OBL & ASC Business: Common Operating Pitfalls of Private Practices

[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.