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OBL & ASC Business: Common Operating Pitfalls of Private Practices
Zachary Schmitz • Updated Jan 30, 2024 • 71 hits
Private OBLs and ASCs can be risky ventures, and are subject to a number of business challenges. Common pitfalls include finding and keeping referrals, a lack of awareness of political, financial, and business pressures associated with independent practice, and administrative hiring. Teri Yates, CEO of Accountable Physician Advisors, shares unique insight into the specific reasons why OBLs and ASCs can fail, and provides approachable solutions for the private practice physician to help ensure that your startup practice is successful.
This article features transcripts for the BackTable Podcast. We’ve provided the highlight reel here, and you can listen to the full podcast below.
The BackTable Brief
• Comprehensive research is crucial for understanding patient referral sources, especially after leaving a hospital environment, including awareness of potential political pressures and the impact of not being in hospital referral systems.
• Practices often underestimate the amount of capital required to start and operate a practice. Detailed revenue models and a thorough understanding of all expenses is key.
• Physicians should commit approximately 10% of their weekly schedule to managing the business aspect of their practice, such as financials and decision-making, to ensure the success of their OBL or ASC.
• Utilizing flow charts and data visualization tools like Power BI provide a clearer understanding of the billing process and aids in the identification of problem areas. A detailed assessment of each step in the revenue cycle, from patient scheduling and registration to claim submission and payment processing helps pinpoint inefficiencies.
Table of Contents
(1) The Top 3 Reasons that OBLs & ASCs Fail
(2) How To Manage Revenue Effectively In Your OBL / ASC
The Top 3 Reasons that OBLs & ASCs Fail
Teri starts by sharing her top three reasons that OBLs or ASCs fail: (1) lack of due diligence, (2) getting into the project without proper financial planning, and (3) neglecting the necessary time commitment to operate the business side of the practice. Reliable referral sources and detailed revenue modeling are key to maintaining financial viability. It’s no secret that many physicians prefer the medical aspect of their practice over the business aspect. However, Teri asserts that private practice physicians should be spending approximately 10% of their regular operating hours on the business side of the practice. To address these challenges, Teri’s firm begins with a feasibility study, and guides startup physicians through the process of sharpening their business plan and developing their pro forma.
[Dr. Aaron Fritts]
I want to kind of jump into that to some of these challenges that you've seen over the years that docs-- the trouble they can get into and how maybe you've helped them get out of trouble. Without naming practices, obviously, we want to pull out some of these problems that people have had and learn from them. You've probably seen many practices go sideways. I think that would be a high yield for us to hear about. Let's start with this. What are the top three reasons that you've seen OBLs or ASCs fail?
[Teri Yates]
Well, the first thing I have to say, knock on wood, is that none of our clients have failed yet. In the 10 years that we've been doing this, we've worked with over 70 practices, including 25 practices that have an OBL or an ASC. Everything I'm going to tell you is based on what I've observed in the marketplace that isn't directly involved with our clients, and also things I've seen our clients do that could take them to that brink of failure if they don't turn it around, right? The first qualifier I should give you is, is that of the de novo OBL or ASC projects we've been involved in, where we're starting it from scratch, a third of them don't get past the feasibility study phase because we do our homework at the front end to help the physician understand if it's going to be success.
Our goal is never to take someone's money to help them fail. Sometimes the answer is, "You shouldn't do this," but once you get past that point, there certainly are pitfalls that anybody can experience. This is true in your OBL, it's true in a private practice. I mean, an OBL is just a place to do procedures. The best way to have a successful OBL is to have a successful private medical practice as the foundation. There's a lot of things that can go wrong. Some of the top things are not performing enough due diligence, getting into the project without really understanding where the referrals are going to come to, and if you're leaving a hospital, what are going to be the political pressures that could stop your patients from following you? Some of it is structural, right?
It's as easy as people are used to you being in the drop-down list for a referral in Epic, and if you are no longer part of the system, you're out, you're off the list. Understanding where your referrals are going to come to. Another thing that is very important is having an evidence-based pro forma developed. You need to not only have a very detailed revenue model created, but also really understand all of the expenses that go into running one of these, so you have a realistic projection, not only of how much money you're going to make in the long term, but how much capital you need to get the thing going in the first place. That's really important. People sometimes do undercapitalize because they may know all the things they have to buy and what those things are going to cost, but not really be thinking through how much money they have in the bank just to pay the staff until payments from insurance companies start flowing in. That's particularly risky if you overbuild and you don't start small with your practice. Now, the other thing that will really make one of these businesses struggle is if the owner does not understand and is not prepared to commit the right amount of time to running the business. You are becoming a business owner, you're running a small business.
I tell my clients, rule of thumb, you need to be willing to put in about 10% of your time, four hours a week, into managing your business, answering questions, or giving permission for projects to your staff, looking at your data, understanding your financials. That's hard because all of you like to practice medicine, and there are some physicians who enjoy the business side of things, but an awful lot of them don't. Procedures are your video game, surgeries are your video game, that's what I always say. I think, really, you have to commit in your mind that you're going to spend that time to run the business.
[Dr. Aaron Fritts]
The three, if I can rephrase them, is docs not doing their due diligence, really not understanding, hey, where are these patients going to come from? Having a solid, at least a plan for a referral base set up, right? Number two is having an evidence-based pro forma, knowing what you're-- have an idea of what your expenses are going to look like, a realistic projection of what the revenue's going to look like, what procedures you're going to be doing, all those things. Then, number three is committing some time, at least 10% per week into the actual business, not just focusing on patient care and the procedures.
…Let's talk a little bit about navigating this thing. Let's say you have a doc come to you, and maybe this has happened, because it sounds like you guys are doing your due diligence on your side to make sure that these docs are equipped to, before you even sign on to take them on as a client, you want to make sure that they've checked these boxes. What happens maybe if they're not prepared to do this? What is your advice to them?
[Teri Yates]
Well, first of all, we do that for them. It's a collaborative process. For example, as Krishna is our example that you mentioned, he hired us and we guided him through this process of developing his pro forma, helped him understand the questions that we needed to ask. You don't have to do that alone, first of all. We're very reluctant to take on projects where somebody is skipping that step. We have had a couple of doctors come to us that really did, you know, they had an MBA and they-- when we looked at their business plan and we looked at their pro forma, we said, "You've done this right. Let's just skip this step and get right to it," but we always try to start with a feasibility study. That's a good point where you can take a pause afterward and say, "Is this a go or no go?," and then move forward with the rest of the project.
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How To Manage Revenue Effectively In Your OBL / ASC
Revenue management is another challenge that startup physicians can often overlook. Interpreting revenue cycles involves headaches with insurance companies and complex mathematical models. To simplify the process for doctors, presenting the revenue cycle visually is the easiest way to communicate problems with billing at a practice. This allows for breaking down the revenue cycle into individual steps, showing gaps in the process, which finally opens an avenue for fixing faulty steps in the revenue cycle. In addition to visual presentations, extracting raw billing data into a visualization tool such as Power BI can provide clarity and help in finding the rights and wrongs of a revenue cycle.
[Dr. Aaron Fritts]
I'd like to hear more about how you educate docs about this, because the whole concept of revenue cycle management, right, what it is and how can we learn more about it? How do you suggest docs learn more about it so it doesn't all fall on you as the advisor?
[Teri Yates]
Yes, well, revenue cycle management is tough. If you'd asked me at the beginning of my journey, "Are you going to own a billing company?," I would have laughed at you because working with insurance companies is miserable. The reason we got into it is because it's a problem with all of our clients. It took us a while, but we were helping people and trying to improve things, but it didn't seem to matter if they were doing it themselves or they had an outside company. It was just always a problem. For me, I think the easiest way to teach a doctor about the revenue cycle is to show things to them visually, because it's a very complicated process.
If I do an assessment on an existing practice that has problems in billing, I'll have a flow chart of every step in this relay that starts at your front desk when they schedule the patient and they register the patient and continues through your documentation and your note and the claim submission process, the whole thing. I just put a flow chart together and show the physician each step in the process so I can say to them, "Okay, step three is where you're having a problem in your practice, and step six is where you're having a problem in your practice." That's the first thing, is break it down so people can understand it.
Then the other thing is it's an ongoing education process. If I'm involved in billing, because sometimes we're just doing assessment, right? If we're involved in billing, you have to also present the data to the physicians in the USA Today format, so that they can see it. Billing reports that come out of these systems are terrible for identifying trends. They're very difficult to understand and make sense of unless this is all you do all day long. We suggest to people, and we do this for our own clients, that whenever possible, you extract the raw data out of the billing system and put it into a data visualization tool like Power BI that you can use to make a lot clearer picture of whether things are going in the wrong direction or right direction, and use this as a tool to drill down and actually fix the places that are wrong.
[Dr. Aaron Fritts]
What's your makeup of customers or clients that are starting a practice de novo versus an established practice?
[Teri Yates]
I haven't counted that, but I guess it's about half and half.
[Dr. Aaron Fritts]
Yes, about half and half, okay.
Podcast Contributors
Teri Yates
Teri Yates is the CEO of Accountable Physician Advisors.
Dr. Aaron Fritts
Dr. Aaron Fritts is a Co-Founder of BackTable and a practicing interventional radiologist in Dallas, Texas.
Cite This Podcast
BackTable, LLC (Producer). (2023, September 18). Ep. 366 – Navigating OBL & ASC Business: Pitfalls to Avoid [Audio podcast]. Retrieved from https://www.backtable.com
Disclaimer: The Materials available on BackTable.com are for informational and educational purposes only and are not a substitute for the professional judgment of a healthcare professional in diagnosing and treating patients. The opinions expressed by participants of the BackTable Podcast belong solely to the participants, and do not necessarily reflect the views of BackTable.