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Is your medical practice large enough to have a CEO?

January 31, 2018

By Kevin Schmitt, CPA, CFP®
Partner

Independent medical practices often grapple with the question: Are we large enough to need or sustain a CEO? As providers of accounting, tax and business planning advisory services for independent medical practices for over 70 years, we’ve frequently helped clients answer this question. We recently sat down with our independent medical group practice team leader, HK partner Kevin Schmitt, to discuss this topic.

How do medical practices without a CEO traditionally operate?

Practices without a CEO typically operate by a committee of physicians or by a doctor and his/her staff. In the case of a single-doctor practice, the doctor establishes the policies and procedures and signs contracts with whomever he/she chooses. When a practice is home to multiple doctors where each has a stake in ownership, the doctors form a committee which makes policy and procedural decisions and collectively decides which contracts to sign. This generally works until you get to more than eight owners in a practice.

When would a medical practice consider adding a CEO?

When it comes to operating the business-side of a practice, some doctors are more successful than others. When multiple physicians have a stake in ownership, the question becomes when do they move from committee-form to corporate-form and what does that look like. At 5-15 physicians, you may not yet need a CEO, but a COO who can focus his/her time and day-to-day tasks on running the business aspect of the practice. This could be a doctor who is especially adept at managing the business, or a third-party professional who understands the industry.

What would a CEO/COO position entail?

When a practice is ready for a COO, most will hire from the outside. Practice groups traditionally have an office manager, which is the first step to moving on to a COO. Sometimes that office manager is a nurse who understands business and medicine, can handle payroll, human resources (HR), etc. This approach can work up to a point. When a practice group transitions to a COO structure, the COO becomes responsible for the marketing, HR and financial aspects of the business’s management; but the physician group is still in charge of making the final major decisions such as how they are going to practice and with whom are they going to align. Making the decision on whether to transition from an office manager to a COO often comes down to needing more dedicated time to focus on operations, dealing with contracts, and managing staff and HR issues. When those areas become too complex, a COO may be necessary versus an office manager with a business background.

When a practice is home to 12-15 physicians, you are starting to look at a corporate model of governance with a lot more owners who have many more opinions. At this point, a CEO with a small executive team who can be entrusted to make the big-picture decisions becomes more necessary. The physician owners need someone they can turn to who is more visionary and strategic. A CEO can disseminate the group’s mission out to the management team – HR, finance, marketing, etc. – as well as the staff; then, in turn, the staff have a channel to funnel their input back up to the top. The CEO becomes a conduit between the operational staff and the owners of the practice.

What other benefits does having a CEO bring to the table?

Having a COO or a CEO allows the doctors to be doctors. Physicians see greater enjoyment in their work and enhanced success when they aren’t trying to split their time between practicing medicine and doing the day-to-day office work. As a single-practitioner, you are going to have to do both. Organizations with five to eight physicians can manage by splitting up the workload. But, when you get to 12-15 physicians, without that visionary oversight, those practices likely aren’t meeting their full potential. A non-physician CEO whose primary duty isn’t practicing medicine can alleviate the operational burden from the physician owners and help them get back to practicing medicine.

If you’re still unsure if a COO or a CEO is right for your group, ask yourself these questions:

  • Do you find yourself spending more time running the business than practicing medicine?
  • Are you maximizing physician return on the business? Do you see the CEO as an investment versus an expense?
  • Are you negotiating the right contracts, dealing with the right people, and finding the right fixes?

If you need help making this decision or finding the right COO or CEO, HK can help. Call 888-556-0123 or fill out our form.

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