The Business Cycle of Your Medical Practice

“I’m having a very bad few months,” is a comment lament I hear. Sometimes a few months, last month, or simply “I can’t get a handle on what’s going to happen next.” It’s a common problem in medical practice, not knowing why economics are good or bad and what to expect next. However, it’s an unknown that can be known.

If you read the first installment in this series, Creating a Revenue Budget, you know the importance of establishing realistic economic expectations for your practice. The next step in creating good business data is looking backward rather than forward. Most businesses, physician practices included, have business cycles. If you’re a pediatrician, you expect cold and flu season to be busy, and plastic surgeons have learned to adjust their lives to patients’ wanting to look their best for vacations and typical family and friend meeting times, i.e. holidays. And while the incidence of disease doesn’t always seem predictable, it may be more than you realize.

Knowing your business cycle allows you to plan practice economics as well as staffing and personal time off. I’ll never forget a physician friend who’d asked me to look at his practice. During one of our discussions he asked me to note that he’d be out of his office for a particular period for his wedding and honeymoon. While you likely make many family decision based on what is happening in your practice, getting married is an event with many non-business drivers.

I noted his time away on my calendar and then I looked at his business cycle – I had no emotional attachment to his wedding. I walked into our next meeting and asked if he realized that his wedding/honeymoon coincided with one of his two highest earning periods in his year. His response was pretty nonchalant, no big deal, he’d just work harder before and after the time off – not. His business cycle was based on about five years of activity and accurately reflected not his business objectives, but rather the consumption of his services by his patients. It proved to be a bad year.

So, first, how do you construct your business cycle? Not that difficult if you have your production data for the past three to five years, by month. Also, you may want to look at two separate cycles, revenue, as in collections, and patient activity, office visits, procedures, surgeries, depending on your speciality.

Revenue, dollars collected, provide an unbiased aggregate overview. If you’re a surgeon or rely heavily on certain procedures or activities other than E&M billings, revenue data levels the playing field and allows you too look at the big picture. For the actual data management, first add all the Januarys, Februarys, etc… together and take an average. Then note the high and the low for each month. Now you have the average and the range against which you compare current activity. If your revenue is higher or lower than the average, ask yourself why, what’s different this year, and is the difference good or bad? Next, how do you relate to the ranges, and ask yourself the same questions.

After you’ve constructed your revenue cycle, do the same with production, whatever production is important to your practice. Importance may be patients office visits, surgeries, procedures, new patients, etc…

Follow the same process in data collection and modeling. If you’re reasonably adapt at spreadsheet programs, you’ll find the charting/graphic production much easier.

What do you do with this information? You do two things, plan and assess. You use this information to plan, plan vacations (yours and staff), buy equipment, develop revenue or production expectations in the future.

Assess current activities in light of expectations. Are you being consistent? When you have variances discuss them with partners and staff. Again, are these variances good or bad, regardless “why” is the operative question. It’s sometimes easy to overlook good variances, but you still need to know why. Good variances may mean you need to adjust your expectations upward.

As you can see understanding your business cycles(s) can provide numerous important insights from day to day practice management to strategic planning decisions.