SUCCESSION BLOG #1 – WHY IS SUCCESSION IMPORTANT TO THE PHYSICIAN LEADER?

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The topic of physician and business leader succession has, perhaps, never been as important as it is today.  The healthcare industry is no exception to our country’s demographic trends.  In fact, healthcare professions may actually be seeing a more pronounced element of transition than most other industries over the next ten years.  Multiple studies indicate that as many as one-third or more of domestic physicians are in the 56 – 65-year age range, with the next highest bracket of 46 – 55 years being only slightly behind in percentage terms.  This demographic trend is not limited to clinical roles, as statistics relating to healthcare administrators and office managers are very comparable.

In the first of this three-part series on succession, we’ll discuss the merits of having a sound succession plan and executing it effectively.

Planning for orderly succession in areas of both leadership and clinical execution is critical.  What does effective succession look like?  Simply stated, a functional succession scenario ensures that a practice maintains clinical capacity and that it experiences no diminishment in either productivity or long-term business trajectory as a result of retirements or age-related transitions in key leadership personnel.  While there are many important reasons for ensuring effective succession, the five listed below stand out.

  1. Business and Clinical Continuity

We all know that clinical practices are complex businesses.  As implied above, a primary objective of succession planning is to ensure that staff transitions related to retirements, illness, or unexpected death do not negatively impact patient care and access, business results, or the workloads of remaining staff.  This may seem like an overwhelming aspiration.  Making plans to ensure that necessary human resources have been acquired or developed in advance of the need for transition coverage is simply good and responsible management that mitigates continuity risk.

  1. Valuation in Event of Sale

Are you thinking the sale of your clinical enterprise to a third party such as a health system, private equity firm, or larger practice may be your exit strategy?  Make no mistake about it, acquirors place value on future cash flow. The more certain a potential buyer can be about future performance, the higher the valuation will be on your practice.  Likewise, uncertainty regarding ability to maintain productivity levels or ability to oversee and execute the business of medicine in a clinical business will result in discounted valuation.  In extreme cases, failure to ensure stable, go-forward performance can even make a practice unsaleable resulting in liquidation or wind down of what may have once been a thriving clinical enterprise.  Solving the succession issue adds financial value to your practice.

  1. Operational Effectiveness

By the simple nature of acquiring or developing talent in advance of succession events, practices can add capacity and competency that positively impact their performance.  The addition of clinical production, influx of new ideas and initiatives, and ability to increase work sharing amongst staff can incrementally improve financial return.  Before deferring or even avoiding investment in clinical and business talent, consider the possibility of return.  You may be surprised.

  1. Taking Care of the Work Family

Healthcare practices exist to serve patients, and those patients depend on you for obvious reasons.  You also have employees who have served both the business and patients and are oftentimes highly dependent on you as well.  Investment in succession ensures that team members who may have a need for continued employment are able to maintain their roles for benefit of themselves and their families.

  1. Preservation of Alternatives

Perhaps the most important reason to consider succession planning prior to experiencing a transition event is to ensure that your practice has multiple options and alternatives.  Well formed succession plans typically result in choices.  These may include transition of ownership to a next generation of physicians and leaders, sale of the practice at optimal value, or the merger of clinical operations into another practice.  Failure to prepare tends to limit options and often forces disposition of the enterprise at a point when there are limited alternatives and/or little leverage in negotiating value that you’ve worked to build over many years.

The idea of making time to ensure smooth succession transitions may seem difficult, risky, and even overwhelming.  Without an appropriate level of organization and support, it may be.  In articles to follow, we will help you along your way in this important journey.  We will share steps you may take in preparing for succession and define what an effective succession program may look like.

Additionally, we are available for conversation on the topic and to answer any specific questions you may have regarding merits of formal succession planning and how you may best prepare for both the anticipated and unforeseen.  With intention, you can be prepared and ready for your next phase personally while positioning your clinical practice for the future!

Jerry L. Kelsheimer is President of Medic Management Group / MMG Healthcare Solutions.  His background includes extensive work in areas including business advisory, leadership development, strategic planning, process improvement, and transaction support.  MMG is a national provider of consulting services and back office administrative support to independent and system owned physician practice groups.  Additionally, MMG has been formally recognized as a multi-year Northeast Ohio Top Workplaces award winner.

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