Financial strategies for the new economy – Part 1 and Part 2 (Proceedings)

Making your practice more profitable isn't about luck. You don't roll the dice and hope to meet your financial goals for the year. Being profitable is about playing the right hand at the right moment and making changes in your practice that maximize your profitability. So use these seven strategies to ensure your practice will be flush with success.

1. Enhance consistency

Differences in medical philosophies baffle doctors, staff, and clients and can lead to shortcomings in patient care. Say your standard is to perform annual wellness testing on all your senior patients. But only two of four doctors follow the protocol. This puts half your patients at a medical disadvantage. Don't make people guess what you want. Define your standards of care, get them in writing, and use them as a teaching tool to communicate your expectations to doctors and staff. Your goals are to provide high-quality care, nurture lasting client relationships, cultivate happy, productive doctors and staff, and enjoy a fun, profitable practice.

2. Develop a budget

Define your goals for spending and revenue growth. Set revenue and expense goals and then share them with the team members who'll help you achieve them. And don't forget to measure and analyze your performance. Create a systematic approach to reviewing your monthly results, and develop an action plan to respond to problems or opportunities you identify during this review. Search "budgeting basics worksheet" at www.dvm360.com for a tool to get you started.

3. Encourage staff contributions

Every team member at your practice must be knowledgeable about your standards for the sake of consistency and continuity. It's up to you to teach and mentor your team members and communicate your expectations for upholding those standards of care. An effective training program ensures that new team members start off on the right foot and become successful. Regular internal and external CE encourages team members to grow and will net your practice major rewards in the future. Improving staff expertise frees you to focus on other things – like seeing more patients, taking a lunch break or ending the day on time.

4. Monitor and capture charges

Billing clients for all care provided is an opportunity to improve profit without raising fees. Track how often and by how much you're missing charges by completing a Case Review. Pull a random sample of 10 hospitalized cases and 10 outpatient visits for each doctor. Divide the cases among your healthcare team and ask them to compare the medical record of services provided to the client's invoice for services billed. Make a copy of the invoice and write a list at the bottom of the care that was provided for free (either intentionally or unintentionally) and the amount of the usual fee. (See "Case Review Summary", Figure 1 to help you tally the results.) Discuss and identify why the charges were missed. Are the doctors recording charges at the time of treatment – or waiting until later? Are they waiting until discharge to record charges for hospitalized cases? What discounts are doctors giving? Are your team members creating estimates on the fly and underestimating prices? These scenarios lead to missed charges. Once you have an idea of why charges are slipping through the cracks, develop an action plan to improve how your practice charges for care provided.

Case review summary

5. Increase compliance

Send consistent messages to clients with concise, clear, and specific recommendations. Clients should hear the same message from everyone on your team. If your standard is six-month exams for all senior patients, and the doctor and the technician explain that in the exam room but the receptionist says, "See you next year," the client will leave confused. Set compliance targets for the services you perform most often and that are most important to your patients and monitor the results (for a detailed plan on how to do this, see "Hit Your Goals" - Figure 2). Provide timely reminders about important services. Proactively take the lead with your clients by offering to schedule the next appointment at the end of the visit instead of waiting for the client to ask about additional care or other services.

Figure 2 – Hit your goals

Randomly choose 20 outpatient medical records per doctor. Compare the care provided per the medical record to the ideal care outlined in your standards. Identify whether:

The recommended care met your practice's standards.

The patient received the recommended care.

The record noted any recommended care the client declined.

Compile the results and calculate your client compliance rates. If your actual compliance rates are lower than your targets, discuss the results with your team and develop an action plan to improve your success rate.

Example: A three-doctor practice with 4,500 active patients (60% canine, 40% feline) pulled 60 medical records. Thirty of the record samples were canine patients and thirty were feline patients. The hospital's standard of care includes annual fecal exams and annual heartworm testing for all patients. The staff reviewed the record sample for compliance with fecal and heartworm testing. Their results follow.

6. Pay Attention to inventory

Ideally, medical supplies, laboratory costs, and drugs – including preventive medications – will represent about 17 percent of your yearly revenue. And, you'll have $10,000 to $14,000 worth, or about one month's supply, of drugs and medical supplies per doctor on hand at any given time. If your amounts are higher, you have an opportunity to improve your profit. Think lean – but not too lean. You don't want the frustration of continually running out of commonly used items. (See Figure 3 for "Tips to Cut the Weight of Excess Inventory".)

Figure 3 – Tips to cut the weight of excess inventory

Do

• Use turnover as the primary factor for determining the quantity, source, and necessity of all your inventory items. First eliminate items that you haven't ordered in the last year. Then calculate the turnover rate for the remaining items. Count the number of orders you made last year, assuming the amount you ordered was consistent. An inventory turnover of nine to 12 times per year or greater is excellent. A turnover of six to eight times per year is acceptable, providing you price accordingly using a higher markup.

• Create a list of the medications that are essential to practicing high-quality medicine. Use your inventory turnovers as a starting point for what to include on this list. Each doctor will have favorites, and give-and-take is essential. And rest easy you can always make changes later.

• Monitor your markups. Target an average markup of 140 percent to 175 percent.

• Include a $9 to $12 dispensing fee when pricing dispensed medications that you handle (not prepackaged items).

• Try new products, but don't add them to your inventory without eliminating a comparable older product.

Don't

• Put an item in your inventory just because it's a good deal price-wise.

• Purchase increased quantities of an item if doing so will lower your turnover rate below six times per year.

• Let vendor price increases slip by. Make note of current costs and adjust your fees accordingly.

• Accept delayed-payment offers unless you're sure you'll sell or use the item by the time payment is due.

7. Develop an exit strategy

It may be years before you plan to sell part or all of your practice. But the sooner you start planning, the stronger your position when you're ready to sell and the more attractive your practice will be to potential buyers. One veterinarian I've been consulting with isn't planning to sell his practice for years – he's not even close to retirement. But we valued his practice for planning purposes; he wanted to see where he was and identify opportunities to improve the practice so he could be positioned as well as possible when the time comes to sell. So first, plan for profit. A big portion of your practice value is tied to profit, and profitable practices sell for more.

Next, think about who will buy your practice. Will you sell to an associate? Will you sell to an outsider? Will you sell to a corporate entity? The type of buyer you want will impact your exit strategy. If your succession plan includes developing future owners from within your practice, then mentoring for ownership is an important part of your leadership role.

These strategies will help your practice build a solid foundation and stay on track for continued financial success. And with a steady foundation, your house of cards won't come tumbling down. You don't need to gamble to be successful. Instead, make slow, steady, and deliberate steps to save for that rainy day and plan for the future. Do that and you'll have an unbeatable hand.