Weathering the downturn | aad.org
Weathering the downturn
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Tough economic times offer an opportunity to improve practice efficiency

A s physicians and small businesspeople, dermatologists have experienced, and will likely continue experiencing, their fair share of angst during the ongoing economic downturn. The business of running a successful practice is for many butting up against anxiety over coming changes to the health system and the current concerns that come with a long period of economic distress.

Most dermatologists, though, have seen a stable stream of patients during the recession. While the number of cosmetic procedures being performed has declined somewhat, according to Mayo Clinic dermatologist Randall Roenigk, MD, medical dermatology remains in-demand. Dermatologists are well-positioned to learn vital management and business lessons from this trying period.

Patient demand

According to Dr. Roenigk, the largest drop-off in patients at Mayo happened immediately following the stock market crash of September 2008, when Dominique Strauss-Khan, French economist and head of the International Monetary Fund, was quoted as saying that the world financial system was on the edge of meltdown. The palpable fear, he said, led to a fairly noticeable decrease in patient volume, though the demand for medical dermatology remained fairly steady, considering the circumstances.

“In 2008, when the stock market crashed, there was a lot of fear, as well as some significant decreases in patient volumes during the first couple of months in 2009,” Dr. Roenigk said. “There were some holes in the calendar at the time, and subsequent to that, there was a big hit in discretionary services.”

American Academy of Dermatology Board of Directors member and Sacramento, Calif., private practitioner Margaret Parsons, MD, said that she continues to see strong demand from medical patients, though they were more hesitant to come in as frequently.

“I’m in more of a general practice, so I have a smaller portion of cosmetic patients that’s generally stable. I think that cosmetic practices have been hit more significantly on that end. We noticed the economic downturn in my practice when patients, as their employers have increased their deductibles, began asking more questions to the effect of do I need to come in for that follow-up?’ or coming in every year and a half when they used to come in every year,” Dr. Parsons said. “People are spreading out their appointments further to minimize their out-of-pocket costs for their skin checks. It’s similar to what dentists are seeing right now. If people have an increased share of costs, as they have for the last three years in Sacramento, we have patients delaying their appointments.” [pagebreak]

Dr. Parsons and other dermatologists report that a frequent pre-recession concern for patients — long wait times —  has been eased by the downturn.

“In Sacramento, because we have two main employers in the area, we’re going to be behind other parts of the country in recovery,” Dr. Parsons said. “Our scheduling, we’ve noticed, has seen that while we’re still filling our schedule, the wait for appointments is much shorter than it used to be.”

Dermatologist Risa Jampel, MD, who practices general and cosmetic dermatology and dermatologic surgery as a solo practitioner in the suburbs of Baltimore, suggested that shortening wait times are not a universal phenomenon, though. “I am lucky enough to practice in a fairly affluent area in Maryland, a state which has fared well in this economy,” she said. “I have personally seen no decrease in medical dermatology patients in my office or patients wishing to delay their appointments. I am sure that the situation is very different in more economically depressed areas.”

According to Dr. Roenigk, the demand for cosmetic services has begun to recover. The cosmetic recovery that dermatology sees, he said, may outpace that of other specialties offering cosmetic treatments due in large part to the relative affordability of dermatology’s aesthetic procedures.

Dr. Jampel agreed that cosmetic demand in dermatology practices is strong, but asked, “Do we think that there will ever be the kind of frenzied demand for cosmetic services —  a spa on every corner —  as there was before the market crashed? Don’t we all have to take that into account as we think about our practices?” Also worth considering, she said, is the fact that other specialties have jumped onto the cosmetic bandwagon and are vying for cosmetic patients.

Dr. Jampel noted that the strength of any cosmetic recovery depends on the definition of “cosmetic.” “Does it have to be lasers, botulinum toxin, fillers, etc. — or is it also non-covered services that patients pay out of pocket for such as skin tags, keratoses, and milia? These services can often be performed at the time of another visit and have little added overhead (unlike lasers which, once purchased or leased, require a minimum number of patients to break even). I have seen no decrease in the demand for these smaller cosmetic services.”

“As I see it today, there’s still very strong demand for dermatology services — both medically necessary and cosmetic procedures,” Dr. Roenigk said. “I see the cosmetic services demand starting to come back, and I don’t think that we’ve ever had a significant downturn in the demand for medically necessary services. As best as I can tell, based on the amount of work dermatologists do, or RVUs generated, or revenue, they’re still doing better than the average specialty.” [pagebreak]

Managing staff and inventory

Better than average does not exempt dermatologists from watching their inventory and staff costs, which become a major concern when attempting to weather tough times. Tightening the belt can be difficult, but Dr. Parsons and her partners have found a way to trim costs slightly without any undue strain on their staff. Efficient supply ordering and use has become a focus among her staff, which has led to both decreased supply costs and a better-tracked inventory.

“My office manager is wonderful, and we’ve made sure that we don’t have extra inventory we don’t need sitting around. We make sure we have what we need, but we don’t have, say, a year’s worth of sutures sitting around,” Dr. Parsons said. “We make sure to meet our needs without overstocking ourselves. Staff pays very close attention to managing our inventory.”

In addition to managing inventory, the physicians in Dr. Parsons’s office offer unpaid time off to any employee who wishes to take advantage when the office is quiet. The success of the initiative, she said, depends on the relative infrequency of each employee’s turn to be offered time off, which leads to most of them taking that offered time.

“When we’re going to have doctors out of the office, we’ll offer employees a free unpaid afternoon on a cycling basis,” she said. “Many of them will do it, because their turn only comes around once every few months. As employers, if the office is going to be busy, we are able to do little things that run a tight ship.”

Peter Polack, MD, who runs both a mid-sized ophthalmology practice and the website Medical Practice Trends, has focused on staff productivity and cross-training, which he deems an intelligent practice even in the best of times. Rather than slashing benefits, as some employers are wont to do during financially unstable times, Dr. Polack and his partners have focused on retaining their most valuable employees.

“As with many other small businesses, we have realized improved productivity with our existing employees and have seen increased revenue with fewer staff. We have also ramped up cross-training to improve cross-coverage within departments,” Dr. Polack said. “In order to retain quality people, we have not cut back on benefits, although we are looking at some health plans typically seen in larger organizations that will help us have more control over our rising employee health care costs,” he said. [pagebreak]

“We have also taken a more proactive approach toward allowing overtime where we were perhaps a little more lax in the past,” Dr. Polack added. “In general, overtime is never a good thing if it is too large. A small amount means you have the right amount of staff and occasionally their time goes over. If you never have any overtime, you probably have too many employees,” he said. “But the main reason overtime is not cut is because, when times are good, nobody thinks about it. Only when things are tight is it looked at. Cutting overtime would be a good plan for most practices, assuming they don’t have too many employees to begin with.”

Due to significant unemployment in much of the country, the small number of physicians willing to hire on new staff, Dr. Roenigk said, should have their pick of high-quality candidates.

“In short, you get a much larger applicant pool, especially if you offer a strong benefits package, health care, and the like. You might not have seen this many applicants four or five years ago. I think doctors’ offices are a bit hesitant to hire, which I’d attribute to the perception among many that upcoming changes in health care law will be for the worse,” Dr. Roenigk said. “It’s understandable, because people fear change. But I think it’s misplaced fear based on the demand for services. What I see for the future is a doctor shortage, and that much more demand.”

Leveraging vendors and marketing

New hires are not the only people dermatologists should ensure they are paying appropriately. In casting a careful eye over her practice, Dr. Parsons found an alarming trend — her bill for waste management services was rising repeatedly and significantly. After doing some investigation and finding a trail of similar complaints about the vendor, Dr. Parsons switched vendors, cut her waste management costs by nearly half, and then decided to become similarly aggressive with her other monthly costs. [pagebreak]

“It turns out that we weren’t getting the best deal on waste management, so we immediately went elsewhere. Following that, we challenged some of our vendors — the phone company, Internet company, and others,” Dr. Parsons said. “We told our vendors that we were soliciting new bids, and ended up getting offered much better rates as a result. We looked at our laundry, our waste management contract, and where costs seemed high, looked elsewhere in the market.”

The money spent on marketing, which some physicians regard as the most inessential of all costs, can often be tough to reconcile when practitioners need to tighten belts on everything from medical supplies to janitorial services. Yet the purchasing power of a physician with a set marketing budget is as high as it’s ever been, with advertisers offering excellent deals to clients and potential new advertisers. The advertising market, much like the real estate market, favors the buyer during a downturn. (See "Ad Bargains" sidebar for information on what kinds of advertising may prove most rewarding for dermatologists.)

Dr. Polack, mindful of his practice’s market share, decided to switch to more results-oriented marketing, which allowed him to take a much more quantitative look at the results gained from the money leaving the practice.

“The economic downturn probably affects the solo practitioners more— they are more likely to cut back on such non-essentials’ as marketing to the detriment of their market share as larger practices make gains at their expense,” Dr. Polack said. “We have not cut back on marketing as we have a certain budget, but we are more careful with our spending — less image advertising and more direct-response, targeted and trackable marketing. For example, we produced some television spots which, while not inexpensive, ended up being extremely cost-effective because purchasing media time is very low at the present time and we can also repurpose the video for such things as our website.” In the past, Dr. Polack noted, buying media time was expensive — sometimes the major expense involved in advertising on TV. As a result, practices were reluctant to even bother producing video. “But now that media purchasing is cheap, the production becomes the major expense,” he said. “But since it can be repurposed for multiple uses — different versions of commercials, short website videos, YouTube and other social media — it becomes more cost-effective compared to usual.”

Looking forward

Dr. Parsons believes that solid management techniques will ensure a practice’s survival during the recession. Demand for medical services, as Dr. Roenigk points out, remains strong, and the cosmetic market is showing signs of recovery. Dr. Parsons confesses to being more concerned about changes on the horizon than any current difficulties besetting her practice.

“I think practices can ride out the economic downturn with good management. Dermatology is fortunately a specialty that is needed there’s a shortage of us. So by working hard and watching our management practices closely, we will be able to ride through,” she said. “I think for me, the big part is the upcoming health system reform and how that is going to affect practices, including accountable care organizations (ACOs), computer requirements, and my relationships with people in the community. Our practice has a good, established solid reputation in town, so I believe that we’ll come out of the downturn without overwhelming difficulty.” [pagebreak]

Dr. Roenigk sees the lessons learned during the downturn — managing staff, cutting costs, and delivering effective patient care — as vital to adapting to the coming changes in medicine.

“What might happen if the downturn continues, or if there are more patients seeking care because of health care reform, is that there will be more demand for medically necessary services. I think that some dermatologists are shifting to a little bit more cosmetics in their practices, though it remains a minority of the practice itself. There’ll be a disproportionate demand for medically necessary services, a lot of that demand for purely medical services that are reimbursed at a lower rate,” Dr. Roenigk said. “As a result, I think that there’ll be more demand for the services of mid-level providers. I think that the use of PAs and NPs and other extenders are part of a team to manage dermatology services in an office, or an ACO, or some other entity, is going to increase. I think there will be other ways of managing care that will increase in popularity, as well as be reasonably accepted by patients and payers.”


Bad economy means ad bargains

The economic downturn may lower patient demand, but it has also cut rates for advertising, creating a buyer’s market. Dermatologists looking to take advantage of this opportunity should keep in mind the potential benefits and drawbacks of different methods of advertising.

Newspapers reach a large number of people in a well-defined geographic area. Ad size and placement can be tailored to fit most budgets. However, circulation numbers continue to drop and continued daily advertising can be expensive.

Magazines offer many of the benefits of newspaper advertising, but allow for higher-quality glossy ads, as well as a longer shelf life. Costs are often higher, though, and the lead times to create an ad are much longer.

Alternative print publications are given away in coffee shops and restaurants and usually cater to a niche audience. Costs are lower than traditional newspaper advertising, and physicians report a surprisingly high response rate. However, smaller or less distinctive ads may be lost in the clutter.

Radio ads allow for a polished message delivered to a large market in a specific geographic location. It’s possible to get a good deal, but once the ad airs, tracking its impact may be difficult.

Billboards in high-traffic areas ensure your message is seen by thousands of commuters on a daily basis, but producing them can be cost-prohibitive, and owners often require long-term contracts for the best locations.

TV puts your message in front of your target market with a visual message and personality. But without significant financial outlay, local commercials can look dated and tacky.

Phone book ads can draw attention to your practice at the moment potential patients are deciding who to see. But despite the fact that patients increasingly turn to the Internet for such information, ad rates for phone books remain high, and ads cannot be changed for a year.


 

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Bad economy means ad bargains