How to Recession-Proof Your Concierge Medical Practice
A big topic of discussion at this year’s annual ROAMD meeting was the impending economic recession.
Just take a look across the economic spectrum. Inflation continues to rise, interest rates are climbing in response, costs are skyrocketing, and labor shortages are plaguing every industry. If a recession isn’t already here, it seems to be on the doorstep.
Now, we aren’t in the business of fortune-telling and crystal balls. Maybe a recession will hit, and maybe it won’t. Maybe it will be milder than anticipated, or maybe it won’t.
Either way, our message here isn’t one of doom-and-gloom, Chicken-Little-style dramatics. Our message is that we can never be absolutely certain of the future, but we can prepare our businesses for economic downturns — because they’re going to happen. Whether they show up in the next year or the next decade, there are zero downsides to preparing today.
Why It’s Important to Recession-Proof Your Business, Even if Everything Is Fine
The fact is, running a business comes with a lot of risks. Insulating your practice against the unexpected is one of the top ways to mitigate some of that risk. Recession or not, practice owners can take certain steps to keep the whims of the market and other unpleasant surprises from catching them off guard.
Though the points in this post focus on recession-proofing, taking these steps will make your practice run more efficiently and with less risk in any economic situation. At a minimum, they’re just extremely responsible business behaviors.
If we’ve learned anything from recent world events, it’s that every economic downturn is unique and affects industries differently.
Though the 2019-2021 pandemic didn’t quite qualify as a recession, it certainly created an unexpected economic shift. Price points and spending were affected in wildly varying ways, yet many concierge practices saw an uptick in subscriptions. As people in need of primary care found themselves unable to get in to see their physicians, they turned to concierge medicine.
This uptick came within certain parameters. We still observed some attrition among memberships below a $5,000 annual fee, and almost none above the $5,000 price point.
Does that mean the best way to insulate your business is to have only rich patients? No. But it might provide useful awareness that pricing structures with 100% of memberships below the $5,000 mark are more vulnerable to economic fluctuation.
However, the pandemic downturn was a bit of an anomaly in that it was a healthcare-driven shift. Can we expect the same 10% year-over-year increase in memberships during a different type of downturn? It’s hard to say.
As business owners, all we can do is be prepared.
Best Ways to Recession-Proof Your Business
Taking action to set yourself up for success in any economic environment will only improve your practice as a whole. Below are six top steps you can take to prepare for the unknown.
1. Give Yourself Financial Runway
If all your revenue streams suddenly shut off tomorrow, how long could you continue to operate your business based on what you have saved in the bank?
Saving three to six months’ worth of operating capital — everything from payroll to utilities to rent — will provide a solid buffer to help keep your business running in a difficult economic stretch. In the annual meeting, a show of hands revealed most practices have about two to three months of operating capital saved, which is a great foundation to build from.
2. Maintain a Line of Credit
A related best practice is to maintain access to a line of credit. If you find yourself in a situation with shortcomings on your month-to-month, the last thing you want to do is wait for a bank approval process to gain access to a line of credit for your business.
If you’re reading this and don’t already have a line of credit open, I encourage you to apply for one the minute you finish reading this post. Having it doesn’t mean you have to use it, but obtaining that resource now means it’s ready and waiting in case of an emergency.
3. Run a Lean Operation
Another best practice for any business, recession or not, is to make sure you’re running a lean operation. When times are good, the natural tendency is to allow new — and perhaps unnecessary — expenses to creep in and eat away at your revenue. Economic downturns expose those expenses for the burdens they are.
To keep your operation lean, take a second look at everything you’re paying for and decide if you really need it.
For example, make sure you’re choosing the right vendors and services without exorbitant or unnecessary costs.
If you’re looking to rent, make sure you understand the lease terms — can you get out of it on short notice if necessary? Or, can you avoid a 15-year lease in favor of a three- or five-year contract?
If you already have a space, are you operating in 10,000 square feet when you only need 5,000? If you’re not planning to grow in the immediate future, you might consider finding a more cost-effective building.
These are just a few examples. I’m sure you’ll come across others specific to your practice. Simply put, the principle is not to spend freely just because times are good.
One important caveat here is not to cut out the services that feed your revenue and optimize your operation. These include professional services like sales, marketing, recruiting, and accounting.
It’s good to be strategic with these budgets, but be careful not to write them off as unnecessary expenses. They’re the long-term investments that keep your business healthy.
4. Be Sensitive to Your Customer Base
We got into concierge medicine to take care of patients in a deeper way. We develop relationships with them, and we have the opportunity to understand who they are, what they’re going through, and how economic downturns affect them specifically.
If you have a meaningful relationship with your patients, most people will genuinely want to find a way to retain their memberships even in the face of financial hardship. When you’re prepared to accommodate them, working with them on a price structure if necessary, you turn an already satisfied patient into a loyal patient.
If you feel compelled to offer discounts or scholarships to help keep patients through difficult times, one important best practice is to incorporate term limits.
For example, a patient might need 50% off the typical fee in order to keep their membership. You can offer that, but with a term limit of three months, six months, nine months — whatever you decide — on the scholarship.
Why? Because no patient is going to come back to you after things turn around and ask to go back to the higher fee. You don’t want to find yourself in the uncomfortable position of hearing about a scholarship patient’s recent vacation to Italy while they’re still paying half your rate.
It is best to build in a term limit upfront, and then it’s back to normal business after your agreed-upon arrangement. Patients will honor and respect that.
5. Keep the End in Mind
Recessions are challenging and can lead to emotional decisions. It’s easy to get caught up in the moment, making rash, short-term choices that you would never make for your business under ordinary circumstances.
It can be helpful to remind yourself that, compared to other luxury goods, our industry is already somewhat recession-resistant. You can be confident in running your business with longevity in view. Remember, you’re developing an asset and showing that it can weather storms productively, which will attract higher multiples on an exit down the road.
It’s never too soon to start succession planning. Even if you have no intention of selling in the near future, planning for it now will illuminate better choices for your business today. In other words, recession-proofing folds into succession planning.
6. Build Multiple Revenue Streams
Membership fees are one way to make money, but there are other ways — ways that don’t consume physician time and workload.
Your RN or MA can carry out many ancillary services that generate additional revenue and keep your staff engaged during slowdowns. And you don’t necessarily have to limit these services to members only.
For example, you could offer physical therapy, massage therapy, or IV therapy as an ancillary service. If you open these to non-members, someone might start with you as an IV therapy patient and then convert to a full membership and primary care. This is also a great way to introduce Millennials to your practice.
The options for additional services to offer are practically endless.
Final Thoughts
You don’t have to be staring down the face of impending recession to benefit from recession-proofing your business. In essence, recession-proofing is just making sure you’re practicing extremely responsible business behaviors and planning for the future.
These aren’t the only ways to recession-proof your practice. What are some steps you’ve taken or found success with? We’d love to hear from you.
ROAMD is an international network of membership-based medical practices, coming together to learn, grow, and thrive.
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