A healthcare partnership learns to generate top- and bottom-line growth, instead of friction.

• Specialty healthcare practice had been in business for over twenty years, with multiple owners and stagnant growth.
• One principal owner dominated management decisions, with no accountability to other owners (profit and revenue sharing, perhaps not coincidentally, had no basis in productivity or sales).
• Overstaffing and 20% annual increases in marketing costs had no effect on sales, while eroding profitability.
• Insights & Opportunities process identified organizational weaknesses, lack of financial controls and communications problems, while defining migration path to cultural transformation, operational excellence and sustained profitability.
• Practice is now substantially more productive and profitable, with a culture geared toward open communication and cooperation.

Overview

The business, a specialty healthcare practice with multiple owners, was on the equivalent of life support. Flatlining profits and revenues, a lack of proper financial controls and organizational deficits combined to offset the professional excellence of the physicians, leaving them frustrated and unhappy. We began our engagement with an Insights & Opportunities report, which diagnosed the business equivalent of a complex medical condition:

• The principal owner of the practice exerted disproportionate control over strategy and operations.
• The other owners were dissatisfied with operations and compensation, which had no correlation to productivity or sales, but were unable to communicate effectively or build consensus.
• Application of overhead obscured any understanding of profitability within the practice’s different services.
• Staffing levels were inconsistent with industry benchmarks; increasing labor costs never resulted in increased sales, thereby eroding profitability.
• Marketing costs increased 20% annually with no measurable impact on sales.
• Financial co-morbidities:
  • No budget or projections for future growth
  • No financial process to determine loss of profits from failure to meet budget goals
• Current business consultant had ties only to the principal owner and was unable to help improve operations or sales.
• Owners’ alienation and discontent filtered down to the clinical and administrative staffs, compounding overall lack of cohesion and shared purpose.

Challenges

The practice was effectively paralyzed because of the owners’ inability to communicate. AMS advisors determined that developing a set of shared objectives was essential to building a partnership; we had extended individual discussions with each owner and also facilitated group meetings. The physicians had to learn how to communicate, while recognizing their individual responsibility to develop as business owners as well as professionals.

Solution

With the Insights & Opportunities process complete, AMS had a mandate for change. Ultimately, this led to the principal owner moving on to open a new practice. The remaining owners signed off on a sweeping overhaul of the practice, revising its financial controls and reviewing all strategies and operations.

Our first order of business was to restructure compensation to build accountability and reward higher productivity. The practice created profit centers, grouping producers in distinct divisions to measure productivity at the divisional and individual levels. Next, they applied overhead among the divisions and their individual producers, to measure profitability more accurately. They realigned staffing with industry benchmarks and cut marketing costs—without harming operations or sales.

Perhaps most importantly, we taught the physicians and their staff how shared values and open communications can transform a culture and promote operational excellence.

Results

Our work changed flatlining sales and profits to sustained profitability. An ownership council now manages the practice, with mid-level managers given more authority and responsibility for daily operations. The physicians can now care for their patients and build their practices, knowing that the organization has healed, becoming both unified and profitable. One of the physicians compared our work to hiring a Fortune 500 CEO.

For more detailed information on this case history and its relevance to your practice or professional services group, contact Fred Rappaport, AMS CEO, at 843.422.1610 or email.