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New Year, New Strategies

With 2011 here, doctors face unprecedented uncertainty in the economy, their practices, and investments. While most signs are pointing towards an ongoing and imminent recovery (visit http://economy.ADSflorida.com for indicators) and economists nationally and worldwide are optimistic, the end of the tunnel is not quite here yet. With the political forecast for legislative gridlock as a result of the Republican gains in the just completed midterm elections, further uncertainty for the country’s economy has been created, and it’s fair to say that doctors face more economic uncertainty now than at any time in recent memory. That’s why it’s more imperative than ever for doctors to spend the time and energy to establish a practice budget, in conjunction with a full review of their fee structure, to help assure success. Doctors should begin the process now so that they can have a comprehensive budget in place as soon as possible for the remainder of the New Year.

While only about 10% of doctors nationwide have a written practice budget, their practice profits are dramatically higher than the remaining 90% who do not. For marketing, the amount of time, energy and money devoted should be inversely proportional to the level of your optimal capacity. Looking at 2009 and 2010, many doctors have reported a decline in new patients. To remedy this, the first step to take in the budgeting process is to develop a marketing plan to reverse this detrimental trend. It is suggested that if you are operating at 80-90% of optimal capacity, 2-3% of collections should be devoted to marketing. If you are operating at 70-80% of capacity, 3-4% of practice collections should be spent. Finally, if you are operating below 70% of optimal capacity, you should be spending 4-6% of collections, if not more, on marketing in order to boost practice production.

In addition to finding ways to attract new patients, you must also review your fee schedule and consider the timing and amount of a fee increase for 2011. We recommend that doctors select a fee percentile that accurately reflects their quality of care, and then increase all fees below that percentile up to it (request a localized ADA code report at http://feereport.ADSflorida.com). Once your practice’s fees are at the desired percentile, you should raise every fee the same percentage across the board, every year. With inflation low, and consumer spending tepid, a minimal fee increase of approximately 2% for 2011 may be justified.

From here, overhead expense must be reviewed on a line-by-line basis. 2010 expenses should be reviewed against results for 2009 to determine areas of significant increases. Looking ahead to 2011, expenses in every category should be scrutinized for possible savings. It is also important to monitor expenses to ensure they stay within an acceptable range.

You may also consider changes in practice staffing. In practices that are down, this may involve laying off an employee, or replacing a full-time with a parttime employee. Moreover, you must decide whether to eliminate automatic pay raises and begin using an incentive bonus plan. Finally, changes in your production and procedure mix should be reviewed to determine how they may impact 2011 lab and supply expenses. Note that these costs increase every year, which is just another justification for an annual increase in your own fees.

Once the income forecast has been completed and the overhead expense percentages have been converted into dollars, your practice budget can be finalized. You can then determine the optimum way to distribute the projected practice profits between salaries, dividends (S-Corporations), retirement plan contributions, fringe benefits and professional expenses.

Your practice budget is vital for the ongoing success and health of your business. A little time now will save stress, and dollars, throughout the year.

Questions about your practice for 2011? Email us at question@ADSflorida.com. For a local overview of fees for 2011, ADS Florida is offering you a free customized report. If you are interested in receiving one, please visit http://feereport.ADSflorida.com and complete the form.

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