GROWTH STRATEGIES: Should You Add Services?

February 1, 2006

In this first installment of our new series on strategies for growing your practice, practice management expert Judy Capko describes how to decide whether to add new services without taking undue risk.


Several years ago I performed an operations review for a primary care practice, and in the process I spotted a room full of vitamins and nutrients worth thousands of dollars.

When I asked about this, staff informed that one of the doctors was sold a bill of goods, buying these products a year earlier from a smooth-talking salesperson.

I quickly discovered why these products weren’t moving. The staff was not informed ahead of time and was more than a little irritated about it. With a hefty workload already, they weren’t interested in adding product sales to their daily activities - and they weren’t given any incentive to do so.

This practice had made one of the most common mistakes I see when it comes to adding ancillaries: the physicians failed to properly plan and get staff buy-in before making the investment.

Are you considering adding a new service or product to your practice?

It might be a good idea. These are turbulent times, after all. The costs of running a typical medical practice continues to rise, all the while the squeeze on reimbursement doesn’t seem to be going away. No wonder so many physicians are looking for the cash cow and reaching out for other sources of revenue to keep them afloat. Adding ancillaries may offer the financial cushion you are looking for.

But on the other hand it just might become a money pit. Before you take the leap, make sure you know what you are doing.

Some physicians come up with their own ideas. Others simply want to get on board with the latest trend by doing stress testing, DEXA scans, or adding a sleep lab - you name it. Whatever you do, don’t assume that just because other doctors are doing something - even if a lot of them are - that you should, too. Some of your colleagues’ decisions may turn out to be big mistakes, while others may work fine for them, but would not suit you.

Believe me, I’ve seen it all - from the “build-it-and-they-will-come” attitude to the used-car salesman approach to the practice that simply wasn’t willing to spend enough on the investment of ancillaries to launch the product and reap the rewards.

If you’re thinking of adding an ancillary, save yourself some grief and do it the right way.

Cautiously approach your pursuit to add revenue sources to your practice, so you end up making a smart choice.

In addition to the above point about getting staff buy-in, here are six more tips for adding ancillaries without breaking the bank, while providing financial benefits for years to come:

  • Know yourself. When exploring ways to attract new patients or add new services, think hard about what you really want to do, what would enhance service to your existing patients, and which additional services or products you can endorse. By doing this up-front, you will be more successful at promoting the ancillary to patients, merging it into your existing practice, and in getting crucial staff assistance. If you expect your patients and staff to buy into this new service, you have to be personally committed to it, and not just for the money.

  • Develop your own financial projections. By all means do not rely on the financial forecasts vendors provide on equipment they are selling. Scrutinize the numbers. They may be inflating revenue projections for each procedure and overestimating the number of procedures you’ll likely perform. Even when you have a realistic goal, bringing your numbers up to that goal may take a while, something vendors often fail to factor into their projections. Moreover, it’s not uncommon for those projections to calculate a return on investment (ROI) without considering the costs for labor, added physical facilities, and supplies.

Kim Avery, administrator of Mid-South Pulmonary Specialists, a 12-physician group in Memphis, agrees. “Before we pursued adding CT scans, we knew we would need to crunch our own numbers. It’s a big investment and the vendor is not going to tell you the whole story. We tracked utilization patterns [via the group’s referral data] for two years so that our assumptions would be more accurate. We also recognized the percentage of our cases that were Medicare, limiting our reimbursement.”


  • Do your homework. Conduct research to be sure you are selecting the right ancillary for your practice. Know your competition and find out if there’s enough room in the market for one more player. Know your patients; is the product or service something they want or need?

When you get closer to making a decision, involve the staff. Find out how they feel about adding the particular ancillary, how it will affect their workload, and what it will change about their jobs.

Staffing is a key issue. Avery knew she would need to recruit a well-organized CT technician who would be comfortable working independently and performing more diverse tasks than in a typical radiology center. Yet the practice couldn’t compete with the wages and benefits of hospital. Fortunately, they found just the right candidate.

Marc Wishingrad, MD, a partner in GI Associates of Santa Monica, Calif., said the group’s five physicians worked diligently preparing for the opening of an endoscopy center and hired a project coordinator to see them through. The physicians involved staff with everything from layout to how a procedure room would be equipped.

“The primary motivations for developing our own center were better service, more control, and economics. There was limited availability to accommodate our patients at the hospital or free-standing ambulatory surgery center. Now we can get our patients scheduled faster and meet their needs better,” Dr. Wishingrad said.

GI associates knew its numbers would support opening its own endoscopy center, but planning the finances of such a big venture is another story. Deciding where to turn for a rather large loan and expecting each physician to personally add to the coffers of this investment were major considerations.

  • Know who will use the services. For GI Associates and Mid-South Pulmonary Specialists, adding an ancillary was a matter of better serving their own patients and keeping revenue in-house. When that’s the case, the challenge is establishing processes for informing patients and getting them scheduled. “Six months before we brought the CT scan in-house we developed a plan that included prescheduling follow-up CT scans for our patients,” says Avery. “The scan was scheduled just prior to their next office visit and we were 50 percent booked the day we launched. It worked out well.”

But sometimes plans for new services are more ambitious, especially if you go beyond the typical scope of services for your specialty.

When your new service is intended to draw new patients, you need to know what types of patients the ancillary will attract. For example, providing Botox injections may seem like a no-brainer for adding revenue to the practice, but it would certainly change the patient mix for a typical primary care or OB-GYN practice. The cosmetic patient can be far more demanding. They want superior service and they don’t want to sit in a reception room with a bunch of sick patients. And because cosmetics are considered cash services, you’ll need systems in place to ensure you get paid before the patient leaves the office.

  • Ask yourself the right questions. It’s important to match the practice’s desire and strengths with existing opportunities. Answering these seven questions can guide your decision-making:

  • Is there a demand for the service?

  • Is someone else in the community providing the service?

  • Can I do it better than the competition?

  • How will it impact my current patients and staff?

  • How will if affect my time?

  • Where is the break-even point?

  • How long will it take to meet my market potential?

Even when you get the right answers to these questions, there are always unknowns. Dr. Wishingrad can attest to this. “We now face challenges with some of the payers that don’t want to pay for their patients to go out-of-network for a procedure, and are even questioning the necessity for anesthesia with a colonoscopy. Then, of course, changing regulatory issues are always on the horizon.”

  • Commit yourself fully. Regardless of the ancillary you consider or the direction you want to take the practice, and no matter how much financial sense it seems to make, you are destined to fail unless you make a strong commitment to it. That means more than the requisite investment in time and money. It also means a great deal of patience to wait for results. Even when you’ve made a good decision and rolled out the new procedure properly, the ROI will likely become clear over time, not overnight. It’s important to monitor progress and be flexible enough to adapt to changing circumstances.

You may be faced with unexpected changes that require a shift in direction, or perhaps the need to add more resources to bring the service or product to its greatest potential.

Judy Capko is a healthcare consultant and author of the popular book,

Secrets of the Best Run Practices

. She can be reached at

www.capko.com

or via

editor@physicianspractice.com

.


This article originally appeared in the February 2006 issue of

Physicians Practice

.