx.xx, and the annual cost for updating Expression Engine (the tool that let’s you update your own website) is $xxx.xx. The annual cost for website updating in years 2-4 is $xxx.xx.
- Patient Portal: There are two options for creating a secure patient portal that allows patients to communicate directly with your practice by selecting a user name and password. One option is to purchase the patient portal from the same vendor from which you purchase your EHR. This is the preferable option because the portal will be integrated with the EHR, and information can easily move from one to the other. A second option is to purchase a portal that is not integrated with the EHR from a company that develops the portal.
- Other Expenses: Some practices offer employee bonuses and tuition support. Add those amounts here if you choose to do so.
- Physician Monthly Draw: $xxx.xx/year