Every few years, it is time to dust off and update my “How to prosper in the next recession” column. Here goes.

The average Healio/Ocular Surgery News reader may have lost something approaching 20% of their retirement savings in the first few months of this year. That is not quite as grim as it sounds; the S&P 500 has still gained more than 40% in the last 3 years, even after this year’s losses to date.

And your most important economic assets — your hard-won career and perhaps also a private practice — are probably chugging along just fine, despite recent rickety general economics. Despite a war in Europe. Despite the highest inflation rates of the last 40 years. Despite the impossibility until very recently of finding staff.

All the same, it is important to stay tuned to the larger business cycle and brace for any anticipated rough spots ahead.

The business cycle is the rhythmic rise and fall of economic growth that occurs over time. Understanding this cycle is a key to helping you make better practice and personal financial decisions, even if you are not an economist.

Although the government is nominally tasked with managing the business cycle, its levers and buttons to do so are imperfect, and some recessions are extra long and deep, including the Great Recession of 2008, despite best efforts.

Although nobody knows when the next recession will occur or how deep it will be, there are a number of generic actions you can take. Many of these will be helpful even if the war ends, inflation is conquered and the economy flourishes once again, and it always, eventually, does.

1. Keep meticulous track of practice performance. This is not an era to be looking at your financial and volumetric performance stats once a quarter. Spending on elective health care services (glasses, refractive surgery) is a pretty reliable leading indicator of a looming recession, which may happen earlier or later in your market.

2. Review lay staffing levels and push labor benchmarking responsibilities down to the department head level, where those closest to the scene can best gauge the real needs of the practice. Make deeper seasonal adjustments in labor levels than you have in the past. Test the limits of each department to do with one less person (or even fewer hours) than they once thought essential for the job. In the last few weeks, clients have been reporting that it is getting easier to fill positions, and the post-COVID-19 “Great Resignation” appears to be winding down (fingers crossed), so it is time to stop defaulting to, “Hire them! We need anyone we can get!”

3. Continuously review and work to improve utilization by provider, as well as for the entire practice. Undertesting, undercoding, poor cross-referral between subspecialists within the same practice, excess time between appointments, insufficient encouragement to shop in the optical department and other gaps can materially reduce marginal revenue and leverage a disproportionately large drop in profits.

4. Ramp up provider communication. Financial challenges in a practice commonly result in a reduction in doctor-to-doctor harmony. Providers fight over expenses, access to patients or perceived referral slights. Increase doctor meeting time and be proactive in addressing discord.

5. Eliminate business or clinical processes that do not add proportional value. Eliminate data gathering and reports that are not used to make management decisions. Reduce patient movement. Check to make sure that doctors and technicians are not duplicating history taking or testing steps.

6. Limit capital outlays. Until the trajectory of the next recession is clear, table nonessential purchases. For purchases you do make, adopt formal economic thresholds (eg, “We purchase in a timely fashion all equipment required to deliver contemporary care in our community. For other equipment that is not obliged by this quality mandate, the purchase must be forecast to generate a net profit after all expenses are considered: staffing, promotion, maintenance, lease or interest payments, depreciation and obsolescence, etc”).

7. Examine the value added by each member of middle management. Most successful practices require a head tech, a manager of billing and reception services (or one for each area), a bookkeeper, someone to coordinate marketing and outreach efforts, an optical supervisor, and site managers for each office location. Ask: Are all of these positions required? Is there something unique about the talents of the current team that would allow them to do more with less? Could we have a “flatter” organization?

8. Focus on the top line. Because most practices today are already careful about expenses, key profit gains are largely driven by incremental revenue gains. Beyond ramping utilization, practice revenue is driven by raw patient volumes. The bar has been significantly raised in this area in the past decade. Generalists who once topped out at 35 or 40 patient visits per day are now routinely seeing 50+ encounters. Just serving three more patients a day can result in a six-figure annual net profit boost.

9. Stick to the general/geriatric/disease management area, if possible. The demand for elective services such as LASIK and aesthetic oculoplastics rose somewhat in the acute COVID-19 era; it would be reasonable to assume that demand will be softening for these services in a recession of any depth.

10. Boost ancillary fees. A generation ago, refraction fees were minimal or nonexistent. Today, fees range to $100+, and in a general practice, they are charged routinely in about 25% of patient encounters. The fee now averages about $50. I have never seen a practice that raised a refraction fee to $50 or higher and then rolled back prices due to patient complaints.

11. Do not shortchange marketing. A common instinct as an economy softens is to reduce advertising and promotional outlays. While it is perfectly reasonable to audit the results and investment return of every marketing activity — and eliminate lagging tactics — your practice’s marketing costs as a percent of collections should remain the same in good and bad years alike: 2% to 4% in the typical general practice, half that in most subspecialty settings.

12. Examine satellite profitability. As professional fees have softened and some travel costs have climbed, your remote service sites may no longer be profitable. Calculate the average monthly profit per office location (applying the best allocations of revenue and expenses you can) and divide this figure by the average number of MD/DO hours (including travel time) per location. This exercise may point out sites that should be eliminated, put on a watch list or more vigorously turned around.

13. Review and potentially revise professional staffing and recruitment plans. If patient growth falters with the next recession, the existing provider base may be able to handle patient volumes. If visits actually decline, it may be time to consider downsizing associate or semiretired providers. In addition, factor in that the typical peri-retirement provider may decide to work longer than planned to offset worries about the sufficiency of retirement funds in a falling equity market.

14. Brace yourself for a resumption of fee reform. A pro-longed recession (combined with a war, a ballooning national debt, higher debt service costs) could provide the political cover needed to make unpleasant Medicare fee reductions.

15. Develop written, staged response strategies to reduce your anxiety about the future. Stage one might include only a few light adjustments, and stage two, the difficult choices. This approach to staged responses should be mirrored in your family’s financial planning.

16. Assure liquidity. Examine your balance sheet for a “quick ratio” (current assets divided by current liabilities) that should materially exceed 1.0. Make sure you always have ready access to a minimum of 3 months’ average operating expenses in your working accounts (combined with credit lines and accounts receivable in transit). Lock in access to capital. While you are still in a strong business position, negotiate the most durable possible lines of credit with your commercial bank.

17. Review insurance coverage. Think through all the what-if scenarios. If you lost a high-revenue provider, could the remaining doctors cash flow the business? If not, purchase appropriate insurance to hedge against this potential adversity, which could be all the more difficult in a falling general economy.

18. Review practice contracts. Buy-sell agreements are commonly negotiated and then left to molder in the files until a doctor dies or is disabled. Are the buyout provisions still reasonable in the context of practice scale and the generally falling value of goodwill?

19. Stay informed. If you had a wobbly patient, you would examine his vital signs frequently. The same applies when the “patient” is the U.S. economy, on which you depend for your practice’s success. Read widely. Educate your board. Limber up your ability to respond to both threats and opportunities. Keep your eye out for the early signs of recession; the following sample reports are recent:

“We no longer see the Fed achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession.”

“The risk of a U.S. recession has surely soared, with the main uncertainties now being its timing and severity. The sanguine view that inflation will decline significantly on its own, and that the Fed will therefore not have to raise interest rates too much, is looking more dubious by the day.”

“President Joe Biden and the Democrats seem determined to repeat every policy mistake of the 1970s, and it might not end until Biden attempts to impose price controls and rationing.”

“If the U.S.-Russia proxy war in Ukraine continues, the chances of a global recession grow higher by the day.”

20. Meet with your personal financial adviser and discuss whether your retirement funds are appropriately hedged. While the conventional wisdom is to not try to time the market, locking in gains, harboring cash for buying opportunities and lightening up leveraged holdings may be indicated.

Editor’s note: This column was adapted from a column published in the Sept. 10, 2018, issue of Healio/Ocular Surgery News.

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