No Room for Error: Saving a Multi-Office Dental Practice in Michigan

Topic: Business Case

Jeffrey E. McElyea, M.S., M.A., President and Lead Consultant, Lucid Business Strategies, Shelby Township, Michigan, USA

Background

A Michigan dentist built a very successful practice over a period of twenty-five years. As the practice became larger, the owner decided that he no longer wanted to practice dentistry fulltime, but would rather hire associate doctors to fill his current role. The dentist would change his focus to purchasing under-performing practices and turning them into high-profit offices.

The client dentist located a practice that had been in operation fifteen years. Despite a very desirable location, solid patient base, and capable staff, the practice had been declining in production (sales) over the previous five years. After a brief negotiation, the dentist successfully purchased the practice.

Critical Business Issue

After the purchase, the dentists asked the office manager and two key personnel from the first practice to work temporarily at the new office to implement their systems and to reverse the trend of declining production. Six months later production and operations at the new practice stabilized, but did not grow. The original practice began loaning cash to the new practice to help pay vendors and to make the loan payments to the bank for the purchase of the practice.

During the time the personnel worked at the new office, problems developed at the original practice. Patients began leaving the practice, causing a significant decline in cash flow. This, combined with the money that was loaned to the new practice, began to cause the original practice to struggle to meet payroll and pay their vendors.

In an effort to keep both practices financially viable, the dentist used all of his personal cash reserves and began taking out lines of credit until lenders would not extend any further credit. This doctor, who had worked his entire career to build a successful practice and position himself for a comfortable retirement, was now in a position of impending insolvency.

Building the Initial Business Case

The client's original request was to “conduct a marketing campaign to attract new patients for both practices.” We needed to convince the dentist that conducting a performance analysis would be a better starting point than a marketing campaign; putting the solution first would not address the larger issues of why patients were leaving, why the financial condition of both practices was deteriorating, and why the original practice began declining so rapidly after the acquisition of the second practice.

The consulting team began building a business case to demonstrate our point. We decided that we should build a business case for only the performance analysis, instead of a full performance improvement project, since it would be easier to gain buy-in for this instead of trying to convince the clients to completely abandon their preferred intervention, the marketing campaign.

We began building the case by identifying the points that were important to the dentist and increase our chances of obtaining his buy-in. The points we agreed to make were:

1. To shift the dentist's focus off marketing by pointing out that his real objective was to improve the business situation.
2. To clearly explain what a performance analysis is and what would be involved.
3. To emphasize that it was very important to be certain that the solutions would improve the business situation, and the only way to determine what was truly causing the challenges was a performance analysis.
4. That conducting a performance analysis would save money.
5. The performance analysis would be done quickly so that we could begin correcting the business problems as soon as possible.
6. The performance analysis would actually support his marketing campaign if marketing was the solution.

The consulting team assembled data from the practice's financial statements, practice management software, and from similar projects the team had worked on in the past. We analyzed the data, prepared the business case presentation, and set an appointment to present the case to the dentist and the office manager.

The Presentation

The team decided that a case that was based on data had the best chance of convincing the dentist and office manager that performance analysis was the best approach. We decided that we would:

1. Present the data and lead the client through interpreting it, instead of presenting our opinions. In this way we would be collaborators rather than salespeople.
2. Be certain to not say that a marketing campaign was wrong, as we had no data to support that statement, and we might alienate the client.
3. Relate everything to the client's ultimate goal of improving the business situation.

We began our presentation by asking the dentist and office manager to identify their biggest concerns. They quickly identified cash flow, loss of patients, decline in production, and lack of new patients. Then we asked what turned out to be the most important question in our entire engagement: “What happens if these challenges are not corrected quickly?” The response was: “We're out of business!”

From this point forward, our presentation focused entirely on making sure we correctly identified causes and implemented solutions in the most expedient and cost-effective way possible. We demonstrated what the cost of a marketing campaign would likely be and asked, “How confident are you that a marketing campaign will correct all of your issues?” They answered, “We hope that it will be successful in bringing in new patients, and that will correct our cash flow issues.” We pointed out that, even if that were true, it would not correct the long-term situation, as it would not address the problem of losing patients.

Next, we demonstrated how much the current problems had cost them. The challenges were costing the practice a minimum of $800,000 each year; the actual cost was more in opportunity costs because each practice should be growing each year. The dentist and office manager were unaware of this fact. This opened the door for us to present the concept of conducting a performance analysis.

We explained what a performance analysis was, and why we recommended it. We emphasized that we would analyze every facet of both practices and provide conclusive evidence to them about what was causing their performance challenges. From there, we would work with them to decide the best courses of action. We explained that we could complete this analysis in less than thirty days. The dentist and office manager quickly agreed.

Focus on Results

Since small business owners are typically very results-oriented, we decided to not only identify the problems but also to create the performance goals. We agreed on and wrote specific goals for each of the following:

1. Identify the causes of the cash flow challenges.
2. Reduce the loss of patients.
3. Identify and eliminate the internal or non-marketing barriers to growth at both practices.
4. Increase the number of new patients.

Given the gravity of the situation, it was imperative that the consulting team be as comprehensive as possible in analyzing the situation. They began with an extensive review of daily schedules, scheduling trends, billing records and processes, patient attrition, accounts receivable, profit and loss statements, and other such data. This was followed by structured interviews of every staff member of both practices. Patient satisfaction surveys were conducted, and interviews were conducted with new patients, current patients, and former patients.

Focus on Systems View

As important as it was to evaluate each individual practice, it was equally important to evaluate the impact of adding the second practice and the impact of the combining the challenges from both practices. The consulting team conducted a second round of interviews with staff members to understand the impact of the office manager covering both offices. They also evaluated data to understand the differences in how each practice performed when the office manager was at that location instead of the other. The key performance challenges were that:

1. The division of the office manager's time between practices made it nearly impossible to devote sufficient time to managing the key performance drivers of either practice. Each practice performed better on days that the office manager was at that location.
2. The office manager used to oversee the billing at the original office. When her time was divided between offices, these duties were delegated to other persons. These individuals did not have the knowledge to perform these duties and did not want to do them. Consequently, billing fell behind, collection calls were not made, the amount of accounts receivable more than doubled within sixty days. This almost stopped the flow of cash coming into both practices.
3. The way in which patient records were entered into the practice management software made it extremely difficult to identify which patients were past due for treatment so staff could not contact those patients to fill the dentists' schedules.
4. Front desk personnel perceived that the economy made patients postpone treatment so they allowed the patients to leave the office without making their next appointments. This information was not entered into the practice management software, so there was no effective way to contact these patients to schedule their next appointments.
5. Front desk personnel began creating payment plans for treatment to help patients afford treatment. Approximately 25 percent of these patients did not make the agreed-on payments.
6. As production began dropping, management stepped up pressure on the staff to turn the situation around and fill the schedule. This caused the staff to over-schedule their day, which caused the staff to run behind so appointments took two to three times longer than patients had anticipated. This caused patients to refuse to schedule their next appointments. Records indicated that both practices had more than doubled the attrition rate.
7. As cash flow became tighter, both practices stopped all external marketing efforts in an effort to conserve cash. This almost completely stopped the flow of new patients.
8. When patients needed major treatment, they needed help having the procedures explained to them and navigating insurance, financial arrangements, and scheduling. The staff was unable to do this, as they were extremely busy answering phones and checking patients in and out. This meant that many patients left the practice without this treatment being scheduled.

Interventions

The consulting team presented the findings from the analysis. The clients agreed with the findings, especially since they were involved in conducting the analysis. The consulting team then brainstormed interventions that we collectively agreed could solve the business issues and achieve our performance goals. These interventions were to:

1. Assemble a triage team to address billing and collections, record treatment plans in the practice management software, and recall patients who were due for treatment.
2. Hire an office manager for the second practice.
3. Hire a dedicated billing and collections person and centralize billing for both offices.
4. Identify and train a specific person in each office to present treatment to patients, and gain their commitment to proceed with the doctor's recommendations.
5. Implement a daily scheduling template to maximize production and ensure that all patient appointments would start and end on time.
6. Locate external sources of financing for patients so that we could eliminate internal payment plans.
7. Develop and post a daily performance dashboard in an employee area to show the number of patients who left without appointments, amount of refused treatment, and so forth. Use these metrics in daily pre-shift meetings to understand the causes and to train the staff in methods of handling these situations.
8. Develop incentive programs for both staff and patients to reward referrals to new patients.
9. Design a “new patient experience” program to ensure each practice far exceeds the expectations of the patients.
10. Implement an extensive training program to script and standardize every facet of patient care and administrative procedures.
11. Implement an Internet marketing strategy for new patients only after all other interventions are successfully implemented.

The dentist and office manager were in agreement that each of these interventions was needed; however, they were hesitant to proceed with any of them until they knew more information about cost and impact. As is often the case, we needed to build a second business case to prove the value of the interventions.

The Second Business Case—Feasibility

The consulting team began building the business case by identifying the costs associated with implementing each intervention. The cost of implementing all of the interventions was estimated to be $150,000. Our challenge now became to build a case that would convince the client that he could afford $150,000, and that it was a wise investment. It was time to collaborate with him once again.

We met with the dentist and office manager to reveal the costs associated with each intervention and work with them to structure a way to afford this expense. We did this by:

1. Showing that the interventions would be implemented over time, so the cost could be spread out over a period of several months.
2. Prioritizing which interventions would have the greatest financial impact at the lowest cost. We would use the financial gains from these interventions to invest in the future ones.
3. Promising to track the results of every intervention versus cost to determine an ROI for each, and to refine interventions that were not producing as expected.

The clients were still apprehensive, but were comforted by spreading out the implementation timeframe. They also felt comfortable knowing that we were evaluating every intervention and would not be spending money that did not show a positive ROI. They approved the interventions pending the results of the first implementation—assembling a triage team.

Designing the Interventions

The success of interventions was dependent upon the acceptance and buy-in of the staff members at each practice. Sustained success was dependent on the staff members seeing the interventions as being led by the dentist and office manager instead of the consultant team. The consultant team coached the clients on identifying a team of exemplary performers from both practices to work side-by-side with the dentist, the office manager, and consultants and to lead the team through the process of implementing the interventions in their respective practice and creating solutions to any obstacles. A project plan was created to identify the steps, resources, and support material that would be required to develop each intervention.

Developing the Interventions—Sustainability

The same team that was involved in the design of the interventions worked to develop them. The team met once a week with the dentist and office manager to review the progress each had made, resolve issues, and provide input to each intervention. To ensure buy-in, the development team members were encouraged to discuss their intervention with other members of the team and to obtain their input. By the time the interventions were fully developed, every person in each practice was fully aware of the changes that were coming and had been involved in helping bring the interventions to life.

Implementing the Interventions

The interventions were implemented in phases. The first intervention implemented was the triage team. This team was comprised of exemplary performers from each practice and focused entirely on cash-generating activities. This intervention cost little to implement, as it was performed by the existing staff. This intervention was extremely successful—more than $20,000 in receivables that were previously thought uncollectable were collected, and more than one hundred appointments were made with patients who had unscheduled treatment. The practices now had the cash to move ahead with other interventions.

The remaining interventions were implemented by the staff themselves. The managers, dentist, and consultants conducted a staff meeting to introduce each intervention. This was followed by daily fifteen-minute meetings to evaluate the prior day's success and brainstorm solutions to any challenges that occurred. These meetings continued until the intervention was fully in place and became normal operating procedure.

Evaluating Results

Given the urgency of this engagement, it was critical to evaluate results literally on a daily basis to determine whether the cost of the intervention exceeded the results. Every intervention had its own evaluation metric and method for measuring that metric. Each metric was analyzed daily. If the daily performance was less than our goal, the teams evaluated what caused the under-performance and decided whether an adjustment was needed or not. If an adjustment was required, it was done that day and introduced in the following day's morning meeting. The teams also studied any unusually positive performance to decide whether something had occurred that we should take advantage of and implement as part of our systems.

The final results of this engagement were overwhelmingly positive:

1. Both practices were cash flow neutral in sixty days or less and had positive cash flow in less than six months.
2. During the first twelve months, production in the new practice doubled and production in the second practice increased by 20 percent.
3. The new practice averaged thirty-five new patients per month within six months; the existing practice averaged thirty new patients per month within twelve months.
4. Patient attrition for the twelve months following implementation was less than 10 percent at both practices.

It is important to evaluate not only results versus goals, but also the cost of the interventions versus the benefit gained. This project brought a return on investment of 6:1 in the first year of implementation.

Lessons Learned from the Case

• A business case is an essential component of any performance improvement project—creating buy-in and demonstrating the feasibility of the proposed interventions.
• More than one business case may be required. It is an iterative process—the first business case achieves sufficient buy-in to start a project, but another may be required to continue the project.
• Having the stakeholders implement interventions with consultant guidance greatly enhances the sustainability of the results achieved.
• The business case demonstrates both projected and actual results and builds the credibility of the consulting team for future projects!

Jeff McElyea, M.S., M.A., is the president and lead consultant of Lucid Business Strategies, a management consulting firm that applies the principles of performance improvement to help small business owners build successful enterprises. McElyea received his master's degree with high distinction in performance improvement and instructional design from the University of Michigan, Dearborn. He also received his master's degree in integrated marketing communications from Eastern Michigan University. He earned the Human Performance Improvement (HPI) certificate from ASTD. McElyea is the past-president of the Michigan Chapter of ISPI and a past board member of the Greater Detroit ASTD. He has published articles in Performance Improvement Journal and ASTD Links and frequently contributes to business publications in southeastern Michigan. He may be reached at [email protected].