By Michael J. Parshall
Many medical practices are growing in response to local market pressures and driving forces. Adding a new associate may be an excellent business strategy for your practice, but when is the right time for your practice to hire another physician?
To determine if you need a new associate, first focus on your workload and backlog. Review your appointment book to see how many slots are open. Check how far out your new appointments are. Depending on how competitive your market is, if it takes four weeks or longer for a new patient or referring physician to book an appointment, you have a backlog problem and are losing patients.
Check with referrers. If you are not as available as you once were, your reports are not as timely or your level of service is not as good as it might be, you may be losing market share, as these physicians send their patients elsewhere.
If you recently added new payor plans, or if you are considering it, can you handle the existing or expected influx of new health plan enrollees? Are you referring services to doctors in your specialty with special training and skills? Are your practice patient volumes trending up?
Before adding a new associate, consider all of the costs related to hiring and supporting your new physician for the first year.
If you add a new physician, you may need more support personnel, more examination or procedure rooms, or a larger reception area. Is the space available? At what cost? Don’t forget leasehold improvement costs. If the new physician provides services that are new to your practice, you probably will need new equipment. Include quotes from suppliers in your calculations.
Don’t forget to include overhead expenses, payroll taxes and attorney’s fees, as well as expenses related to additional support staff.
Recruiting expenses may include recruiter’s fees, advertisements, transportation and accommodations for candidates, and the costs that accumulate while you look for a new associate, review CVs and interview candidates, rather than seeing patients.
How much will you need to pay a new associate? The typical compensation package starts with base salary. Consider how the following factors affect you:
• If jobs are scarce, candidates are more willing to accept less compensation.
• If candidates are scarce, employers tend to “bid up” the salaries they offer to attract top talent.
• Physicians are attracted to practices on the east or west coast or in the sunbelt.
• Suburban and urban practices draw more candidates than rural practices.
• Certain specialists/subspecialists are fewer in number and tend to offer more expensive services and thus receive higher compensation.
• Board certification or significant prior private practice experience often warrants a higher base salary.
Many practices typically pay physicians incentive compensation for reaching individual revenue goals (i.e., the “productivity bonus”). Smart practices may also reward other performance achievements, such as relationship building, teamwork, practice promotion/development and group financial results.
Most compensation packages include such standard benefits as 4-6 weeks paid time off (for vacation, CME and sick time), health insurance, society dues, hospital staff fees, CME costs, subscriptions, retirement plan contributions (with eligibility) and malpractice insurance. You may want to offer time off and pay expenses associated with board examinations.
Perquisites (perks) may include such items as disability (and other types of) insurance, cell phones and car allowances. Practices recruiting physicians from out of town may also cover the associate’s moving expenses, especially if it helps close the deal.
At this point, you should be able to calculate the costs associated with hiring a new associate.
Determining how many new patient encounters your practice will need to break even will be a helpful part of your analysis. To calculate your “break-even” point, divide your previous year’s total revenues by the total number of patient encounters your practice had to determine average revenue per encounter. Then divide the total costs associated with hiring a new physician by your revenue per encounter. This will tell you how many additional patient encounters that need to be performed, the “break-even” point.
Subtract the annual number of no-shows and canceled appointments your practice is currently experiencing. The remainder is the number of additional encounters that must be generated for the associate’s costs to be covered. If the remainder represents more than 15 percent of the practice’s encounters, then you will probably lose money on the associate unless you can effectively market your practice to attract enough new patients to make up the difference.
If your practice does not really need another physician, but does need more help, you may want to consider hiring a practice administrator to manage your business and finances so physicians who are now doing those tasks can return to doctoring. Or, you may want to consider hiring non-physician clinical personnel, such as a physician assistant, to perform tasks such as taking patient histories, so your physicians can concentrate on practicing medicine.
You should attempt to project the time at which you will be able to afford a new associate, then work back nine to 12 months to determine when to begin your recruiting effort.
Revise your strategic business plan to prepare for the arrival of the new physician. Focus on funding options and develop a timeline detailing each step of the process.
Also remember the subjective issues that you will need consider. Before you begin recruiting, address such matters as whether all your current physicians want another physician in the practice and who will train, mentor and manage him/her.
It is the right time to add a new associate if your practice is:
• Growing and beginning to have trouble handling the current volume of work.
• Experiencing considerable lost-opportunity costs.
• Able to win favorably-termed managed care contracts by offering more hours or services.
• Able to increase its patient base by offering new specialty/subspecialty services.
• Able to invest the time and effort in developing the skills of a new associate.
• Able to fund the shortfall during the time it takes for a new associate to develop new sources of revenue sufficient enough to: pay his or her salary, cover his or her overhead expenses and generate enough revenue to exceed your break-even point and provide increased compensation for established co-owner physicians, as well as earn incentive compensation.
Michael J. Parshall is President of Health Care Managers and Vice President of The Health Care Group, Inc., a national medical practice consulting firm in Plymouth Meeting, Pa.