In this age of AI-ascendant services, why do you need to read another blog post about healthcare business plans? Just fire up your favorite AI software, put in a few terms and conditions, and see what the application has learned about how to write a business plan. Admittedly, you may see some good ideas and concepts in an AI-generated version of a business plan, but what do you do when the concepts and especially the financial projections don’t match what you know about the marketplace for your services? Well, then it’s back to the drawing board, and maybe to a blog post by a company that has written and helped implement a dozens of market assessments, financial feasibility studies, and healthcare business plans over the years.
Let’s start with the basics.
Table of contents
What is a Business Plan?
The Oxford Dictionary defines a business plan as “a document setting out a business’s future objectives and strategy for achieving them”. From that straightforward definition, we can add several layers, including:
Why is a Business Plan Necessary?
One recent saying I read went like this: “Before there was a business, there was a business plan.” Well, lots of businesses have been created without someone writing a business plan, but anyone who needs investors or bank financing probably won’t get far without a written business plan these days.
Besides cataloging financial resources, what else does documenting a business plan accomplish? It forces you to think through, in detail, all aspects of the business you are planning to launch. Is qualified staff hard to find? Do they need to be licensed by a state agency? Who is the customer and how do you reach them? Who will pay for the service or product? Are there regulatory concerns like hazardous waste disposal or HIPAA? Does your business require specialized technology?
Even for a small business with a limited range of products or services, the list can be long.
Major Elements of a Healthcare Business Plan
The range of services and products in healthcare is enormous, so the elements of business plans for various services and products are also extensive. The healthcare space ranges from hospitals, nursing homes, outpatient surgery centers, and home care services to healthcare practices, imaging centers, and medical laboratories to support services like medical billing, medical supplies, and information technology. For each type of service, the target customers, marketing plan, and other essential components of a business plan will be different.
For purposes of example, we will assume the business we want to start is a family practice physician office in a new geographic area. What would we find in a business plan for this type of business?
The Executive Summary
In many respects, the executive summary is the most important part of a business plan. Investors or other sources of financing may only read the few pages in an executive summary before deciding to move on. So an executive summary has to condense all the important details of the plan into something that can be read in just a few minutes. This would include things like the service or product offered, the location, the target market, marketing strategies, organization and staffing, important legal or regulatory hurdles, and a summary of the financial resources and proforma financial results of the service.
Ownership and Mission
Ownership and governance come first. State who owns the practice, the legal structure, and how decisions are made. List managing members or partners and any management services organization relationships. Then present a concise mission and the values that will drive clinical care, patient experience, and daily operations. Add a short vision sentence that looks ahead telling how the practice will serve the community and grow responsibly over the next three to five years.
Target Market and Market Analysis
Family Practice physicians are trained in the care of patients of a wide range of ages. That said, an individual physician may choose to limit the age range to post-newborns to people 65 or younger. This means that the business plan should focus demographic information on people in that age range. Geographic location can also be important in deciding how much of the population will be willing to go to the prospective practice location. For instance, in an urban area, people will often look for services within 30 minutes’ drive time, while extended travel time may be a fact of life in rural areas. Population factors such as education and ethnicity may be less important for primary care physicians, while employment and insurance coverage are important to most healthcare practices.
A second “target market” may be the managed care plans prevalent in the area. While many health plans always welcome more primary care providers, some have closed panels or panels limited to physicians with privileges at specific hospitals.
In any case, the market analysis should give some indication of the physician population density and the opportunity to add another physician to the marketplace. Making a more detailed assessment of the persuadable market for a new primary care physician would require some level of market research in the general environment for the new practice. This type of service can be very expensive, and is usually not required to determine if a specific area can support another primary care physician.
Business Organization, Management, and Staffing
Individual primary care practices are typically a small operation in terms of staffing. But a practice may also include physician extenders like Nurse Practitioners or Physician Assistants as part of the team. This part of the plan should identify all staff members and describe how some support functions, like billing and housekeeping, will be accomplished.
Marketing Plan and Strategy
These days, it would be very unusual for anyone to consider visiting a new physician office without looking up the physician online and considering reviews found. So an online presence is one of the most basic strategies for any business looking to attract new patients. There are numerous websites dedicated to helping people find physicians in their area, so getting listed on them is very important.
A second strategy for primary care providers is to contract with managed care plans that are available in the area, and making sure you can get a contract and are on the online directories they are required to make available.
Besides being listed on health plan directories, specialty physicians who rely on referrals from other physicians must consider organized referral development activities. Quality services to patients are a given, so these include things like thank you letters to referring physicians, routine outreach to referral sources, and monitoring the results of all referral development activities.
Financial Projections
Perhaps the second most important part of a business plan for medical practices is the financial projections for the new business. We generally refer to this component as a financial feasibility study.
A financial feasibility study is designed to help you organize and analyze the financial components of a business plan. A comprehensive feasibility study should cover:
- A set of assumptions about start-up costs, fixed costs, variable costs, and net collections.
- A unit of measure of demand (or service) that can be utilized to forecast variable expenses. For instance, in healthcare practices, a common unit of service is patient visits. Forecasting or estimating the number of patient visits can help forecast variable expenses like medical and non-medical supplies.
- Net collections can also be forecast by utilizing rates paid by Medicare in your target service area for a mix of new patient visits and follow-up visits.
- Many other expenses may be fixed in the short run (one year or less). This includes expenses such as staff salaries, rent, and insurance. Loan payments may also be fixed for one year at a time.
- Other expenses may be based on other variable factors. For instance, a billing service may charge a percentage of net collections. Employee benefits can be expressed as a percentage of salaries.
The net result of these calculations should include a statement showing expected revenues and expenses plus a statement of cash flow. Both of these proforma statements are necessary for success in obtaining outside financing to cover start-up expenses.
Advantages of a Business Plan
In the long run, taking the time and effort to compose a business plan for your new healthcare practice has several benefits:
- It can provide a roadmap for growth, helping you reach strategic goals and benchmarks.
- It can help you evaluate how to cope with the myriad of legal and regulatory requirements that affect healthcare organizations, like HIPAA, third-party reimbursement, and regulations on the service you are planning to offer.
- It can help you identify particular challenges to be overcome, like finding staff and space.
- It can enable you to find outside investment or loans to help you get started.
As noted above, a lot of businesses are started without a written business plan. That’s great for people using their home kitchen to start baking delicacies or for social media influencers who work in front of a camera in their living room. For healthcare practices, not so much!