Due Diligence Reduces Risk of Ancillary Services

Physician Entrepreneurs: Strength in Numbers, May 22, 2008

One of the best physician-to-physician strategies currently in existence is the development of ancillary services within an existing practice, whether it is a single-specialty or multispecialty group. In fact, one reason hospitals employ physicians is to keep from having to compete with physicians for ancillary dollars.

Most practices are looking to ancillary services as an opportunity to augment revenue and enhance their bottom line as a result of declining reimbursement for most basic clinical services. Practices also look to ancillary services to broaden the service offerings provided to their patient base, which eventually creates loyal and satisfied patients.

Depending on the type of ancillary services involved, the revenues associated with them can quickly become a substantial portion of overall profit and physician compensation. Many ancillary ventures are capital-intensive because they require expensive medical equipment. But if the practice generates enough volume to operate such equipment at or near capacity, the investment in such equipment is likely worthwhile.

Of course, these initiatives require a substantial amount of due diligence and financial projection to ensure that the investment is worthwhile. Some of the necessary due diligence required includes the following:

  • Research of the equipment alternatives and financing opportunities
  • Volume projections based on the number of applicable procedures referred out to other organizations in the past
  • Consideration of reimbursement for the procedures considered and potential changes to reimbursement in the near future
  • Assessment of all costs to acquire and operate the equipment, such as leasehold improvements, increases in staffing and facilities, and other, more minor costs
  • Determining when the ancillary venture would break even and what the return on investment would be
  • Assessing any regulatory requirements associated with providing the ancillary services

Just as with starting up a new medical practice, developing an ancillary service is often a stressful venture due to the risk and uncertainty involved. With careful planning, much of the risk can be removed to the extent that success is almost certain.

This article was adapted from Physician Entrepreneurs: Strength in Numbers, a new HealthLeaders Media book about consolidation and collaboration strategies to grow physician practices.
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