Think like an MBA to make practice profitable

OB/GYN News, March 1, 2003 by Sherry Boschert

SAN FRANCISCO -- Medicine is not a business. It follows a higher standard, and physicians must choose between high-quality medicine and profits. Right?

Wrong. Physicians can offer high-quality medicine and still make a profit, but they have to think like businesspeople to do so, Dr. Neeraj Kohli said at the annual meeting of the American Urogynecologic Society. He condensed what he learned in 2 years in business school earning his master's degree in business administration into the following top-10 tips for physicians.

1. Develop a strategic edge. Differentiate yourself from your competitors. "Find your niche, and do it fast," said Dr. Kohli of Harvard Medical School, Boston.

2. Create a competitive advantage. One way to do this involves promoting product excellence, a strategy employed by companies like Sony and Nike. Another is operational excellence, such as streamlined operations, touted by companies such as FedEx and Wal-Mart. A third is customer intimacy a strategy followed by companies like Nordstrom. For physicians, developing customer intimacy--understanding the needs of your patients--probably is the most effective strategy to retain patients long term, Dr. Kohli said.

3. Know your customer. Perform a customer analysis, otherwise known as a survey of patients. Even if you don't listen to the results, it pays to ask. Patients like being asked what they need; surveys increase patient satisfaction, studies show Because needs change and patients come and go, survey them regularly.

4. Market yourself. Don't do this necessarily to draw new patients but to attract payers, increase revenue, reduce competition, and establish a brand, Dr. Kohli calculated that for every urogynecologic patient who comes to his office, the practice generates $2,500 on average. Spending $5,000 to reach 5,000 patients with a targeted mailing will be profitable even if only 1% of recipients seek out his practice, generating a 10-fold return on the investment.

5. Do a business analysis at regular intervals. Financial accounting is crucial to success. The key variables to study are primary revenues, office expenses, methods of controlling expenses, and ancillary revenues. "When you have an hour of time, is it more profitable for you to see a patient, do administrative work, do a legal review, or do clinical studies? It will depend on your ability and your efficiency," he said.

6. Base decisions about your practice on quantitative factors, not just qualitative ones. Before you decide to bring in a partner or hire a nurse-practitioner, you should know how much surgery you do, how much office work you do, etc. Use a spreadsheet to allow modeling, forecasting, and reevaluation using best, worst, and normal-case scenarios.

7. Use activity-based costing. With the help of an accountant, use this approach to determine your allocation of resources and revenue generation. Don't be emotional or locked into stereotypes. Some physicians feel compelled to do surgery, but if they're losing money on surgeries it may make sense to bring in a surgical partner to maximize efficiency.

8. Design your organization to fit your strategic vision. Physicians must act as managers using ancillary medical providers to lower the cost of caring for patients. No one in your office should be working above or below their capacities.

9. Establish an integrated team approach. Show leadership and establish rewards consistent with practice goals. In negotiations, always be first to make a proposal and know when to walk away from an offer by comparing it with other opportunities.

10. Manage change. With any type of practice change, lead strongly to pull your team through it and continually reassess the costs and benefits of the change.