Market Research in YOUR Office

We have always been amazed at how few doctors bother to ask their patients what they like and don't like about the practice.  I recently became the patient of a great, young internist. He is everything I like in a doctor. But he has ONE little flaw: he thinks I will tell him to his face what I don't like about his practice. 

We hope that at some time in your professional training you learned that the white coat and latex gloves place the doctor and patient into a somewhat uneven relationship. After all, guys with white coats and latex gloves have the ability to hurt you in ways that, well, are not common. Why would he think I am going to complain about his front desk lady just as he is rubbing KY jelly on his index finger? Can you image that with the light in my eyes, as the chair lowers at the dentist that it is the time to say that his assistant has terrible breath?

If you don't do it already, PLEASE consider a patient survey. They are available from so many sources and all have some value. We offer such a report (that can be customized) for as little as $350. This is an in-office survey. Another company we know will do telephone surveys for about $950 to start (at our last check) and another does simple post cards for about $750. 

If you have any specific questions about these surveys, sample sizes, formats, and the like, why not post them here?

Today's Disaster, Tomorrow's Wonder

One advantage of reading history is that the cycle of boom and bust becomes somewhat coherent. Over my more than 20 years of looking at demographics for practices, I have come to see that the very places that things look terrible (or wonderful) WILL change quickly. A great example of this is Riverside County, California. At present, there are 11,640 properties that have been returned to lenders or investors. This represents 1.1% of the total properties. 

This has caused a chill among doctors considering places like Riverside County as a place to put a practice. Keep in mind what is REALLY happening here. Folks got overextended and had their homes foreclosed upon. Obviously this is terrible for them and the local housing market. The lender wants to get rid of the property ASAP so they try to move it by reducing the sale price. A house that is "below market" will necessarily lower the price of existing homes (that are for sale) by as much as 15% during a good time and 50% during a terrible economic time (when there is a credit crunch, like right now.) Doom, despair, and agony!

BUT, the area becomes a bargain basement for new home owners and investors. These homes WILL sell as soon as these buyers believe that the bottom has been reached. That is how the market works. Now, rather than an inflated real estate market, people move in who either didn't have the money to move in to the area OR have money to invest to upgrade the property which they could not do before. 

The result is a sad case for new home starts and sales. There may even be a temporary dip in new patients during the transition time. But as the bottom of the market is touched, almost every area that had serious foreclosure percentages will zoom back up. 

So, if I am a young doctor who is getting out of school in a year or two, these are exactly the sites that I would consider targeting for a start-up practice. The only exception is a site that has passed the "point of no return" in terms of economic stability. This is the case with Detroit. It certainly doesn't help that the local and state officials believe that taxing their way out of debt is anything but a pipe-dream. This MAY be happening in Cleveland at this moment. We believe we can make a good case for letting the market find its own balance!

The metropolitan areas with the largest numbers of properties in foreclosure are (according to First American Core Logic):

Chicago-Naperville-Joliet, IL 46,345 2.5%

Atlanta-Sand Springs-Marietta, GA 26,310 1.8

Detroit-Livonia-Dearborn, MI 19,647 2.4

Phoenix-Mesa-Scottsdale, AZ 18,585 1.8

New York-White Plains-Wayne, NY 18,442 1,2

Denver-Aurora, CO 17,048 2.4

Riverside-San Bernardino, CA 11,640 1.1

Los Angeles-Long Beach, CA 11,057 0.6

Washington-Arlington-DC/VA 10,881 0.9

Cleveland-Elyria-Mentor, OH 8,266 1.3

In those locations that are allowed to find their natural balance, we believe that within 2 years the practice potential will be significant.

Sweet Spots: Where in a town should you open a new office?

The title of this post suggests that there are different places to put practices within a community and that the ideal places will change. In this case, we are considering communities that have 30,000+ residents (ideally 50,000+).

We have noted that the new housing market has slowed to the point that many doctors who have opened offices to cater to these new residents are feeling the strain. So, are there any alternatives? Data from our brethren in Real Estate indicated that there are two kinds of "centers" in most communities that are enjoying growth even when the city itself is doing poorly. These are:

- Universities
- Hospitals

The trend HAD been quite the opposite in the 1980s and early 1990s. Hospitals were going through consolidations and Universities were suffering from a dearth of students. But with the increase of adults seeking regular treatment from fewer but larger hospital facilities and the "bump" in the U.S. population (from many causes we will discuss in another post), the University growth in new building had ancillary developments contiguous to campus has made them a natural attraction for a start-up office.

New Patient Trends: Permanent Problem?

We have heard the story again and again about how new patient counts are down in most regions of the U.S. We thought we would explain one of the important reasons for this. We believe the issue is more one of considering "dental economics" rather than "demographics" even though demographics may get the blame.

Simply put, fewer people are buying and selling homes right now than at any time over the last five years. Certainly, there are exceptions to this trend but it is manifested broadly enough to be considered a national trend. With fewer people moving into the area, there are obviously fewer "new patients" who might respond to an advertisement. Those with a doctor(and research strongly backs this) tend to like their dentist very much. The primary reason for changing doctors has been relocation.

This means that new patient counts are going to be down for EVERY kind of practice in most areas of the U.S. This does not account for lower production, however. Before getting off the topic of new patients, we have to point out that many doctors get into the habit of "patient turnover" rather than "patient retention." They assume that there will always be someone new coming in the door. During times of economic downturn, particularly a downturn in new housing, making sure that your recall system is in place and working is vital to practice viability.

With the exception of TRULY discretionary medical and dental services (breast augmentation?), there is only a delay in treatment rather than a fundamental change in the medical and dental purchasing habits of patients. We note that these "dry spells" usually last about 18 months (more or less). So, we recommend being extremely careful when it comes to looking at the green grass on the other side of the fence. Certainly, demographics change and should be accommodated. We only want to make sure you are not making decisions based upon fear.

Costco as Savior

It appears that there is a new "trend" in saving dying shopping malls. While big box retailers like Mervyn's and Macy's are folding their tends and moving on, Costco is taking their place. There are 396 such warehouse clubs in the U.S. Costco has made the move to take over locations that have not been profitable for other stores, even in enclosed malls.

Costco members (who pay for an annual membership fee of between $50 and $100) have median household incomes of $62,222 compared with the national average of $46,243. There is some possiblity that a similar trend will catch on with Wal-Mart Stores (and their Sam's Club model which is similar to Costco) but it appears this has not happened yet.

So, if you want to consider new locations for practice, you might want to look up to see if a new Costco is coming to town.

Dodging Bullets and Defying Gravity

There are times that one must look deeply at "the numbers" of a practice before completing a sale. This case-in-point may prove instructive:

A nearly retired orthodontist and his wife were helping their son, a new orthodontist, get set-up in practice with the purchase of an existing office. They had asked us to do a demographic report on two sites (including the one for sale). The "other" site proved to be much better in terms of competition, referral base, growth, demographic character, and the other things one would hope to find. Still, they had received "the numbers" including the tax return of the practice they had considered for sale. The money was fantastic! The overhead with less than 30%! The sale price was reasonable! Why would we NOT recommend this area (even though the demographic picture looked poor and declining). Surely the money that this doctor was bringing in would make the sale a "no-duh."

So, we looked at the numbers behind "the numbers" and found a few interesting truths. For one thing, the doctor was selling to move to a different state to start all over again. One has to ask "Why would this doctor leave such a 'cash cow?' " The other question we need to ask was ,"How can one operate with such low overhead in what was a fairly normal-to-expensive place to practice?"

We learned that the seller had put NO money in the practice for a very long time. The physical facility was awful. The equipment was worse. We also got wind that the staff was underpaid and not happy about it but they thought a new boss might bring a desirable change to their situation.

The selling doctor was a very shrewd investor and he has every right to be. So, assuming that his numbers were correct, was he being dishonest? Absolutely not!

We have to assume that if the young buyer (and his parents) pursued practice in just the same way as the seller, this practice would probably be profitable. But in discussing the issue with this young buyer, his parents revealed that it was his plan to invest in the building and the equipment. He had an idea that if he could invest some of the "big money" coming out of the practice, he could easily afford to make things better. Of course, the staff would be expecting more money AND there are myriad other places that would need money as well.

It is also our assumption that the seller saw the curtain falling on the demographic stage and thought to make a timely exit. Smart people often do that.

The lesson here is to young buyers: if you assume that you are going to make a "silk purse out of a sow's ear" it is going to cost you more than a silk purse AND a whole pig to do it. When you look at numbers, you are looking at more than cases that have potential or patient records. You are looking at a practice philosophy and a business model. If you can improve upon either or both, you will be profitable. But keep in mind that all the information you have gotten on the practice such as overhead, production, and collections will all go out the window and have NO value to you in evaluating the practice's potential for YOU.