Physician, heal thyself
A medical office finds new life with help from FSB.
(FORTUNE Small Business) -- When Michael Holton and Thomas Kintanar decided to start a medical practice in Churubusco, Ind., the two doctors, both devout Christians, say they heard a call from God. Holton, 40, was an exhausted emergency-room physician, and Kintanar, 45, worked 90 hours a week in a big practice in Fort Wayne. They had toyed with the idea of opening a practice together, but it wasn't until they thought of Churubusco - a ramshackle town with a population of about 1,700, whose residents hadn't had a long-term local physician since 1998--that they saw what they were looking for: a chance to offer old-fashioned medical care. They would dispense not just pills but comfort, encouragement, and wisdom as well.
Six months later, "we're in a world of hurt," Holton says ruefully. Churubusco's townfolk, wary of the newcomers, haven't embraced the doctors quite as quickly as the two thought they would. Insurers have been slow to pay. A competitor just opened across town. Meanwhile, neither doctor has taken a single paycheck since the office opened in August. Kintanar took out a line of credit to finance the new office and has spent $110,000 so far. Holton, who also invested $110,000, is working 12 hours a day, seven days a week. "We've got our backs against the wall," Kintanar says.
Holton and Kintanar are not alone in their struggle. U.S. physicians are grappling with market forces that are reshaping their profession. Costs are soaring, especially for malpractice insurance and office personnel. Reimbursements from insurers and the government are shrinking. Over the past ten years or so, the average family doctor's income has shrunk 4%, to $135,000, according to the American Academy of Family Physicians in Leawood, Kan.
Holton and Kintanar say that neither of them got into medicine for the money, which may explain why their books are in rough shape. Some 17 patients visit the office every day--with an average charge of $120--but their insurers typically cover only 60% of the bill. Holton holds credentials as an emergency-room physician, but because of a bureaucratic delay, local insurers have not approved his credentials to be paid as a family physician. As a result, the insurers are balking at reimbursing the practice for patient care. By December, unpaid receivables had climbed to $102,000. Meanwhile, monthly expenses are running $16,000. Rent alone costs $5,000 a month, high for Churubusco.
Can this practice be saved? FSB enlisted three respected management consultants to diagnose this ailing business and recommend treatment. Michael Brady, president of Healthcare Business Consultants in Asheville, N.C., specializes in cost controls and financial management. Michael Wiley, president of Healthcare Management & Consulting in Bay Shore, N.Y., focuses on boosting profits of medical practices. Michael Brown, president of Health Care Economics in Indianapolis, helps doctors develop marketing plans and maximize reimbursements from insurers.
Battling foul weather, the three make their way to Churubusco, where they squeeze into a back office and begin to grill Holton and Kintanar. Wiley sets the tone for the daylong makeover with a stern warning: "The practice of medicine is a noble undertaking, but it is also a business. You guys are in crisis mode. You've got a severe bleed here in terms of cash, and it seems to me that you're debating tourniquets." There's a long silence.
All three consultants agree: Squeezing money out of insurers should be the doctors' top priority. They urge Holton to focus immediately on gaining his insurance credentials as a family physician, which would free the logjam of receivables. Second, the consultants insist that the two doctors formalize their partnership with a contract and a business plan. "Too many businesses start with a handshake and end in a courtroom," Brown warns. "Financial difficulties have a way of undermining the strongest of friendships."
The consultants are troubled by the relaxed and folksy demeanor of the five staffers at the front desk, particularly the motherly office manager, a woman in her 50s. "Your office manager is in the reception area playing with a patient's children," Brown says bluntly as the doctors wince. "You can't afford that when your business is as vulnerable as it is right now. She should be working on getting you your money."
Every company needs a billing department adept at chasing down money, but for medical practices this function is especially critical. Insurance companies delay payments for the most inconsequential reasons, such as a typo or an incorrect coding of a service. (Every medical service and procedure has a five-digit billing code that is universally used by insurers and Medicaid.) Ignored, those delays eventually can cause a cash-flow crisis for a practice. Most successful offices employ a billing specialist who spends eight hours a day cajoling insurers and patients to pay.
"You need an experienced billing specialist, and you may have to recruit one from Fort Wayne," Brady says. "Other than you, that's the most important person in your office."
Collecting the co-payments from patients is just as critical as billing insurers, especially for a struggling startup. Brown wades into that issue with characteristic bluntness: "I suspect your staff is too nice to ask for money from patients. Heck, some of the folks who come are probably used to paying the doc in chickens. But you shouldn't underestimate the importance of the co-payment. When Fred the farmer walks in the door for his annual physical, your receptionist should greet him by name, saying, 'Welcome, Fred. I see your co-pay is $20. Will that be cash or check?' "
Having nearly exhausted his line of credit, Kintanar is beginning to struggle with rising interest rates. He borrowed the money a year ago from local bankers who knew his reputation as a hard-working and respected doctor and agreed to extend the loan without insisting on a business plan. Now his interest-only monthly payments, pegged to the prime rate, are $2,000. This alarms the consultants, who urge him to meet with his bankers and explain the difficulties the two have had establishing the practice. "Negotiate six months of no payments," Brady says. "Go in with a business plan and convince them you are capable of turning this around."
Just as worrisome to the consultants is the recent arrival of a well-funded competitor. Mere weeks before Holton and Kintanar opened their office, two doctors launched a rival practice on the other side of town. Financed by a local hospital, the office has state-of-the-art technology and a fresh decor. (The hospital pays the doctors' salaries and benefits; hospitals often fund such rural outposts on the condition that the physicians send them the patients who need hospitalization.)
In contrast, Holton and Kintanar's offices are cozy but well worn. Their X-ray machine is an antique from the 1950s. Their exam rooms need fresh wallpaper and paint. The consultants do not approve. "Appearances matter," Brown says. But despite their rivals' apparent advantages, Kintanar says, "I'm not worried. Our patients are loyal. We have a special rapport with them."
That does little to reassure the consultants. "You're competing with a big bag of money," says Brady. "You may be the greatest doctors in the world, but you've got to be worried." His solution: Holton and Kintanar need to do some marketing. "Here's a no-cost plan," he says. "Get out into the community. Volunteer as team physician for the high school football or basketball teams. Parents will see you on the sidelines caring for their sons, and they'll love you for it." Holton softly mentions that he'd been trying to negotiate a contract with the town's biggest employer, a machine company. For the first time all day, the consultants light up. "Diversification!" Brady says. "Excellent!"
By midafternoon the group is exhausted, but the two doctors seem cheered by the consultants' suggestions. "I'm the managing partner," Kintanar says, "and I've done a crappy job of it." They agree on a divide-and-conquer strategy. Every Monday they'll report to each other on the responsibilities they've assumed. Only partially in jest, Holton vows to drive the 15 miles to Fort Wayne and stage a sit-in at the insurers' offices until his credentials have been approved. Kintanar promises to press the landlord for a lower rent and meet with bankers.
Five months later, Holton and Kintanar are still caring for the citizens of Churubusco, and they think they've turned a corner. The two kicked off a Hoosier-style marketing campaign, recruiting local teens to hand out fliers after basketball games. Despite the crosstown competition, Holton and Kintanar are seeing more patients every week: 20 a day, up from 17 in December. Their landlord cut the monthly rent by $1,000, and the two doctors are negotiating a deeper cut. They also reduced office staff. By mid-January, Holton drew his first paycheck. And the insurers have scheduled a meeting to consider approving his credentials as a family doctor. Their prayers, the doctors say, are being answered. "The Lord wants us in Churubusco," Kintanar says. "We are listening to him."
Churubusco Family Medicine & Urgent Care offers emergency care in the evenings and on the weekends. Launched last summer, it
faces big challenges. FSB's consultants helped the two doctors keep their business from flatlining.
Michael Brady is a consultant in Asheville, N.C., who specializes in medical-practice management.
Michael Brown is a consultant in Indianapolis with a focus on turning around troubled practices.e-mail the FSB makeover editor here. Please describe your business briefly, provide your most recent and projected revenues, and explain why you think your company would benefit from a Makeover.