With the advent of the subprime mortgage credit crunch and the very real prospect of inflation for the first time in decades, it looks as if the United States has started an economic downturn.5 It's overdue, as we have had one of the longest periods of economic growth in U.S. history.7
The question economists and investors are now pondering is whether we are entering a recession or if it is a reasonable contraction to a growing economy.
The estimates from big investment companies range from Swiss Re's 35 percent (recently raised from 20 percent) chance of recession to Merrill Lynch's 70 percent prediction.8 Regardless of what way the economy goes, most commentators on the economy are predicting a slowdown. How can Oriental medical practitioners weather this storm? This article examines our strengths and weaknesses, as well as some strategies for protecting ourselves.
First, the good news: Health care usually holds up pretty well in an economic downturn.1,9 Since we are part of the health care system, we should do OK - maybe. We can't be complacent and we may need to change some of our business strategies to accommodate the changing economy. We also need to examine our weaknesses in order to do this. Many of these "weaknesses" may be controversial. If you disagree, great! As a profession, we need to think about some of these issues. Individuals need to decide how to deal with them. Here are some of our negatives and some strategies for doing just that.
We may be deliverers of health care, but we are not fully integrated into the health care system. This may mean we are not as shielded as other health care professionals from the downturn. Since we are primarily providers on an out-of-pocket basis (patients pay for their services), some patients may reassess their finances and conclude they cannot afford our services during an economic downturn. Now, if we are treating patients for pain and succeeding at it, most patients will continue to pay out-of-pocket. If we are treating something more intangible and the results may take awhile to manifest, it may be a tough sell. Also, services that are elective may take a hit. These include facial rejuvenation and reproductive medicine - some of our current hottest trends.
So, there is one word that is the antidote for most issues in an economic correction: diversity.2 Diversify your abilities for patients to pay. If you don't accept credit cards, start looking into it. Diversify your patient mix. If you have 100 percent out-of-pocket patients, this is the time to start adding workers' comp and insurance to your patient mix. This last point is very controversial, but this is exactly the time to consider accepting insurance.
Patients are far more likely to continue seeing you if most of it is paid for by insurance. Furthermore, which would you rather have: $40-$50 for a treatment as paid by insurance, or nothing when the patient decides they can't afford it anymore? Think about taking insurance as assurance that you will continue to have an income stream from your patients, even if your income is reduced. A common complaint about taking insurance is that they don't always pay. This is reduced greatly as the provider becomes more experienced at the process. As in anything else, there is a learning curve to accepting insurance.
In biomedical health care finance, the patient mix is extremely important, as it allows an entity to weather any major regulatory or economic changes.2 In California, many acupuncturists had nearly 100 percent of their patients in the workers' comp system because it was so lucrative. However, some acupuncturists lost their practices when workers' comp basically was eliminated. Only recently has workers' comp started to become viable for acupuncturists again, about two or three years later.
Diversity also means not having most of your patients in an elective service. It is possible many of today's very lucrative facial rejuvenation and reproductive medicine clinics may lose a large portion of their business. This is not to say the skills and studies necessary to create such a practice are not worthy of respect, but rather that having an entire practice in one elective specialty may carry some economic risk. Now, before the full brunt of the downturn, may be the time to brush up on other forms of treatment and start marketing them.
Of course, having a large sum of money in investments or the bank certainly would provide a cushion and some breathing room in any economic chaos.4 But many of us don't have that. An alternative is to open a line of credit, either from your business or your home. Lines of credit are a cash-flow management tool: If money becomes tight, you will still have some ability to maintain your practice and retool it. The issue with a line of credit is that usually, you can only get it when you don't need it. Get it now. If you don't need it, don't tap it; there's no cost. But if you do need that line of credit, you will be very grateful you had the foresight to open it when things were going relatively well. An expensive, but still viable, alternative is to have an extra credit card around that has an unused, relatively high limit.
If you are successful enough to have investments, talk to your financial advisor. Preparing for an economic downturn requires putting money in different investment vehicles. Investments popular in a defensive position include putting more money into bonds, especially bond funds.3 While these may be low-interest instruments, they can offer a steady and relatively safe investment. Furthermore, with falling interest rates, bonds appreciate. In the stock market, funds usually flow to large, stable companies, especially those in the food staples (e.g., bread, eggs and milk), health care and consumer goods (soap, toothpaste, toilet paper, etc.) markets. Of course, a downturn may be a great opportunity for an aggressive investor to purchase a good stock that has lost some footing.
There are really only two take-home messages for dealing with an economic downturn. The first is to diversify. The second is to take a good look at potential strengths and weaknesses, opportunities and threats. These last four points constitute a standard brainstorming exercise in business.6
Take a piece of paper and draw a vertical line and a horizontal line so there are four boxes. Label each with one of the four headings: strengths, weaknesses, opportunities, threats. Strengths and weaknesses are inherent to your practice, while opportunities and threats are external. Spend five or 10 minutes brainstorming and add what comes up in each of the appropriate areas. Afterward, use this as the basis of a plan to strengthen your business and deal with the possible rough seas ahead.
In short, don't wait until the storm sets in to start battening down the hatches.
Dr. Greg Sperber currently runs a private practice while teaching practice management and other classes at PCOM. He is president of the California State Oriental Medical Association and author of a new book: Integrative Pharmacology, Combining Modern Pharmacology with Chinese Medicine.