A question of great importance in today’s market is how much will it cost to add an associate.  While many believe they know the real cost, your true cost can be found in your own records and practice information.  In this article we will discuss cost drivers and how the cost can be addressed.

We will break down the evaluation into the following categories:

• Physical facility
• Equipment
• Staffing
• Technology
• Supplies
• Marketing/New Business Development
• Revenue per Visit
• Market Demand
• Direct Cost of the New Associate

Physical facility:  Will the practice need additional treatment rooms, reception area or storage for the new associate?   If not this cost may be avoided, however, the key will be to ask the critical question of is the current space sufficient to meet the patient flow demands for additional patients?   Examining the space which is currently used for adequate patient care and presentation to the patients new to the practice should be ask.  Additionally, if new space is not needed should the practice consider updating the paint, wall paper, carpet or flooring?  When completing this step the opinion of a contractor should be obtained as an underestimate may present an unreal expectation and cause a cash shortfall which could be avoided.

Equipment:  This category is one of the most critical.  In most cases associates in residency have been in situations that provide them with updated equipment and technology.  Therefore, attracting a new associate to a practice which has not updated its equipment or technology in many years may become extraordinarily difficult.  While new equipment is not a requirement, update and relevant equipment which is current and in good working condition is important.  In a walk through ask the following question, If I were a new associate would I be proud of the equipment in the office and can I represent to my referral sources that I have equipment that allows me to fully use my training?  Further, if the practice has committed to the new associate its desire to provide new and additional services which require new equipment the cost must be computed as a part of adding the associate.   In most cases, certain equipment will be require to ensure that sufficient tools are available to complete the total patient care process.

Staffing:  How will the practice support the new associate as they join the practice?   Most new associates are not familiar with the every day ebb and flow of an office.  As a general rule most of their time has been spent in surgery and therefore an understanding of how an office works and how to effectively process patients is not readily apparent.  If a new doctor is left to “go it alone” they may not be as effective.  Therefore, a well trained podiatric medical assistant will greatly enhance their effectiveness in integrating into the practice. (While many new associates may not recognize their importance, an experience podiatric medical assistant can greatly enhance the early stages of a developing practice and help the new doctor maintain a perspective.)  Should the new associate have the fortunate experience of having a relatively full patient load upon joining the practice a need for an additional billing and collection person should be evaluated.   Since cash flow is critical to the long term success of any business, consideration should be given to the overall staff needed to support the new associate.

Technology:  This category will depend on the practice perspective on adopting new technology available to podiatric practices today.  With the increasing demands on being as effective and efficient new tools are being introduced and implemented in practices.  One such cost would be the additional cost to add a new provider for an electronic medical record.  This cost should be considered as the new associate will be required to process records on the same basis as the current provider(s) in the practice.  Should the practice not be using an electronic medical record an increase in cost for transcription should be considered.   Other cost for technology that should be considered are billing software cost (adding a provider may require an additional licensing fee for the software), cell phone, pager or other mobile communications devices.   Whether the cost is considered equipment or technology, cost for items such as digital x-ray units, ultrasound machines, vascular testing equipment are significant cost for the practice and should be evaluated.

Supplies:  This category is often underestimated due to the belief that in the first year the new associate will not have volume sufficient to impact supplies in a material nature.  In a recent client situation the new associate order separate supplies from the original provider (due strictly to preference) and doubled the cost of the supplies due to duplicate inventory and ordering cost.   In most practices supplies generally account for approximately 7 – 9% of collected revenues.  Therefore, underestimating the cost could have a negative impact on the overhead and profitability of the practice.

Marketing/New Business Development: A budget should be developed for the addition of the new associate.  Cost such as announcements, business cards, letter head, signage, lunch meetings and cost for an open house inviting referral sources and patients to come by and meet the new doctor is important.  Often these cost are concentrated in the first ninety (90) days when the new associate does not have a full patient load or collecting monies (due to not being on payor provider panels).  This can have a double impact on the practice if not anticipated and planned appropriately.

Patient Volume/ Market Demand:   When evaluating the cost of adding an associate a realistic approach to anticipating new patient volume is critical.  It is important to review the current patient flow, market competition, and service offering to ensure that demand will support a new associate.  However, demand should be evaluated based on the following factors:

• Will the new associate add services not currently provided in the market?
• Is there sufficient opportunities to develop new referral sources which will provide additional patients for the practice?
• What is waiting time for new patients to access the current schedule?
• How many new patients is the practice losing due to the inability of the practice to meet the demand?
• Will visits increase based on the current providers in the market?
• Is the market (population) growing?
• What is the current patient mix?
• Can the patient mix be changed by adding a new provider?

Revenue Per Visit:   The other revenue consideration is the revenue per visit.  When evaluated the revenue per visit can be one of the best predictors of financial success for a new associate.  This key indicator will allow the practice and the new associate to set a realistic expectation for how much revenue patient visit is worth.  This computation will allow the practice to determine a breakeven point to determine what volume is required to make the addition viable for all parties.

Direct Cost of the New Associate:  Included in this category is the compensation and benefits such as medical malpractice, health insurance, expenses for CME, due (APMA and state), licensing fees for hospitals and medical plans, cost associated with auto operation, and paid time off.  These cost must be factor in to accumulate a total cost.

Evaluating these factors can lead to a meaningful discussion regarding the financial and operating implications of adding a new associate.  A defined plan and stated objectives for adding a new associate; whether to meet increasing demand or to improve quality of life, will aid in the decision process and help to minimize financial challenges and difficult interpersonal conflicts.

For more information, contact Mike Crosby, president of Provider Resources, LLC at (888) 776-2430 ext. 2042.