Strategic Business Planning - Plural Publishing, Inc.€¦ · · 2010-02-08Strategic Business...

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Strategic Business Planning

ROBERT M. TRAYNOR, Ed.D., M.B.A.

Introduction

Audiology is an expanding professionoffering clinicians a variety of practiceopportunities across a number of ven-ues. Each audiology practice, regardlessof the venue, began with a conceptualframework of the services to be pro-vided, the populations to be served, anassessment of the competition in themarket area, and projected costs to pro-vide the services. Once the concept, theneed, and other infrastructural compo-nents began to solidify, a business planwas developed to describe the opera-tional and economic realities of the con-

cept. The business plan helped establisha clear and complete picture of whatwould be required to turn the conceptinto reality over a specific time period.It included all the important businessand clinical parameters to be consideredto begin the venture, and nourish itthrough its 3-year start-up phase andbeyond. For the plan to serve as an effec-tive roadmap it had to be exhaustive inits accuracy and depiction of anticipatedcosts as well as anticipated revenue.

Business plans may be labeled withother titles specific to the practice venue.In educational settings, it may be a newprogram proposal; in a health care facil-ity or hospital it may be an opportunity

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for additional clinical services. Regard-less of the title of the document, busi-ness plans must establish the need, andset forth operational and fiscal require-ments to establish and maintain the newsegment of care to be provided.

Independent Practice

Independent private practice is a grow-ing sector of audiology. Practitioners arechoosing not to practice in hospitals, clin-ics, and ENT practices which are increas-ingly viewed as restrictive to professionalautonomy and/or financial opportunity.Armed with a doctorate, and fueled byan availability of funds for new busi-nesses from many sources, practicingaudiology as an independent, stand aloneenterprise is poised to match the antici-pated growth of the hearing-impairedpopulation. Private practice has nowbecome a “new frontier” for entrepre-neurial audiologists. With the advent ofthe Au.D. and the successful transitioningof audiology to a doctoring profession,the dream of many audiologists whoworked diligently to develop the Au.D. asa bona fide degree granted from anaccredited university, younger colleaguesare hanging their shingles and prosper-ing as valued members of health carecommunities across the country.

The health care consumer is beginningto recognize what an audiology practiceoffers and they are likely to choose or bereferred to an audiologist for diagnosticservices and rehabilitative treatment.As the Boomer generation begins to self-manage their health care, those withhearing impairment will seek care fromaudiologists directly.

Although the profession of audiologyis recognized by more individuals seek-

ing resolution of their hearing difficultiesthan ever before, the profession remainsless well known to bankers and otherlenders. These professionals loan moneyto unfamiliar businesses every day butthere are rules by which they evaluatethese investment opportunities. As audi-ology practices are an unfamiliar type ofbusiness to most funding sources, audiol-ogists must develop a business plan thatestablishes a clear strategy and realisticplans for the practice to generate revenue.The prevailing attitude among lenders isskepticism; and, therefore, to raise newcapital, an emerging audiology practicemust present a convincing business plan(Tracy, 2001). Without a straightforward,concise business plan lenders will notconsider “partnering” with you no mat-ter how great the opportunity.

The purpose of this chapter is to pres-ent the rationale for business preplan-ning and planning for both the start-upand existing audiology practices consid-ering a facelift, expansion, or other sig-nificant modification requiring funding.Additionally, this chapter offers themechanics of how to go about planningfor an audiology practice, tips for suc-cess, and checklists to ensure that all theplanning has been accomplished.

Berry’s Business Plan Fable

Berry (2004), relates a fable that capturesthe very essence of business planning. Ithas been modified slightly to emphasizethe importance of strategic and practicalbusiness planning in audiology.

Once upon a time there were threeaudiologists who had just finished theirAu.D. degrees.They were out to seek theirfortunes in private practice. They had

2 STRATEGIC PRACTICE MANAGEMENT

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2

Legal Considerations inPractice Management

GLENN L. BOWER, J.D.

Usual Caveat

The statements and suggestions in thischapter should not be construed as legaladvice or opinions. As noted below,readers should not act on informationcontained in this chapter without profes-sional guidance based on the reader’sspecific relevant facts and circumstances,and then-current, applicable law.

Securing Legal Counsel andOther Professional Advisors

Establishing an audiology practice involvesan array of business considerations thatcan be addressed by any reasonableentrepreneur aware of them. Not all suchissues are intuitive. Therefore, it is help-ful to engage legal counsel and otherappropriate professional advisors. These

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professionals not only identify issues, butalso provide validation of usual and rea-sonable alternatives as well as preferredsolutions.

When selecting legal counsel, the eas-iest path is usually to go to someonefamiliar, or someone known to friends orfamily.This approach may yield a qualifiedattorney, but a more systematic approach,casting a wider net, enhances the proba-bility of finding the most appropriateattorney. Referral services offered by thelocal bar association and others such as accountants, bankers, and insuranceagents are also good resources for iden-tifying qualified candidates to be consid-ered as attorney for the practice.

Chemistry and Value

Desired qualities for legal counsel includechemistry and value. The “chemistry”element of the relationship can be veryimportant and requires positive answersto critically important questions:

■ Does the attorney really understandmy legal, business, and professionalrequirements?

■ Does the attorney really understandmy approach to problem-solving andmy preferences regarding how toaddress relevant issues that havebeen identified?

■ Does the attorney relate to me wellenough to anticipate questions I have not asked, and to provideaccess and advice if needed outsideof normal business hours?

The “value” element consists of qual-ity and cost. Quality legal services derivefrom a variety of critical factors:

■ Relevant experience

■ Industry insight■ Analytical ability■ Diligence in providing timely advice

and appropriate work product.

Significant years of practice dealingwith health care practices and associatedbusiness issues would constitute rele-vant experience. A meaningful degree ofinteraction with other health care pro-viders, would serve as a basis for indus-try insight. This can include interactionwith other practitioners and institutions,and involvement in relevant professionalorganizations, such as the AmericanHealth Lawyers Association, and healthcare law committees of local and statebar associations as well as the AmericanBar Association.Analytical ability and dili-gence are not characteristics easily ascer-tained during an introductory meetingor even necessarily by looking at biogra-phical information in an attorney’s pro-motional materials or on the attorney’swebsite. Such characteristics are bestdetermined by speaking with the attor-ney’s current (and past if you can iden-tify them) clients, so references are quitehelpful in this regard. Obviously, a foot-note to the “don’t just use someoneknown by family and friends” warning isthat if family and friends have actuallyused an attorney for legal services, theiradvice may be quite valuable in assessingthe analytical ability of such attorney andthe diligence with which such attorneyhandles projects and provides timely anduseful advice or tangible work product.

Cost of legal services can certainly bevery significant to a new practice. Attor-neys usually charge fees based on hourlyrates, with expenses passed through tovarying degrees. Some attorneys passalong phone costs, mileage, and otherexpenses whereas others absorb these


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Developing a Pricing Strategy for the Practice


Even the most successful practitionersstruggle with developing their pricingstructure. Practitioners know that theymust cover their costs, consider the com-petition, and the patient’s willingness topay, but the specific procedure for set-ting fees and product prices is somewhatof a mystery. Smith and Nagle (1994)indicate that arriving at the delicate balance between profitability and thepatient’s willingness to pay involves anintegration of concerns for costs andvalue to the patients. In their opinion,pricing is not an exact science; it is acombination of educated guessing, real-

ity, and a bit of luck. As the prices prac-titioners charge for products and servicesare paramount to success and profitability,the purpose of this chapter is to presentfundamental concepts and practical guide-lines for pricing products and services.

Fundamental Concepts in Pricing

Pricing, as for other business fundamen-tals, can be done with the assistance ofsoftware programs.There are many pricing

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programs available on the Internet thatcan assist practitioners in conductingintrospective and extropective marketanalysis and work toward establishmentpricing in the practice. These programsare about $200 or so and offer an organ-ized approach to pricing the productsand services in the practice. These pro-grams consider most or all of the con-cepts presented in this chapter and applythem to your practice to facilitate a pric-ing strategy that is based on sound dataand sound business philosophy. Theseprograms are highly recommended.

Although the price of a product is gen-erally based on product utility, longevity,and the maintenance required, the useand utility of these products to the patientmust be continually evaluated in terms oftechnology, status, and benefit delivered.As technology changes prices need to bemodified accordingly to the relativecapability of the products. For example,for electronic products such as hearinginstruments, automatic digital instru-ments are generally perceived to be bet-ter than those that are simply amplifyingthe sound without changing accordingto environmental input and command ahigher price, but when most hearing aidproducts change to automatically adjustto the environment, then the pricing mustbe modified to reflect that just beingautomatic is not worth a premium price.

The key to price determination is abasic knowledge of fundamental pricingconcepts:

■ Costs■ Product demand and price elasticity■ Vertical and horizontal pricing■ Cost-plus or mark-up pricing■ Customer-driven or value-based

pricing■ Competition pricing.

Costs

There are numerous costs associatedwith doing business and the price for aproduct or service must cover all ofthese costs. Costs that must be coveredwhen considering the price to charge fora product or service include:

■ Opportunity costs■ Fixed costs■ Incremental or variable costs■ Avoidable costs■ Sunk costs.

Opportunity Costs

Hall and Lieberman (2002) discuss thefundamental economics of opportunitycosts as that which is given up when thechoice is made to offer a service or prod-uct in the practice. As there is a limitedamount of assets in the practice there area finite number of procedures and activ-ities that can be accomplished profitably.Decisions to offer a particular procedurein the practice can sometimes generate atradeoff involving financial resources,personnel, or other assets within thepractice.The efficient use of these assetsto generate income becomes the ques-tion. What profitability will not be real-ized if the opportunity is not seized and the procedure(s) is/are not offered?Consider the decision to offer a new pro-cedure in the practice, such as Video-nystagmography (VNG) (Sidebar 3–1).There are overhead costs if the proce-dure is offered in the practice and oppor-tunity cost that is part of the consciousdecision not to offer VNG examinationsin the practice. If the choice is not tooffer VNG in the clinic there will beincome lost (opportunity cost), but alsothe overhead of the equipment pur-chase, personnel to conduct the exami-


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Fiscal Monitoring; Cash Flow Analysis


Introduction

I Am an Audiologist,Not an Accountant

Audiologists are practitioners, not accoun-tants. Accountants establish and monitorprocedures to ensure proper financialreporting of taxes, tax preparation, andother regulatory compliance reporting.Accountants develop bookkeeping pro-cedures specific to the needs of the prac-tice and establish internal controls that

monitor the office staff in their bookkeep-ing efforts.They provide the practitionerwith internal and external methods ofmonitoring theft and perform internalaudits should theft be suspected. In addi-tion to general accounting responsi-bilities they offer personal financial planning services and provide businessvaluations.

Just as audiologists are licensed to prac-tice in their respective states, accountantsare licensed by State Boards of Accoun-tancy. Similar to audiologists that chooseto seek certification from the AmericanBoard of Audiology (ABA), accountants

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may seek certification from the AmericanInstitute of Certified Public Accountants(AICPA: http://www.aicpa.org).Their cer-tification title is Certified Public Accoun-tant (CPA). All CPAs are accountants, butall accountants are not CPAs. Just as ABAcertification is voluntary, so too is thecertification process for accountants.

Audiologists have specialty certificationopportunities through the ABA. CPAshave specialty certification available tothose seeking advanced credentials aswell. There is a specialty certification forCPAs important to practice owners whoare considering merging or selling his orher practice. The AICPA offers specialtycertification in business valuations. TheAccreditation in Business Valuation (ABV)identifies those CPAs with advancedtraining and certification in assessing and

issuing valuations of various businessesincluding health care practices.

Practitioners should have knowledgeof the vocabulary, and language of ac-counting to effectively communicate withthe accounting professionals who managetheir practices, and protect their assets(Dunn, 2000; Tracy, 2001). It may seemto audiologists that dealing with a new-born for follow-up hearing assessment,or fitting sophisticated, digital hearinginstruments constitute particular chal-lenges in the day-to-day operations of theirpractice. The real challenge of audiologypractice is staying in business over a longperiod of time and the more a practitionerknows about appropriate accountingmethods, the better their capability toadjust practice procedures and policiesto ensure profitability (Sidebar 4–1).


Sidebar 4–1AN OVERVIEW OF ECONOMIC EXCHANGES IN AN

AUDIOLOGY PRACTICE

In a perfect world a transaction would simply be between the patient andthe audiologist. Tracy (2001) describes six basic types of economicexchanges for which accountants ensure correct business interaction.Generally, these economic exchanges involve many others who are part ofnecessary interactions in daily operations of the practice:

■ Patients■ Government■ Equity sources of capital■ Debt sources of capital■ Suppliers and vendors■ Employees

These basic exchanges are how the practice interacts with the real worldof daily operations. The practice deals with the patients through employ-

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Coding, Billing, andReimbursement Capture

DEBRA ABEL, Au.D. AND ROBERT G. GLASER, Ph.D.

Introduction

As audiologists, we have historicallyexperienced road bumps with coding,reimbursement, and the recognition bythird party payors for the work we do.We have had a long, arduous road of edu-cating those third party payors as to thatwork as well as defining “audiology” ona national as well as grass roots level.Consequently, this education has also

been conducted within the hallowedhalls of the Center for Medicare andMedicaid Services, otherwise known asCMS. Many third party payors look toCMS, the Resource-Based Relative ValueScale (RBRVS), and the Medicare Physi-cian Fee Schedule (MPFS) as the bench-mark for establishing fee schedules,thereby perpetuating this flawed, ineffi-cient system. The RBRVS and the MPFSare discussed on the next pages of thischapter. It is critical to understand the

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process of where we have been andwhere we are going in terms of auton-omy and professionalism.

In addition to the reimbursement side,there are a plethora of issues and con-cerns to consider when contemplatingthe foray into independent practice, somelegal and some practical.

At the time of the publication of thisbook, CMS has recognition for audiolo-gists only as diagnosticians and not pro-viders for the treatment of hearing andbalance disorders such as rehabilitationof hearing loss, tinnitus management, andthe management of the patient experienc-ing dysequilibrium. Unfortunately, manyof the third party payors with whom weinteract look to Medicare for these stan-dards that have been imposed.

With the advent of the Au.D. and theadvancement of the profession of Audiol-ogy to a doctoring profession, evolution-ary change has occurred with some thirdparty payors as well as with managedcare and likely will continue. It is incum-bent on us to educate these third partypayors as to who we are, what we do,and what the services are that we canprovide to their subscribers. If a MedicalDirector of an insurance company doesnot recognize audiologists as health careproviders, local audiologists are encour-aged to meet with him or her and embarkon a mission of education. In your arma-ment, you will want to have the AmericanAcademy of Audiology’s scope of practiceand redacted copies of several Explana-tions of Benefits (EOBs) from competitorsproviding reimbursement for audiologicservices.The intent of this meeting is notonly to educate the Medical Directorabout audiology but to provide informa-tion regarding the cost-savings benefitswith the expertise we can provide tothose patients in need of our services.

The Code Valuation Process

To understand coding, one needs to knowhow a code is valued and the formula thatit is based on for reimbursement. Medi-care bases payments on the Resource-Based Relative Value Scale (RBRVS).Thereare three components that establish therelative value unit (RVU). The first com-ponent is the practice expense (PE).Thisincludes the overhead of operating andmaintaining an office: the rent, theoffice’s physical liability coverage, staffexpenses, and the disposables neededfor the equipment you have, for example.

The second component is work orcognition. Codes that historically havehad the professional work componentare auditory brainstem response (92585),the ENG family of codes (92541-92546and 92548), and also comprehensive ordiagnostic evaluation [comparison oftransient and/or distortion product otoa-coustic emissions at multiple levels andfrequencies] (92588). These codes havethe TC or technical component and alsothe professional component or—26. Thisenables an audiologist to bill the codeglobally which means the audiologistcompleted the procedure and the inter-pretation. If one only does the proce-dure, then the technical component isbilled. If one only does the interpretation,then the professional code is billed. Thisenables another professional to bill theother component of what they performed.

Beginning in 2008, nine additionalCPT codes will have the professionalwork component. The five diagnosticcodes are comprehensive audiometrythreshold evaluation (92557), Tympa-nometry (92567), Acoustic ReflexThreshold Testing (92568), Reflex Decay


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6

Referral Source Management

ROBERT G. GLASER, Ph.D.

Referral Source Acquisition

Acquiring referral sources is importantto ensure the long-term success of yourpractice. A creative blend of consistent,professional marketing strategies is nec-essary to populate the practice referralbase. Besides satisfied patients, referralsources will most likely include primarycare and internal medicine physicians,neurologists, physiatrists, psychologists,optometrists, podiatrists, speech-languagepathologists, nurses, a variety of otherhealth care professionals, front office per-sonnel and practice administrators.

A benchmark of the reputation of apractice within the professional commu-nity is the productivity of its referralbase. It is an index of confidence andtrust in the quality and consistency ofservices provided to their patients whilein your practice. A productive referralbase indicates confidence that yourreports will contain important informa-tion that contributes to the overall careof the patient. A referral from thepatient’s primary care provider or othertrusted, health care professional sets thestage for the initial patient encounter. Itimmediately develops a positive mindset about your services well in advance

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of the patient’s arrival at the reception-ist’s window.

There is no harm in making the refer-ring professional shine in the eyes of theirpatients. Recognizing the referral sourcefor his or her insight into the patient’sparticular set of communication difficul-ties bolsters the patient’s perception ofthe quality of care provided by the refer-ring health care provider. Patients like tohear that those providing their healthcare are interested, insightful, and knowl-edgeable about when to refer to theproper professional to help with theirhearing or balance difficulties. Just as thereferral to your practice is a statement ofyour credibility as a provider, positivecomments about the referring practitionerwill boost their image in the patient’seyes. Consumer loyalty is as important toreferring professionals as it is to the suc-cess of your practice. Physicians andother health care providers are inter-ested in keeping their patients satisfiedas much as keeping them healthy andfunctioning well in their daily life activi-ties. Anything you do to bolster patientattitude and loyalty to the practitionerwho referred them to your practice willhelp retain that provider as a productivemember of your referral base.

Referral Source Retention

High patient satisfaction is elemental inretaining referral sources. It must be theforemost goal of every practice and apervasive force that drives each memberof the professional and support staffs.Patient satisfaction is not just about thepatient. It includes encounters with familymembers, friends, and others interested inthe patient’s communication difficulties.

Family and concerned friends will alsoprovide impetus to those with hearingloss to come to your practice. They areinterested in the outcome of your clini-cal intervention and have a vested inter-est in the patient’s success as they alsostand to benefit by the patient’s improvedcommunication capabilities: As such,family and friends should be included inthe process at every opportunity.

Patients and a family member or friendshould be invited into the examinationor fitting room to observe. They shouldbe included in the question and answersegments of the process and duringcounseling. Of course, this must be incompliance with the patient’s wishes.With individuals other than the patientin the examination or fitting room, caremust be taken to focus on the patientand his or her needs primarily. Thepatient must never be left out of the con-versation nor become less than the cen-ter of attention of all involved. Havingfamily or friends involved in the patient’sevaluation and rehabilitation is a wel-comed benefit for the clinician. Theyprovide insight into the effects thepatient’s communication difficulties arehaving in their relationship and canserve as strong supporters for the patientafter the fitting. Additionally, they mayserve as keen observers of the patient’scompliance, successes, and circumstancesof poor performance. Most family andfriends are pleased to be included in theprocess and have the patient’s best inter-est at heart.

Patients returning to the referringpractitioner commonly report on theirvisit to your practice.The practitioner willlikely discuss the findings and recom-mendations in your report.That promptsthe patient to share specific informationabout their perception of their visit to


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Patient Management


The Importance ofNonclinical Activities in

Your Practice

Successful patient management is notsolely about assessment, therapeutic inter-vention, and clinical technique. Thereare a surprising number of nonclinicalactivities that can significantly affect thecontinuum of a patient’s care. This chap-ter explores how nonclinical activitiesaffect your ability to provide quality care,increase patient satisfaction, and developpatient loyalty to your practice.

Patient care begins when a member of the front office staff schedules an

appointment. The person on the otherend of the line moves from caller topatient in a matter of minutes.The caller,now patient, will be arriving at youroffice expecting a high degree of profes-sionalism, timely service, attentive staff,and caregivers sensitive to their particu-lar needs. Every patient must experienceseamless transitions from the waitingarea to exam room, from exam room topayment window, and from departure topromised follow-up care. Seamless transi-tions in any health care setting dependson the synchrony of the front office andprofessional staffs and how well theytake care of patients at the center oftheir coordinated efforts.

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Developing Patient Loyalty

“The best customers, we’re told, are loyalones. They cost less to serve, they areusually willing to pay more than othercustomers, and they often act as word-of-mouth marketers for your company”(Reinartz & Kumar, 2002). In their exten-sive study of critical business relation-ships, Reinartz and Kumar (2002) estab-lish several factual statements based oncustomer loyalty that are directly appli-cable to the services provided in every-day clinical practice:

■ Customer satisfaction is the key tocustomer loyalty. (Satisfied patientswill likely return for repeat services.)

■ Loyal customers expect tangiblebenefits for their loyalty. (Patientsexpect cost breaks on batteries,special “tune ups,” etc.)

■ Loyal customers become more pricesensitive. (Second or third set of aidsexpected to cost “reasonably” morethan the last set.)

■ Loyal customers may not be lessexpensive to maintain. (Consistentmarketing necessary to obtain aswell as retain patients.)

■ Loyal customers provide effectiveword-of-mouth marketing. (Satisfiedpatients will recommend your services to others.)

Building “patient loyalty” can be ex-pensive in both time and capital. It is,however, a task that both front office andprofessional staff alike must continu-ously and consistently strive to develop.Each patient encounter is an opportunityto foster patient loyalty: It is, as well,an opportunity to derail patient loyalty.Patient loyalty must be considered in the

diagnostic phase as much as the rehabil-itative segment of a patient’s journeythrough your practice. All forms of com-munication with your patients mustfocus on developing and maintainingpatient loyalty; telephone conversations,newsletters, reminder letters, specialoffers, and other advertising mediumused to communicate with your existingdatabase of patients.

Patient loyalty begins and ends withhighly satisfied patients. According toWong Hickson, and McPherson (2003),satisfaction ratings are likely influencedmore by how well patients are treatedthan by the sound quality and improvedspeech intelligibility that their hearingaids provide. Satisfied patients are morelikely to seek your guidance and care forthe long term. If you are seeing themajority of your patient base annually,providing meaningful services deliveredin a sincere and patient centric manner,your patients will likely continue withyour care and return to you for newhearing instruments when needed. Itdoes not, however, take much to move aloyal patient in your database to oneseeking an alternative location for theirhearing care. The Research Institute ofAmerica reported on just how costly it isfor businesses to be apathetic towardcustomer service.To underscore the pointof importance to all in the business ofproviding professional services, we haveinserted the word “patient” for “customer”:

■ The average practice will hearnothing from 96% of unhappypatients who receive rude ordiscourteous treatment.

■ 90% of patients who are dissatisfiedwith the services they receive willnot come back or buy again fromthe offending practice.


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8

Personnel Management


“Management is nothing more than motivating other people.”Lee Iacocca

Introduction

Effective personnel management is theunifying force that establishes the toneand complexion of a practice. It beginswhen the practice owner hires anemployee to complete specific tasks asdirected. It is that “as directed” thatforms the nucleus of personnel manage-ment. The owner/manager must be ableto effectively impart what needs to beaccomplished and how important thattask is to the current and future status of the practice. He or she must make acommitment to the employee to estab-lish what is expected in the position; to

evaluate and provide regular feedback tothe employee regarding their perform-ance; to establish parameters of appro-priate demeanor with patients and fellowemployees; to clarify the need for team-work focusing on the common goals ofpatient and referral source satisfaction;and to understand that failure to fulfillthe duties and expectations in the jobdescription may result in termination ofemployment.

Personnel management will vary as afunction of style and experience. Somemanagers will rule in a top-down, do-as-I-say fashion. Others will state the objec-tives and desired outcomes and let theemployees figure out the best way to

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accomplish the task to get to the definedoutcomes. Savvy personnel managers willoptimize productivity by recognizing thateach employee responds differently—what motivates one employee may notmotivate another.

Effective personnel management willnaturally develop a team pulling in thesame direction with common goals whereindividuals step outside themselves toaccomplish tasks in the best interests ofthe patients served in the practice.

Leadership and Personnel Management

Managing people requires leadership.The ability to lead is a collection of skills,nearly all of which can be learned andimproved. Leadership has many facets;respect, experience, emotional strength,people skills, discipline, vision, momen-tum, and timing (Maxwell, 2002). It isabout being the sort of person peoplewill confidently follow and work dili-gently to gain your attention andapproval. It is about becoming a personof influence and respect; each is earnedby example and establishing modelbehaviors and developing an easily dis-cerned attitude about the importance ofpatients and their success as a result ofcoming to the practice.

Leading a practice and managing apractice are different on several levels.Leadership is about influencing peopleto follow; management focuses on main-taining systems and processes whichmay or may not be effective. Maxwell(2002) believes there are fundamentaldifferences in being the “boss” (man-ager) versus operating as the leader of a practice:

■ The boss drives his workers; theleader coaches them.

■ The boss depends on authority; theleader on goodwill.

■ The boss inspires fear; the leaderinspires enthusiasm.

■ The boss says “I”; the leader, “we.”■ The boss fixes blame for the

breakdown; the leader fixes thebreakdown.

An effective leader recognizes thoseworking in the practice as critically im-portant assets necessary to achieve highpatient and referral source satisfaction.The leader intuitively understands therole that selection, training, trust, respect,and empowerment play in the transfor-mation of an employee to an associate.An associate shares the vision and goalsof the practice and works as a partnerand colleague in joint pursuit of patientand referral source satisfaction.

From Employee to Associate

Practice leaders will doggedly pursueand find the most talented individual andprovide the atmosphere for them to dotheir best work. No matter the position,a practice leader will find the personwho best fulfills the preselection require-ments based on the position descriptionin the Policy and Procedures Manual.Theprocess of selection may be time con-suming and tedious; however, the moretime spent, the more specific the prese-lection requirements and the greater theclarity of the position description, thebetter the outcome.

Be prepared for more than a fewdisappointments. Depending on the nec-essary skill level needed to fulfill the


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9

Policy and ProceduresManual


Introduction

Policy and Procedures Manual, EmployeeHandbook, Employee Manual are titles to documents created to communicatethe expectations of employers to theiremployees and what employees canexpect from their employer. In somehealth care practice venues, there maybe two sets of documents that serve asoperational guides.The Policy and Proce-dures Manual will, in some practice ven-ues, serve as the source of information tobe included in an Employee Manual or

Handbook developed for a specific posi-tion or group of employees. Althoughthe Policy and Procedures Manual servesas the basis for employee manuals orhandbooks, it may also be reserved solelyfor the use of specific managers or direc-tors within an organization. EmployeeManuals or Handbooks may be devel-oped from the Policy and ProceduresManual for specific employees depend-ing on their informational needs. AnEmployee Manual or Handbook for anaudiologist may differ greatly from thosegenerated for administrative staff despitethe fact that there will be operational

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issues common to all employees. No mat-ter the title of the document, EmployeeManuals or Handbooks are criticallyimportant to optimize consistent opera-tions in both small and large practices.

Policies Versus Procedures

Policies establish the rules of the practice;procedures clarify operational issues.Policies provide the rules of engagementaround which employees operate. Theycommonly include rules for paid time-off(PTO), sick leave, jury duty, covered hol-idays, dress code, confidentiality, and ahost of other parameters that set forththe character and tone of the practice.For example, PTO must be readily delin-eated so that both new hires and long-term employees understand the rules ofcomputation and acquisition of time-off,the nature and definition of various typesof PTO—personal leave, military leave,sick leave—the process to request PTO,whether it is cumulative or needs to beused or lost, and so on.

Procedures prescribe and substanti-ate operational topics such as how thepractice defines a comprehensive audio-logic examination—delineating the acqui-sition of clinical information and datafrom the patient to come to an appropri-ate diagnosis. Although the procedureestablishes the clinical components ofwhat constitutes the examination in thepractice, history, pure tone and speechthreshold and recognition testing, oto-acoustic emissions testing, and so forth, itshould not be so detailed that it includesspecific instructions of the technicalcomponents of the procedures. It is notso much how an audiologist gets to thedata as much as the quality of the data

gleaned from the clinical test battery thathas been chosen to constitute the com-prehensive audiologic examination as aprocedure for the practice. The decisionto establish a procedure defining thecomprehensive audiologic examinationwas determined based on the best meth-ods to arrive at an accurate and validdiagnosis.

The Need for a Policy and Procedures Manual

For the purposes of this chapter, theterm Policy and Procedures Manual (P&P Manual) will be used instead ofEmployee Manual or Handbook. As indi-cated above, in some practice venues,the Employee Manual or Handbook maybe one and the same or the EmployeeManual or Handbook may be derivedfrom a P&P Manual that may have limitedaccess relative to status within an organ-ization such as a hospital or managedhealth care delivery system.

The P&P Manual establishes the oper-ational characteristics necessary to pro-vide professional services in accord withthe Mission Statement of the practice. Itenables the practice owner or managerto establish operational parameters inconcert with his or her vision of how thepractice operates and the manner andtypes of services to be provided.

Beyond systematizing administrativeand operational aspects of the practice, thePolicy and Procedures Manual providesrules and guidance for decision-makingand appropriate actions throughout thepractice at every level of involvement;owner, director, department head, andclinical and administrative staff. It shouldbe considered the ultimate resource doc-


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10

Compensation Strategies


Introduction

In the beginning, Audiology was a “help-ing profession” focusing on patients andhow to best conduct their diagnostic orrehabilitative treatment, but not neces-sarily making a living as part of theprocess. Although audiologists have aprofessional responsibility to think oftheir patients first, this does not implythe necessity to compromise income,and subsequently lifestyle, to offer high-quality hearing care. If an audiology prac-tice is in business to simply “help peo-ple” the practitioner is donating timeand, unless independently wealthy, will

soon be a destitute “helping profes-sional” (Traynor, 2007). As doctoral levelprofessionals, audiologists toil for 8 yearsin a university program acquiring theirclinical credentials and, at the end oftheir study; should feel compensated forthe time, energy, and effort spent inschool and gaining experience to servetheir patients.

Compensation packages for any sizebusiness have two both intangible andtangible components and, according toElsdon (2003), the key to obtaining andkeeping good employees, particularlyprofessionals, is to create an environmentin which they want to stay and grow withthe practice. Although compensation

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packages in a small audiology practiceare generally less than large firms, provid-ing expertise and contributions to asmall company has definite advantagesfor the employees. Shwiff (2007) indi-cates that these advantages include:

■ An opportunity to be more “hands on”■ The need to wear multiple hats that

result in a wider range of experi-ences and enhanced skills

■ Greater chance for recognition forcontributions

■ The “big frog-small pond” factor thatresult in speedier promotions andgreater personal benefits.

■ A stronger sense of ownership ofwork completed

■ A culture more geared to fulfillingemployee needs

■ Job that better utilizes employee’saptitudes and interests

■ Flex-time and telecommuting■ A chance to buy stock options and

benefit financially from personcontributions to the practice.

Generally, there are three levels ofcompensation packages within an audi-ology practice; the owner, employeeaudiologists, and the clerical staff. audiol-ogy practice owners are entrepreneurs,investing in a business to offer privateclinical services to the public. For thepractice owner, the monthly salary is sus-tenance. The perquisites (perks) of own-ership can provide special benefits; thehope to sell the practice for a retirementincome, independence, and the satisfac-tion of watching their small businessgrow into a thriving practice. Audiologistemployees within a practice should becompensated to allow a good living com-mensurate with their credentials and

experience and, possibly, an opportunityto buy into the practice over time. Cleri-cal employees should receive salary, ben-efits, and other compensation based ontheir experience, longevity, and contri-butions to the practice.

Strategies for compensation are notstraightforward; they are compoundedby annual reviews, raise procedures,profit participation, incentives, rewards,and other specifics that can be includedin these packages. This chapter aims topresent perspectives into various intan-gible and tangible components of com-pensation packages for an audiologypractice with special emphasis on pay-ment arrangements for practice owners,their professional audiologist employees,and clerical staff.

The Nature of Employment

Mathis and Jackson (2004) present threegeneral elements of employment com-pensation packages; the psychologicalcontract, job satisfaction, and loyalty andcommitment. A portion of the packageoffered by the employee and paid for bythe employer includes these factorswhich may be an exceptional value or a substantial problem, depending on thepractice situation and the employee.

The Psychological Contract

Lavelle (2003) defines a psychologicalcontract as an unwritten expectation be-tween employees and employers regard-ing the nature of their work relationshipthat is, to some degree, based on pastexperiences of both parties.This psycho-


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11

Hearing InstrumentManufacturers and Suppliers


Introduction

All hearing instruments are not the same.Likewise, all hearing instrument manu-facturers are not the same. Both instru-ments and those who develop and man-ufacture them differ in many and variedways. It is just as important to know whento move on to another manufacturer as itis to select a manufacturing group andtheir line of hearing instruments. How toselect and when to leave manufacturersare two very different decisions. Eachimpacts the quality of services provided

by your practice as well as the financialhealth of the practice. This chapter willhelp you create a foundation on whichto make these important decisions. Con-sider the following scenario:

Patients and their family members are,generally speaking, a forgiving lot. How-ever, that is true only up to a critical pointof intolerance that is consistent in today’shealth care consumer. How many timeshas this happened in your practice?

A patient returns to pick up his re-paired hearing instrument, wife waitingpatiently in the room with him. You

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enter the room with appropriate greet-ings,perhaps a comment on the weatherand full confidence that the hearinginstrument about to be replaced in thepatient’s ear is in full working orderwith the same programming, the sameshell, all ready to go when you noticethat the serial number does not matchthe patient’s records or the instrumentfails to ignite despite a new battery. Oryou have a left instrument in your handwhen you sent a right one in for repair;or the patient says the hearing aidsounds terrible in his ear and objectivemeasures confirm there is a gross mis-match between need and output.

As beads of sweat develop on yourforehead, the patient and his wife lookat you like this is some sort of crueljoke as you are responsible for allthings that make up the total picture ofhearing care including the repair, thereplacement, and successful rededica-tion of patient and instrument.

It matters not to the patient that theaudiologist-case manager could not openthe instrument and replace a chip or amicrophone assembly if life dependedon it: It is the audiologist’s responsibility,not the repair team at the manufacturingfacility. Because the audiologist will bearthe brunt of patient and family dissatis-faction, it is up to you as the care pro-vider to step up to the plate and swingaway as the patient’s advocate. That dutyis unequivocal and clearly defined nomatter the venue of your practice.

“I Am Only as Good as You Will Permit Me to Be”

The line above should be reserved forevery repair manager and inside salesrepresentative until such time that each

finally begins to see the big picture ofhaving patients in your office appropri-ately disgusted by the fact that their hear-ing instrument needs to be sent to themanufacturing facility for its third repairin as many months. They sit at their deskon the phone while you are facing downan angry patient who is convinced thehearing instrument you placed in theirear will never work despite extensivediagnostic testing, counseling, and emo-tional preparation to the contrary.

Repair managers do not have to figureout a reasonable apology scheme for dis-gruntled patients and family members.However, it is true, as the audiologist,you are only as good as the repair team(or manufacturer in the case of newinstruments received dead-on-arrival)will permit you to be. As clinicians, eachof us has experienced this type of disap-pointment such that we begin to dreamup clever ways to jam our hands throughthe telephone and around the neck ofthe repair manager or inside sales repre-sentative each of whom promised theworld and delivered more problems.

Hearing InstrumentManufacturer and Audiologist:A Symbiotic Relationship

Audiologists and hearing instrument man-ufacturers alike both have contributionsto make and responsibilities to assume in a patient’s journey from diagnosticassessment to wearing hearing instru-ments with a high degree of satisfaction.It is the responsibility of the audiologistto blend the needs of the patient with themanufacturer offering the most appro-priate technology. It is their primary contribution of assessment, instrumentselection, and application/adjustment


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12

Marketing the Practice


Introduction

No matter what the venue, it is absolutelynecessary to market an audiology prac-tice. The days of complacency in pre-senting the clinic to the market are goneforever. In the past, audiologists couldoften simply establish a few referralsources and make a rather good living by offering good reports and customerservice to their patients. There are manyreasons for these changes in practice pat-terns that have made marketing essentialto success but the big one is the same asother fields, competition.As greater num-bers of colleagues have chosen to offer

their services privately, competition pre-sents a challenge for all practices to maketheir clinic stand out from the crowd.This does not mean that patient care iscompromised or that audiologists needto become high-pressure salespeople, itmeans that without proper marketingthe patients will go somewhere else.Practitioners should keep in mind that tooffer the best possible patient care, theymust first be brought into the practiceby some type of marketing program.

Marketing is conducted to increasetraffic and subsequently increase theunits of service provided and numbers of hearing instruments dispensed. Market-ing is not simply ads in the paper, a

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senior guide, or other local publication.It is more than an isolated presentationat the Kiwanis Club or a marketing tripto a physician’s office, it involves anorganized, targeted effort to present orbrand the practice to the marketplace.Commonly, marketing in audiology prac-tices peaks when office traffic slowsdown and is frequently a disjointedprocess incorporating little evidence-based information on what works best.When practitioners respond to a lull ofactivity in their practice by pullingtogether a marketing-after-fact plan, theywill find their reflexive marketing re-sponse to be inefficient and costly rela-tive to the meager outcome of theiractions.

To properly brand a practice in a community it is necessary to do marketresearch and link the information aboutthe market to a simple or comprehensivemarketing plan. The purpose of thischapter is not only to present basic mar-keting principles but to discuss the crit-ical elements of market research that areessential to a marketing plan that brandsthe practice in the marketplace.

Professional Marketing Defined

Marketing, as defined by Kotler (2001),is a process of identifying and meetinghuman wants and needs profitably.Although it may have a social or manage-rial purpose, marketing is the creation of demand for a particular product orservice by establishing public awareness.Obringer (2006) presents marketing asthe process of planning and executingthe conception, pricing, promotion, anddistribution of ideas, goods, and servicesto create exchanges that satisfy individ-ual and organizational goals. What doesthat mean to you? It means marketingencompasses everything you have to doin coming up with a needed product orservice, making potential customersaware of it, making them want it, andthen selling it to them. Put simply, mar-keting is basic communication betweena collection of sellers (such as audiolo-gists) and a collection of buyers of serv-ices or products (such as hearing-impairedconsumers), as presented in Figure 12–1.This collection of sellers offers goodsand services to the market consisting of


MarketA collection of Buyers

Goods & Services

Money

Information

Communication

IndustryA collection of Sellers

Figure 12–1. Simple marketing system. (From Marketing Manage-ment, by P. Kotler [p. 6], 2001, Upper Saddle River, NJ: Prentice-Hall.Copyright 2001. Adapted with permission.)

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13

Practice ManagementConsiderations in a

University Audiology Center

GAIL M. WHITELAW, Ph.D.

Introduction

It may seem unusual to find a chapter onthe management of a university-basedaudiology clinic in a text on strategicpractice management targeting profit-based practice models. Historically, uni-versity clinics have been based on a modelin which they are viewed as a “teachinglaboratory.” In this lab model, serviceswere provided at no charge or at a signif-icantly reduced fee and often only during

periods that coincided with the univer-sity calendar.The focus in this model wasensuring that students in audiology pro-grams had subjects on whom to “prac-tice” their clinical skills.

However, the changing landscapes ofboth the profession of audiology and of higher education herald the need fora transition from this “lab model” to amodel that recognizes the Universityclinic as a business.The demands of Doc-tor of Audiology (Au.D.) programs requirethat university audiology clinics provide

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breadth and depth of clinical experi-ences delivered in an environment thatprepares the Au.D. student to enter theprofession of audiology. A not-for-profitmantra of “no margin, no mission” mustbe the guiding principle for universityaudiology clinics, both to provide a clin-ical education model appropriate for the Au.D. student and to survive in thechanging university environment. Thisprinciple supports a strong clinical edu-cation model with the clinic being a crit-ical entry point to prepare students forthe demands of the profession of audiol-ogy both now and into the future.As sug-gested by Novak (2004), it is imperativethat there is consistency of clinical prepa-ration for students entering the profession,so that the transition from universityaudiology clinic to clinical sites that part-ner with the university support thedevelopment of the knowledge and skillsrequired entering the profession. Thisstatement makes the assumption that theuniversity clinic will be the first clinicalplacement for the Au.D. student, anassumption that is certainly accurate forthe vast majority of current Au.D. pro-grams. Therefore, the university audiol-ogy clinic must be an environment thatsets the standard to nurture the entry ofyoung audiologists into their profession.

Funding and Support

The landscape for funding of higher edu-cation has also changed significantly, asuniversities face rising costs and declin-ing support (Lundy, 2006). Universitiesare viewed as businesses and administra-tors are charged to be fiscally responsi-ble and there has been a trend toward“responsibility based budgeting” within

the university structure. This type ofbudgeting system requires cost shiftingso that costs incurred by an individualunit (e.g., Department or Clinic) areassigned to that unit. In the past, the costof “education” was typically borne by theuniversity, usually in a centralized model.The university, as an entity, receivedtuition revenues from students, but inturn, covered the full cost of the educa-tion of the student. In the current model,the differential cost of education, such as additional costs incurred in a clinicaleducation program, is assigned to the indi-vidual “unit” providing the education,such as the Department or the Clinic. Inthis decentralized model, the audiologyclinic is responsible for covering costsassociated with its operation and, pre-sumably, the revenue generated by theaudiology clinic is “earned” by the clinicand can be assigned to the costs of run-ning the business. Any revenue that ex-ceeds cost, or the audiology clinic profitper se, should be available for the clinicto expand programs and services, pro-vide care for the indigent, or purchaseequipment. However, it may be difficultto generate a profit in this environmentdue to the demands and expectations ofthe university. Costs allocated to theclinic may be similar to those of prac-tices in the private sector; leasehold andother space-related costs, insurance costs,specific facility charges, and other over-head costs. In addition, audiology clinicshoused within universities are oftenviewed as “earnings units,” with the expec-tation that the clinic has both the abilityand responsibility to generate revenue tothe point of being self-sustaining. Inmany university settings, this businessmodel for the audiology clinic is a para-digm shift from the past. It is, however,clearly a trend that will continue into the


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14

Establishing the Value ofYour Practice


Introduction

Reality is often a rare commodity whenit comes to buying or selling a practice.The value of a business to the owner is usually much greater than the value of the same business to a potential pur-chaser (Peltz, 2006). Sellers inherentlytend to over value their practice. After allthe blood, sweat, and tears of getting thepractice started or having gone throughthe rigors of buying others out, sellersbecome emotionally as well as economi-cally attached to the practice. Buyers,

being less emotionally attached, tend tomove toward under pricing the opportu-nity regardless of the value. Somewherein between the positions of the two par-ties lie the actual value and an accept-able purchase price.

Value is an economic term based on aspecific set of financial data generated bythe practice over a specified time period.It is customary to assume that value isnot only tied to price but tied to the bestprice to be paid. Conventional wisdomsuggests that if a high price is paid, thereis ipso facto high value. If a low price ispaid, the perception of value may not

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seem to decline if the purchaser perceivesa bargain—a valuable item purchased ata low price. The realities of both valueand price become clear when the itemof interest is clarified by accurate fiscaldata. In the case of an audiology prac-tice, when an appropriate valuation hasbeen completed by a qualified assessor,a dollar figure is set and a starting pointfor negotiations is established.

Value Versus Price

Value is derived: Price is negotiated. Priceis the result of negotiations between twoparties or their representatives whereinboth sides are interested in transferringownership of the practice. The greatestaccomplishment, and often the most dif-ficult, is to develop a realistic appraisal ofthe worth of the practice.The term “real-istic” implies that the value establishedreflects what the practice is worth toboth the seller and the buyer.

The seller must develop a reasonableprice point based on an accurate assess-ment of the practice. If the price is unre-alistic relative to the actual value of thepractice, the practice will languish as anopportunity available to a fool with toomuch money and little or no professionalguidance. Additionally, the price for thepractice must be within a range thatpotential buyers can qualify for as well asservice their indebtedness while earninga living in the practice. No one shouldbuy a practice that over extends theirfinancial capabilities. Most banks will notpermit such fiscal disability to occur nomatter how appealing the inertia of theactive patient and referral base of thepractice under consideration.

Reasons for Valuations

Although buying or selling a practice isthe most likely reason an owner wouldseek a comprehensive valuation of theirpractice, there are a number of other rea-sons to secure a formal valuation: Mergernegotiations; developing loan guaranteeinformation; buy-in by a potential part-ner; partners seeking a buy-out; divorceproceedings involving a principal share-holder in the practice; disability or deathof a principal shareholder within thepractice; or estate and retirement plan-ning (Sidebar 14–1).

The reason to secure a valuation willoften dictate the method of appraisal.The scope of this chapter does not per-mit extensive consideration of valuationmethods nor the reasons which woulddifferentially trigger one form of valuationover another. We do, however, considera common valuation strategy frequentlyused in evaluating audiology practices.As hospital-based and nonprofit commu-nity center practices are rarely involvedin buy-sell arrangements (beyond corpo-rate mergers occurring well above thedepartmental level) the primary focus ison audiology practices operating in theprivate, for-profit sector.

Valuation Methods

There are a variety of opinions aboutwhich is the best method to appraise a closely held, health care practice.Choosing the most appropriate valuationmethod is critically important as eachmethod produces relatively differentnumbers depending on the relative valueof assets, cash available in the practice,


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15

Transitions: Optimizing Exit Strategies

GAIL M. WHITELAW, Ph.D.

Introduction

Audiology is a profession that continuesto evolve. The Au.D. now represents theentry level degree for the profession,with an estimated 70% of audiologistshaving an Au.D. by 2010 (Smriga, 2006).This evolution heralds a focus on newtypes of transitions that may occur ateach new stage of an audiologist’s career.New Au.D. graduates focus on establish-ing themselves as professionals whiledeveloping career goals. Experiencedaudiologists face career decisions related

to a desire for greater autonomy whichmay lead them to pursue private practiceoptions. Mature audiologists may befocused on winding down their clinicalpractices and preparing for the nextstage in their life. The issue of buying orselling an audiology practice may applyin each of these stages and requires dif-ferent considerations in each stage. Thischapter aims to address the critical tran-sition presented when an audiologistchooses to sell an established privatepractice. The transition process is notsimply initiated one day and executedthe next; it takes much planning time

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and energy to prepare for the purchaseor sale of a practice.

The sale of a practice requires a suc-cession plan to facilitate the transition.Developing a succession plan focuses onpreparing for the financial, professional,and emotional aspects of the sale. Thisplan will likely take a year or more todevelop; however, 3 to 5 years has beensuggested as a more realistic time frameto reach the goal of selling the practicein the manner which the seller desires:selling the practice for a fair price andaddressing a goal, whether retirement orchange to a different role within thepractice (Franks, 2006; Nemes, 2006;Patsula, 2001). This lead time ensuresthat the audiologist owner will have theability to address a number of issues,including the valuation of the practice asdiscussed in Chapter 14, updating thebusiness plan, making necessary im-provements in the physical structure,planning for legal and fiscal responsibili-ties related to employees, and the criticaltransition of patients. The seller willneed to use the same type of care anddue diligence in developing the succes-sion plan as a buyer would in making apurchase decision. The process outlinedin this chapter is designed to develop asmooth transition in the sales process.

When Is the Best Time to Sell a Practice?

The simple answer to the question ofwhen is the best time to sell a practice iswhen the seller does not have to sell!Timing of the sale of a practice is criticalin terms of strategic positioning of thepractice, both now and in the future(Mayer, 1998). Barlow, as cited in Nemes(2006), advises that audiology practices

should be operated as if they will be soldin the near term, even if the owner hasno intention of selling the practice, withall business decisions directed by thegoal to develop a sustainable structureand measurable profits, in part to beattractive to a potential buyer. This phi-losophy also helps to establish a processfor successful transition in the case ofunexpected illness or death of a practiceowner.

Once the seller has made the commit-ment to develop a succession plan, thereare several practical considerations thatwill maximize the value of the practicein preparation for sale.To summarize theinformation presented in Chapter 14, thevalue of the practice is ultimately basedon two factors: tangible assets and intan-gible assets, or goodwill (Franks, 2006).Both types of assets will contribute to afavorable appraisal and make the prac-tice attractive to potential buyers. Thepractice owner should take an objectivelook at the physical appearance of thepractice to ensure it is inviting andattractive. An unbiased party will be ableto more effectively evaluate the condi-tion of the physical space, particularly ina long-standing practice with a stablestaff. In addition, the seller should becommitted to increasing the productivityand profitability of the practice, as thisreflects an upward trend in the practiceand assurance that the buyer will pur-chase a vigorous practice (Franks, 2006).

Planning for the Ultimate Change: Exit Strategies

The sale of an audiology practice isclearly more difficult than selling a home.Unlike the sale of a home, where valua-tion is often simply based on the floor


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