The Business Plan: A Must for Medical Practices

Recently, I came across an article in The State titled, Trends, finances drove Providence Hospital sale. While I was not surprised that a major health system, LifePoint Health of Brentwood, Tenn. made an offer for Providence Hospital in South Carolina, my interest was piqued because of the reason cited for the acquisition -“its failed 1990s business plan.” 

As I read more, I became grateful that I studied this scenario when getting my MBA at Vanderbilt, which included two minors -one in healthcare and one in entrepreneurship. The scenario at Providence Hospital was textbook. “Providence gambled then - and lost - that heart surgeries would keep pumping money into the Catholic hospital.”

Having a business plan is always a good start. The failure to update it, however, can lead to complacency. As the macro healthcare environment changes, the business plan must be updated to both reflect the current shifts and anticipate future shifts in the internal and external environment.

In essence, the business plan needs to be dynamic and reflect the elements of a strategic plan. “A strategic plan is primarily used for implementing and managing the strategic direction of an existing organization. A business plan is used to initially start a business, obtain funding, or direct operations.  The two plans cover different timeframes as well. According to one resource, a strategic plan generally covers a period between three years to more than five years, whereas a business plan is normally no more than one year. Hence, a strategic plan is a long-term roadmap and a business plan is utilized to execute the strategic plan on an annual basis.

How can physicians benefit from a business plan and what should it include?

• Business plans force organizations to deal with changes in the overall environment. Its purpose is to mitigate the complacency, which Providence Hospital suffered from.

• It is crucial for financial planning and regulatory compliance. This can help physicians consider the changes in reimbursement, including ICD-10, as well as the expenses and potential liabilities associated with these changes.

• The key components of a business plan include: mission statement, description of products and services, market analysis, management team description, marketing, regulatory compliance and changes in the law, SWOT analysis, financial models, and a conclusion.

A business is plan is just a crucial to physicians as it is to hospitals. Failure to address various issues annually may lead you to the same fate as Providence Hospital, where options are limited. Being proactive and making an annual commitment to reevaluate the practice and the business plan can lead to a more fulfilling practice both financially and clinically.