Cover Story - September 2009
Tex Med. 2009;105(9):10-14.
By Crystal Conde
In March 2008, Carlos E. Diaz, MD, optimistically opened the doors at Diaz Vision Center, PA. Shortly thereafter, he began hearing rumblings of a credit crunch. It wasn't long before he felt the repercussions of the economic recession that now plagues the country. To keep his fledgling ophthalmology practice in Boerne up and running, he's had to obtain additional funding.
Dr. Diaz's first exposure to the tough economy occurred six months after opening. Because the practice wasn't growing at the pace he'd hoped, he needed additional funds to cover operating costs and opened a line of credit. This year, he realized he needed $60,000 to $100,000 for cash flow purposes and to purchase needed equipment, so he refinanced the line of credit and consolidated it with other loans.
After a year-and-a-half of being in business, Dr. Diaz sees about 25 patients each day but says that when his practice is in full swing he expects to see 35 patients daily. In addition, he has had to delay buying additional equipment, has added Lasik procedures to the services he offers to generate new revenue, and has held off on hiring new staff members.
He's not alone. Texas Medical Association practice consultants have witnessed similar trends in helping physician clients acquire funding. They say physicians are postponing the purchase of specialized or high-dollar equipment to escape the expense of starting up a practice. In addition, some lending institutions are asking physicians to anticipate lower-than-expected starting salaries and to develop formal business plans that detail their training, experience, marketing plan, competitors, and referral sources.
And, TMA practice consultants say, securing bank loans and credit takes about twice as long as it did last year, a situation Dr. Diaz has experienced.
"Taking out a line of credit takes longer now. Even the banks I had relationships with asked for two or three years worth of tax returns, bank statements, and receipts. In the past, they requested I fill out a one-page application and submit last year's tax return. The process used to take a few days; now it takes two to three months," he said.
Banks are scrutinizing loan requests more stringently in the economic downturn, according to Mike Moskovitz, vice president of health care lending at SNB Bank of Austin, which specializes in health care lending. To obtain a loan right now, Mr. Moskovitz says physicians would ideally have a high credit score and a clean credit history.
"We're evaluating risk a lot more strongly," he said. "Doctors have to provide a personal financial statement that shows us all the assets they own and all the liabilities they're responsible for. In addition, we pull a credit history on the borrower and match that with the personal financial statement to make sure all the information is there."
Finding a lending institution to meet the financial needs of a medical practice during economic uncertainty is no easy task, but TMA Practice Consulting can help by referring physicians to banks, helping them develop business plans, and providing other essential services. (See " TMA Helps Physicians Find Funding .") In addition, Mr. Moskovitz, who has a three-year working relationship with TMA Practice Consulting and is a former medical practice administrator, has compiled advice to keep practices alive and kicking during an economic recession. (See " Economic Survival Tips for Physicians' Practices .")
Dr. Diaz says TMA Practice Consulting was invaluable in helping him attain the funding he needed to get his practice off the ground. Moving forward, he plans to increase his patient volume through marketing and word of mouth. He says his plans to buy more equipment and add new staff members will have to wait until at least early next year or until the economy has improved.
Flying Solo in a Downturn
Becoming an entrepreneur, Brent Spencer, MD, started looking into opening a new dermatology practice in Frisco earlier this year. He didn't know what to expect as a young physician venturing into a career as a solo practitioner. His previous exposure to borrowing money had been limited to personal finances.
In his pursuit of a loan, Dr. Spencer says, the rigorous process surprised him.
"Although I was prepared, the application process was stringent. The banks went over everything with a fine-tooth comb," he said.
According to Mr. Moskovitz, while loan requests remain steady, start-up practices have declined due to the economy.
"If a physician has been with a group practice for many years and has thought about going out alone, that doctor may wait a while because of the state of the economy," he said.
According to Mr. Moskovitz, the average loan associated with establishing a practice is $250,000. The amount varies based on the cost of necessary equipment and the extent of the finish-out for office spaces. He says $250,000 might get a pediatric practice off the ground, but a cardiology practice, for example, would likely need at least twice that amount due to the cost of equipment alone.
"Once I found out I'd been approved for the loan, it was a big moment of relief. There are funds out there to be obtained if physicians are careful in how they apply and do their paperwork properly," Dr. Spencer said.
TMA practice consultants say it's common right now for many lending institutions to offer only Small Business Administration (SBA) loans for which physicians must make a down payment. For instance, a physician wishing to borrow $300,000 to purchase office space would have to pay $30,000 out of pocket, an amount out of reach for most physicians just completing residency or fellowship.
But Mr. Moskovitz says physicians who hope to set up medical practices this year should consider how much of their own money they're willing to put into the project. He also suggests that within the first nine months to a year in practice, physicians consider sacrificing a little of their salary for the sake of the business. For instance, a doctor might earn only $200,000 the first year in solo practice, forgoing the $250,000 salary he or she could make starting out in a group setting.
"Another area where doctors tend to fail in start-up is not having a solid, concrete marketing plan," he said. "They think people will just show up. Physicians opening practices need to meet the referring doctors in the area, get involved in the community, and advertise in local publications."
Notwithstanding the economic challenges Dr. Diaz endured in starting his ophthalmology practice, he says the experience was rewarding and fulfilling. He encourages other physicians to do the same, but he warns they should be prepared to weather the economy.
"I think physicians should continue to plan on opening practices or expanding, but they need to be very cautious and make sure they analyze everything. They need to have backup plans in place because there are no safety nets out there right now," he said. "I don't regret opening a new practice. I have never been so satisfied in my practice of medicine, even with all the hard work it has taken."
Physicians Feel Financial Sting
Despite the negative effects of a bad economy on physician practices, the health care industry as a whole is faring well so far. The Bureau of Labor Statistics reports that employment has declined in nearly all major industries this year, with health care proving the exception. In June, the health care sector added 21,000 jobs.
And the bureau's Occupational Outlook Handbook, 2008-09 Edition projects employment of medical and health services managers will outpace average growth for all occupations, increasing 16 percent from 2006 to 2016.
That sunny forecast for the health care industry in a gloomy economy is comforting, but it doesn't change the fact that many physicians are feeling the financial sting of a recession.
The July issue of the Medical Group Management Association (MGMA) publication MGMA Connexion features survey results that shed light on how the economic recession is affecting medical groups across the nation. Highlights from survey respondents include the following findings:
- Seventy-five percent indicated they will not close their practices;
- Thirty-three percent witnessed a decline in revenue;
- Thirty-four percent said they've cut operating budgets;
- Thirty-five percent saw an increase in uninsured patients;
- Thirty-six percent postponed capital expenditures;
- Thirty-four percent froze hiring staff members;
- Thirty-three percent said they've improved billing, collections, and/or denial management processes, while 40 percent said they plan to do so;
- Forty percent noted they will not stop taking new Medicare patients, and 29 percent said they will not refuse new Medicaid patients; and
- Thirty-five percent said they likely would renegotiate or eliminate low-paying commercial insurance contracts.
Lindsay Irvin, MD, a San Antonio pediatrician and owner of Alamo Heights Pediatrics, is familiar with some of the harsh economic realities plaguing physicians and patients.
"I'm starting to see families really suffer now and lose their insurance," she said. "We suddenly have a lot of self-pay patients."
With an increasing number of patients' families having to pay for health care services out of pocket, Dr. Irvin says her staff has had to step up efforts to collect payments. But, she says her practice is being flexible with payment plans, allowing some to pay just $5 per month.
Dr. Diaz also has noticed that because many of his patients have health savings accounts and high-deductible health plans, they're delaying surgery to avoid the high out-of-pocket costs.
Dr. Irvin's practice of three pediatricians and one nurse practitioner has also had to postpone capital investments.
"The space next door is for lease. We'd love to lease it and build it out, but we can't get a line of credit from a bank for an expansion right now. If we could expand, we could see more children and immunize more patients, but that can't happen right now," she said.
Alamo Heights Pediatrics was also concerned about finding a way to pay for vaccines, which account for about 25 percent of the practice's revenue.
She says she needed additional funds because the practice continues to lose money purchasing, administering, and covering the overhead costs associated with immunizations. Dr. Irvin says that prices for vaccines have gradually gone up while reimbursements from insurance companies have decreased. In this tough economic climate, as patients lose their health insurance and take longer to pay for services, she says the practice can no longer afford to purchase pricey vaccines and cover costs associated with running the practice daily.
Upon this realization, Dr. Irvin contacted TMA Practice Consulting, and a consultant helped her attain a $35,000 line of credit by putting her in contact with a bank that could provide it.
"If we hadn't gotten that line of credit, we would have had to stop immunizing," she said.
Crystal Conde can be reached by telephone at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by e-mail at Crystal Conde .
TMA Helps Physicians Find Funding
Once Brent Spencer, MD, a Frisco dermatologist, decided to venture into his own practice, he contacted TMA Practice Consulting for help. In turn, they helped put him in touch with banks to cover start-up expenses. The consulting service has close, well-established working relationships with vendors, including banks and medical supply companies, in markets all over Texas and can refer physicians who need funding.
"TMA was helpful and provided a network of banks that they have worked with," Dr. Spencer said. "I would have been lost in knowing where to go. TMA also helped with the business projections and pro forma, which was an essential part of the application process. That would have been difficult for me to come up with."
A pro forma is a financial business plan developed for new practice start-up projects that identifies all associated costs, monthly operating expenses, and cash-flow projections for loan procurement. Lending institutions require it for loan consideration.
In working with physicians who wish to set up new practices, TMA consultants make first contact with vendors on the physician's behalf, present the bank with the physician's needs before their first conversation, and answer any initial questions.
For more information about these services, call TMA Practice Consulting at (800) 523-8776, or e-mail TMA Practice Consulting .
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Economic Survival Tips for Physician Practices
Mike Moskovitz, vice president of health care lending for SNB Bank of Austin, is a former medical practice administrator. His expertise in the medical and financial fields gives him insight into how the economy affects physicians' bottom lines. He has the following tips to help physicians stay financially afloat during this recession:
- Cut expenses or operate at bare-minimum expenses. Examine employee benefits, look at your supply expenses to identify any unnecessary purchases, and look at what you're paying for phone systems and other services.
- Have a coding evaluation done. A review may identify instances of undercoding. Once corrected, the practice can collect increased, more appropriate reimbursement for services. To get an idea of your practice's coding pattern and set up a review, call TMA Practice Consulting at (800) 523-8776, or e-mail TMA Practice Consulting .
- Increase productivity. Instead of working four days a week, open the office five days a week. If the office closes at noon on Fridays, think about extending the hours of operation.
- Move the practice toward an electronic medical record (EMR) system. It's expensive to implement up front, but once in place, it can cut down on costs related to storage space and staff time spent filing.
- Consider providing ancillary services to increase business, such as laboratory services or magnetic resonance imaging (MRI).
- Look at refinancing long-term debt.
- Negotiate or renegotiate office leases.
- Streamline your remittance processing by using a lockbox service from your bank. With this service, reimbursement checks go directly to the bank instead of your office, allowing for immediate deposits. Some lockbox services even scan your paper collections, such as checks, explanations of benefits, bank statements, and insurance correspondence, and place them online for fast search and retrieval.
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Practice Management Fall Programs
TMA offers some valuable programs that will assist physicians in managing their practices.
Live Seminar: Medical Records
Sept. 8 Austin
Sept. 9 Lubbock
Sept. 22 San Antonio
Sept. 23 Corpus Christi
Live Seminar: Medicare
Oct. 27 Corpus Christi
Oct. 28 San Antonio
Nov. 3 Fort Worth
Nov. 4 Dallas
Nov. 5 Tyler
Nov. 10 Houston
Nov. 11 Abilene
Nov. 17 Austin
Nov. 18 McAllen
Dec. 1 Amarillo
Live Webinar Series: Risk Management
Sept. 17 Professional Courtesy
Oct. 14 Medical Records and Minors
Nov. 12 Corporate Practice of Medicine
Dec. 3 Health System Reform
Recorded Webinar: Revenue Cycle Management
Session 1: The Pre-Encounter
Session 2: The Post-Encounter
Session 3: Metrics and Measures
Recorded Webinar: Contract Profitability Series
Session 1: Contract Profitability
Session 2: Payer Mix
Session 3: Prompt Pay Discounts
Session 4: Contract Negotiation
To register to attend a live seminar and to participate in the Webinars, call the TMA Knowledge Center at (800) 880-7955 or e-mail TMA Knowledge Center .
September 2009 Texas Medicine Contents
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