Plan On A Business Plan

May 15, 2002

Why and how to develop a business plan

The rise of managed care over the past decade or so has caused physicians and others to consider the need for better fiscal management. One common strategy is the creation of a sound business plan, a belt-tightening basic that most MDs have mastered -- right? Well ... read on.

Actually, only about one-third of all medical groups have a business plan, states Dick Hansen, a principal with the Medical Group Management Association (MGMA) Health Care Consulting Group in Englewood, Colo. That means most physicians are missing a big opportunity to improve upon the way they run their businesses.

 "If you are a leader in your group, no matter how small it is, and you are dealing with a changing environment, you should do a plan," says Cathy Romano, founder of Marina Del Ray, Calif.-based CM Romano & Associates and veteran senior manager of multiple systems and groups. "If your group is interested in growth, you should do a plan, no ifs, ands or buts. But, even if you just want to maintain the status quo, you need to look at what's changing to ensure that you are prepared to keep going."

In other words, there's no getting around it. Every group should take a close look at itself and form a business plan. Some will be able to use this document to seek capital, but most groups will simply benefit from stepping back and getting consensus on what needs to be done to continue practicing medicine.

Why do it

"Writing a business plan gets you to focus; it gets you to confront yourself," explains Peter D. Lucash, author of Medical Practice Business Plan Workbook.

In today's medical world, that's reason enough to go through the exercise. "The margins of management error have dramatically decreased," Lucash points out. With low reimbursement and high expenses, even a small management misstep can mean a fiscal mess.

Regardless, there are still plenty of physician groups working under the misconception that if they practice good medicine, they'll do just fine, reports Darrell Schryver, managing principal with the MGMA Health Care Consulting Group.

"Creating a business plan forces you to see things differently; it is a 'disciplinary process,'" Lucash says, a way to focus on the business principles that also need a physician's attention in the current environment.

Moreover, a business plan is crucial if you foresee any need for large amounts of capital -- if, say, you will be building an ambulatory surgical center or other capital-intensive ancillary. Potential capital lenders "understand business; they want to see business plans," Schryver says. "The days of Dr. Jones going and getting a million-dollar line of credit are over." 

Start it up

Motivated now? Here's how to get started. Schryver, who regularly works with groups writing business plans, suggests reviewing all of your group's strengths, weaknesses, and opportunities.

Similarly, Hansen suggests asking yourself a few key questions: What's happening in our area of practice? What are our goals? How will we get there? "Too many groups think a business plan is a budget. It's not," Hansen says.

Nor is it about just one initiative, Schryver insists: "I like to see a business plan that incorporates all aspects of the group."

When forming a plan, look three to five years out and decide what you are going to do to keep or improve on your strengths, eliminate your weaknesses, and capitalize on your opportunities. Also, ask, "What is it you want to achieve very specifically, as relates to your strategic initiatives? Take each initiative and actually put some meat on it," Schryver says.


As you do so, ascertain the real reasons behind each initiative. Not everything has to be financially motivated. When working with groups who plan mergers, for example, Schryver says he usually first hears about how good the move will be for economies of scale and the like. But, when he presses, he finds out that what is often even more important to the physicians involved is providing better care, being able to do utilization reviews, or having more hands to cover call duty. Groups should acknowledge such softer goals to make sure their plans will bring them what they want.

Future shock

Also, as you form your plan, remember to think ahead. Hansen warns that, with an increasing number of physicians retiring early, many groups -- especially specialty groups -- will confront sudden physician shortages. In fact, 38 percent of physicians 50 years old and older plan to retire in the next three years, according to Merritt, Hawkins and Associates, a Texas-based physician recruitment firm.

Don't expect the ebb and flow of federal and state regulations to stop in the next few years, either. "People have to figure out how to manage everything flowing down from the government -- how to not panic, but manage," Hansen says.

Schryver forecasts continuing -- and worsening -- problems with coding and reimbursement.

In addition to looking ahead, look around. Make sure you get input from everyone in the group. Although it may be difficult to actually write a plan with direct input from more than 10 people, you can send questionnaires to get comments from others.

Hansen states that results to questionnaires he sends are sometimes more revealing than the public discussion of goals -- in other words, respondents are more likely to be frank.

And though it's obvious that all physician partners should be included, it's also worthwhile to seek insights from management and administrative staff -- the people who are familiar with the underbelly of the practice.

"Let's face it, sometimes our leaders are out of touch with what's going on inside our organizations," Romano points out.

Getting buy-in early from the group is key. A plan should not be simply developed by the CEO, approved by the board, and handed down from on high.

"I remember when I wasn't the CEO, and a document would come out of the blue," laughs Romano, who started her career as a medical records clerk. "You don't want to be surprised by people later on saying, 'We're not going to do this.'"

Set concrete goals

Getting everyone's approval is one way to ensure a business plan is more than a fancy document. Setting concrete, specific goals is another.

Romano too often sees business plans that say things like, "We will get involved in disease management." Not everyone interprets such broad goals the same way, she observes. "What does that mean to a manager who has to operationalize?" she says. "Does it mean that you'll have done two disease-management studies by the end of the year? Five studies? Or does it mean that you'll call in an expert or two to talk over how you might get started?"

Rather than leave goals open for analysis, set outcomes you can measure. You also should make accountability part of the business plan. Specify what you want to achieve and then say who is going to do it.


"You need to have the right person in place to do the job," Romano says. This person not only needs sufficient time and resources but also the right skills and mindset to get the job done.

Meeting business plan objectives can even be part of an annual review or incentive process. Still, it might prove impossible to meet a goal, but at least the group will have closure if some individual is accountable.

"Sometimes there are things in a plan that are just not doable," Romano comments -- and that's OK, as long you know why. "You don't want a great idea to die on the vine, though, just because no one followed up." 

Pamela L. Moore can be reached at pmoore@physicianspractice.com.

This article originally appeared in the May/June 2002 issue of Physicians Practice.