Strategic Planning: How Medical Practices Can Succeed in a Post-Healthcare-Reform World

For years, I was the bad guy. As a negotiator for several large health insurers in the United States, my job was to convince providers to agree to the smallest reimbursement possible for their services, at terms that were largely unfavorable to them. I was good at what I did, and highly unpopular among the physician community, until one day, I had a realization. Why hurt the people we turn to when we’re hurt, when our loved ones are sick, when our children are injured? I realized I was working for the wrong team, so I left the insurance industry and started a consulting firm to help physicians deal with people like me. Today, I am a changed man. I used the knowledge gained while working in the managed care industry to found Fulcrum Strategies, a managed care contracting and medical marketing firm. Since its inception in 2004, Fulcrum Strategies has helped thousands of physicians across the country secure higher reimbursement for their practices. We work every day to provide our physician clients with the support they need and deserve in the ever-changing world of healthcare.

With 25 years of experience in the healthcare industry, inevitably one of the questions I am asked most frequently is why medical groups are failing. Specifically, people want to know why so many physicians are being pressured to sell to hospitals. While there are many factors that can contribute to practice failure and the current wave of physicians becoming hospital employees, I believe the main reason is because medical groups either do not have a strong strategic plan in place, or they simply fail to execute their strategic plan.

What’s scary is that most physicians I speak with do not have any idea what their business is going to look like next year, let alone for the next five years. Every month when they get the financials from their practice administrator, it’s like opening a present on Christmas morning. It may be an iPad2 or it may be pair of socks. No other business that I know of runs like this—with a complete lack of attention to strategic planning and execution. In the book Art of War, Sun Tzu wrote: “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” Unfortunately, this is true of most medical practices. Without a well-defined, researched, and developed strategy, they are just creating the noise before defeat.

One of the biggest obstacles in getting physicians to understand the need for strategic planning is getting them to cross the bridge from day-to-day to strategic thinking. Here’s what I mean: For most people, including physicians, it’s very hard to devote time and energy to something today that may not pay off for a year or more. When I am faced with this obstacle, I always think of a story about Napoleon. During his reign, Napoleon ordered trees to be planted on both sides of every road leading into Paris. He said that he wanted his troops to be able to march to and from battle underneath the shade. Napoleon was challenged by one of the city’s engineers who asked, “Do you know how long it will take for these trees to grow tall enough to cast shade?” To which Napoleon responded, “Of course I do. That is why we must plant them today!”

Outside resources have no preconceived notions and are therefore more objective.

The other story I think of has to do with electronic typewriters. In the 1960s and 1970s, Smith Corona and IBM were two giants in the electronic typewriter industry. IBM accurately predicted the coming wave of personal computers and word processors and shifted its business away from typewriters. Smith Corona did not plan appropriately, keeping its business model the same, and as a result, filed for bankruptcy in 1995.

Once physicians understand the importance of having a strategic plan, the next area of concern is how to get it done. Typically, no one in the practice has the time or experience necessary to complete this process. My advice at this point is to find someone outside of the organization to help. This approach has several advantages. First, outside resources have no preconceived notions and are therefore more objective. In addition, they are not bogged down with the day-to-day, so they can complete a practice review and strategic plan without distraction.

Case Study

The following is an example of a practice evaluation and strategic plan that Fulcrum Strategies created. Although we have changed the names and some of the data to protect the innocent (or the guilty as the case may be), this will still give you a good idea of the value in doing this type of exercise.

Practice Description

The practice is a large oncology group that provides the majority of oncology care in its marketplace. The group has a few small competitors in town but no independent practice anywhere near its size. The main competition comes from a large university system. The group consists of 20 physicians with 10 partners and 10 nonpartners. Most of the physicians use mid-level extenders. The group has an extensive, profitable infusion division as well as a positron emission tomography and computed tomography imaging division, which is very profitable. The partners in the group have experienced several years of increasing incomes, and as such are not very motivated to change. The group implemented a full electronic medical records system last year, and the physicians are still getting used to the new processes that resulted.

Practice Evaluation Findings

• Strengths: The group has a long history of being the dominant oncology group in this market. The physicians are respected, and their patient satisfaction surveys are very good. They provide excellent care and offer the full range of subspecialty care. With its complement of ancillary services (infusion and imaging), the practice offers a “one-stop-shop” environment. The group has a balanced mix of experienced and new physicians.

• Weaknesses: The group carries significant debt with multiple operating loans. Partner income is derived exclusively from ancillary profits in the area of infusion and imaging (Figure 1). Many of the physicians are booked out too far, which is creating a service issue for patients. A local Accountable Care Organization (ACO) is being developed by a large number of primary care physicians, and the group does not have a well-defined strategy outlining how to work in that type of environment.

Figure 1. Physician income by source. PET/CT, positron emission tomography/computed tomography.

• Opportunities: The group is well positioned and has the resources to grow and take greater advantage of its profitable ancillaries and economies of scale. Working with the local primary care ACO in a productive way could secure the referral relationship with these critical practices.

• Threats: With so much income derived from infusion and imaging, the group is at risk if there is a change in the environment that reduces this profit area. The local university system has made moves to put oncologists in community practice settings in the area, which could create competition. The local primary care ACO or local community hospitals could add oncology capability and create competition.

Five-Year Financial Projections

Based on the current financial performance and with some very conservative assumptions of expense and revenue increases, we are projecting a long-term decline in physician incomes if no major changes are made by the group. The projected average physician income is shown in Figure 2.

Figure 2. Projected average physician income.

Evaluation

In reviewing the data and environment for this group, it’s obvious that something strategic needs to be done. Without action, the physicians in this group are facing a long decline in income levels and the business equivalent of a long, slow death. With a good understanding of the status quo and the future, we can now develop a strategic plan to combat the problem of declining physician incomes.

Our strategic plan for this group focuses on three main areas:

1. Operational Efficiency: In reviewing the operations of the group, we found areas where operational efficiencies can be gained. The group has a nursing ratio of 1 to 1 for each doctor. Midlevel providers, however, are not supported with any clinical support and as such are not efficient. We proposed a plan to add medical assistants to each pod. They will assist the nurses in those pods as well as the midlevel providers. This additional staff is paid for through a small increase in midlevel productivity and should actually contribute additional income to the group’s bottom line.

2. Increased Ancillary Income: We also recommended that the group develop an in-house pharmacy for its patients. This endeavor would not only provide an added service for the group’s patients, but it would also provide additional ancillary income to help offset physician income declines.

3. Strategic Expansion: Our last recommendation was for the group to develop a rheumatology division. Adding rheumatologists to the practice helps spread administrative costs over more physicians while also maximizing the profitable infusion services at the group.

These three areas are all focused on improving the group’s efficiency while also taking advantage of the inherent strengths present in the group. When taken in total, the three strategic recommendations could offset the projected physician income decreases as shown in Figure 3.

Figure 3. Physician income with recommended actions. ML, midlevel provider.

The final stage of any strategic planning process is to first gain acceptance of the plan and then execute. Any strategic plan needs to be welcomed by the partners of the practice with full understanding that change is difficult for any organization. The partners also need to understand the cost of failing to change with a changing environment. The question is do you want to be Smith Corona or IBM?

Once the plan is adopted, you need to move quickly into execution. Some of these strategies take a while to implement, which is why you need to get started right away. Many organizations develop excellent strategic plans only to have them sit on a bookshelf and collect dust.

Conclusion

Remember that this is just one example viewed at a very high level. Each group is different, and as such, requires a different strategic plan. One thing that all groups do have in common, however, is a very uncertain and challenging future ahead of them. My professional opinion is that it’s imperative for physicians to act now before it’s too late. Fail to act, and you may find yourself with no other option than to become a hospital employee and hope for the best.

This Classic Article from JMPM first appeared in the Jan/Feb 2013 issue.