Physician Practices Bouncing Back from COVID-19

How physician practices can plan their business recovery from the COVID-19 crisis

Precautions to slow the spread of COVID-19 have led to total or near-shutdowns for many physician practices. Even those that have used telemedicine to continue seeing patients have experienced significant drops in appointment volume. Continuous news and uncertainty about COVID-19 may make it difficult to see past this crisis. Whether its economic impact lasts another month, another quarter or longer, these are some steps owners can take now to prepare for a strong recovery once life returns to “normal.” 

Prepare a cash flow model with best-case, worst-case and in-between scenarios

While business best practices generally call for operating with a 13-week cash flow model that forecasts the next quarter, many physician practices (particularly smaller ones) don’t do so. With the current disruptions, however, a 13-week cash flow model is essential, and it’s important to update it weekly (or possibly daily) with best-case, medium-case and worst-case scenarios. 

The model can help the practice understand its liquidity situation and potential challenges, identify deferrable payables and assist in decisions about other cash outflows that can potentially be delayed (such as 401(k) contributions or rent payments). It can also serve as an important reference in making potential payroll reduction decisions, applying for government grants and loans, and talking with financing sources. 

While a strong emphasis should always be put on expeditious billing and collecting – and you may want to keep your billing/collecting staff on-board if possible to help with this – the cash flow model may point out periods where collection efforts should be accelerated. 

Plan to share the cash flow model and the various scenarios with lenders, investors, partners and the practice leadership on a regular basis. Whether your practice is applying for a line of credit, a bridge loan, an SBA loan, the federal Paycheck Protection Program, an Economic Injury Disaster Loan (EIDL) Emergency Advance or another type of financing, cash flow projections and scenarios will be needed. 

Evaluate how the practice might access working capital, including from non-traditional sources

Prepare for the worst-case cash-flow-projection scenario by researching available working capital sources. If the practice hasn’t already done so, research and consider applying for any available federal relief programs or loans that may provide additional funding sources to help overcome temporary loss of revenue. For example, the CARES Act Provider Relief Fund provides $100 billion in relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response. 

Consider non-traditional lending sources as well. These may include family offices and private lenders as an example. Even practices that are highly liquid right now should consider the benefits of having additional cash accessible. A strong cash position enables you to plan and operate your practice with both a short-term and long-term view. If immediate cash is not needed, it’s recommended that partners reach out to their network of contacts to explore what might be available from these sources to assist with future needs. 

Evaluate contracts and leases

If your practice is experiencing or anticipates experiencing cash flow issues (likely for most practices in the current environment), this is a good time to get in touch with landlords, equipment lessors and others with whom the practice has contractual agreements to discuss looser terms or even discounts. Use the 13-week cash flow model to evaluate which contracts can have the greatest impact on cash flow and which payments are coming due soon. 

Evaluate the practice’s supply chain

Regardless of cash flow, if in-person patient volume is down, management should evaluate standing supply orders to ascertain whether to cancel, postpone or decrease quantities. When making these decisions, however, keep in mind potential future upticks in patient volume. Suppliers may not be able to ramp up as quickly as a practice does, so it may be useful to keep some extra supplies on hand. 

In addition, consider whether key suppliers are in danger of bankruptcy, ceasing operations or significant disruptions due to stay-at-home orders and employee illness. While a medical, dental or optometry practice may be considered a critical business, a distributor or even manufacturer of needed supplies may not be. It may be advisable to research alternative supplier options in case of disruption. 

Track one-time impacts and changes related to the COVID-19 pandemic

It is clear that nearly every physician practice will feel the impact of COVID-19. Track key performance indicators (KPIs) such as cash flow, cash position, net income, revenues, patient volume, collections, accounts receivable outstanding and aging, payor mix changes (self-pay, private insurance, Medicare, Medicaid, etc.), patient appointments and patient cancellations. Also track changes in net working capital throughout this disruption. 

Doing so will help you to project a normalized state and enable you to look back and see how the decisions made during this time affected bottom line profits, cash liquidity and other key performance indicators. Just as importantly, tracking KPIs will enable practice owners to quantify the pro-forma impact of this one-time event during any future negotiations with potential investors, acquirers or lenders. Be diligent in keeping track. 

Communicate with shareholders, lenders, investors, employees and patients. 

Let key stakeholders know the thorough measures the practice is taking to address COVID-19 financial and/or health concerns. Shareholders, lenders, investors and, to a lesser extent, employees, should be kept up to date on additional financing the practice has applied for or received, changes made to contracts and leases, discounts it has obtained, and other measures that help to stabilize the practice’s finances. 

Shareholders, lenders and investors should also be apprised of supply chain assessments and contingency plans. Even if these plans may never materialize, they demonstrate good business planning and can help increase confidence in the future of your business. Concise and regular communications with financial stakeholders keep the lines open and may facilitate additional financing or assistance the practice may require. 

Keep employees and patients apprised of changes in operating hours, moves to telemedicine, new hygiene or distancing practices in the office, new check-in procedures, limited access to any departments (for instance, in-house or outsourced billing departments may not be fully functional due to COVID-19 restrictions) and if anyone on staff was diagnosed with COVID-19. Furthermore, when you become aware that your practice will go back to “normal” operations, make sure to properly communicate information to employees and patients to set yourself up for a seamless transition. 

Support employees

Whether they are in the office, working from home or furloughed, management should clearly show employees that they care about them and support them and their loved ones. If necessary, help them identify assistance programs. Good employees are perhaps the most valuable asset of any practice, and management’s actions and considerations during this time will be remembered and stand out for years to come. 

This state of emergency will pass, and many practices will be able to return to full operations. Long-term prosperity and valuation can be greatly influenced by actions owners can take now: planning liquidity to survive and positioning the practice for opportunity to prosper once economic stability returns.