The Business of Plastic Surgery: Navigating a Successful Career

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World Scientific

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Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library.

THE BUSINESS OF PLASTIC SURGERY Navigating a Successful Career Copyright © 2010 by World Scientific Publishing Co. Pte. Ltd. All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher.

For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy is not required from the publisher.

ISBN-13 978-981-4277-29-7 ISBN-10 981-4277-29-0

Illustrations by Heather Furnas Cover design by Max Jaime Korman and Jimmy Low Typeset by Stallion Press Email: [email protected]

Printed in Singapore.

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We dedicate this book to all plastic surgeons who are committed to doing the very best for their patients. In today’s world, success is often determined by more than skill and hard work. We hope these chapters will help the accomplished surgeon develop the necessary business acumen to ensure a happy and healthy career.

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Preface

The idea for this book came from a general feeling that we did not learn anything about the business side of plastic surgery while we were in training. In fact, after almost 20 years in practice, the information in this volume is what we would have liked to have known when we first started our professional careers, as well as through the years of practice. Plastic surgeons are as diverse as the procedures we perform, but most of us have two things in common: an MD degree and effectively a “Bad in Business” degree. Long gone are the days of the good insurance reimbursements and increasing your practice volume based on your fine reputation. Health maintenance organizations (HMOs) and provider panels did away with both. With the commoditization of the specialty, many patients are happy to settle for the cheapest price in town. Times have changed, and we have to change with them. There are many aspects of running a practice that were not even on the radar screen 10 or 20 years ago. This book collects the expertise of disparate professionals to help you practice smarter. We have divided the book into five parts. The first, Career Directions, is intended for both residents in training as well as plastic surgeons who are considering a change in their practice venue. It pays to choose your mode of practice with eyes wide open. It can be time-consuming, costly, and stressful to choose the wrong venue or to make a major change mid-career. The second part, Marketing and Monitoring, will be most useful for the private practitioner, either in solo or group practice, and the information presented here can be utilized more broadly for other practice venues. Web-based and more traditional marketing can drive the patients in the door, but is your practice retaining them? Tracking those numbers is what monitoring is all about. Of course, you will never reach the numbers you would like without

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a well-managed practice. Practice management is generally undervalued and underappreciated by physicians, and that is to our detriment. The third part, Enhancing Both Practice and Career, reaches beyond a basic practice to explore building an outpatient surgical suite, publishing, investing in ever-expanding technological toys, building a medical spa, or launching an invention. Many plastic surgeons are talented, creative people who can grow beyond being clinicians alone. Often adding these facets to one’s practice can be for fun, but they can be profitable if done well. The fourth part, Watching Your Back, is devoted to peace of mind. Physicians in general, and plastic surgeons in particular, lead stressful lives. We can be doctors with unhappy patients and partners with souring partnerships. We may be indebted from education and business loans, and suffer difficult relationships with parents, spouses, and children. Bad contracts, malpractice, and mental stress can take their toll if you take the wrong approach. These chapters aim at both prevention of problems as well as how to deal with them. The final section, Retirement and Protecting Your Assets, lays out what we all should know during our working years so that we are not painfully surprised when we retire. We should all know how to protect our hard-earned money, how our assets are vulnerable, and how we can save for the future. We owe immense thanks to our contributors. There are things we know, things we do not know, and most painfully, the things we do not even know that we don’t know. Our contributors have worked extremely hard to minimize our ignorance. We hope this book will serve as a compass to help you steer through the sometimes stormy waters encountered in the practice of plastic surgery.

Josh Korman Heather Furnas

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Contents

Preface

vii

List of Contributors

xiii

Part I: Career Directions

1

1.

The Job Search Steven P. Davison and Mark W. Clemens

3

2.

Choosing an Academic Career in Plastic Surgery Geoffrey C. Gurtner and Michael T. Longaker

29

3.

Solo Practice Joshua M. Korman and Heather J. Furnas

39

4.

The Combined Reconstructive and Cosmetic Surgery Practice Joseph M. Mlakar

51

5.

Making a Living in Reconstructive Surgery Steven P. Davison and Mark W. Clemens

71

6.

Pursuing a Career at Kaiser Permanente Robert Pearl

89

7.

Group Practice in Plastic Surgery Debra J. Johnson

97

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Part II: Marketing and Monitoring

109

8.

Internal and External Marketing and Public Relations Anne Cohen

111

9.

Online Marketing Ryan Miller

149

10.

Optimizing Your Practice Marie B. V. Olesen

169

11.

Preventative Maintenance of Your Practice G. Marshall Franklin

199

Part III: Enhancing Both Practice and Career 12.

Developing, Establishing, and Operating Your Own Surgical Suite Gordon Merrick

227 229

13.

Publishing in Plastic Surgery Deepak M. Gupta, Nicholas J. Panetta, Geoffrey C. Gurtner and Michael T. Longaker

259

14.

Technology, Toys, and Traps Francisco Canales

277

15.

A Medspa: To Have or Not to Have M. Dean Vistnes and Lynn Heublein

289

16.

Medical Inventions: From Idea to Funding Joshua M. Korman

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Contents

Part IV: Watching Your Back

xi

321

17.

Contracts Carol K. Lucas, Esq.

18.

The Wheel of Misfortune: Avoiding Medical Liability in Elective Surgery Mark Gorney

345

Use of the Internet by Patients: How It Affects Your Practice and What to Do About It Ronald P. Gruber

363

Recognizing and Dealing with Stress: A New Model of Resilience Stephen Sideroff

377

19.

20.

21.

The Challenges for Women in Plastic Surgery Debra J. Johnson, Cissy Tan, Cristina F. Keusch, Sarah Troxel and Heather J. Furnas

Part V: Retirement and Protecting Your Assets

323

399

415

22.

Physician Asset Protection Jay Adkisson

417

23.

Personal Financial Planning for Plastic Surgeons Lawrence B. Keller

435

24.

Qualified Retirement Plans Richard A. Pope

473

Index

503

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List of Contributors

Jay Adkisson, JD Riser Adkisson LLP Newport Beach, California USA [email protected] www.risad.com Francisco Canales, MD Plastic Surgery Associates of Santa Rosa Allegro MedSpa Santa Rosa, California USA [email protected] Mark W. Clemens, MD Department of Plastic Surgery Georgetown University Hospital Washington, D.C. USA Anne Cohen, MBA Principal, A. Cohen Marketing & PR, LLC Kingston, New York USA [email protected] www.acohenpr.com

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Steven P. Davison, DDS, MD, FACS DA Vinci Plastic Surgery Washington, D.C. USA [email protected] G. Marshall Franklin, Jr., MBA, MHA Executive Consultant, Mentor Solutions Atlanta, Georgia USA [email protected] www.mentorsolutions.com Heather J. Furnas, MD Plastic Surgery Associates of Santa Rosa Allegro MedSpa Santa Rosa, California USA [email protected] Mark Gorney, MD, FACS Clinical Professor Emeritus, Stanford University Founding Member, The Doctors Company Napa, California USA [email protected] Ronald P. Gruber, MD Clinical Assistant Professor Division of Plastic and Reconstructive Surgery University of California, San Francisco Adjunct Clinical Faculty Division of Plastic and Reconstructive Surgery Stanford University East Bay Aesthetic Plastic Surgery Center Oakland, California USA

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List of Contributors

Deepak M. Gupta, MD Division of Plastic and Reconstructive Surgery Department of Surgery Stanford University School of Medicine Stanford, California USA Geoffrey C. Gurtner, MD, FACS Professor of Surgery Division of Plastic and Reconstructive Surgery Department of Surgery Stanford University School of Medicine Stanford, California USA [email protected] Lynn Heublein, MBA Co-Founder, SkinSpirit Skincare Clinic and Spa Palo Alto, California USA [email protected] Debra J. Johnson, MD, FACS The Plastic Surgery Center Sacramento, California USA [email protected] Lawrence B. Keller, CLU, ChFC, CFP® Founder, Physician Financial Services Woodbury, New York USA [email protected] Cristina F. Keusch, MD Boca Raton Plastic Surgery Center Boca Raton, Florida USA

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Joshua M. Korman, MD, FACS Adjunct Clinical Assistant Professor of Plastic Surgery Stanford University School of Medicine Plastic Surgeon, The Korman Group Mountain View and Monterey, California USA [email protected] Michael T. Longaker, MD, MBA, FACS Deane P. and Louise Mitchell Professor of Surgery Division of Plastic and Reconstructive Surgery Department of Surgery Stanford University School of Medicine Stanford, California USA [email protected] Carol K. Lucas, Esq. Co-Chair, Business Practice Group Head, Health Law Practice Buchalter Nemer Los Angeles, California USA [email protected] Gordon Merrick Director of Business Development Advantage Healthcare Systems Santa Monica, California USA [email protected] Ryan Miller Founder and President, Etna Interactive San Luis Obispo, California USA www.etnainteractive.com

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List of Contributors

Joseph M. Mlakar, MD, FACS Plastic Surgery Innovations Fort Wayne, Indiana USA Marie B. V. Olesen CEO, La Jolla Cosmetic Surgery Centre Founder, Inform Solutions Executive Consultant, Mentor Solutions, Mentor Corporation La Jolla, California USA www.mentorsolutions.com Nicholas J. Panetta, MD Division of Plastic and Reconstructive Surgery Department of Surgery Stanford University School of Medicine Stanford, California USA Robert Pearl, MD Executive Director, The Permanente Medical Group Oakland, California Clinical Professor of Plastic Surgery Stanford University School of Medicine USA [email protected] Richard A. Pope, CAP, RFC President and CEO, Applied Financial Group Woodbury, New York USA [email protected] www.appliedfinancialgroup.net

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Stephen Sideroff, PhD Assistant Professor Department of Psychiatry and Biobehavioral Sciences David Geffen School of Medicine, UCLA Clinical Director, Moonview Santuary Santa Monica, California USA [email protected] www.thirdwind.org www.moonviewsanctuary.com Cissy Tan, MD Kaiser Permanente Plastic Surgery San Diego, California USA [email protected] Sarah Troxel, MD Alaska Plastic Surgery Anchorage, Alaska USA M. Dean Vistnes, MD, FACS Co-Founder, SkinSpirit Skincare Clinic and Spa Palo Alto, California USA [email protected]

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Part I Career Directions

1

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The Job Search Steven P. Davison∗ , DDS, MD, FACS and Mark W. Clemens, MD

Introduction

W

hy a chapter on the job search? The simple answer is that physicians make mistakes. National experience suggests that 50 percent of physicians change jobs within the first two years.1 This number is significant and disturbing. Question: What gives us the authority to write on this subject? Answer: Interest and experience. We have worked in venues that cross a multitude of work cultures. Prior to medical school, I was an associate in a private dental practice. I have completed two residencies at traditional universities — one state and one private. I have completed a residency and a fellowship at the Mayo Clinic and the M. D. Anderson Cancer Center, respectively, both of which represent the ultimate in multi-group practices. I have been employed by the governmentfunded U.S. Department of Veterans Affairs (VA) as chief of plastic surgery, and in academic practice at a university hospital with a private multi-group specialty practice. I am now a solo private practitioner. The only stint I need to punch my ticket is the military, although as a closed system the VA is similar. This laundry list illustrates the scope of my personal insight on the job search. A mismatch in expectation and practice culture is a major contributor to physician turnover. The three top reasons for leaving a practice are (1) poor cultural fit with the practice (51 percent), (2) relocating closer to family (42 percent), and (3) compensation (32 percent).2 Low compensation correlates with dissatisfaction, whereas high compensation does not as clearly match satisfaction.3 Not only does the need to find a new job emotionally and financially impact on the surgeon, it also impacts the employer. A primary care practice will spend US$235,000 to add a physician.2 It is quite understandable that the cost to ∗ Steven P. Davison is the primary author of this chapter, so any references made in the first person

(e.g., “I”, “my”) refer to him.

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add a surgeon is even higher. We believe that the two reasons the physician turnover number is so high are (1) inadequate prioritizations of the physician’s values and (2) a failure of cultural fit. The two are intimately intertwined: the first is ineffectively analyzing yourself, and the second is ineffectively analyzing your potential employer.

Priorities The first step in the job search is to inventory what is important to you and to your family. What are your priorities? Consider your goals and things of importance, not the priorities of your attending role models. If family time is a top priority, then becoming an internationally known chairman of a program may not fit. This personal inventory should include spouse/partner input. Sit with them and have a long talk. Set long-term five- and ten-year goals, and differentiate needs versus wants. What will be your commitment to medicine, and what will be your commitment to yourself and your family?4 What are their needs? The following topics might be included on a priority list: Family Income Autonomy Security Location Power Diversity Excitement

Predictability Proximity to Family Vacation Call Weather Sports Work Type Recognition

Sometimes these priorities or expectations for a job are conflicting: Expectations Income Industry Environment Location Benefits Security

vs. vs. vs. vs. vs. vs.

Lifestyle Family Opportunity Patient Pool Retirement Reimbursement

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When preparing your priority list, realize that money and success equal money and success. Your priorities do not necessitate doing the same job, cases, or position as your current attending or mentors. When prioritizing, two big decisions are often opposing: (1) location vs. job and (2) opportunity vs. job. The first tradeoff is that you can settle on a location based on desire, family, or lifestyle, but compromise on your choice of position. Perhaps the ideal job may not be in the ideal location. Consider if an urban/suburban or rural location is a good start for you, then weigh criteria such as family, leisure opportunities, or access to sporting events. The second tradeoff is accepting a job offer rather than embracing an opportunity. A job opening is often available because it has been vacated by someone else. Why? Chaos provides opportunity; thus, a hospital or department in transition may provide that opportunity to you. So, do not eliminate an opportunity just because the environment seems to be in flux. The Chinese symbol for change is composed of two characters, one representing threat and the other representing opportunity (Fig. 1). When considering the job search, never underestimate an edge, and use it whenever possible. Joining your father’s practice will shave ten years from your developmental process. Do you have special contacts? Do you speak a selective language? Can you make an offer to an ethnic group that seeks a customized service such as Asian eyelids? When I was a resident, a plastics fellow with a last name of one of the signature eponymous operations in plastic surgery graduated one year after his father electively retired. To not take advantage of “passing the baton” seemed strange. You must analyze your own skill sets. Are you entrepreneurial or do you have no such inclination? Was your lemonade stand the best in the neighborhood? How are your leadership skills? Do you enjoy negotiations? If you do not, then you need to seriously consider being in a position where someone

Fig. 1. The Chinese symbol for “change” is composed of two characters, one representing threat and the other representing opportunity.

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else does that for you, i.e., a group practice. In solo practice, the need for negotiation cannot be overstressed.

Dos and Don’ts for Planning a Job Search5 Do think about your work style, ideal work environment, and personal needs before you launch a job search. Do take your significant other’s needs into consideration. Do learn something about an area — including the housing, economy, amenities, and malpractice climate — before assessing job opportunities there. Do research various practice types, and decide which is more likely to mesh with your personality and career goals. Do talk to mentors, medical school faculty, residency program alumni, colleagues, and others to gather information and help clarify your goals. Do think about getting additional training if you are unhappy in your current job situation. Don’t limit yourself to one type of practice. As a physician, you have many options to choose from. Don’t move anywhere just for a job. Don’t rush your job search. Give yourself time to develop and implement a strategy.

The Search Often the best positions, opportunities, or practices are in the hidden job market. These positions are not advertised, but can be found through networks or resources such as alumni groups. Three-fourths of jobs are not advertised.5 You therefore need to network beyond your inner circle, i.e., healthcare consultants, representatives, attorneys, or accountants. Networking means tapping into the collective experience at your disposal. A non-threatening way to begin is to solicit an attending from your program to introduce you to several people at a meeting. At each interaction, appeal to the ego by first asking for advice, not a job (Fig. 2).

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Fig. 2.

7

Networking dos and don’ts.

Recruitment Firms Search or recruitment firms function either as your agent or as your practice’s agent. If the firm represents the practice, ask yourself why this job needs a recruitment firm. In our experience, it is usually location or high turnover in staff. The sales literature all reads the same: “Unique opportunity in a growth practice; four-season environment with excellent recreation, living, and cultural opportunities,” etc. However, the information is nearly always lacking. Most agencies work for contingency fees under which the practice pays the recruitment agency, for example, one-third of your first year’s salary. The price of their networking for you is that their commission erodes your upfront

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bargaining power. Plastic surgery is not such an invaluable commodity that price is not an option. An agent’s cut comes from your end in the form of bonuses, moving expenses, or commissions. The only example whereby we can envision a recruiter working for you is if you have such a marketable skill that all power is yours, such as trauma neurosurgeons or interventional radiologists that are needed to fulfill Emergency Medical Treatment and Active Labor Act (EMTALA) functions at hospitals. If you are set on a certain area, write a cover letter to all of the practices in the area to inquire about opportunities. The “sister” to the recruiter is the career counselor. Career counselors are paid for by you and, as such, you utilize them as a career coach. Their motivation is directed toward your interests. I have found my attorney to be an excellent coach.6 The only problem is that I have to talk quickly because he charges US$500 per hour!

Types of Positions Historically, the majority of plastic surgeons were solo practitioners; however, times have changed. In 1997, 75 percent of surgical specialists were independent. In 2005, that number dropped to 68.4 percent, a 20-percent change in numbers per year. Specifically, in the case of American Society of Plastic Surgeons (ASPS) plastic surgeons surveyed in 2008, 67 percent were in solo practice, but by March 2009 that number decreased to 58 percent — still a majority, but a lean one. The reasons cited for leaving solo practice were (1) safety in numbers, (2) it allows quicker footing, (3) economies of scale, (4) security, and (5) the benefit of data collection and negotiation. Keys to success included well thought-out governance and a shared central vision. Problems being in a group included division of staff time and jealousy over use of resources.6 Finding satisfaction data for plastic surgeons is nearly impossible. However, one recent paper by Rohrich et al. sheds insight.7 Plastic surgeons over 50 years of age (56 percent of plastic surgeons) are more likely to be solo (65 percent) than general physicians (26.7 percent). The majority of plastic surgeons are satisfied (95 percent) compared to all doctors (84 percent). Plastic surgeons work fewer hours per week (52.2 hours) than the average doctor (53.7 hours), with the majority of that time spent engaged in patient care (88.4 percent). Not surprisingly, reconstructive surgeons work a longer average week (56.5 hours) than cosmetic surgeons (49.7 hours) and are more likely to be in academics than in single-specialty practice.

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Fig. 3.

9

Principal setting of all specialties (blue) and plastic surgery (red) as of 2006.

An ASPS 2006 survey found 56 percent of ASPS members in solo practice, 15 percent sharing facilities or small groups, and 10 percent in academics (Fig. 3).8

Choosing a Practice What choices are there in deciding on a type of practice? The choice is really not of practice type, but rather of risk tolerance (Fig. 4).

Government A government position can come in many forms or with multiple agencies. Examples include the Indian Health Service, the VA, the U.S. Department

Government

Academics

Multi-Specialty Group

Single-Specialty Group

Solo Practice

Fig. 4. Types of practice, arranged along a continuum of increasing security (left) vs. increasing autonomy (right).

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of State, the National Institutes of Health, and the U.S. Food and Drug Administration. Government agencies can be the gold standard of care (or not). The VA, once criticized by some, now sets the standard in medical outcomes and disease process management. What defines government work is that it is relatively free of insurance hassles, yet is heavy in administrative hassles. It is total security versus no autonomy. The lifestyle, including calls and hours, is often mandated, but may be the most manageable.

Academics Academics predominantly offers intellectual stimulation and a protected environment. The demands of the inquiring residents’ minds require surgeons in academics to keep abreast of and teach the latest techniques. There is considerable security in a built-in referral base of patients, physicians, and emergency rooms. Interestingly, plastic surgery is a specialty in which some of the greatest thinkers are not in academics per se, but are academicians in the truest sense of answering questions. But the cost is a loss of autonomy: “If you are a control freak, and a lot of doctors are, take that into account because, as an academic physician, you aren’t going to be in control.”8 Although a chairman may appear to wield a great deal of power, it is the president of the university (over the dean) who makes final decisions. Two things have changed academic practice: (1) clinical income and (2) duty hours. The classical model of academic medicine, where you started at one rank and were paid according to promotions that were tied to publications, is changing. That model included protected research time and subsidized teaching responsibilities. Within the new academic model, income is generated from clinical practice, similar to a multi-group practice, and is frequently called a faculty-practice plan. The income is also supported by research, administrative, or endowment funds, but less so than in the past. Now, in much of academic practice doctors have to generate their own salaries, whether through teaching, research, or seeing patients. This changes the academic career paradigm — the idea of moving among institutions to be promoted from associate professor to professor — which may not be feasible in the future. You may relocate, but you cannot relocate your patient base and, consequently, your income. The field of academics has fundamentally changed; unless you have such specifically sought-after skills or research experience, you are more likely to advance by remaining at the same institution or by moving no farther than to another institution in the same city. Be wary of signing a non-compete agreement. In Washington, D.C., some of the most successful

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11

career academics have bounced between the various universities. Moreover, it makes for a smoother transition to move from the university community into the local community, where you still have your patient base, as I have after ten years in practice. In terms of duty hours, two core changes in the academic field are the 80-hour resident work week and the need for increased resident supervision. These rules require more hands-on time to do the cases, so academic practice increasingly resembles a multi-group specialty practice. The days when residents operated unsupervised on clinic patients, for maximum resident benefit, are long gone. The following grouping outlines some of the disparities in academics. Advantages Release from business Intellectual freedom Stimulation Research Skill enhancement Challenging cases Personal interactions Positive reinforcement from teaching Security

Disadvantages Less control Limited input Inertia of change Income No equity Time-consuming, non-incomegenerating meetings and committees

Some of the positives and negatives constitute two faces of the same coin. There are great opportunities for personal interactions, but then a political war may ensue. “Do you play well in the sand box? How big a sand box do you want to play in?”9 The following is a list of tradeoffs compiled by the chairman of our institution (Georgetown University Hospital) in 2005: • Pluses: • • • • • • •

Resident support Convenience Brand name Malpractice insurance rate Administrative infrastructure Human resources Favorable managed care contracts

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• Minuses: • Joint Commission on Accreditation of Healthcare Organizations (JCAHO) — rules, roadblocks, paperwork • Cost of PUBS, particularly for self-pay patients • No help from managed care offices, such as “carving out” or “opting out” • Lack of space and slow response time to needs • Neglect of physical space and patient care areas • Insensitivity to marketing • Difficulty in adopting new technology • Antiquated technology systems • Ineffective human resources (difficulty dismissing support staff) • Security issues • Fringe plans including disability, health, and retirement In sum, it is possible to maintain academic affiliations even if you are in the community; however, it requires energy, and it must be a priority over purely income-generating activities.

Multi-specialty group This group, with a mix of primary care and specialties (ideally a 50:50 ratio), is in the center of the “security vs. autonomy” spectrum. It sacrifices decisionmaking capabilities for the benefit of a captive referral base. One of the crucial components is physician ownership. Group sizes vary from ten physicians to the enormity of the Mayo Clinic. As size increases, governance and autonomy become more remote; however, economy of volume increases. Generally, income is favorable for plastic surgeons in a multi-specialty group, although not as generous as that earned in single-specialty groups. To be pro-physician, a multi-specialty group must operate independently of the hospital as priorities differ. The hospital’s goal is to improve its bottom line, not enhance physician income. Practice building is substantially easier for the plastic surgeon whose high-income-generating potential can yield effective bargaining power. Although a multi-specialty group offers a potentially good lifestyle with built-in call coverage, the culture of the group must be right. Is the practice focused on balance or on productivity? What is the group’s reputation? Finally, what is the eventual buy-in cost, i.e., is there an equity stake? Groups with a substantial percentage of capitated patients will not favor surgical services, especially those performed by plastic surgeons.

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Single-specialty group This model has many advantages and is common in plastic surgery. Group sizes vary from 2 to 11 people.7 Normally, this model works better if a spectrum of partners exists to provide different skill sets and types of services. The singlespecialty group offers, in all probability, the peak of potential income because economies of scale facilitate minimizing the overhead. Although the singlespecialty model offers interest, stimulation, and companionship, the potential for fracture exists. A built-in system for call and schedule coverage exists. Single-specialty groups are often busy, yet there is less independence than in solo practice. Benefits and Drawbacks of Group Practice7 Benefits • Greater negotiating power with vendors, hospitals, and payers • Access to more capital for purchases/investment • Economies of scale that provide greater access to recruiting and retaining exceptional personnel • Ability to cite rigorous outcomes-based data due to the large patient base and share information on a day-to-day basis • The likelihood that advanced electronic medical records (EMRs) will be used in the practice, eliminating or reducing paper records and allowing information to flow off-site • Development of a stronger brand for the practice • Greater quality assurance • Lifestyle improvement through partners who share coverage of the practice

Drawbacks • Slowness in making decisions/ implementing change • Difficulty in balancing personal goals with what is best for the group • Discrepancies in access to personnel or other resources • Potential for interpersonal conflict

• Interdependence on peers

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The potential for ownership and equity exists, but the details must be spelled out to assure a balance of power between junior and senior partners. The success of the group depends on the philosophy of the founding senior partner. If he or she places the group’s benefit before his or her own, this is an ideal situation.

Solo practice It is obvious that solo practice provides the most autonomy and carries the biggest risk. It does allow easy decision-making, and the implication of those decisions is only as good as the surgeon who follows through. It allows flexibility and, potentially, high income; however, the risk of isolation and stagnation requires greater need for interaction outside of the practice. A genuine problem with solo practice is coverage of call when the surgeon is away. Finding adequate coverage requires thought; otherwise, it becomes draining. It is important not to rush to financial overextension when starting a solo practice because no economy of scale exists; you cover the entire “nut.” If you are considering solo practice, you need the following: (1) desire for independence; (2) market research on location and patient access; (3) careful financial planning (you may need enough money in case you do not draw a salary for one year); and (4) versatility. Because this model is a balance of risk vs. investment vs. autonomy, you must address the two biggest issues — patients and money. This requires a business plan. A start-up expense of US$500,000 is not unreasonable. An upmarket space with an operating room facility and spa services will require closer to 1 million dollars. This amount must cover start-up, insurance, and working capital to stay in business. Options for financing a solo practice include (1) a term loan, which you repay over a certain period, but for which you may need a personal guarantee; (2) a line of credit, which you use or repay and use again; or (3) lease financing for equipment, which is similar to a car lease.

• • • • • • •

A Good Business Plan …9 clearly expresses your concept, how it fits into a continuum of care, and what problem or need it addresses outlines risks and contingent plans documents market demographics and need differentiates you from the competition outlines the proposed organization structure makes realistic financial projections tells investors what they can expect to gain for their risks.

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Job Expectations It has been said that an expectation is a resentment waiting to happen. To avoid unrealistic expectations, information is crucial to create a correct mental setting. You must possess a realistic sense of income and patient needs, which translates into practice success. These data are available and considerably more reliable than hearsay or lore.

Need Learn the ratio of plastic surgeons to population in the location(s) you are considering. The density of plastic surgeons is readily available from the ASPS Practice Management Resource Center (www.plasticsurgery.org). What it reveals is not what you may think. Los Angeles, California, does not contain the highest density of plastic surgeons. In fact, conservative Washington, D.C., has the highest density per “state” at 1:26,000. By contrast, San Francisco, California, Rochester, Minnesota (Mayo Clinic), and Naples, Florida, are in a select group of cities with a ratio of 1:15,000 or less. What is the optimal physician-to-patient ratio to start a viable practice? This is clearly cultural- and case-sensitive. However, the 1:100,000 ratio has been thrown out as an ideal; 1:70,000 as solid; and 1:40,000 as a minimum. Thus, Brownsville, Texas (1:335,222), or Johnson City, Tennessee (1:480,000), may represent a more favorable ratio. This clearly does not equate ratio with demand, but it compares considerably better than in areas with population densities exceeding 1 million: San Francisco, California (1:13,115); West Palm Beach, Florida (1:22,100); Miami, Florida (1:30,045); and Orange County, California (1:30,280). Although the people in these areas may want to support another plastic surgeon, they do not need one. Most residents practice within 90 miles of their graduating program; thus, more saturation will exist in areas of close proximity to a program.

Income Income data are difficult to obtain to compare with other specialties or to generate realistic expectations. Without such data, what constitutes fair market value and worth are difficult abstracts. Within the plastic surgery discipline, the first myth to dispel is the perceived imbalance between private and academic practice incomes. A number of recent studies have shed light on this myth.10, 11 Physicians having the same experience/age range earn nearly equivalent incomes; however, academic surgeons, by performing considerably more relative value units (RVUs) of work,

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Fig. 5.

Surgeons’ average taxable income.

perform 7,101 RVUs compared to 5,962 RVUs in private practice to generate the same income. Surprisingly, the average annual salary for the plastic surgery faculty is US$370,000. The graph shown below (Fig. 5), from an ASPS lifestyle survey, shows that most incomes range from US$299,000 to US$499,000.12 The financial superstars earning US$1 million or more comprise only seven percent of our population. But, again, money is only one factor less important than culture. This I can attest to having taken an 80-percent pay cut to improve my environment, and I have never been happier.

Taxable income More accurate data are available for academic income. The Medical Group Management Association (MGMA) reviewed 85 individual reports on academic surgeons who spent at least 65 percent of their time in clinical practice; moreover, 16 percent of the time was spent teaching and 9 percent, researching. The median starting compensation was US$205,570. Taken as a whole, the mean base salary was US$239,641 and the median total was US$310,000 (90th percentile: US$591,522). This, in turn, was compared to a similar group of private practitioners (80 respondents from 37 practices) with a mean total compensation of US$366,141 and a median total of US$324,837 (90th percentile: US$636,304).13 In conclusion, academic physicians make nearly as much, on average, as their private practice counterparts. Further details are shown in Fig. 6.

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Fig. 6.

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Academic versus non-academic incomes.

Of utmost importance to those seeking their first job as an instructor or assistant professor is the starting salary. Below is the breakdown of those incomes for the plastic surgery faculty. Instructor 25th Percentile Median 75th Percentile Mean

US$79,000 US$148,000 US$302,000 US$183,800

Assistant Professor 25th Percentile Median 75th Percentile Mean

US$186,000 US$214,000 US$256,000 US$241,000

The good news is that if you stay the course and ascend to chief resident, the mean income is US$436,800; even better, as chairman, the income is US$799,000.5 As an indicator of clinical activity, two measurable parameters exist — collections and gross charges. In academic surgery, where surgeons’ productivity is increased by resident work multipliers, residents can help you move bigger cases and help look after sicker patients. The following are collection and billing numbers for partial clinical, full clinical, and private practice surgeons.

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Collections Academic — 67 percent clinical (42 individuals) Mean: US$762,492 Median: US$578,875 Academic — 100 percent clinical (55 individuals) Mean: US$979,159 Median: US$745,374 90th percentile: US$1,683,254 Private Practice (33 individuals) Mean: US$784,819 Median: US$683,086 90th percentile: US$1,434,897 Gross Charges Academic — 100 percent clinical (46 individuals) Mean: US$2,014,320 Median: US$1,931,126 90th percentile: US$3,185,747 Private Practice (34 individuals) Mean: US$1,240,339 Median: US$1,180,324 90th percentile: US$1,890,139 The difference in gross charges between academic and private practices, as well as the relative closeness of collections, reflects the increased self-pay of private practice and consequently less write-offs.14

Selling Yourself Once you have confirmed a location and a practice type, you must now sell yourself. Your correspondence should be of top quality. A focused cover letter addresses the practice’s needs and changes the focus to them, while at the same time touting your values, experience, and skills. Your curriculum vitae (CV) should be up to date and easy to navigate. Prior to your interview, research the practice. You have only one opportunity to create a positive first impression. The first interview is about selling yourself. Rather than focusing on compensation and call, discuss governance and service. During the interview, do not

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tell the employer what you can do for them; rather, ask them what they need from you. Then, be certain to emphasize how you can add to the practice. Make a point to meet or to call everyone in the practice. Do a post-interview debriefing, write down your comparisons, and make sure of a post-interview call or letter thanking the practice for their time. Consider contacting the last person who left the practice. Information is power. You must be prepared for an interview, you must know the practice group or institution, and you must know the surrounding environment and the ratio of plastic surgeons to the community. All of this information is readily available on the Internet. Because evaluating different positions with limited time between interviews is difficult, make a comparison list. Note the following comparison from my job search (Table 1). You should be cognizant of the practice environment, patient mix, and involved expenses. This list allows you to compare apples with oranges. It can contrast clinical income, benefits, and location. It can be as broad or as detailed as your personality dictates.

Table 1.

Academic job comparison.

University 1 Chairman

Hospital System Division Demographic Ratio per Capita Income Start 5 yrs Payback Case Mix Referral Risk Reward

Indecisive, manipulative (4/10) Know personally Lost money (2/10)

University 2 Controlling, egotistical (6/10)

World-renowned Huge network No respect 1/11 attending 1:66,000

International reputation Generates lots of income (9/10) No reputation Bankrupt Major force 1/3 1:29,000

US$150,000 US$210,000 US$0 5/10 None 2/10 3/10

US$150,000 US$300,000 US$49,000 9/10 Wide open 7/10 7/10

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Next, put the list away for a week. If you return to it and emotionally you do not like the findings, re-evaluate your priority list. When weighing positions, think again about needs versus wants and compromise versus reality. Discover peripheral information about the practice. You particularly need to know upfront the pathway to partnership.

Red flags • A wife as an office manager — There will always be preferential treatment. • Retiring or slowing down senior partner — What is the plan for retirement and the funding of that retirement? • Practice name — Is it egocentric? There is a big difference between your role at “Advanced Plastic Surgery” and “Minnie Mouse Esthetic Center.” The first name has more potential, unless you are Mickey Mouse. • High office overhead — Are you being recruited to cover costs? If so, this is not a long-term feasible relationship; rather, it is a revolving-door relationship.

Mama’s (or papa’s) list “Because if momma isn’t happy, then no one’s happy.” When you are closing in on a decision, revisit the needs of your spouse/partner. Their evaluation list can add enormously to long-term success. Remember, 36 percent of individuals relocate based on a significant other’s needs. Table 2 is my significant other’s list from 1999. We picked choice B, and now she never wants to leave.

Show me the money When you are content with the position, the environment, and your cultural fit, it is time to look at the books. You need as open a book as is feasible, and if Table 2.

Spouse/partner life choices. A

Cost of Living House Choice Friends Family Activities Population Visitor Destination

5/10 (moderate) 75 percent 1 0/10 3/10 Blue collar 2/10

B 8/10 (high) 100 percent 6 0/10 8/10 White collar 9/10

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the practice does not want to share it with you after you have made a few visits to the practice, a problem exists. It is valuable to see numbers from the last person with a similar position, including billings, receivables, and overhead expenses. When you discuss finances, avoid the money question: “How much will I make?” Rather, concentrate on the real issues: (1) patient mix, (2) productivity potential, (3) collection rates, and (4) controllable and fixed expenses. Income is generally gross collection minus expenses. These expenses can be substantial if they include infrastructure costs, surgical center costs, or heavy overhead. A benchmark for very successful collections in plastic surgery as gleaned from practice advertisements is US$1.2 million. This seems to be the “magic number”. Most practices, academic or private, have profit and loss statements. If possible, ask to see one for a comparable employee. Remember that, unless you are in solo practice, you probably will have much more control over production than you personally will have over expenses. When joining a practice, find out about ownership, hard assets, and financial risks and liabilities. What will be the buy-in cost, “blue sky”, or retirement transition? “blue sky”, or the goodwill of the practice name, was a more relevant concept prior to changes in managed care penetration. Unless the practice is the only real show in town, “blue sky” may have little value.

Respect Never accept a position with someone you do not respect or whom you consider undercompensated. You want to strive to be that person, and lack of respect will lead to dissatisfaction. It is a rare situation where you will earn more, or outshine, your employer. If you do, it will not be pretty.

Contracts Prior to a contract, there is a letter of intent, which serves as a binding document while the contract is being written. A health care attorney should review the contract. This is not a role for a friend of a friend or “Uncle Johnny” because the long-term costs are too high. Rather, the reviewer should be a seasoned professional who is familiar with the laws and practices of your proposed location. Get the details in writing and get the contract reviewed.15 The contract is critically important if things do not happen as expected. A contract is like a prenuptial agreement: you only need it in a divorce. The

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contract should include the following: • Job Description — This includes what job you will be performing, on whom, and for how many hours per week. On-call responsibilities are an important point to be negotiated if this matters to you. • Compensation — Low compensation correlates with dissatisfaction, whereas high compensation does not correlate so clearly with satisfaction. A fair compensation is essential. Individuals need to work for what they think they are worth as long as that is not inflated. Salary needs to be defined, as does the bonus structure. That is, upon what measure of productivity will raises and bonuses be based? Acceptable measures are RVU, charges, and collections. The RVU scale is the only measure of true work because charges are dependent on what fee structure is utilized and collections are dependent on the payer mix. Profitability, or residual money left after gross income minus expenses, is a common model, but it does not favor physicians because expenses are not a variable which they directly control. • Benefits — Insurance, retirement, and personal development expenses should be covered. Costs of attending meetings are real expenses for surgeons, as are multiple hospital dues and license fees. We suggest US$10,000 as a minimum need per year; for the long term, US$25,000 in development expenses is more realistic to cover continuing medical education, recertification, travel, books, etc. • Malpractice — What is important is not what the employer pays, it is what is not covered. There are two types of malpractice insurance: (1) occurrence-based, which covers you indefinitely for acts that occurred during coverage; and (2) claims made, which only covers for claims filed while the policy is in effect. The latter is much cheaper, yet requires a tail policy to cover suits after you leave the practice. Who pays for this must be defined. • Termination Clauses — You need objective, rather than subjective, standards. There are two types of termination: (1) not for cause, which usually provides a notice period of 3, 6, or 12 months. This clause works to the benefit of both parties. Six months is a good compromise for a surgeon; and (2) for cause, which sets forth on what ground(s) you can be fired. Clear infractions, such as loss of license or felonies, are simple, but you must consider lesser issues. What happens if one of the other partners simply does not like you? • Partnership and Governance — You need specific parameters to buy into a partnership. What is the track, what is the time frame, and what is it

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tied to? Do not be too aggressive on this point as it is their assets at stake. I witnessed one of our fellows lose a plum position by pushing this time frame. Remember, it is their hard-earned practice at stake. More importantly, is it spelled out? • Loan Agreements — Sometimes, hospital loan agreements or salary support is included. What are the repayment terms, what is forgiveness, and what are the repercussions if you leave prematurely? • Receivables — Who owns your uncollected money when you leave or retire? This can realistically be US$400,000 or so. It changes the impetus of how productive you will be in your last months. • Restrictive Covenants — There are three components of a non-compete agreement: (1) non-competition, which sets forth the area and period of time in which you cannot practice close to your old job; (2) non-solicitation, which sets forth rules about attracting patients to leave with you (this needs to be balanced with patient care interests); and (3) non-employment, which sets forth rules about poaching staff when you depart. Appreciate that these restrictive covenants are written to protect the practice, not you or the patients’ interests. The most important covenant is the restrictive non-competition covenant. It must be reasonable, perhaps one year. It should be a realistic radius from the main office, rather than an overlapping radius from all satellite offices and affiliated institutions. A recent graduate asked me to review a contract, which was excellent except for the non-competition clause, which included radii around all satellites, offices, and affected institutions that, in sum, eliminated Manhattan and most of the remaining boroughs of New York City. Do not sign such a contract unless you include a buy-out clause. Unfortunately, the larger the institution with which you are negotiating and the lesser your name, the more the employer controls the hiring process. If you are not comfortable negotiating, have your attorney do it. It is critical to invest time and money in this aspect of the process, because invalidating a contract costs a lot more of both.16

Getting Started No matter which position you accept, getting started requires working back from the longest deadline. In attractive states in which to practice, acquiring

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licenses can take up to nine months. No license means no provider number, which can take six months. No provider number means no reimbursement. It is important to settle in to fit with the culture. The primary reason that physicians leave positions is lack of fit; thus, be careful. Sit back, absorb the culture, and do not try to correct it early in your employment (Fig. 7). “As a new associate, it’s up to you to adapt to practice culture, not the other way around.”17 When developing your surgical practice, be careful not to overstep boundaries. How do you handle call duties, particularly when covering other surgeons’ patients? What happens if these patients subsequently want to come to you? This has the potential to become very unpleasant. Consider mentorship

Fig. 7.

The dos and don’ts of beginning a new job.

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and ask for advice. Senior surgeons appreciate that and, face it, you do not have all of the answers.

Returning to practice Licensing and renewal of credentials can be a significant process. Maintenance of both is easier than reinstatement. If you are walking away from a practice, be certain to address tail insurance coverage.

Unrest It is not uncommon for young surgeons, as their productivity increases, to develop some unrest and financial dissatisfaction two or three years into practice. We define this as the two-year question: “I bring in amount A, yet I am only getting paid amount B. Is this fair?” The problem is often a disconnect between the amount of the practice investment and what the physician thinks he or she is worth. Note the diagram in Fig. 8. Observe the break-even point at which a new hire with a base salary generates income sufficient to exceed his or her expenses. This break-even point is variable based on the environment, workload, and aggressiveness of the young surgeon, and it often occurs around two years’ practice. The surgeon might appreciate that the practice invested the amount below the break-even line during the first two years. The practice needs to recap its investment prior to discussing payment of salary or bonus based on the surplus after the

Fig. 8.

The two-year question.

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break-even. Both parties can appreciate what is involved, without emotional distress, by reviewing it in this figure form. Although it does not mean that you do not get a pay raise, some payment on investment is appropriate. At my last position, you had to repay all of the start-up deficit from your bonus. This was fair, upfront, and out-of-the-box thinking. Then, you received most of your excess income in bonus after first reinvesting 10 percent in the department. Keep in mind that during the emotional negotiation period, it is business, not personal. Consider yourself a top candidate with unlimited potential, while taking into account that the practice, university, or group has its investment to protect. I recommended one of our best fellows to a practice in which a friend was a partner. It would have been a great fit, but our former fellow’s husband irritated the partners by pushing too far during negotiations. It is essential to consider the analogy that, when emerging from residency, you are like a horse in the Kentucky Derby. Your odds may be great, but from the practice’s viewpoint you are just as likely to break a leg as you are to win.

Conclusions 1. 2. 3. 4. 5. 6.

Do a personal inventory. What are your needs versus your wants? Consider location versus job, and job versus opportunity. Practice types are a balance of security and autonomy. Culture and fit are very important to success. Information is power. In negotiations, productivity formula, buy-in, and restrictive covenants are crucial.

References 1. United States Department of Labor. Occupational Outlook Handbook, 2008–09 Edition. Available at www.bls.gov (accessed June 6, 2009). 2. Primary care. The Physician Recruiter 15(3): 2–4, 2007. 3. Larkin H. Good idea, bad location. American Medical News. July 31, 1995, p. 7. 4. Helmer L. Living a balanced life. Medical Economics. Nov 3, 2006, p. 18. 5. Weiss GG. Finding a job — step 2: start looking. Medical Economics. Nov 5, 2004, p. 14. 6. American Society of Plastic Surgeons. Statistics 2008. Available at www.asps.com (accessed June 1, 2009). 7. Rohrich RJ, McGrath MH, Lawrence TW et al. Plastic surgeons over 50: practice patterns, satisfaction, and retirement plans. Plast Reconstr Surg 121(4): 1458, 2008.

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8. Guglielmo WJ. Private practice or academia? Medical Economics, June 15, 2007, pp. 51–57. 9. Mills W. Integrative medicine clinic requires solid business plan [Integrative Medicine]. Physician Executive, July 1, 2003. 10. Bussard DA. Private practice versus academia. J Oral Maxillofacial Surgery 61(7): 827–828, 2003. 11. Brown OW. Academic medicine or private practice: you can’t tell the players without a scorecard. J Vascular Surgery 46(2): 387–390, 2007. 12. Everson J. ASPS lifestyle survey shows grass is not always greener. Plastic Surgery News. April 2006, p. 27. 13. Baginski C. Tips for successful physician recruitment and retention. Available at Medical Group Management Association Blog (blog.mgma.com/blog). July 9, 2009. 14. Stokes M. AACPS survey challenges salary perceptions, offers benchmarks for institutional support. Plastic Surgery News. August 2008, p. 5. 15. Havighurst C. Health Care Choices. AEI Press, Washington, D.C., 1994. 16. Bernick DM. How to contract with an associate physician. Physician’s News Digest. October 2008. 17. Weiss GG. Finding a job — step 5: settling in. Medical Economics. February 4, 2005.

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Choosing an Academic Career in Plastic Surgery Geoffrey C. Gurtner, MD, FACS and Michael T. Longaker, MD, MBA, FACS

Introduction

W

hy would anyone choose an academic career in plastic surgery? Unlike surgical specialties such as cardiac or transplant surgery that need intensive care units and specialized anesthesia, plastic surgeons are generally not closely tied to the hospital. In most cases, plastic surgeons do not have complex requirements in performing surgery and taking care of patients, which makes the expensive infrastructure of most modern hospitals redundant and unnecessary. For this reason, along with practice preferences heavily weighted towards outpatient surgery, most plastic surgeons spend nearly all of their time in an office-based setting with their own operating suites and have little or no contact with a hospital or academic medical center on a regular basis. Moreover, the average plastic surgeon does not perform a single repetitive procedure such as hip replacement or cataract surgery that is predictable as a diagnosis-related group (DRG)-based revenue generator in the eyes of hospital administrators or CEOs. Plastic surgeons perform complex and varied procedures across many different cost bases within the academic medical center. The result of this is that, unlike orthopedic surgeons or neurosurgeons, it is difficult for hospital administrators to place a financial value on the work that plastic surgeons do. In practical terms, this means that plastic surgeons are not intrinsically valued by hospitals or medical school deans, and there is little strategic planning that occurs to enable plastic surgeons in academic medical centers. Thus, plastic surgeons do not particularly value the resources of a major academic medical center and in turn are not themselves valued. Why would anyone set themselves up in such a situation? Is it sheer masochism? Actually, there are several good reasons to pursue an academic career as a plastic surgeon. Although these vary for each person, they generally fall into 29

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three distinct categories: clinical, scientific, or teaching. The clinical reasons lie in the clinical cases that are complex enough to require the resources of an academic medical center. These include complex microsurgical or craniofacial operations which require specialized instrumentation (such as microscopes or bone-plating sets) and specialized post-operative care units. These types of cases are difficult to perform in a private practice or an office-based setting; and if you want to focus on them, then an academic career might be a good choice for you. It seems clear that many of the more successful academic divisions or departments of plastic surgery are affiliated with high-volume cancer centers, trauma centers, or children’s hospitals. These facilities provide the challenging cases that attract excellent clinical plastic surgeons and in return provide some of the resources to perform these cases well. Since both microsurgery and craniofacial surgery require the resources provided by an academic medical center, they are more tied to academic settings than many other plastic surgery subspecialties. The second major reason to join an academic practice in plastic surgery is to allow one to perform research in order to improve the practice of plastic surgery or to develop new technologies to improve patient care. In some cases, an academic practice allows the pursuit of pure basic science inquiry. Biomedical research requires significant infrastructure such as wet laboratory space, tissue culture hoods, microscopes, and molecular reagents as well as the access to core animal and imaging facilities. Biomedical research also requires a steady stream of undergraduates, graduate students, and post-doctoral fellows who are willing to work in the laboratory for several years at a relatively low salary in exchange for research training. These sorts of resources are primarily found within academic medical centers or medical schools. Not surprisingly, the vast majority of research in plastic surgery occurs within academic medical centers. To participate in research as a principle investigator in an academic medical center, one must usually be a faculty member. There are some ways to participate in research from private practice, such as clinical evaluation of new drugs or devices in industry-sponsored trials or the refinement of existing surgical procedures. However, if one is interested in pursuing fundamental research on wound healing or ischemia–reperfusion injury, or in understanding the etiology of aging, one would be well served to consider a career in academic plastic surgery. The final reason that someone might choose a career in academic plastic surgery is the desire to teach and train the next generation of surgeons. Many academic plastic surgeons count as their greatest satisfaction the transmission of clinical and scientific knowledge to their trainees. The opportunity

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to interact with young people in a residency program is an invigorating and challenging activity. All plastic surgeons have come through a formal residency training program, generally within academic medical centers (although there are a few that are based within private practices, such as the Long Island Plastic Surgical Group). One of the reasons that the vast majority of training programs occur within an academic setting is because the mechanics for reimbursing the program for the salaries of residents comes through Medicare, which requires extensive compliance paperwork and record keeping. This is more easily done in large hospitals with central offices covering a number of residency programs in different disciplines; this setting fosters a close relationship between resident education and the academic medical center. For many of the leaders in plastic surgery, the main attraction to remaining in academic medicine is the desire to teach and instruct residents. Of course, surgeons in private practice can regularly interact with plastic surgery trainees as part of the clinical faculty, thus contributing an important aspect of resident education.

Choosing an Academic Career If clinical challenges, research, or teaching is appealing, one needs to further consider whether a career in academic plastic surgery is the right choice. In this section, we will review some of the prerequisites for becoming an academic plastic surgeon and how to achieve success. Certainly, it helps to have a strong interest in either research, teaching, or complex surgery. However, a strong interest in and of itself is not sufficient to guarantee a satisfying career in academics. It helps to have some level of accomplishment and experience in one of these areas, even at the resident or the fellow level. For someone who has a strong interest in basic science research and wants to run a laboratory, it is necessary to have spent some dedicated time (usually several years) doing benchwork in either a surgical or a basic science laboratory. Tangible evidence of accomplishment, such as authorship of papers or presentations at national meetings, is also required. Conversely, a resident who is interested in doing complex, technically challenging plastic surgery may be best served by publishing case reports and clinical series. Demonstration of teaching excellence can be obtained at the resident level through teaching awards. All of the above marks of accomplishment help to demonstrate the traits that division chiefs and department chairs look for while recruiting potential new plastic surgery faculty members.

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Different Models for Academic Plastic Surgery In considering your career options, keep in mind the challenge inherent in a career in academic plastic surgery. One of the major problems is the lack of control over most aspects of one’s professional life. Schedule, practice, and work environment are generally beyond the control of the academic surgeon relative to private practice. Although models differ from institution to institution, in most cases the hospital and the administrators of an academic medical center hold significant influence over the clinical practice of an academic plastic surgeon. Depending on the model, this can be relatively unobtrusive or extremely intrusive. In some cases, plastic surgeons are allowed to essentially set up a private practice either within or outside the academic medical center and strictly limit their involvement with the medical center to discrete parts of their practice such as burn surgery, craniofacial surgery, or microsurgery, This type of practice setup preserves a large amount of personal freedom and financial flexibility and is, in many respects, similar to a private practice setting. Unfortunately, this arrangement is becoming less and less common as more academic medical centers are interested in capturing all the clinical product of their surgical staff. A more common situation is the academic medical center that supplies much of the infrastructure for the academic plastic surgeon. Although convenient, it can limit the surgeon’s ability to hire and fire personnel, grow or expand the practice, and hire new partners or relieve older partners as the practice evolves. All of these limitations can obstruct the efficient running of a practice, frustrating many academic plastic surgeons. In many cases, there is a clinical productivity expectation; exceeding this monetary goal is rewarded with a quarterly or yearly bonus. However, tracking productivity and billing efficiency in this type of practice is difficult and leads to pseudo-information being the basis for decision-making within plastic surgery divisions. The most extreme version of working with a medical center’s infrastructure is the plastic surgeon who works directly for the hospital and is paid a salary regardless of the number of cases performed. Under this model, the academic surgeon has very little control over his or her practice, billing, and time. In return for a salary, the surgeon essentially performs services at the request of the academic surgical center. Although there are no overhead costs, the surgeon is in some ways relegated to the role of an interchangeable shift worker; these positions have high rates of turnover. Obviously, this type of system has few incentives to increase personal efficiency or productivity, which explains

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much about the day-to-day workings of the U.S. Department of Veterans Affairs (VA) and public hospitals.

Problems As expected, there are differences in remuneration among these three varieties of academic plastic surgery. In the first case, where a private practice is set up outside of the academic setting, remuneration will not differ much from what can be earned in private practice. Of course, the time devoted to academic activities will be less profitable than time doing cases, so there will be a slight deficit in terms of personal financial performance when compared to a pure private practice model. However, this can be offset by higher reimbursements obtained by doing difficult cases, leading in some situations to academic practitioners doing better financially than similar practitioners in the private sector. In the other two models, depending on the fiscal performance of the academic medical center, compensation can be significantly decreased when compared to a private practice setting. Since the surgeons are not billing for their services directly, their professional fees become an irresistible temptation for division chiefs, department chairs, deans, and hospital administrators. The surgeons’ fees become a ready source of capital to correct financial shortfalls caused by the inefficiencies of the academic medical center. This results in inefficiencies that are never corrected, causing a slow downward spiral of the medical center with its bloated layers of middle management and wasteful operations. These sorts of issues need to be evaluated on a case-by-case basis and even a state-by-state basis, as there are significant regional differences in remuneration policies, care of the uninsured, regulations regarding balanced billing, and similar issues. These regional issues can significantly impact the financial viability of plastic surgery divisions, leading to wide disparities in salaries, administrative support, and other resources. Aside from issues of remuneration, myriad other concerns within different academic institutions can significantly impact job satisfaction. These relate primarily to the bureaucracy that is inherent in any large structure, which contrasts with the solo private practitioner’s relatively lean infrastructure. In a major academic medical center, the extensive rules for compliance with federal and state regulations typically require a significant time commitment, resulting in less efficient time management than in a private practice setting. For academic plastic surgeons who are interested in performing basic science research, the National Institutes of Health (NIH) has its own set of

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bureaucratic regulations governing how money can be spent and requiring significant oversight to ensure compliance. Managing grants and fulfilling the reporting requirements can require up to 10–20 hours per week, time that will not be available for clinical practice. Moreover, the NIH salary support is typically far less than that obtained from clinical practice. Similarly, those involved in training programs as the program director or chairman must adhere to significant Accreditation Council for Graduate Medical Education (ACGME) and Residency Review Committee (RRC) restrictions on how one can run the residency or fellowship training program, resulting in significant compliance paperwork. Thus, one can lose control over one’s time. In most cases, this is offset by the unique opportunities provided by an academic career in plastic surgery. A final problem with academic plastic surgery is the need to advance professionally to continue participating within an academic medical center. There is generally the expectation that, over the course of one’s career, one will advance from an instructor to an assistant professor to an associate professor and eventually to a full professor in plastic surgery. Depending on the specific medical center, this can be relatively easy or exceedingly difficult. In many cases, there is a requirement for significant academic performance to advance throughout one’s career, especially in tenure-granting institutions. In most places, tenure is granted at the associate professor level; some institutions require independent NIH funding along with a set number of scholarly publications. Requirements vary tremendously among academic medical centers and their affiliated medical schools, but for those faculty members who are interested primarily in teaching or clinical practice, obtaining NIH funding can be a high bar to clear. Academic requirements can limit one’s opportunities for advancement, which can be a source of frustration for the faculty. Private practice allows one to simply grow one’s practice and increase revenues over the course of one’s career. Academic faculty can experience a significant amount of additional stress within an academic medical center. These challenges, unique to an academic practice, lead to the continual departure of many young plastic surgeons from an academic practice, which is known as the “revolving door syndrome”. Following the completion of training, 20–30 percent of training program graduates will enter an academic career. Over the next five years, many will then leave out of frustration due to the reasons described above. Many feel that they did not understand what they were getting into when they first took an academic position. The lack of understanding in terms of the pros and cons of an academic medical center and an academic career often leads to disappointment and disillusionment.

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Although an academic career can be exceedingly fulfilling, it can also be frustrating, and this needs to be acknowledged prior to committing oneself.

Getting a Job Assuming that one has an interest in pursuing a career in academic plastic surgery, there is a well-defined process for obtaining a job. Typically in the final year of training (chief resident year or fellowship), there are academic plastic surgery opportunities advertised through the American Society of Plastic Surgeons (ASPS), the American Society for Aesthetic Plastic Surgery (ASAPS), and specialist societies. As detailed above, the job solicitations must be read very carefully as they vary greatly. Some institutions will be looking for someone to build up their laboratory efforts; while others need someone to perform clinical work, typically in hand, craniofacial, or complex microsurgical reconstruction. It is important to know what type of job you are applying for to avoid surprises later. The next step is for the candidate to visit the institution so that each can evaluate one another. If there is mutual interest, a second (and perhaps third or fourth) visit is typically scheduled, at which point serious negotiations begin. For someone who is interested in purely clinical practice or in teaching, the candidate will want to evaluate the position based on factors including block operating room (OR) time, administrative support, and the adequacy of the salary. For someone who is interested in research, protected time and dedicated startup funds are the factors that will be absolutely essential for success. A candidate contemplating a research-based career needs at least 50–75 percent of protected time for a period of three to five years, as well as a dedicated annual research budget of at least US$50,000 (and ideally US$100,000) to set up and maintain a laboratory. Dedicated and committed laboratory space will also be required. Setting up a new faculty person for a research career is much more expensive than hiring someone for a clinical job. For this reason, a research position is unlikely to be offered to someone who does not already have a significant publication record in the basic science literature. As noted above, if one is thinking about a career in scientific investigation, it is essential during your training to have basic science experience and publications usually through a dedicated two-year (or longer) experience in the laboratory. In evaluating the institution, one must be aware of the different models through which academic plastic surgical centers are organized. Some are departments, and some are divisions; some have a good relationship with

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the department chair of surgery, and some do not. These relationships will factor into the long-term success of the division and of each individual faculty member. In general, it is important to have a strong chair who has the respect of people within the medical center and within the department of surgery. Without a strong leader, resources will invariably be removed from the division, leading to unhappiness among the faculty. After being recruited by the academic center, if the candidate is interested, meaningful negotiations will begin with the chief of the division of plastic surgery, the chairman of the department of surgery, or the dean of the school of medicine. Everything is negotiable, and one must make sure to get what is necessary to succeed; failure benefits no one. If all goes well, a contract will eventually be signed, at which point the stressful part really begins. The first few years in practice are critical for the long-term success of an academic plastic surgeon. What you do in the first five years following graduation defines who you will become. If you want to be a researcher, you will need to accomplish something in research in the first five years. Likewise, if you want to be a clinical expert, you need to become a readily available clinical surgeon and the “go-to” person at the medical center, while also publishing clinical papers. Failure to accomplish these things means that you will not have a long-term academic future. During the first five years, it is important to identify mentors and colleagues within your division or department who can help you reach your goals. They can be within plastic surgery or outside of plastic surgery. Meet with these mentor figures often and seek their advice, protection, clinical guidance, etc. It is important to have a realistic appraisal of your progress throughout the first few years of practice so that you can make sure you are on track; a mentor can provide this type of evaluation. Having a mentor also adds to the camaraderie of academic plastic surgery, which is one of the nicest things about being an academic. You can spend time with a group of people with a wide spectrum of interests that are very different from yours, but who are able to work together towards a common goal.

Summary In conclusion, academic plastic surgery is not for everyone. It is a stressful life which may be less financially remunerative than private practice, although this is not always the case. However, if one is able to meet the demands of excellence in clinical practice, teaching, or research, it is a rich and fulfilling

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practice that opens many doors that are not available to the private practitioner. As in all jobs in plastic surgery, one must work extremely hard. Entering academics passively or without a plan will certainly lead to failure and disappointment. One must go into it with eyes open and with the deck stacked for success.

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Solo Practice Joshua M. Korman, MD and Heather J. Furnas, MD

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ne of the most critical and difficult decisions a plastic surgeon will make is the type of practice to pursue. There are many factors to consider, and many choices to weigh: academics, health maintenance organization (HMO), small group, large multi-specialty group, employee of a large specialty group, and solo practice. Often a surgeon’s first choice does not work out or serves as a springboard, resulting in a change of course. The field of plastic surgery lends itself to solo practice in part because patients associate results so closely with the skills of a specific plastic surgeon. Physicians in other specialties are more able to field phone calls and distribute new patients to any doctor in a group. Parents are generally happy to be assigned to any pediatrician in a good group, and adults are similarly thrilled to be able to find an available internist in a well-respected group. Plastic surgery, however, is a visual and artistic field. Patients are more likely to attribute good results to an individual surgeon’s unique qualities. (This also makes it more difficult to sell goodwill at the end of a career.) According to a 2005 lifestyle survey conducted by the American Society of Plastic Surgeons (ASPS), over half of its members are solo practitioners, while another quarter of Society members work in small group practices (two to five plastic surgeons) or share facilities. There may be certain traits and qualities (creativity, entrepreneurialism, and independence) that draw a doctor to the field of plastic surgery, and those same traits may also draw them into solo practice. Despite the propensity plastic surgeons have for solo practice, the changing healthcare landscape is having a dampening effect. The April 2009 issue of Plastic Surgery News, published by the ASPS featured, a cover story about the growing trend of plastic surgeons considering joining group practices in order to save money. Increased numbers allow more clout in negotiating better deals, along with the sharing of overhead costs. While the majority of plastic surgeons are still in solo practice, that number has fallen by 2 percent annually for the last two and a half decades. Nonetheless, solo practice will still be attractive to many plastic surgeons because of the lack of encumbrances, 39

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including working with other independent-minded plastic surgeons that can be associated with a group practice.

Entrepreneur The entrepreneur will naturally be attracted to a solo practice. Entrepreneurs tend to be optimists, which helps in tolerating the financial risks taken on when starting a practice and when making major purchases. Generally, the plastic surgical resident is brimming with confidence in his or her future financial prospects. We remember meeting with bankers soon before starting a private practice, and how stunned we were to find how difficult it was to borrow money along with the reluctance of bankers to make this crucial loan. It was only after starting the practice and learning the phenomenon of delayed payments and “usual and customary” underpayments that we understood the bankers’ reluctance. As an entrepreneur, however, the solo practitioner can change his or her practice without consensus, permission, meetings, lawyers, etc. A creative, energetic person can take failures and impediments and turn them into opportunities for change and improvement.

Independence and Responsibility One of the most attractive elements of a solo practice is independence. You are truly your own boss. If you want to take Wednesdays off, you can (finances permitting); if you need to take off early to pick up your children, you can. Practice decisions are entirely yours. If you decide to purchase a new laser, no one but the bank can tell you no. The flip side of independence is responsibility. If business is slow or reimbursements are inadequate, the surgeon is the last one on the food chain to be fed. Not taking a paycheck home for a few weeks or longer is stressful. While everyone else in the office is working a 40-hour week, the solo practitioner is the one having to come into the office on weekends and stay late on weeknights trying to turn things around.

You’re the Boss As much as surgeons love to operate, if you are a solo practitioner, you have another very important and potentially time-consuming job: being the boss. In previous decades, being the boss was easy because the practice of medicine

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was less complicated. As the practice of medicine has become more complex, office staffs have expanded duties, responsibilities have grown, and the job of being a boss has grown as well. Not all plastic surgeons are born with the gift of managing people. Those who fall short in this skill would be wise to hire a sharp, creative, people-savvy office manager who will, you hope, be trustworthy. Whoever manages the practice should have people skills and psychological insightfulness. Both traits promote a smooth-running office. Most of us were never coddled in residency, so the idea of positive feedback, gentle education to correct errors, and team spirit may not seem like necessary ingredients of a business. The real world is different from a surgical residency, however, and learning to inject a dose of patience and kindness becomes easier when you realize that happy employees make for a better bottom line.

Networking Being in solo practice can be lonely. Without other physicians in the practice, it is possible that the solo practitioner is the only person in the office with a college degree. Besides, being the boss of all the other employees requires a certain distance between the doctor and the office staff. It is unlikely that the boss will go out with the rest of the staff on a regular basis to “happy hour” or to the movies. Everyone should, of course, get along, but the person who pays the staff and can fire the staff is generally not the best candidate for an employee’s best friend. This distance ensures that if a problem arises, it can be resolved with less emotion. Because being at the top can be lonely, it is important to network with colleagues. Plastic surgical colleagues naturally have the most in common professionally. Sometimes local relationships can be fraught with the barbs of competition, but jealousy is best buried to allow friendships to develop. It is ironic that the people who have the most in common often have very little to do with each other and are sometimes incommunicado. It takes a mensch to accept a competitor’s advertisements, success, and public promotions as a necessity of doing business that does not cloud a friendship. Networking with friends from one’s residency, from meetings, and from the hospital allows sharing of practice “pearls” or advice on clinical cases, and general discussions about plastic surgery. Becoming involved in organized medicine, whether at the local level or at the national specialty level, can be fulfilling while also promoting social connections. Volunteering in local clinics, residency training programs,

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medical missions in developing countries, etc. are other ways to become part of a larger tapestry of medicine. We are fortunate to be a part of a specialty that allows so many opportunities.

Planning for Solo Practice A lot of planning must go into starting one’s solo practice. Dr. Robert Kachenmeister presents the planning process at national meetings, and an invaluable guide is presented in the fourth chapter (“The Mechanics of Opening Your Office”) of the ASPS publication, Reach for the Sky, edited by John Everson as part of the Pearls of Practice series.1 Dr. Kachenmeister’s planning process is designed for the resident planning to go into solo practice, but can be adapted by those planning to go solo after working in another venue.

Location Where to practice is often one of the most difficult decisions to make. Of course, the most desirable areas are the most expensive and the most competitive. On the other hand, a more remote or rural setting can be more restrictive if, say, you are a microsurgeon and the hospital has no microsurgery program. Once all professional aspects are considered, it is important that you feel comfortable in the community. Once you start a solo practice, it is difficult (but not impossible) to pick up and leave to start all over again. Once you have whittled down the area in which you would like to practice, it is important to ferret out information about reimbursement rates from insurance companies. Even if you plan to be a cosmetic surgeon, a cosmetic practice can take a few years to build up; in the meantime, you will be relying on reimbursements from insurance companies to support you. Reimbursements vary greatly from region to region. Other costs that vary tremendously include real estate, employee salaries, registered nurse (RN) wages, state taxes, and malpractice coverage rates.

Hospital Hospital privileges are important to obtain early on as there is little a surgeon can do without access to an operating room. Find out about proctoring and on-call requirements, if any. Proctoring can be difficult, depending on the community, and some areas have abandoned it altogether. If there are few

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hospitals and few plastic surgeons in the area, scheduling a case in a hospital with an available unpaid proctor can be difficult. The proctor may be reluctant to help a new competitor become freely ensconced in the medical community. In addition to hospital on-call requirements, associated stipends and/or reimbursements may impact your consideration of an area for opening up a practice. Some hospitals provide a stipend to take call, while other hospitals still require call without paying anything for the service. While a stipend may help, especially early in one’s career, the impact that call has on one’s elective practice, not to mention one’s personal life, must be considered. Once a doctor agrees to be on a formal call schedule, he or she must comply with the laws described by the Emergency Medical Treatment and Active Labor Act (EMTALA).2,3 State laws vary regarding on-call duties. In California, if a physician is on call for the Emergency Department (ED), he or she is considered to be available at the hospital. Thus, taking emergency call would obviate the ability to do surgery in one’s own facility. Exceptions are made for surgeries done in hospitals. If the plastic surgeon (or any physician) is on call while seeing patients in the office, the ED physicians are legally prohibited from referring an ED patient to the plastic surgeon’s office or other facility to be evaluated and treated. In California, any on-call physician who is in violation of the above policies may be subject to fines of US$50,000 and possible exclusion from Medicare and Medi-Cal (California’s Medicaid) programs, especially with repeat offenses. Society’s tolerance for demanding and accepting superhuman work schedules of their doctors may be coming to an end. Already, residencies are officially restricted in the number of hours that they can require their residents to work in a week, a move supported by research on physicians-in-training.4,5 Sleep deprivation has been demonstrated to impair physician performance. Weinger and Ancoli-Israel’s meta-analysis indicated that recurrent sleep deprivation impacted mood, cognition, and motor abilities.6 The liability of doing a delicate case after 24 hours of taking call and doing emergency cases will undoubtedly increase as the results of sleep deprivation studies enter the courtrooms. While large groups may be able to allow a day of rest after a night of call, the solo practitioner is generally not in a financial position to be able to do so. In some communities, taking call can result in a loss of income. Patients may be unfunded or underfunded, yet the surgeon must pay for postoperative care in his office, including staff time, dressing changes, sterilized instruments, etc. The days of financially jumpstarting one’s practice by taking call are ending or have ended in many communities, unless a workable stipend is provided.

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It is important to find out the economic viability of taking call in your community before committing to a formal call schedule. Working with the hospital for some sort of remuneration for taking call should help defray losses and may support your practice economically. Additionally, it is important to negotiate other aspects of on-call duties. Some hospitals have an age limit after which physicians do not have to take call. However, medical executive committees have been known to put a hospital’s interests foremost and can change that age limit arbitrarily if there are too few people taking call. Oncall requirements can last until the age of 60. Another issue to negotiate is determining who is responsible for finding on-call coverage during periods of unavailability. Physicians have traditionally taken on this responsibility. Failure to find coverage can result in the surgeon’s inability to attend a meeting, a wedding, or other important events. In a small community with few other plastic surgeons, finding coverage can be an onerous task. Hospitals have the staff and resources that individual physicians do not have. Furthermore, individual specialties are not required to provide call every night as long as the hospital has a plan for treatment of a patient requiring that specialty’s care (such as transferring the patient to another hospital). Early on in private practice, most plastic surgeons are not saddled with the costs of a large office, a private office ambulatory surgery center, and a large staff. At this early stage, when the overhead is relatively low, taking call can help pay the bills if a stipend is offered or if the demographics allow payment for services rendered. Once the overhead increases, however, the time that call takes away from one’s elective practice can impact the ability to generate the income necessary just to break even. For example, if one’s overhead is $30,000 per month, the plastic surgeon needs to generate $1500 every weekday to stay in the black. Accounting for vacations, paid staff holidays, and meetings, that leaves even fewer work days for the plastic surgeon to generate income. If the surgeon is available 15 work days a month, he or she must bring in an average of $2000 per day to stay afloat. Thus, a stipend and reimbursements from ED cases may make financial sense early in one’s practice, but later on, taking emergency call can result in a loss of income. Find out what your on-call duties will be not just when starting out, but a few years into your practice. If you decide to put your name on a formal call schedule, the hospital should have a clear schedule that has specific dates and times in which call is taken. You could be liable if there is any question by the hospital as to who is on call at a specific time. If another physician is covering your call for a few hours, it is crucial that the hospital be formally informed, as failure to do so can result in liability.

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Large, competitive communities will be less affected by on-call duties, especially if call is less frequent or if it is not a money-losing activity. Taking call is a valuable service to the community and is a great way to pick up cases, especially when just getting started. However, it is important to make sure that all the responsibilities and liabilities taken on by a physician are clear before blindly agreeing to take emergency call.

Family and/or Hobby Time As more women become plastic surgeons, as more male plastic surgeons have working wives, and as more men in general spend more time running the home and raising children, the amount of time one can take off is an important consideration. Solo practice is beneficial in that the surgeon can determine his or her own hours. Unfortunately, the overhead must be covered every month. For women who plan to have children in the future, the most difficult struggle is how to afford not to work during any difficulties in pregnancy and delivery. If one is the main breadwinner, the stress is especially acute. Finding a good childcare option is extremely important. Considerations must be made for emergencies, cases that go later than anticipated, ED on-call duties, and if one’s child is sick. Generally speaking, having children is not a boon to the pocketbook, but that does not seem to deter many people from having them. For those who want to be active in their children’s lives, the income takes a further hit. Volunteering in schools, coaching sports teams, driving on field trips, and being available to pick up one’s child or children after school all take time away from professional productivity. Staying afloat financially while devoting time to the kids requires remarkable efficiency. All these factors should be considered before embarking on building an outpatient surgery center or a medical spa. Those enterprises require huge monetary outlays and have huge overheads, and their management requires a lot of time. For most solo practitioners, it is generally best to keep the overhead as low as possible to accommodate their families.

Developing a Practice Some hospitals are willing to help a physician establish a practice through loans, an income guarantee, or support in marketing and promotion. This assistance clearly varies by community and is likely to be absent in a competitive area. Nonetheless, a discussion with the medical staff office is worthwhile.

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A bank loan is necessary for all but a lucky few to fuel a nascent medical practice. Banks will, of course, want to see a business plan. Drawing up a business plan can be daunting for a person who has never started a business before, but banks can often provide an outline to serve as a guide. Please refer to Appendix A to find an example of a business plan outline. Society meetings, such as those held by the ASPS and American Society for Aesthetic Plastic Surgery (ASAPS), often have courses offered by consultants who specialize in plastic surgery. These consultants are usually very expensive and may be out of reach for a plastic surgeon right out of training, but they can be very helpful. Ask for references if you decide to hire one. Most plastic surgeons begin their practices doing emergency cases and reconstructive surgery. Depending on one’s interests, it is important to let the patients know of the other procedures that you do. Marketing and monitoring can help your practice grow. Established patients will be your best source of future revenue. Keeping contact with them through e-newsletters, seminars, open houses, patient appreciation events, etc. will be more cost-effective than trying to bring new patients in from the world at large. There are a number or resources for internal marketing, some of which are mentioned in Part II of this book. Take advantage of them before pouring money into newspaper and Yellow Pages advertisements.

Staff When first starting out, the most essential person to have is a receptionist. When patient flow is slow and there are few cosmetic patients, the receptionist can double as a patient coordinator, giving price quotes and following up with patients. Training your staff is an investment in your success. Unfortunately, the person who has spent most of his or her adult life training to be a plastic surgeon is generally not well versed in training staff. Consultants specialize in training. Ask around to get a personal recommendation from a colleague who has a well-run practice. In the past, plastic surgery practices often hired RNs to stock rooms, take out sutures, etc. As RNs have commanded higher and higher wages in some regions of the country, hiring one may be prohibitive. A good medical assistant can do many of the things that an RN has historically done in a plastic surgeon’s office. Those services that fall under the purview of an RN may be able to be scheduled one or two days a week.

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Billing Many practices use a billing company. The billing company collects a percentage of the physician’s reimbursements. As electronic medical records (EMRs) become more prevalent, online billing software is becoming increasingly popular. A Google search of “medical billing software” brings up a list of different brands of software, most of which are on-demand, Internet-based, and integrated with specialty-specific EMRs. As software is constantly improving, both for EMRs and for billing, online reviews and personal recommendations will help in choosing the best system.

Relationships and Referrals In most professions, referrals are based on financial incentives. Commissions, kickbacks, finders’ fees — call it what you will — are based on money. In medicine, fee splitting is illegal to protect the patient from decisions based on financial incentives. Multi-specialty groups have found legal ways around this, since physicians within these groups refer to each other, and bonuses and salaries come from productivity within the group. In solo practice, referrals come from relationships, and building these relationships is important in medicine. Even in a hard, cold environment with competitors and difficult hospitals, it is worth reaching out to physicians in your community. When you enter a community or even if you have been there for a while, an email or a holiday or thank-you card is worth the effort to keep your name out there. Attending conferences in hospitals or giving talks to groups of physicians are common ways new physicians increase their exposure in the medical community. Referrals for reconstructive procedures need to be filtered through the insurance web of approval, but thank the referring doctors. In cosmetic surgery, many referrals come from other patients and allied professionals. It is just as likely that a potential patient will listen to her hairdresser as to her internist. If you want to continue to build a network of referral sources, it is wise to get to know personal trainers, aestheticians, hairdressers, and other individuals who are likely to be seeing potential patients. If you develop good relations with these people, they may permit you to put your brochures or business cards in their places of business, which only helps to widen your referral net. Whatever techniques you choose to use, do not forget the code of ethics of the American Board of Plastic Surgery (ABPS) and the ASPS. It is wise to read these because your competitors most certainly will.

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Is Solo Practice for You? Although solo practice has been declining as a choice for plastic surgeons over the last couple of decades, it is still the ideal choice for the plastic surgeon who has a dose of optimism, an entrepreneurial bend, and a desire for independence. While the business aspect of running a practice is time-consuming, it can also be interesting and stimulating. The highs can be very high; the lows can be very low. The practice the solo practitioner builds can be a strong source of pride. As one of the last bastions of entrepreneurial medicine, it is what you make it, and it can make for an extraordinarily rewarding career.

References 1. Everson J (ed.). Pearls of Practice: Reach for the Sky. American Society of Plastic Surgeons (ASPS), 2007. 2. CMA ON-CALL: California Medical Association’s information-on-demand online service (www.cmanet.org). Document #1216, Emergency Transfer Laws: Medical Staff and On-Call Requirements. 3. Sutter Health Risk Services. Physician’s Risk Advisory, 6(2), 1998. Emergency department on-call physician liability. 4. Lamberg L. Long hours, little sleep: Bad medicine for physicians-in-training?. JAMA 287: 303–305, 2002. 5. Arora V, Georgitis E, Siddique J et al. Association of workload of on-call medical interns with on-call sleep deprivation, shift duration, and participation in educational activities. JAMA 300: 1146–1153, 2008. 6. Weinger M, Ancoli-Israel S. Sleep deprivation and clinical performance, JAMA 287: 955–957, 2002. 7. Additional resource: ASPS online help (www.plasticsurgery.org) for members.

Appendix A: Business Plan Outline 1. EXECUTIVE SUMMARY • Purpose of Plan 2. BACKGROUND • Experience, Qualifications 3. BUSINESS CHARTER • Description of Product(s) Service(s) • Unique Selling Proposition • Targeted Market Niche

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4. MARKET ANALYSIS • • • •

Characteristics Market Factors Competitive Evaluation Market Potential

5. MARKETING PLAN • Sales Forecast • Selling Strategy • • • •

Strategy Statement Price Advertising and Promotion Product/Service Warranty

6. OPERATION PLAN AND ORGANIZATION • • • • • •

Legal Form/Ownership Ownership Labor Force Management Compensation Training Professional Support

7. FINANCIAL PLAN • • • •

Start-up Costs Sales Forecast (Cash Flow Analysis) Start-up Capital Monthly Expenses

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The Combined Reconstructive and Cosmetic Surgery Practice Joseph M. Mlakar, MD, FACS

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very work week, I deal with a full spectrum of plastic surgery patients: newborns with cleft lip/palate, senior citizens with skin cancers, frightened women struggling with breast cancer, metal workers with slag burns in their boots, teenage drivers with facial fractures, and the unfortunate few with traumatic wounds. I also see young and young-at-heart women who want tighter tummies and perkier breasts, and men and women who just want a little edge on Father Time. I am a cosmetic and reconstructive plastic surgeon, and I love what I do. As a plastic surgeon, I have practiced in a variety of cities and practice settings during my now 20-year career. I have worked as a part-time academician in a private big-city group in Michigan, as a full-time academician in a Texas specialty hospital, and as a private practitioner in both small and large groups in an Indiana town. I have worked as a hospital-paid physician in managing two different burn centers, and I am currently in solo practice. So which practice setting is best? Nothing is perfect, and much depends on timing. Few graduating plastic surgeons have the opportunity or the fortitude to start a purely cosmetic practice. Most plastic surgeons who desire a purely reconstructive practice will work in academic centers or in military institutions as hospital-based plastic surgeons. Development of a purely cosmetic practice generally requires years of service, patience, persistence, and consistency, although clever marketing can fast-track an aesthetic practice in some markets. Most U.S.-based plastic surgeons will have some form of a mixed reconstructive and cosmetic practice throughout their professional careers. But is it the practice that they (or you) want? Perhaps a description of my experience can lend some perspective. When first starting in private practice, I wanted to be busy and successful, equating the former with the latter. I worked on any type of patient referred to me. I worked hard to establish my professional contacts along with my 51

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credibility, and I toiled long and late hours, both in the operating room (OR) and in the office. Maxillofacial trauma and acute burn care filled my days with adrenaline (while often interrupting my nights), and it did indeed make me very busy. But as time passed, I came to envy colleagues who seemed to be doing more of the types of cases that I wanted to perform and who attracted more of the clientele that would be desirable in my own practice. I needed to decide what type of plastic surgeon I was, and who I wanted to be. It was important to find a method to reorganize my practice. First, I looked at the types of surgeries I routinely performed, patients’ demographics and zip codes, referral sources, reimbursements, diagnosisrelated group (DRG) and current procedural terminology (CPT) coding, insurance carriers, surgical schedules, monthly variations, and assorted statistics. I also looked at the amount of money coming in and the amount of money going out. I was lost trying to sort it all out; I needed a simpler system of analysis. Practices have four basic components: (1) work that you love to do; (2) work that you need to do; (3) work that you are required to do; and (4) work that does not fit into the first three categories. For me, work that I love to do includes those types of surgeries that hold my special aptitude and interest, reflecting my fellowship training. These include cleft lip and palate repairs, congenital and traumatic craniofacial reconstructions, post-burn facial reconstruction, management of patients with complicated problems, and cosmetic nasal surgery. These are my “passions” in plastic surgery. I have a passion for treating children with cleft lips and palates, and I am a regional expert in facial burn reconstruction. Some of this work pays well, and some of it does not (the state of Indiana once sent me a check of US$0.01 for a secondary cleft lip repair). I believe it is helpful for each plastic surgeon to hold a passion and to become a regional expert in some aspect of plastic surgery. Work that you need to do includes any service that directly or indirectly supports your practice financially. Last year, a large bulk of my revenue was generated by breast reduction and breast reconstruction surgeries. Many patients are referrals for skin cancers and birthmarks, which both pay poorly; but by accepting these patients, I am providing a “goodwill” community service, while maintaining a larger referral base and an active flow of consultations from pediatricians, primary care physicians, dermatologists, general surgeons, and other medical colleagues. I see many children with non-surgical plagiocephaly in order to identify the few with surgical craniosynostosis. My obligations to

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my contracted insurance carriers require a wide range of plastic surgery services. Some of these services generate significant revenues for my practice; this I call “pay dirt”. Most of the cosmetic surgery I perform falls into this “pay dirt” group. Work that I must do as a requirement of hospital privileges includes managing emergency patients admitted to the trauma center and patients with surgical complications, both my own and those of others. Many hospitals require the plastic surgeons to rotate emergency room call under hospital contracts in order to comply with the Emergency Medical Treatment and Active Labor Act (EMTALA)-required hospital on-call lists. I take my turn, caring for those who have been unfortunate, unlucky, or unwise. It is important to help those who have suffered a surgical mishap or misfortune, and to help surgical colleagues in other disciplines with post-surgical complications as a matter of good hospital relationships. This work I call my “politics”. The final category includes types of cases to eliminate from your practice; these are called “plugs”. In fishing, a plug is a lead weight, which rapidly sinks to the bottom. In plumbing, a plug holds back the flow of water. In my schedule, “plugs” were sinking my energy and enthusiasm for my practice in general while slowing the flow of more rewarding or productive cases. If you do not love it, want it, or need it, then you should not do it. Currently, I limit my practice to surgical services as a surgical subspecialist in plastic surgery and I avoid treating warts, hydradenitis, massive burns, pilonidal cysts, or panniculitis in the massively obese. This simpler system of clarification of the four P’s — passions, pay dirt, politics, and plugs — should allow you to redirect your time and energies to develop your ideal practice mix. You also want to make much of your pay dirt work your passion, if possible. I no longer perform hand surgery for industrial injuries or trauma, nor do I treat chronic wounds such as venous stasis ulcers or pressure ulcers. I have given up acute burn admissions, critical care consultations, and traumatic microsurgery. Most importantly, I have stopped trying to correct every surgical problem, slowly recognizing my own limitations, and I have learned to say, “Let me refer you to someone else who specializes in your issue.” All plastic surgeons have their passions, pay dirt, politics, and plugs, although they will be defined differently in each surgical practice. It is not a static classification system, but will change constantly as a practice evolves. Technology will evolve, as will a surgeon’s energy level and the number of obligations. Local economic forces can also force practice mix changes.

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Developing a Mixed Practice: Schedule Management When starting a new practice, it takes a little while to establish a consistent patient flow, but new plastic surgeons will generally be busy in time, and established plastic surgeons will have enough to do in a mixed practice model to fill their days (and occasionally their nights). One of the practice secrets that older surgeons often fail to tell their younger colleagues is that similar cases will attract other similar cases. As a younger surgeon, it may be exciting to manage a gunshot wound in the middle of the night, but it leaves little time and energy to talk with the new facelift consult patient at the end of the next day. In a group setting, if you are operating on pressure sores while your associate is doing blepharoplasties, over time his patient-to-patient referrals will be quite different from your own. The more facelifts you do, the more facelifts you are probably going to do in the near future. It is another life example of the rich getting richer, at least in terms of practice mix. Once a surgeon is busy enough to maintain a full schedule, the next task is to modify the schedule to include mainly the desirable cases (i.e., the passions and the pay dirt) and reduce the less desirable cases (i.e., the politics and the plugs). A key component of a rewarding cosmetic/reconstructive practice is to allow time to do the types of cases that you love to do. Unless you want your schedule to be dominated by pressure sores, chronic wounds, and massive panniculectomies for the rest of your career, block time on your office schedule for both your passion cases and your pay dirt cases. Each year, I set goals within the practice including goals for personal growth, financial growth, business growth of the practice, and educational growth. Goals are also set for family activities, community service, and networking. After setting these goals, the office schedule is adjusted accordingly to maintain cash flow and a revenue stream. In my current practice, there are three main types of surgical cases, referred to as “product lines” for purposes of preferential scheduling. These are the three C’s: (1) cancer (and cancer reconstruction); (2) children (craniofacial deformities/cleft lip and palate); and (3) cosmetic (“diseases of the rich”). My fourth product line (which is not promoted) is my crisis (or acute) cases, such as facial trauma, acute wounds, and minor burns. The mixture of cosmetic and reconstructive patients within a surgical practice depends mainly on patient flow and scheduling. The first rule is to

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establish adequate patient flow, and then to direct the practice mix by preferential scheduling. My office scheduling system consists of five patient care “tracks” which all run simultaneously: (1) acute care, (2) pediatric care, (3) cosmetic consultations, (4) reconstruction consultations, and (5) office visits (for follow-ups or skin lesion consultations). To maximize office efficiency, all five patient care tracks run concomitantly. I found that my ideal function was as “director of an office orchestra”, rather than attempting to “play every instrument” myself. Therefore, each of the five patient care tracks is managed by a different assistant, including a physician’s assistant (PA), two nurses, a certified medical assistant (CMA), and a finance/billing specialist. They all see and direct patients within my practice. I am present for just a small portion of each clinical encounter, and I float back and forth between the five tracks on each office day (see Table 1). The acute track is for emergency add-ons only, and requires my verbal okay for scheduling. It functions mainly as a practice entry point for facial lacerations, facial fractures, biopsy-proven melanomas, and acute surgical wounds. Since it is the only track for which I am singly responsible, my scheduler also lists my surgical cases on this track for the entire week, allowing me to check my weekly surgical schedule with a single button click on my office schedule. The pediatric track is managed by a PA, and includes new patient consultations for all patients less than 10 years old and all follow-up visits. On my surgery days, my PA is scheduled independently to see follow-up visits to reduce my patient volume load on the office visit track. The cosmetic track is managed by my cosmetic care coordinator, who is a full-time registered nurse. Currently, this coordinator happens to be my wife, but that is a different story altogether. The cosmetic care coordinator manages all cosmetic patient inquiries, schedules new cosmetic appointments, sees all new cosmetic consultations, schedules cosmetic surgeries, and coordinates surgical planning. She also schedules and coordinates nonsurgical cosmetic treatments, including chemical peels, Botox® , and dermal injectables. The reconstructive track is managed by a part-time nurse who functions as the reconstructive care coordinator. She sees only new patient consultations and pre-operative visits. Special appointment time blocks are reserved for newly diagnosed breast cancer patients. Since these patients all require insurance predetermination prior to surgical scheduling, the part-time nurse is supported by full-time, back office personnel who manage insurance approvals and surgical scheduling.

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Mohs Defect

Abdominoplasty Blepharoplasty

“D” Reconstructive (Ashley)

Breast Reconstruction (immediate and delayed) Blue Peel Blepharoplasty (non-cosmetic) Body Lift Breast Implant Removal Breast Reduction All patients < 10 yrs old, Brachioplasty Breast Augmentation Gynecomastia including but not Breast Implant Exchange Panniculectomy limited to: Birthmark Breast Implant Removal Wound Burn Reconstruction Brow Lift

“E” Post-op/Follow-up (Shannon) 1 Post-op Follow-up Skin Lesion/Scar Revision

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Facial Fracture

“C” Cosmetic (Lori)

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Surgical Wounds

“B” Pediatric (Darlene)

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“A” Acute

Patient care tracks.

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Table 1.

Skin Cancer Consults (requires path report or derm referral)

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Table 1. “A” Acute

Cleft Lip/Palate Craniosynostosis

Buttock Lift Cheek/Chin/Lip Implant Facelift Fat Injection Laser Resurfacing Liposuction Mastopexy Breast Lift Otoplasty Rhinoplasty Thigh Lift

Plagiocephaly Polydactyly/Syndactyly Scar Revision Skin Lesion

∗∗∗ We must have records

from referring physician prior to scheduling appt, unless a physician’s office initiates the referral.

“E” Post-op/Follow-up (Shannon)

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Botox — cosmetic procedure Radiesse — cosmetic procedure Restylane — cosmetic procedure

“D” Reconstructive (Ashley)

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templated and should not be used often. It is only for true acute appts. Appts should be made at the beginning or end of office hours.

“B” Pediatric (Darlene)

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∗∗∗ This column is not

(Continued)

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The office visit track is managed by a CMA, and includes follow-up visits for both cosmetic and reconstructive patients as well as consultations with new patients with facial lesions, non-melanoma skin cancers, or scars. There are preprinted forms, questionnaires, consents, and instructions for each of these product lines. Each staff member is empowered to be a patient educator within her clinical track. My office staff members provide the majority of the face-to-face communication with our patients. Trust is our most valuable commodity. Adequate time allowance for each patient encounter is essential to earn patient trust by conveying competence, confidence, and compassion. New patient consultations are scheduled for an hour or more with our care coordinators. My time is typically less than 20 minutes. Staying timely in each of the tracks requires good communication during office days, and each coordinator is responsible for timeliness. Some tracks have fuller schedules than others. For example, if a woman calls next week for a tummy tuck consultation, she can generally get a new patient appointment on the cosmetic track within two or three weeks. In my experience, many cosmetic patients will not wait more than three weeks and may seek services elsewhere. We always make certain to have adequate inflow into this track and will borrow time from elsewhere to keep cosmetic consultation scheduling wait times shorter. A prominent plastic surgeon from La Jolla runs his office with three cosmetic patient care coordinators. The scheduling wait times on the reconstructive track are much longer. If a referral is completed for a breast reduction consultation, our current waiting list is about three to four months, and the consultation is not scheduled until all supporting documentation is received. In my view, this is a reasonable wait interval for a patient who has had macromastia for two or more years prior to seeking treatment. As our reconstructive reimbursements continue to diminish, preferential scheduling is also a practice management necessity to maintain an optimal cash flow. Within the reconstructive track, we have a monthly quota for each case type, spreading selected types of services over several weeks to maintain adequate patient flow and better cash flow. This strategy is consistent with maintaining a mixed practice. We maintain special openings in our schedule for acute breast reconstructions, acute biopsy-proven skin cancer patients, and fresh facial fractures. These exceptions assure that an initial consultation delay does not contribute to a long-term bad outcome from a life-altering illness or injury. The acute track can also be used as a “safety valve” entrance point into our busy office schedule, allowing easy periodic review and schedule modifications as necessary. If all of the tracks get busy or the patient volume increases significantly, then it

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will be time to add new associates. At the present time, we are able to provide for the needs of our patients and still maintain a positive flow and interaction within the practice (see Tables 2 and 3).

Making Money in a Combined Cosmetic/Reconstructive Practice Within the plastic surgery practice, the formula for generating revenue is straightforward: the more time that the surgeon performs actual surgery, the greater the revenue made. More than 90 percent of my practice revenues are generated in the OR. Therefore, for scheduling efficiency, I now have three full, uninterrupted operating days in the middle of the work week. This schedule also allows me to maximize efficiency in the OR, as opposed to attempting Table 2. "A" Acute 8:00 AM 8:15 AM 8:30 AM 8:45 AM 9:00 AM 9:15 AM 9:30 AM 9:45 AM 10:00 AM 10:15 AM 10:30 AM 10:45 AM 11:00 AM 11:15 AM 11:30 AM 11:45 AM 12:00 PM 12:15 PM 12:30 PM 12:45 PM 1:00 PM 1:15 PM 1:30 PM 1:45 PM 2:00 PM 2:15 PM 2:30 PM 2:45 PM 3:00 PM 3:15 PM 3:30 PM 3:45 PM 4:00 PM 4:15 PM 4:30 PM 4:45 PM 5:00 PM

Sample schedule for Monday.

"B" Pediatric (Darlene) BLOCK

Peds PO / Follow-up New Pediatric Consult Peds Pre-op/2nd Consult

"C" Cosmetic (Lori) Cosmetic Pre-op / 2nd Consult/MIRROR

Breast Reconstruction Consult

New Cosmetic Consult Reconstructive Pre-op Cosmetic Pre-op/ 2nd Consult/MIRROR

Peds PO / Follow-up Peds PO / Follow-up New Pediatric Consult Peds PO / Follow-up

"D" Reconstructive (Ashley)

BLOCK New Reconstructive Consult

New Cosmetic Consult Reconstructive Pre-op

"E" Post-op / Follow-up (Shannon) 1st Post-Op Follow-up Skin Cancer Consult Follow-up 1st Post-Op Follow-up Skin Lesion Consult BLOCK 1st Post-Op Follow-up Follow-up Follow-up Skin Lesion Consult Follow-up Follow-up Follow-up

LUNCH

2nd & 4th Mondays:

1st & 3rd Mondays: Office Minor

1st Post-Op

Office Minor

1st Post-Op

Office Minor

1st Post-Op

Cosmetic Procedures BLOCK

(Injectables, Blue Peels)

Office Minor

1st Post-Op

Office Minor

1st Post-Op Skin Cancer Consult

BLOCK

BLOCK

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8:00 AM 8:15 AM 8:30 AM 8:45 AM 9:00 AM 9:15 AM 9:30 AM 9:45 AM 10:00 AM 10:15 AM 10:30 AM 10:45 AM 11:00 AM 11:15 AM 11:30 AM 11:45 AM 12:00 PM 12:15 PM 12:30 PM 12:45 PM 1:00 PM 1:15 PM 1:30 PM 1:45 PM 2:00 PM 2:15 PM 2:30 PM 2:45 PM 3:00 PM 3:15 PM 3:30 PM 3:45 PM 4:00 PM 4:15 PM 4:30 PM 4:45 PM 5:00 PM

Sample schedule for Friday.

"B" Pediatric (Darlene) BLOCK

Peds Pre-op/ 2nd Consult Peds PO/Follow-up Peds PO/Follow-up

"C" Cosmetic (Lori) Cosmetic Pre-op/ 2nd Consult/MIRROR

New Cosmetic Consult

"D" Reconstructive (Ashley) New Reconstructive Consult

Reconstructive Pre-op

New Reconstructive Consult

New Pediatric Consult Peds PO/Follow-up Peds PO/Follow-up

New Cosmetic Consult

New Pediatric Consult

Cosmetic Pre-op/ 2nd Consult/MIRROR

Reconstructive Pre-op BLOCK

"E" Post-op / Follow-up (Shannon) 1st Post-Op Follow-up Follow-up Follow-up 1st Post-Op Follow-up Skin Lesion Consult Skin Cancer Consult 1st Post-Op Follow-up Follow-up Follow-up Skin Lesion Consult Follow-up Skin Cancer Consult Follow-up

LUNCH

BLOCK

4

New Reconstructive Consult

Peds PO/Follow-up Peds Pre-op/ 2nd Consult Peds PO/Follow-up Peds PO/Follow-up

New Cosmetic Consult

BLOCK

New Cosmetic Consult

Breast Reconstruction Consult

12

5

7

Reconstructive Pre-op

1st Post-Op Follow-up Follow-up Follow-up Follow-up Follow-up Follow-up Follow-up BLOCK

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to split my office and OR days, as I did in my previous practice settings, which proved to be impractical. My present schedule allows me to see patients in the office on Mondays and Fridays, which reduces patient care calls and hospital rounding needs on weekends. I currently see patients in the office one-anda-half days a week, and each half-day that I see patients in the office generates a full operative day. The last half-day is used for minor office procedures and injectables, which has become a financial boon to my practice. If scheduled efficiently, Botox injections can generate more revenue than a breast reduction surgery during the same time interval. My physician fee for Botox injection is US$125 per 25-unit syringe, and I can treat four to six patients per hour. By comparison, the current reimbursement by the state of Indiana for a breast reduction surgery, which is typically a three-hour operation, is approximately US$900– US$1,200. It does not take a mathematician to see where this goes.

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So, if cosmetic surgery is more lucrative, why do reconstructive surgery at all? It is a choice that most plastic surgeons will need to make in the lifetime of their professional practice. For me, my reconstructive practice keeps me involved in a number of specialty areas within the broad scope of plastic surgery, providing measurable intrinsic rewards other than revenue. Doing reconstructive surgery also allows a balanced practice that will be more adaptable in changing financial and socioeconomic times. Many rewarding surgeries are not high-revenue producers, such as cleft lip and cleft palate repairs. Currently in U.S. states, government payers provide about US$300 for a cleft lip repair and US$400 for a cleft palate repair, which means a lot of time and energy for very little remuneration. However, the reward is in the smiles of the thankful patients and parents. Reconstructive surgery can also be a powerful marketing tool, promoting cosmetic referrals from other sources for a successful reconstructive plastic surgeon. Initially, in beginning a new plastic surgery practice, it may prove beneficial to join as many insurance contracts as a provider as possible. This provides for a steady stream of referrals from some of the lower-reimbursing insurance carriers, which may be overlooked by established plastic surgery practices. It also directs patients from surgical colleagues or primary care physicians who have otherwise firmly established referral patterns. Nonetheless, in time, a plastic surgeon can become more selective in the reconstructive services provided as patient volumes increase. As the practice grows, practice revenues may be increased by eliminating the slower-paying or lower-paying insurance carrier contracts, thus optimizing remuneration independent of the volume of cases. In a growing plastic surgery practice, the rules for insurance contracts are simple: keep what pays, and eliminate what does not. My exceptions for these elimination rules are the two government payers, Medicare and Medicaid, which separately comprise my two largest billing write-offs. More than 80 percent of the children that we treat with a cleft lip and palate anomaly have Medicaid as their primary source of funding, and I will continue to serve the needs of these children despite poor reimbursements. The future of a national health care system will depend not just on a guarantee to all citizens of the right to acceptable surgical care, but also on an acceptable remuneration for surgical services paid to practicing surgeons. Practice mix, insurance mix, and billing efficiencies determine annual revenue. If a practice is purely cosmetic, this would translate into higher revenues. However, in a mixed practice, only a portion of charges will be collected. Changing the mix will change the collection. The final formula is simple: money earned (revenue) minus money spent (overhead) equals the practice

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profit. Increased earnings come by increasing the volume of patients, rates of reimbursement, hours worked, or non-contracted prices. Reduced overhead comes from reducing employees, benefits, supplies, number of services offered, or physician salary. In a group practice setting, plastic surgeons can additionally alter individual earnings by altering referrals within the practice, reducing money paid to less productive associates, increasing revenue sharing with more productive associates, or increasing pre-tax allocations, depending on the practice-sharing model. It is a matter of determining where priorities lie. In life, making the most money and dying with the biggest house or car does not necessarily add to patterns of happiness. He or she who dies with the most toys does not win. Most doctrines strive for life balance. A mixed practice allows for that.

Avoiding Fraud When a patient presents for a cosmetic surgical treatment, a straightforward financial transaction generally ensues. A discussion is held about expectations. Options and limitations of services are discussed. Prices are delineated. Financing options are reviewed. A 10-percent deposit is required prior to scheduling. The balance is due 10 days prior to the surgical event. If the balance is not paid in time, the procedure is canceled or postponed. Late cancellations incur a loss of the deposit. We do offer financing to our patients. Financing for us in our region has become a good source of patient referral. Many plastic surgeons are reluctant to offer financing for patients because they do not wish to accept a reduced percentage of their cosmetic fees. For us, cosmetic financing allows our potential patients to check on their financing before they have a consultation. Nobody wants to come in and talk to the surgeon only to find out that the services offered are not something that they can afford. That is when insurance fraud can come into play. Within a mixed reconstructive and cosmetic practice, one of the greatest concerns is avoiding fraud or the appearance of fraud. Many patients seeking a cosmetic result will attempt to get services covered under their insurance carriers. There was a time when surgeons might have participated and assisted patients in this endeavor to secure insurance coverage. This is no longer a wise clinical practice. It hurts the patient, it potentially hurts the surgeon, and it hurts the reputation of the surgical specialty. It is also not fair to the insurance industry.

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In cases that have a cosmetic component, we always identify the cosmetic component for both the patient and the insurance carrier at the time of submitting documentation for predetermination prior to the surgical treatment. Common cases that have both cosmetic and surgical components include septorhinoplasties, blepharoplasties, abdominal wall hernia repairs, panniculectomies, breast capsular contracture treatments, breast implant ruptures and exchanges, varicose vein treatments, and occasionally breast reductions. Revision or staged surgeries in breast reconstruction may have a cosmetic component, such as replacing initial implants with bigger implants at the time of nipple/areola reconstruction after a mastectomy. We always talk candidly and openly with the patient about the cosmetic component of proposed surgical treatments, and about predetermination communications with the insurance carrier. The patients are always responsible for a percentage of the facility fee, a percentage of the anesthesia fee, and a cosmetic component fee for the primary surgeon in these combined reconstructive/cosmetic cases. Times are carefully documented during the surgical treatment by the circulating nurse in the OR for functional and cosmetic components of an operative adventure. The patients are responsible if there is an underestimation of time taken for the cosmetic component for any surgical treatment. If a cosmetic component is present, then fighting with insurance carriers to have an entire procedure covered as reconstruction is never a good idea. We just bill the patient the difference. This has two advantages: (1) the surgeon is less likely to be accused of fraud; and (2) the procedure actually becomes more profitable for the surgeon, especially if the surgeon is a contracted provider. Below are two examples to illustrate the point. In septorhinoplasties, the functional portion of the operation includes (1) straightening the septum, (2) opening and stabilizing an airway, and (3) straightening a crooked nose. The cosmetic portion of the same operative procedure includes (4) reduction of a dorsal hump and/or (5) modification, recontouring, or reduction of a nasal tip. The surgeon’s fee for the cosmetic portion of a septorhinoplasty is a clear and distinct fee, in addition to the charges for functional nasal surgery, and is outlined as such on all communications with the patient and the insurance carrier. If the patient chooses not to pay, then no external nasal changes are performed except for nasal straightening. Most patients choose to pay the additional cosmetic fees. For a panniculectomy, the functional component is removal of the hanging panniculus and dissection and treatment of removal of tissues below the umbilicus. In a low-hanging panniculus resection, the umbilicus is removed

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simply to avoid an umbilicus adjacent to the suprapubic scar, which is very deforming. Additionally, functional surgery may include a ventral hernia repair if present (a primary diagnosis of a ventral hernia is always made by a referring surgeon or a referring primary care physician, and is never a primary diagnosis that is made in our practice). However, if the patient desires additional abdominal wall dissection in excess of a panniculectomy or a ventral hernia repair (such as freeing of the tissue above the umbilicus, abdominal fascial plication, or reconstruction of an umbilicus), then this portion is billed separately as a cosmetic component. To simplify our explanation for our patients, a separate cosmetic fee is required to rebuild the umbilicus following most panniculectomies in our patients. Otherwise, if the patients do not wish to cover the cost of this fee, then the umbilicus is not rebuilt. Umbilicus reconstruction increases the risk of abdominal flap necrosis and is generally avoided during massive panniculectomies, especially if partial vulvectomy is required to achieve an acceptable end result. We will only see patients for a ventral hernia repair if they are considering a cosmetic tummy tuck at the same time. If a patient requests a consultation for a ventral hernia repair without a tummy tuck, he or she is referred for a general surgery consultation and generally is not seen in our practice. I will treat difficult abdominal wall reconstruction patients by component separation if they have been properly evaluated and referred by a general or a colorectal surgeon. If the patient desires a tummy tuck at the time of a hernia repair or a hysterectomy, he or she is charged a full cosmetic tummy tuck fee, including anesthesia and facility costs. I no longer see patients for routine ventral hernia repairs unless those hernias are an unfortunate result of TRAM flap reconstruction, either my own or those of others. Blepharoplasty patients are always required to have verification of visual field testing from an optometrist or an ophthalmologist prior to scheduling a consultation for functional treatment. Patients who wish to forego visual field testing prior to consultation are billed initially for cosmetic consultations. It is rare to see patients receive insurance coverage for lower lid blepharoplasties unless a severe ectropion is present with epiphora. For breast reduction patients, office scheduling requires a written referral by the patient’s primary care physician or a gynecologist, following documented failed conservative treatment for at least six months and a patient weight of less than 350 lbs. No patients are seen for breast reduction consultation in our reconstructive track unless adequate documentation is received for at least two of the following: (1) documented physical therapy or chiropractor treatment; (2) documented skin care or dermatologic

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treatment; (3) documented spinal pain treatment with medication and/or surgery; and/or (4) documented weight loss program or bariatric surgery. All patients seen for breast reductions are warned that insurance carriers require patients to have been on a dedicated six-month program for weight loss, physical therapy, and/or chiropractic services. I never reference nomograms or graphs of published tables to determine what insurance requires for predetermination approval, nor do I try to guess at resection weights. Estimation of grams removed from patients is always based on patient measurements in standard published formulas (such as the one below). We no longer fight insurance carriers on behalf of patients to get their breast reduction surgery covered under their insurance plans. We do offer competitive rates for cosmetic breast reduction services to patients who are not covered by their insurance carriers. Estimation of Reduction Weight (in Grams) = 35.4 × Clavicle-to-Nipple Distance (in cm) − 60.66 × Nipple-to-Inframammary Crease Distance − 1234 Gynecomastia breast reductions in male patients who are 21 years of age or older are considered cosmetic surgeries. Once patients fall outside pediatric guidelines, gynecomastia is generally considered to be a product of aging and/or obesity and is managed as a cosmetic consultation or treatment.

Making Reconstructive Surgery More Profitable Breast reconstruction has remained a mainstay of the reconstructive plastic surgery practice, but reimbursement for breast reconstruction from the insurance carriers has diminished through the years. In my practice, third-party insurance carriers routinely no longer cover tertiary operations, revision operations, or the management of complications following breast reconstruction. In a mixed reconstructive and cosmetic practice, time taken for breast reconstruction is time taken away from cosmetic surgery, diminishing practice profits. Sadly, in some cities, affected women are finding it increasingly difficult to find plastic surgeons who perform breast reconstruction or who participate with their insurance plan, except through university medical centers. In my practice area, the need for breast reconstruction is great, but remuneration per hour of treatment is marginal at best. Therefore, my goals in breast reconstruction are to bolster the spirit of an emotionally distraught

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cancer victim and to restore a surgically absent breast. My primary practice goal is to limit my complications in breast reconstruction, which takes precedence over pursuit of the perfect form and figure. In order to limit my complications, I no longer perform TRAM flaps in patients who are massively obese (BMI > 32), smokers, or insulin-dependent diabetics. In my hands, these patients often will have partial flap necrosis and require multiple surgeries. I no longer use placement of silicone implants in immediate breast reconstructions, with or without AlloDerm, following mastectomy. I find that many patients still develop capsular contractures given this approach, and tissue expansion allows for a safer option. I always inform all of my breast reconstruction patients that breast reconstruction is a two-stage or three-stage surgical process, regardless of the type of reconstruction. This allows me to make secondary adjustments, and it helps to keep the patients comfortable with the whole reconstructive process. My first option for the majority of these patients has remained tissue expander and implants, which is provided to 70 percent of my patients. In smokers, this is commonly performed in conjunction with a latissimus flap. I limit TRAM flaps to young, healthy, ideal candidates only. In my hands, TRAM flaps are rarely performed at the time of primary mastectomy, but are performed following completion of radiation therapy when required. I no longer offer free flap reconstruction for breast reconstruction, but refer ideal candidates to university centers. In the private practice setting, free flap breast reconstructions do not provide adequate remuneration for the time required and the risk assumed. In the treatment of skin cancers and lesions, we have separate entry tracks within the practice for proven malignant (versus benign) skin lesions. Patients with benign lesions often wait for months if they need an appointment in our office visit track. However, prices are available for cosmetic lesion removals, and patients can access our cosmetic track much more easily. All of these lesions are removed in an office setting. We receive poor insurance reimbursements for removal of non-cancerous skin lesions and therefore have limited patient access for this surgical service. We limit our follow-up in those patients with benign skin lesions. If the lesion is proven benign, a single operative visit is all that is offered. If the lesion is malignant, visits are done at one week, three months, and six months following surgical treatment. The patient is then referred back to the primary care physician or referring dermatologist for long-term follow-up. Within the combined cosmetic/reconstructive practice, certain types of problems can often be managed in specialty clinics, including cleft lip/palate

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teams, craniofacial teams, burn clinics, wound care clinics, melanoma clinics, breast cancer clinics, bariatric/weight loss clinics, and hand clinics. Hospitalbased programs have a number of advantages for plastic surgeons. They allow for collegial interaction and collaboration, optimizing a team approach for difficult-to-manage patients. Hospitals often pay plastic surgeons an administrative stipend for leading a team or directing a program, which supplements clinical service revenues. The hospital also assumes costs for supplies, specialized equipment, marketing, and personnel/nursing, which reduces the overhead burden for the physician. Hospital-based clinics are also able to bill patients’ insurance for dressing supplies and nursing services, independent of physician evaluation and management (E/M) fees, and can capture funding for supplies that the private physician cannot. For this reason, private-based plastic surgeons cannot fiscally compete with hospital-based wound care or burn care clinics.

Managing Emergency Room Coverage There was a time when calls and referrals from the emergency room (ER) were a sought-after portion of every budding plastic surgeon’s revenue stream. In some cities, plastic surgeons would fight to get on the call schedule as a way of being visible within the medical community, building a referral base, and developing a clinical practice. Unfortunately, those times are gone. Practice risks for managing emergency department patients are higher than those for managing patients in an elective setting. The average ER client is not as desirable as that in one’s elective practice. The working hours are horrific. The reimbursement is lower. In short, life as a plastic surgeon in the ER typically sucks. Most established plastic surgeons try to limit their access and the services they provide through the ER. I have made a personal creed that I no longer sew up drunken people at two o’clock in the morning. The wound can be managed with an open, moist gauze dressing. This allows time for the patient to be stabilized, fully evaluated, and placed on the surgical schedule the next morning or the next day. We work within our community to share the workload. Each plastic surgeon with hospital privileges is required to participate in an EMTALArequired call list, and to share the burden of non-contracted patients arriving for referral through the ER. The system is not perfect, as many of the services we provide overlap with those of other specialties.

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In many communities, the current direction for ER coverage of trauma patients includes contracting patient care services by surgical services, especially general surgery, neurosurgery, and orthopedic surgery. It is important that if one type of surgical specialist receives remuneration for covering trauma services, then that needs to apply to all surgical services. The growing trend is that plastic surgeons nationwide are receiving a stipend for covering call at their local trauma hospital emergency department.

Avoiding Practice Burnout Within any certain surgical field or human endeavor, the possibility of burnout or fatigue within the surgical specialty remains. I think burnout occurs within our specialty whether we are in an academic reconstructive practice, a highly lucrative cosmetic practice, or a mixed cosmetic/reconstructive practice. Many well-known and well-respected plastic surgeons within our field have reached this point in their lives or careers and have taken their own lives. This is a tragedy. It is important to recognize the signs of burnout in oneself. These can include chronic fatigue, loss of enjoyment, increasing drug or alcohol use, loss of libido, extramarital sexual affairs, chronic frustration, or helplessness. Maintaining a well-rounded practice, setting goals for personal development, and taking time to renew and reflect are all part of successful practice management. This mantra holds true for the young surgeon and the old surgeon alike. We will continue to anticipate diminishing insurance reimbursements. We will continue to live in a publish-or-perish university atmosphere. There will always be a difference between adrenaline surgery and elective surgery. It is important to make lifestyle and practice choices that will reflect a steady and healthy lifestyle as we move forward. One way to avoid burnout is to keep evolving as surgeons. For plastic surgeons, this means monitoring results. To avoid habits of self-deception, we can take and maintain adequate photo-documentation and then share those photos with our colleagues at local and national meetings. All surgeons have a bell-shaped curve distribution of their surgical outcomes. All of us have great results, and all of us have poor results. As we mature in practices, our hope and goal is to move the bell-shaped curve to the right and to narrow it so that we get more consistent results. For myself, I try to view my patients as ambassadors. Focusing on interactions with individual patients keeps me focused on what my mission and

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calling is within medicine currently. A practice is hard to build and slow to change, but easy to break. I believe that I need to touch enough lives in a positive way to be a successful surgeon. I no longer worry about my reputation, which is a nebulous web of truths, half-truths, lies, deceptions, misconceptions, mysteries, and legends, all generated about an individual in the web of social interaction. I do worry about maintaining my character and integrity. It has been said that what we are actually doing with each patient interaction is selling trust to our patients. In the same vein, I avoid gaming insurance carriers. Reconstructive surgery offers me an opportunity to feel like I can make a difference in the world at large. This includes my volunteerism and community service as a whole. My reconstructive practice is marketing for my cosmetic practice. My current thought is that the best way to increase my revenue is to reduce my costs and to increase my efficiency within my surgical and office practice. In summary, a mixed cosmetic and reconstructive practice is the initial, normal evolution of all surgeons as they leave the university setting, either from training or from an academic faculty position. A reconstructive practice can include a mix of insurance and self-pay patients. My reconstructive practice keeps me involved in a number of areas within the specialty of plastic surgery that give me intrinsic rewards other than revenue. My cosmetic practice allows me to better control my revenue stream, and I have improved my lifestyle by not relying on third-party payers. My balance of reconstructive and cosmetic plastic surgery will, I hope, allow my practice to be more adaptable in these changing financial and socioeconomic times.

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Making a Living in Reconstructive Surgery Steven P. Davison∗, DDS, MD, FACS and Mark W. Clemens, MD

Introduction

N

o book on the business of plastic surgery would be complete without a chapter on reconstructive surgery. The debate between self-pay cosmetic versus insurance-reimbursed reconstruction work has been contemplated for decades as fees for each have diverged. The goals of this chapter are to (1) compare the pros and cons of a reconstructive practice; (2) evaluate financials from a single-specialty group practice in Washington, D.C., as a case study; (3) break down the phases in reconstructive practice, including billing; and (4) demonstrate how to make a living practicing reconstructive surgery.

Surgery trends According to the most recent data,1 the growth of the cosmetic surgery market is overly exaggerated. The Hollywood, or “Nip/Tuck” effect is not reflected in the numbers. There was a 283-percent increase in cosmetic procedures from June 1992 to 2006; however, it has since stagnated. The growth from 2000 to 2006 was 32 percent, but that from 2005 to 2006 was 2 percent. Although numbers are not yet available, it is highly likely that the recession of 2008–2009 has seen a significant drop in cosmetic surgery. In 2007, 1.9 million cosmetic procedures per year were performed, compared with 5.3 million reconstructions. The reconstructive market itself has shrunk, down 15 percent from 2000, although plastic surgery has maintained a higher percentage compared with other disciplines.

∗ Steven P. Davison is the primary author of this chapter, so any references made in the first person

(e.g., “I”, “my”) refer to him.

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Why a reconstructive practice? Reconstructive surgery is relatively safe and steady, and can be considered as the bond holdings in a diversified investment portfolio. There is a ready patient pool with less competition, particularly from other plastic surgeons. Plastic surgeons are still the single largest competition for other plastic surgeons. (However, there are variations based on geographic region. For example, in northern California, physicians in some private practices earn less wage plus benefits per hour worked compared with registered nurses. Regional reimbursement rates and the cost of living will determine how safe and steady a reconstructive practice is). Because reconstructive surgery itself is diversified, it has potentially lower economic risk. A survey by the American Society of Plastic Surgeons (ASPS) in Plastic Surgery News reported a dip from 20 percent to 50 percent for cosmetic procedures. As discussed in Plastic Surgery News, “retooling” for a reconstruction is harder than it may seem. The time and effort to develop a referral pattern to re-educate and join provider panels is not insignificant.2 The cosmetic surgery market can be affected by a market collapse, a 9/11-like effect, or other local or global factors. Reconstruction can see a slight dip in elective procedures based on co-insurance or the loss of insurance, but this is nowhere as drastic as in cosmetic surgery. However, some reconstructive procedures are affected by other factors. In Northern California, one practice performed 70 breast reductions per year; after health maintenance organizations (HMOs) tightened the gate-keeping system by penalizing primary care doctors for all patient care costs, that practice had only six referrals the next year. Obviously, the reconstructive market is not insular, but it has more breadth and options than relying on self-pay services. An advantage of a reconstructive practice is less of a need for an advertising budget, as compared with a cosmetic surgery practice. This may vary by region. Highly competitive areas may benefit from advertising; however, classic physician relationships and referrals are more valuable. Unlike other specialties such as facial plastic surgery, where a gulf exists between general ENT (ear, nose, and throat) and facial plastics, effective branding of the scope of our practice makes the transition from reconstructive to cosmetic surgery seamless. The ASPS has worked hard to market plastic surgery as a diverse and inclusive spectrum of care. A patient who comes in for one procedure or consult is less likely to be surprised that a plastic surgeon performs other procedures that are applicable to them or other members of their family. For example, it is not surprising that a plastic surgeon will perform a breast reduction, remove a mole, or repair a laceration, yet at

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the same time offer to provide liposuction. A reconstructive practice allows the new surgeon to build a molehill into a mountain by respecting the triple A’s: availability, affability, and ability (in that order). Moreover, self-pay or cosmetic procedures can be added at no additional costs to the practice. Large reconstructive cases provide downstream operations; this we describe as the “pipeline effect”.

Remuneration myth The relative value unit (RVU) is a comparison of production in medicine. It combines the three components of work, practice expense, and risk value component. Medicare and insurance companies base remuneration on a dollar conversion of RVU. Depending on the year, the Medicare conversion is around US$35 per RVU, although there are regional and state differences in RVU reimbursement. This is related to the risk (malpractice cost) and practice components of the RVU calculation. A procedure in Manhattan pays greater than one in South Carolina, as the practice expenses are greater in Manhattan. Yet inequalities do exist: a procedure in Manhattan may pay disproportionately more than one in Long Island. Medicare is broken down into 17 geographic zones that were determined decades ago. Some areas that were previously rural are now urban with a higher cost of living, but the reimbursements are still at rural rates, which create inequalities. Plastic surgery as a specialty does very well. Our coding and reimbursement committees have aggressively promoted our worth to the ResourceBased Relative Value Scale (RBRVS) Update Committee (RUC), the body responsible for RVUs, and they have staunchly defended our reimbursement rates. The RVU for a heart transplant is 69.31; while the RVU for a bony free flap, such as a fibula, is higher at 72.32. The RVU for an appendectomy is 15.38, whereas that for a local flap we might perform in the office is 17.64. These actual numbers reflect the value we have maintained compared to other specialties.

Predictions Although no crystal ball exists, it is likely that fees for cosmetic surgery will decrease due to increased competition, deregulation to allow dentists to perform cosmetic procedures, and the “Wal-Mart” effect. A comparison of facial plastic and plastic surgical fees shows that plastic surgery prices are higher. It is highly likely that reconstructive fees will also decrease. Medicare is a balanced

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system. There is a finite amount of money, calculated on the Gross National Product, which is divided by all RVUs billed to obtain the conversion rate in dollars. Left alone, there would be a steady decrease in this rate as utilization rises. As most insurance fees are tagged to Medicare, private fees will follow Medicare and go down.

Hourly rates To structure a practice, it is helpful to think of hourly rates of income and cash as shown in Fig. 1. When one considers revisions, complications, and staged surgery, there is a fundamental difference between cosmetic and reconstructive surgery. For reconstructive surgery, one still charges for revisions, stages, and in most cases complications. This then generates US$750 an hour. Revisions for cosmetic surgery may not be billed, depending on the reason for the revision and the surgeon’s practice policy. If so, it now costs the practice to do the revisions and, at a minimum, US$650 an hour (or the equivalent of overhead) is required to run the practice without generating income. In reality, it can be even more expensive if operating room (OR) time and anesthesia are required and the surgeon absorbs those costs (Fig. 2). How pay-for-performance will affect this is unknown. Hospital charges for certain “avoidable” complications, such as infections and decubitus, are being denied. At present, no global policy on denying reimbursement for complications or revisions exists. However, in some areas such as California, revisions are denied for reimbursement. One way to circumvent this issue is to ensure that modifier 58 for staged surgery is applied.

Fig. 1. Estimates of production rates (in US dollars) for different types of care in my practice. Source: Nextec Billing, Washington, D.C., 2008 data.

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Fig. 2.

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Revision of hourly rates (in US dollars).

E/M services An office with increased evaluation and management (E/M) reimbursement and in-office procedures generates real income. In my practice, it is US$300 per hour. E/M codes are the cognitive codes that identify non-procedural physician services. They are found in the 99-series of codes. Categories exist for different sites of service (inpatient versus outpatient), different types of E/M consultation requested by another health care provider, and new patient visits versus follow-up visits for established patients. As the shift in reimbursement to cognitive specialties has occurred, the relative reimbursement for this type of service has increased. The income derived from E/M reimbursement or billing for consultations cannot be underestimated. Cosmetic consults are often billed at no charge or only a token charge. Actual consultation charges when another physician sends a patient can generate fees for an office day that more than cover the overhead. However, efficiency and accuracy are crucial. Electronic charting systems help facilitate adequate documentation requirements.

Self-worth Dollars and cents do not account for the psychological benefit of performing reconstructive surgery. When one does reconstruction, there are phases of improvement which reinforce themselves: good results mean that grateful patients come back for follow-up visits, which in turn boost the surgeon’s self-worth. We have seen in cosmetic surgery that mostly unhappy patients return for continued follow-up appointments. Happy patients return for their post-op, possibly for fillers, and for the next time they need a procedure. They generally are not coming for scheduled follow-up visits as this would inundate a cosmetic schedule with non-fee visits. They do not keep regular maintenance

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appointments like melanoma patients or breast reconstruction patients. As such, there is a shift toward seeing a higher percentage of dissatisfied patients. This is emotionally draining and time-consuming. Because of time and gravity, cosmetic results only get worse with time: more lines, relapse, or ptosis. This sentiment is mirrored in a recent article in Plastic Surgery News. The author makes the point that the dissatisfied patient with unrealistic expectations can be a drain: Rhytidectomy, a rather dramatic operation, can lead to stunning postoperative results. Of course complications from facelifts can be stunning too — especially to the patient who thought she could take a few days off to recuperate from the procedure and return to life looking refreshed, not grotesque. But it’s more than just the obvious complications such as hematoma, necrotic post-auricular skin and facial nerve injuries that disturb some patients. It’s often much smaller problems such as the latitude of healing — what many of the patient’s friends interpret as “flaws” — that keep a patient coming back to the plastic surgeon’s office to complain for months after the procedure. For the physician, this ongoing process can feel like a surgical version of “waterboarding” — slow, steady, and repetitious jabs at the surgeon in the exam room that don’t ever seem to reach a conclusion.3

The breast reconstructive patient is an interesting hybrid, as they start as a reconstructive patient and end as a cosmetic one. Revisions are a frequently covered expense, depending on the insurance company and the geographic region.

Conclusion A reconstructive or mixed practice has benefits. Reconstructive surgery is still a growing market that can be developed without advertising that pays for revisions and bestows self-worth to the surgeon.

Practice Analysis We will review the results from a single group of seven surgeons (six plastic and one podiatric) from Washington, D.C., during the financial year 2005, as set forth in Figs. 3–5. Within this group, which is part of a multi-specialty academic practice plan, one surgeon had a 75/25-percent reconstructive mix, two surgeons had a 75/25-percent cosmetic mix, and four surgeons were

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Fig. 3. Production for a seven-person single-specialty group. Total = US$16.75 million. Source: Washington, D.C., 2006 data.

Fig. 4. Collection rates for the seven-person group. The full-time equivalent was US$980,000 in reconstructive collections per surgeon. Source: Washington, D.C., 2006 data.

nearly 100% reconstructive. Although based predominantly at one academic hospital, they provided services at a Virginia satellite office and surrounding community hospitals. This group billed a total of US$16.75 million, US$14.83 million of which was for reconstructive surgery. However, just US$5 million was collected for these services. The reconstructive collection rate was 30 percent, with a payerdependent mix. The results show that the full-time equivalent for a reconstructive surgeon in this practice was US$980,000 in gross income. The factors that affected this gross income were analyzed. The value of the E/M codes was very important: this surgical practice collected US$1.65 million, or 24 percent of their gross income, from seeing patients in the office or in hospital consultation rather than in the OR. As E/M codes constitute

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Fig. 5. The group collection rate overall was 42 percent, with reconstruction 30 percent. Some self-pay was written off as returns or bad debt. Source: Washington, D.C., 2006 data.

most doctors’ bread and butter, a larger portion of remuneration has shifted to them as RVUs have been adjusted. One should not ignore this revenue stream. Document and bill for your cognitive time. The majority of the income, 76 percent, came from surgery, whereas 24 percent came from the office. Considering the time spent, an average of two days in the clinic and three days in the OR, the remuneration for each service is not so disparate. If they had equal monetary value, the ratio would only be 40/60 and not 24/76. The group had a high degree of specialization in practice type — breast, head and neck, or limb — which increased efficiency. The volume of patients was high: 26,500 patient interactions with 3,137 operations. Services that were expensive to provide in terms of manpower and supplies, such as those at the wound-healing center, were shifted to the hospital. This was a win–win situation, as the hospital derived US$43 million in down-feed business (explained below) and hospital inpatient volume. The wound center generated more than 1,000 cases per year for one surgeon. Due to the value of wound care patients, the hospital covered the cost of institution-provided residents as well as the support for mid-level providers. This extra manpower functioned as workforce multipliers to increase productivity beyond what any individual could do. Down-feed business is the work and income stream the hospital derives from core admission or surgery. This includes the laboratory, radiology, subsequent consults, additional procedures, and facility fees. The wound center generated US$43 million in this down-feed for the hospital. As hospital collections are more favorable than physician collections, it is fair to say that revenue from the wound center constituted at least 5 percent of the hospital’s

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eventual revenue. This type of financial and political clout allows a surgeon to obtain hospital support for his or her program. In a very revealing paper on economic factors affecting head and neck reconstructive surgery, Dr. Deleyiannis showed that his hospital collected an average of US$44,153 compared with his fees of US$2,300.60.4 The profit margin on 58 patients was more than US$1 million. This revenue stream gives leverage to obtain financial support from hospitals to provide time-consuming, intensive reconstructive services. In the case we described above, the hospital’s profit from microsurgery allowed a salary support of US$50,000 for one of our microsurgeons.

Conclusion Our group practice derived US$980,000 per full-time equivalent from reconstructive surgery. Twenty-four percent of this was derived from E/M services.

Maximizing Reconstructive Surgery Non-participation The most effective way to maximize remuneration per case is not to participate in insurance plans. There are a number of ways to achieve this: (1) become famous and offer real or perceived exclusive services; (2) have geographical control with no competition; or (3) provide emergency room (ER) coverage and hospital consults. However, the third option is the most difficult to achieve without becoming the tow truck of plastic surgery, which is to say that patients use you only when they are stranded. The problem in the ER is disclosure of your participation or non-participation and patient expectation. This is worsened as ER consults include those that are both medically necessary and socially demanded. If a patient demands a plastic surgeon to sew up little Johnny’s laceration, would they still do so if they knew that the plastic surgeon does not accept insurance and the service will be out of pocket? This argument is moot if the patient is uninsured.5 Californians should be aware that, as of January 2009, the California Supreme Court determined that nonparticipating physicians cannot balance bill HMO patients for charges beyond what HMOs pay out-of-network physicians. So, not participating in California is not financially beneficial for ER work. Non-participation is not the same as not accepting insurance; rather, it means that you do not contract and agree to accept a lower fee. The hardest

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group with which to avoid participation is the Blues (Blue Cross and Blue Shield). They make it difficult by corresponding and sending Explanations of Benefits (EOBs) and checks only to the patient. Although fees paid to outof-network providers can be significantly higher than those paid to network providers, it is up to the physician to bill the patient and to pursue the collection of the balance of the charges. Patients may not understand the process or they may cash the check they receive from their HMO. Fees can be negotiated in advance with individual payers or patients. If the insurance payment is less than that negotiated amount, then the patient can be balance-billed. It is a legal requirement to bill the patient but not to collect. Thus, higher payments can compensate for lower balance collections.

Secondary market Through reputation and results, one can develop a secondary revision market in reconstructive surgery. This includes revision of reconstructions, cosmetic complications, or the dissatisfied patient. The advantage of this market is that it is self-selected and pre-sold often out of network and/or out of pocket. Figure 6 shows a breakdown of our group’s insurance reimbursements, which will help set expectations.

Carve-outs Carve-outs are services that are not contracted at standard rates but are individually negotiated. The best example currently is deep inferior epigastric perforator (DIEP) flaps. To do carve-outs, one needs a track record of

Fig. 6. Reconstruction collection rates by insurance type. Workman’s compensation is the highest payer, but has the longest lag in payment (up to a year).

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specialized service and quality outcomes with volume and success. It requires constant vigilance of payments and a commitment to drop out of insurance participation if the insurer does not want to negotiate reimbursement rates. In addition, it requires a realistic expectation of what the service is worth. Demanding US$25,000 for a service for which Medicare pays US$2,600 will not engender long-term success or even respect.6

Emergency rooms One has to analyze emergency rooms objectively. Busy does not mean profitable, as the payer mix can be terrible. Hospitals have Emergency Medical Treatment and Active Labor Act (EMTALA) requirements to provide ER coverage of specialty services if their hospital has those services available.5 This means that there is the possibility of per diem coverage from hospital funds to pay for services. The adage of “available, affable, and able” may not pertain to the ER. The changing climate of uninsured, higher-risk patients no longer makes the ER a referral source; it has been replaced by the provider list. A glaring example of the injustice I have experienced is caring for a Kaiser patient one night who was promptly transferred to one of their surgeons the next morning. This is considered common practice, as Kaiser seeks to minimize its costs while delivering care. Yet for the individual on call who is covering Kaiser’s patients, I believe it is inappropriate. Such practice can in turn lead to bad behavior as patients may be rushed to the OR before the case can be snatched away.

Efficiency This is essential. Your currency is not surgery; it is time — what you can get done in a certain amount of time. Centralization requires bringing patients to you, thus reducing your hospital commutes and locations. On the other hand, you will need to maintain enough hospital affiliations to afford yourself multiple options. No OR time means no productivity. Block time is obviously a maximization of time. Waste other people’s time, not your own. Make sure you are operating, not waiting. Do Mohs reconstructions the day after the resection so that you are not delayed by the dermatologist who must make multiple passes. The room with the 7:30 a.m. first case of the day is often the only room that runs on time. Consider doing a case before or after clinic hours so that the turnover does not waste your time. Avoid add-on cases, and minimize turnover by

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scheduling similar cases in a block. This reduces staff expenses and speeds turnover, as long as there are adequate instruments. A joke among surgeons at the academic hospital is that the fastest way to improve turnover is to drive to the community hospital for your second case. Work in parallel, not in series. Doing one case after another is not as productive as doing a case in one room (A) while an extirpative surgeon removes a lesion in another room (B). When you are needed, you finish case A, move to case B, and eliminate downtime. Doing all of your cases in one room, particularly if you are doing combined cases with another specialist, is an incredible waste of your time. Stagger cases so that the set-up and take-down overlap with a second room. If a fellow or a second surgeon is available to help in a combined case, use him or her to do a case during your unproductive time, i.e., during the extirpation. Consider rounding or seeing consults between cases. We have found that a resident has many values; however, speeding up the work in the OR is not one of them. A surgical first assistant, a physician’s assistant, or a second surgeon is more efficient. I schedule my major reconstructions to follow my elective schedule so that I am not sitting around waiting on the oncology surgeon. Raising the flap while the oncology surgeon is working is another option. To run a system in parallel requires organization and very good communication with your scheduler, who must be able to visualize delays, the time the other surgeon takes, your speed, etc. Nonetheless, I always expect delays. I bring a rolling office to do paperwork so that the unit of productivity — time — is not wasted. The unreliable patient should never again be given prime OR time and instead should be scheduled at the end of the day. A deposit of the patient’s deductible can discourage a no-show. Case cancellations result in a financial loss for the surgeon, as time is your unit of productivity. Time is money. Because reconstructive patients have no financial risk, I use an airline model: I overbook the flight. If the week is heavily scheduled with 10 percent too much, the inevitable no-show or cancellation does not leave holes. If holes do appear, it is time to vacuum the hospital for all those cases you have delayed or avoided.

Paperwork Attention to details is essential for pre- and post-production paperwork. The preauthorization/predetermination process is critical. Watch for hidden loopholes such as the need for a sign-off by the primary care physician. If the predetermination is not airtight, do not proceed. Rather, get a peer review and close the loop. A peer-to-peer review is a higher level of predetermination by

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a physician affiliated with the insurance company. Normally, a nurse reviewer renders the “yes” or “no”, but discussing your case with an MD can be far more fruitful. This review must be done prior to the operation. Give freebies to the patient and not to insurance companies. You can perform “dog ear” removal, liposuction, and touch-ups gratis, but bill insurance companies for everything that is reconstructive. As the second, third, and fourth codes are discounted 50, 50, and 80 percent, respectively, find the largest encompassing code and bill it first. Understand coding rules. Consider it mandatory to take a coding course and the business courses given at national meetings. It is very likely that the person reviewing your bill has limited education and training. Help give them the answers by dictating codes and Current Procedural Terminology (CPT) numbers on the first page of your operative report, allowing you to maximize your reimbursement. Collect copays and deductibles, which are steadily rising as percentages of the fees. The average copay is now US$25 and the individual deductible is as high as US$1,000. Some practices collect the patient’s deductible at the front desk as a prepay, since the average cost to send a bill is US$12. Staff can smoothly and inoffensively do this at the time the patient has the procedure (not after), since you cannot repo the surgery.

Accuracy This is a fundamental ingredient in the patient billing process, and it begins at the earliest interaction. Verification of social security number, spelling, and benefits maximizes clean claims. An analysis of a rejection report identifies what claims get rejected. Our own rejection reports from insurance companies confirm that inaccuracy costs money. The majority are small errors such as an incorrect spelling of the insured’s name. A great example of this is billing through TRICARE for a military dependent. One must reference the active duty family member’s social security number, not the patient’s. If you bill under the patient, the system does not recognize the charge. Missing preauthorizations and poor use of modifiers (particularly when additional exams or procedures are done in the global period) all affect collections.

Conclusion Accuracy is essential and is most dependent on intrinsic factors of the practice. Any small error will derail the process. A more competitive environment will erode reimbursement and the amount you can generate.

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It is possible to very successfully provide only reconstructive care in the right geographical area with remuneration of around US$1 million per year. The intrinsic factors that you can control are (1) organization; (2) efficiency; (3) volume and availability; (4) an accurate billing process; and (5) a reconciliation process. Time, rather than surgery, is the currency of a reconstructive practice. In turn, time is indeed money.

Post-Production The last phase is post-production, or how to maximize remuneration through collection. The most important tools are education and accuracy. Understanding coding and billing is a key component. A coding workshop or course is highly recommended. In addition, CPT codes, the RBRVS guide from Medicare, and a guide to black box edits (or payment exclusions based on the particular code or combination of codes submitted) are very helpful. All are available through the ASPS.6,7,8 The goal in coding is to match International Classification of Diseases (ICD-9) codes to CPT codes. The ICD-9 codes are a series of three-, four-, or five-digit codes to describe diseases. The first three digits placed in front of the decimal describe the disease (e.g., 873, laceration). The next two digits placed after the decimal designate the site or the severity (e.g., 873.4, scalp laceration; or 873.50, multiple complex laceration, face). The CPT codes are a series of codes which identify all procedures and are grouped in system-based categories: skin, musculoskeletal, cardiovascular, respiratory, etc. Within these groups, the codes tend to be listed from cephalic to caudal. For example, in the digestive system, the lips are at the beginning and the anus is at the end. The two must match: you cannot submit a bill for a breast procedure with a diagnosis of Crohn’s disease. These matches can be done by manual crossreferencing or a computer program.

Coding When coding, accuracy to ensure clean claims is important. Unbundling is illegal and counterproductive. Bill for what is not included, but do not doublebill. Maximize modifiers, particularly when applying E/M codes with procedures, subsequent visits, or operations in the global period. For example, if you perform a procedure the same day as an office visit, add -25. If you perform the surgery the same day of or the day after a consult, add -57 which designates surgical decision-making.

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The most important modifiers in plastic surgery are the following: (1) -59, separate procedure at a different site, used to identify a procedure that was not included. For example, 11443-59 (lesion removal) was not included in 14040 (local tissue rearrangement); (2) -51, procedure tied to another procedure. An example is 15100 (skin graft) and 15002-51 for a debrided wound in preparation for a skin graft; (3) -22, complex or unusual procedure. This should be reserved for extremely difficult or extraordinary situations and supported by an operative report, since it often leads to a manual review; (4) -52, reduced service for procedures; (5) -57, surgical decision-making on same day. Normally, visits 24 hours prior to a case (e.g., to obtain consent) are denied; but if it results in a decision to operate, add -57; (6) -50, bilateral procedure; (7) -58, staged procedures. This is for timely staged planned procedures within 90 days; (8) -78, complication with a return to the OR; and (9) -79, new operation for a different reason in 90 days, e.g., to take the patient back to the OR within 90 days after a breast reduction to remove a melanoma. Accuracy in coding can make a substantial financial difference. Without education, surgeons will most likely use generic codes, which are the simplest to locate and remember. Site-specific 2-series codes for incision and drainage yield five-fold the remuneration of generic codes. For example, decubitus care has specific codes to cover debridement. A debridement of skin, subcutaneous tissue, muscle, and bone (11044) has an RVU of 8.2 (US$293). Yet code 15937, excision of sacral decubitus with osteotomy, is more accurate and bills at a higher rate of 25.45 (US$939).7 This three-fold increase is an important difference if you are to run a profitable reconstructive practice. An example is the code 10061, incision and drainage, non-specific/ complex, which pales in comparison to a site-specific code such as incision and drainage of the chest (21501) or shoulder (23030) taken from the musculoskeletal section. This reflects a substantial lost opportunity cost. An excellent source is the coding reports by Dr. Janevicius.6 Add-on codes demand a mention. There are procedures in reconstructive surgery that have add-on codes which cannot be billed independently, necessitating a link to a primary code. It is important to bill for these services, as they are not discounted like other procedures. An example of an add-on code is the mesh placement code (45968) which has to be billed after a primary hernia or abdomen debridement code. Another example is a code to bill for Lymphazurin injections in melanoma (38792). If you perform this service, why not bill the additional RVU of A9535 per case?

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Supplies The cost of some reconstructive supplies can be substantial. They need to be billed independently using A or J codes, even if not all carriers pay (e.g., J3301 Kenalog). Supplies that are very expensive or difficult to get reimbursed should be flowed through a hospital. Examples are gold weights, custom implants, therapeutic Botox, and medical leeches. The source for correct coding of supplies is the Healthcare Common Procedure Coding System (HCPCS) guidebook.9

Back-end billing The operative report is primarily a medical document, but it is secondarily a legal and financial document. Dictate ICD and CPT codes and modifiers on the front page. The goal is to facilitate the insurance company to pay. Give the insurance clerks all the data they need to pay the claim, like post-operative diagnosis with ICD-9 codes. A description of the surgery’s procedure, broken down with CPT codes and a list of modifiers, provides no excuse for the insurance processors to deny your claim based on documentation. They would then have to read the body of the text to refute, rather than support, your bill. Black box edits are very specific exclusions that one CPT code cannot be billed with another CPT code. This is a preemptive step to reduce overbilling for procedures that are included in another procedure. An example is that a spreader graft (30465) cannot be billed with a septoplasty (30520) as they are, respectively, in each other’s black box edits. It is important to differentiate if one procedure was performed on another side or contralateral side so that you can get reimbursed. An example is 19120, mass removal right breast, and 19318, reduction left breast. Without modifiers to identify (-59) separate lesion and left or right side, an automatic denial would occur. I examine my own mail, read EOBs, and review payment posting with my biller. Set a monthly meeting with your billing service. Nothing in life will get accomplished unless you set a deadline. Having looked back over billing records, I have found that it is not uncommon to see activity on accounts only the day before our meeting. The following process of reconciliation is very valuable. Speedy coding and billing eliminates late charges. A delay causes an increase in payment lag time, and an increase in lag time is an interest-free loan for the insurance company. A maximum of 40 days in payment lag is a goal.10 Medicare should pay within three weeks. One of the paradoxical things

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about the Centers for Medicare and Medicaid Services (CMS) is that they are incredibly efficient with electronic submissions, direct deposits, and automatic payments and denials. This has led to CMS having the lowest overhead costs (3%) compared with market norms of close to 20%.

Referrals There are three sources for referrals: (1) patients, (2) doctors, and (3) payer (insurance) panels. The first referral source, patients, you maximize by delivering service; the last source, payer panels, you maximize through your participation on the panel. This leaves the second referral source: other doctors. It is naïve to consider that referrals are sent to the best surgeon. Although you have to provide good surgery, it is not that simple. Ask yourself why doctors should send you patients. Look at it from their perspective. The following is a list of questions: (1) Is it easier to send my patients to Dr. A or to Dr. B? The answer may be as simple as which office answers the phone or whether the referring physician can speak with you directly; (2) Am I kept in the loop as the referring physician? This is a major criticism of academic centers; (3) Service: does the doctor take care of pre-op, post-op, and rehab, or do those jobs end up back on my lap?; (4) Does the doctor make me look knowledgeable by providing me with feedback? Referring physicians do not want to appear naïve about their patients’ care. They want copies of laboratory and pathology reports sent to them; and (5) What financial benefit or reciprocity do I have? Does this doctor send me patients? Am I a preferred provider for them? When you care for your referrer’s patients, make sure you do not send their patients to an alternative provider within their specialty! We keep a list of doctors in our network of referrals and make sure we do not have one-way, take–take relationships. This impacts your referrals of doctors more than anything.

Conclusion Accuracy and education in back-end billing are critical. A 40-day lag in collection is the goal.

Summary It is possible to make a living in reconstructive surgery with some organization. The remuneration per full-time equivalent can be up to US$1 million for a

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productive practice. There is still a growing market for plastic surgeons in reconstructive surgery. It provides diversification and some stability in market fluctuations that are absent in cosmetic surgery. The way to maximize a reconstructive practice is to compartmentalize the process. The pre- and post-production phases, including contract negotiation and the billing process, can influence remuneration as much as the work done. In these phases, accuracy is essential and education (particularly in back-end billing) can make an enormous difference. The productive phase, which the surgeon directly influences, is where time is money. Time, rather than surgery, is the currency. Maximize time. The intrinsics that the surgeon can control are (1) volume of work done, (2) efficiency and productivity of the time used, (3) specialization and repetition to decrease wasted energy, and (4) maximization of access and availability to ensure future referral.

References 1. American Society of Plastic Surgeons. Statistics 2007. Available at www.asps.com. 2. Leonardo J. Could bringing balance to your practice offer an economic cure-all? Plast Surg News 20(2): 1, 22, 2009. 3. Haeck P. Facelift claims avoided through patience, time and re-operations. Plast Surg News 20(6): 1, 16, 2009. 4. Deleyiannis FW, Porter AC. Economic factors affecting head and neck reconstructive microsurgery: the surgeons’ and hospital’s perspective. Plast Reconstr Surg 120(1): 157–65, 2007. 5. Davison S. Emergency room coverage: an evolving crisis. Plast Reconstr Surg 114(2): 453–7, 2004. 6. Janevicius R. So why is there no CPT code for DIEP flap procedures [CPT Corner]? Plast Surg News 20(2): 8, 24, 2009. 7. Contexo Media. Coding and Billing for Plastic Surgery/Dermatology. Contexo Media, New York, NY, 2009. 8. HCFA discontinues secret edits for Medicare claims. American Medical News 10(2), 2000. 9. American Medical Association. HCPCS 2009: Medicare’s National Level II Codes. American Medical Association, New York, NY, 2009. 10. Lander R, Martin V. Your guide to better coding. Medical Economics 85(10): 34–9, 2008.

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Pursuing a Career at Kaiser Permanente Robert Pearl, MD

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hen I completed my residency in plastic and reconstructive surgery, I was interested in almost every aspect of reconstructive plastic surgery. Uncertain of the exact type of practice I was seeking, my plan had been to volunteer for a year in Central and South America. In the middle of my chief residency, I received a call from the chief of plastic surgery at one of the Kaiser Permanente medical centers. Although I had not done any rotations at Kaiser Permanente, I was aware of the program and knew other plastic surgeons who had taken positions in various locations. He told me that there had been a tragic plane crash and that one of the plastic surgeons in his medical center had died. He asked if I was willing to lend a hand for a few months, until they could recruit another individual. It seemed a simple request, and what harm could there be in delaying the trip for a short time period? In fact, I never left Kaiser Permanente. The choice of career often takes the most unexpected turns. To understand the value of a career in Kaiser Permanente, physicians should understand the organization’s structure, leadership design, and mission-driven culture. Although the term “Kaiser Permanente” is used to describe the totality of the care provided to patients, in actuality there are three separate organizations which together integrate a not-for-profit health plan with a prepaid, multi-specialty medical group and a not-for-profit hospital system. Kaiser Foundation Health Plan, a community-based, not-for-profit insurance company, is similar to other community-based, not-for-profit entities. It donates hundreds of millions of dollars a year to community benefit programs, care for the uninsured, and medical education. It is distinguished among insurers by the fact that it uses a much smaller percentage of the premiums it collects for the administration of the health plan operations and allocates an unusually high percentage of the dues it collects for direct patient care. 89

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There are eight regions in the United States, and each has an independent physician Permanente Medical Group. As a consequence of the independence of each Permanente Medical Group, there are minor variations in different geographies; but overall, practicing in large, multi-specialty medical groups is relatively similar in the various Kaiser regions. An important aspect of working at Kaiser is not only to provide excellent medical care, but also to maximize disease prevention. Most of the perspectives in this chapter will reflect those of Northern California’s The Permanente Medical Group (TPMG), the largest medical group in the nation with over 6,000 physicians and 25,000 staff. TPMG (one of eight Permanente Medical Groups across the U.S.) was founded 60 years ago and, under California law, is a professional corporation similar to most physician groups. TPMG is independent from, and an equal partner to, Kaiser Foundation Health Plan and Kaiser Foundation Hospitals. It has its own Board of Directors, all of whom are practicing physicians, half elected by their colleagues and half selected based on their administrative accountabilities. The consequence of TPMG’s size and structure is that it is an equal partner to the health plan and the hospital organization, rather than being under the control of either one. This makes TPMG self-governed and self-managed, which is unique among other large medical groups in the country and distinctly different from solo or small community practices. As a result, physicians report only to physicians, and there are no health plan administrators from whom physicians need to obtain authorization for care. This is a major attraction to physicians who value their independence and influence, which do not exist in other settings. In 1933, a young surgeon named Dr. Sidney Garfield was hired by the industrialist Henry Kaiser to go into the Mojave Desert to provide medical care to the workers building the California Aqueduct. It was out of that experience that Kaiser Permanente came into existence. Although health care in the 21st century is dramatically different than it was 75 years ago, many of the principles established by Dr. Garfield remain the foundation for the program today. When Dr. Garfield began to provide health care to the construction workers on the project, he realized that he faced a major financial challenge. Workers in their early 20s would travel to Los Angeles on payday, and when they returned they no longer had the money required to pay for their medical care. Facing potential bankruptcy, he introduced a radically new proposal — prepayment — as the solution to this dilemma, and he convinced Henry Kaiser to support his innovative approach. For a nickel a day per worker and another nickel for their respective families, he would provide all their healthcare

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needs. Prepayment aligned the interests of the patients and the physicians, rewarding both through disease prevention. Dr. Garfield would walk around the work site, knocking down protruding nails, since in this pre-antibiotic era an infected puncture wound was often fatal. Although the tools and approaches have expanded immensely from those earliest days, commitment to prevention remains a focus for Kaiser Permanente 70 years later. In contrast to Dr. Garfield who provided medical care using only one 12-bed hospital in the Mojave Desert, Kaiser Permanente today has over 30 hospitals with close to 10,000 beds, and yet many of the principles and approaches remain the same. The combination of an integrated financing approach, a high-quality medical group, and an associated hospital continues to define Kaiser Permanente across nine states and the District of Columbia. Although Kaiser Permanente is similar to other organizations with large multispecialty medical groups, such as the Mayo Clinic, the comprehensiveness of Kaiser Permanente’s integration and its 21st-century advanced IT systems make it unique. For plastic surgeons who begin a career in Kaiser Permanente, many aspects of their day are identical to what it would be like working in the community, but others are dramatically different. What is most similar is the nature of their clinical practice. The work day typically starts with hospital rounds on inpatients and then continues either in the operating room or in the office. The mix of clinical cases is different in that the overwhelming majority of the work is reconstructive, rather than cosmetic. In addition, being part of a large group of colleagues makes the experience more similar to an academic practice rather than that of a solo practitioner. Individuals coming out of residency or fellowship enjoy the camaraderie of going into an adjacent operating room to watch another surgeon operate, rather than feeling isolated or even perceiving the surgeon in the next room to be a competitor. Physicians who join Kaiser Permanente directly from training programs are encouraged to ask for assistance from clinical experts, whether in the same specialty or a different one. Even the most recently hired individuals can be confident they will obtain the needed expertise easily. This experience contributes to the high level of personal and professional satisfaction which TPMG physicians report today. In the office, the Kaiser Permanente physician has the freedom to schedule surgery, hospitalize a patient, or order any test or medication without having to complete paperwork or call for health plan authorization. The expectations are that the quality will be outstanding and that personalized service will be provided. There are no individual financial incentives tied to utilization. Performance expectations are set by clinical peer experts, not health plan

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actuaries. This approach supports physicians in delivering optimal quality in the most effective ways possible. One advantage of practicing in a large, well-established medical group in which physicians are salaried is the freedom from financial worries associated with covering an office overhead. As members of a large group, physicians are expected to help their colleagues whether they need assistance in the office or operating room or for coverage when colleagues are away. It means that all physicians are accountable not only to their patients, but also to their associates, which means that they may need to be available to provide medical care on some occasions when they would rather be doing something else. As in any large company, every physician is allocated a certain amount of vacation time. Additional time away can be taken without pay, provided there is coverage to ensure access for patients. For many physicians, practicing in Kaiser Permanente combines the best of academia and community medicine. They enjoy spending most of their time on clinical practice, but they can also do research, teach residents, and/or take on important leadership roles. Each of these opportunities is possible and can be traced back to the visionary leadership of Dr. Garfield nearly 40 years ago. In the 1960s, Dr. Garfield and Dr. Morrie Collen established the Kaiser Permanente Division of Research. Today, it is the largest research facility in the country outside of a university setting. It receives over US$50 million a year in grants; participates in several of the largest National Institutes of Health (NIH) projects; and recently undertook the nation’s most ambitious research effort to understand the link between genetics, disease, and the environment. Kaiser Permanente’s Research Program on Genes, Environment, and Health, aims at establishing the largest human genetics database in the world. By comparing DNA sequences with clinical outcomes, researchers hope to determine whether particular diseases have an inherited or an environmentally associated medical etiology. In addition, individual research grants are provided to clinician researchers to study questions of particular interest to them. Expert research support is provided, beginning with Institutional Review Board (IRB) approval through manuscript preparation and submission. In the late 1940s, Dr. Garfield and his associates established residencies to educate the next generation of physicians. Dr. Garfield recognized that residents would need to be trained not just to be clinically and technically excellent, but also to become broad systems thinkers. Today, Kaiser Permanente has numerous programs, both in primary and specialty departments, whereby physicians train more than 600 residents each year. More

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than 10% of Kaiser physicians hold academic appointments and volunteer on medical school faculties. In addition to Dr. Garfield’s strong beliefs in clinical medicine, research, and teaching, he (along with Mr. Kaiser) was committed to making Kaiser Permanente’s faculty and facilities non-discriminatory, in an era when many hospitals in the U.S. were segregated. This legacy continues with Kaiser’s commitment to the provision of culturally competent care. Dr. Garfield was also an innovator in hospital design. Today, Kaiser Permanente’s commitment to environmental stewardship is seen in the green building design of its newest hospitals. Several have been recognized as national models, with reduced use of potentially toxic materials and maximal energy conservation. Kaiser Permanente stresses a comprehensive view of quality. Regardless of specialty, physicians are accountable both for achieving the highest-quality clinical outcomes and for helping Kaiser remain the leader in prevention. The combination of integration, prepayment, advanced information technology, and an incentive system which rewards prevention and the avoidance of complications contributes to Kaiser Permanente’ success. Although all physicians in TPMG are part of a single medical group, the operational structure is based on the medical center, which includes a hospital and the medical offices required to provide patient care for that particular geographical area. The medical center is the locus of much of the integration as primary care coordinates its efforts with specialty care, and patients move easily between the outpatient and inpatient settings. The recruitment and hiring of physicians is facilitated through a centralized regional department, but the individual physician is hired by the local chief of a specialty to practice in a particular department in a specific medical center. Today, there are eight applicants for each opening in TPMG. At present, physician satisfaction in Kaiser Permanente is extremely high and, counter to the general trend in American medicine, has increased over the past decade. The reasons vary from higher, stable salaries to the enjoyment of working with excellent colleagues, the absence of a need to market one’s practice, and the freedom to determine the best care for each patient without the need for prior authorization. Each medical center has a physician-in-chief, who has full accountability for the medical care provided in his or her medical center. Reporting to the physician-in-chief are the assistant physiciansin-chief and the department chiefs. This is similar to a university structure, with a dean having associate deans and department chiefs reporting to him or her. For many physicians, this structure provides the opportunity to embrace a series of different responsibilities across one’s career, including helping to

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oversee quality or service for the department, becoming the chief of the department itself, taking on a role as assistant physician-in-chief, or becoming the physician-in-chief. The broad variety of practice opportunities attracts a large number of physicians with leadership potential. As part of this process, TPMG has a regional Department of Physician Education and Development, which coordinates not only the clinical educational programs, but more extensive leadership development programs too. As a large multi-specialty medical group, TPMG brings together department chiefs from different locations to share innovative practices. It also supports clinical experts in educating all physicians about the most up-to-date medical approaches. The TPMG Board of Directors has committed funds for educational programs while passing the nation’s most stringent conflict-ofinterest policy. As part of TPMG’s commitment to clinical excellence, each physician is provided with paid educational leave and educational dollars, which can be used for any continuing medical education (CME)-accredited program. Similar to many academic medical centers, the salary structure is annual in design and the benefits are structured around a lifelong career. Salaries are specialty-specific and market-competitive, and vary by performance and tenure. As part of that process, each individual is evaluated yearly based on quality outcomes, peer review, and patient satisfaction. Included in this evaluation is feedback from colleagues in the same department as well as from physicians in associated specialties. In addition, there are incentives provided for superior quality, access, and service. These quality outcomes are facilitated by the availability of 21st-century technology. During office visits, all patients are provided with information on their personal preventive screening, including the recommended tests based on age, sex, and clinical conditions, and whether each of them is up to date. This allows every physician to contribute to the prevention of disease. Moreover, the common electronic medical record (EMR) includes each patient’s radiology, laboratory, and pharmacy information, so that lost films are no longer a problem; and potential complications can be avoided by comprehensive knowledge of the medications being taken, the presence of a bleeding diathesis, and any important associated medical conditions. Kaiser Permanente’s physicians and their patients use the Internet extensively. Patients can access parts of their medical record and can communicate using Health Insurance Portability and Accountability Act (HIPAA)-compliant, secure messaging with their treating physicians. A huge library of medical information is available, and hundreds of clinical leaders in

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Kaiser Permanente are currently creating online tools to allow better management of different conditions. Of the physicians who are hired and successfully complete the first years of intense evaluation on the path to partnership in the group, over 95% spend their entire career with Kaiser Permanente. For this reason, in addition to competitive salaries, the benefit structure is designed to allow each physician to maintain a comparable income and lifestyle after finishing clinical practice. Overall, the design of Kaiser Permanente is different from that of a solo or small-group specialty practice, as reflected by Kaiser Permanente’s organizing principles: a multi-specialty group practice; a focus on research, teaching, and technology; a commitment to prepaid insurance with prepayment to the medical group; and the alignment of incentives both within and among the entities. Although people may join for a job, most physicians discover both a career and a mission. Kaiser Permanente offers a myriad of opportunities, both clinically and administratively. It rewards people not only for their individual contributions, but also for helping their colleagues. It focuses on the entire patient, trying to prevent as well as treat disease, and searches for opportunities at every encounter to maximize the patient’s health. It is not for everyone, but at a time when physicians are increasingly frustrated by the restrictions of fee-for-service medicine, it is a great choice and a superb career. I personally am grateful that I was available after my residency to help for a few months. I am certain any other choice would not have provided the incredible personal and professional satisfaction I have experienced.

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Group Practice in Plastic Surgery Debra J. Johnson, MD, FACS

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lastic surgeons tend to be an eccentric lot. We are known for being artistic, creative, eclectic in our interests, and free-spirited. Perhaps because of our peculiarities, most of us are solo practitioners. Practicing solo allows us to make all the decisions, following our own personal muse. But solo practice has its drawbacks. A solo plastic surgeon must indeed make all the decisions, even those he or she is not particularly fond of or does not have the expertise to do so. A solo plastic surgeon must also be responsible to patients, staff, and vendors alike. A solo plastic surgeon takes a lot of evening and weekend call, which may make it hard to get away for an evening, a vacation, or an educational meeting. A plastic surgery group practice offers significant benefits. Responsibility is spread out among the partners. After-hours call is divided equitably. One does not have to worry about one’s patients while on vacation. There is also the camaraderie of interacting with surgeon colleagues and the ability to bounce ideas or ask for an instant second opinion from a partner. It is like being in an academic practice without the politics or committee work obligations. Joining a group practice means that there is very little in the way of startup costs involved. An established group will have an office, staff, letterhead and business cards, a marketing plan, insurance contracts, etc. Everything is already up and running. The group may also have an accredited operating facility. A new associate can show up on day one to an office already humming. The staff should have already lined up consults to see. A new associate hits the ground running. How do you decide if a group practice is right for you? You have to evaluate your own needs. What is your need for individual control versus your ability to be flexible with others? What is your need for personal time off, and are you comfortable covering for your partner’s patients when he or she is out of town? Do you need to have decisions made quickly or are you tolerant of the sometimes glacial process of achieving consensus among partners?

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Finding a Group Practice Job searching today involves a multi-pronged approach. Plastic surgeons can utilize the “Job Opportunities” section of the American Society of Plastic Surgeons (ASPS) website. Job seekers can post an advertisement on the site. Group practices can also post advertisements seeking a new associate. The ASPS Plastic Surgery News has a classified advertisement section with job listings. A professor or colleague may have connections that can turn into job opportunities. Sometimes a group, although not actively seeking a new associate, may respond favorably to a trusted colleague who refers them someone looking for a job. Headhunter organizations can market a plastic surgeon nationwide. Headhunters send out short biographies of job seekers over a wide network. In this way, a plastic surgeon may receive some interest from practices that they might otherwise be unaware of. The downside of the headhunters is the sometimes exorbitant fees charged to make those connections, as well as the hefty price a prospective employer must pay should a referred associate be hired. Before contracting with a headhunter organization, make sure you have exhausted all the other less expensive ways of finding a job. Also, be sure to read the fine print of the contract to understand exactly what fees will need to be paid (whether or not you get hired). In my own group, we have hired graduates of local residency programs who are known to us, young surgeons referred by colleagues at distant institutions, job seekers off the ASPS website, and we once hired a surgeon referred by a headhunter. We had to pay a US$18,000 fee, which was annoying. This surgeon at the time was a fellow at a large plastic surgery group practice that we know well, so it is likely we would have been able to find out about her without the headhunter! If you are competing for a job, you can understand why a group might pick the candidate who does not come with an expensive finder’s fee. In evaluating a group practice, a surgeon should visit the practice and all of its satellite offices, meeting each of the partners for individual interviews. The surgeon should talk with as many of the staff members as possible and also look at the practice’s website and marketing materials. The State Medical Board website may provide information regarding any legal issues that affect the practice. If any other physicians are known in the community, they can be questioned regarding the reputation of the plastic surgery group. An inquiry to the local hospital’s chief of plastic surgery (or chief of surgery) can be helpful.

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A group practice may have a variety of personalities. As in a marriage, you go into a group knowing that none of these personalities will change just because you have joined them. A new associate needs to feel comfortable with the dynamics of the group. You cannot join a practice and expect to find new “best friends forever”, but you should expect trust, professionalism, and collegiality. It helps if each member of the group has a relatively similar practice mix. If you are a dedicated hand surgeon, microsurgeon, or gender-reassignment surgeon, and nobody else in your group does that, you may be stuck taking call and caring for your patients 24/7. The beauty of a group practice is that if one of your patients develops a problem on your weekend off, your on-call partner will take care of it quickly and professionally. Of course, you will do the same for them. Newer associates tend to take care of more emergency room cases and reconstructive surgery patients than their seasoned colleagues in the group. The natural progression of a plastic surgery practice is one in which cosmetic patients are most often referred by another patient (although the Internet is becoming an important referral source). Usually, it takes some time to build a cosmetic practice. A new surgeon also needs a variety of surgical experiences to qualify and sit for the American Board of Plastic Surgery (ABPS) examinations. Older partners may have evolved a more exclusive cosmetic practice, but they certainly know how to deal with a post-breast reduction hematoma. However, they may not be able to handle a thrombosis in a DIEP flap. As a new associate, you need to be aware of the partners’ experience, limitations, and comfort level with reconstructive issues. Also, be sure that the partners have hospital privileges to care for your in-house patients when you are not available.

Contracts An associate joining a group practice should have an employment contract. This contract should delineate salary, possible bonuses, on-call obligations, vacation time, educational leave, and other benefits. The contract should stipulate who pays the new associate’s fees for obtaining hospital privileges, medical malpractice premiums, educational meeting fees and travel expenses, and the fees associated with taking ABPS written and oral examinations. The terms of the employment contract should be specified. The contract might state that one to three years of employment as an associate will be followed by a partnership buy-in if all parties agree. However, the

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employment contract should be revised annually to adjust for market conditions and changing benefits. The contract should have a cancellation clause that is agreeable to both parties. A boilerplate employment contract is shown in Appendix A.

Dividing Expenses Each group will determine how practice expenses are divided among the partners. Any fees received are usually the property of the billing partner. Although some groups divide fees received in a more egalitarian fashion, they are not the norm. Practice expenses are often divided based on productivity. Thus, a high-earning partner pays more for the practice’s overhead on the assumption that he or she is using more practice resources. In my own office, we have an expense formula based on fixed and variable costs. Fixed costs include office rent, utilities, computer expenses, marketing costs, etc., since we feel that each of us uses these resources fairly equally. Variable expenses include items such as personnel costs and medical supplies, since the physician with the larger patient base uses these more. These variable expenses are determined based on the productivity of each partner on a monthly basis. These expenses are adjusted quarterly and then again at year’s end, to accommodate for the short-term variability in productivity due to vacation time, sick leave, meeting attendance, etc. In the past, my office determined variable expenses based on fees received. However, we decided that many of the reconstructive cases were not being reimbursed to the level of their resource use. We have since changed to a system that utilizes relative value units (RVUs). Each month the number of RVUs billed is divided by the variable cost basis, and a cost per RVU is determined. Each physician partner is then expensed based upon the number of RVUs billed that month. Again, the number is corrected quarterly and at year’s end. Some costs are direct expenses to each partner. These include the costs of breast implants used and/or fillers injected, malpractice premiums, license fees, membership fees, educational expenses, etc. The costs associated with the support of a new associate (salary and benefits over and above the fees received by the new associate) are divided equally and expensed to each partner monthly. When a new associate becomes more established, he or she may bring in more income on a monthly basis than his/her salary and benefits require. This excess is divided among the partners and added to their monthly income.

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In our office, we subject a new associate to the same accounting that each partner has undergone. Initially, the new associate will run income-negative for several months. Once the new associate begins receiving fees, that income is tracked to determine when he or she climbs into the black and the group has recouped the start-up costs of the new associate. Once a new associate becomes profitable, the group must determine how much profit it would like to recoup prior to making an offer of partnership. For example, if an associate is receiving an annual salary of US$200,000 with 18-percent benefits, he or she needs to bring in professional fees not only to cover his/her own salary and expenses, but also to make the practice partners a modicum of profit. This profit is in compensation for the group providing a turnkey start for the new associate. This profit usually runs US$10,000–US$20,000 per partner. Once the partnership has received that profit, and if all parties agree, the new associate may be asked to join the group as a partner.

Buying In to a Group Practice If a plastic surgeon associate becomes a productive member of the group practice, the offering of a partnership opportunity is appropriate. The decision on when to offer partnership depends on various factors. The group would want the new associate to be in the black, and productive enough to cover his or her own salary and benefits. The group may require completion of board certification. The associate will have to fit in well with the group and be considered a team player. Although the majority rules in group decisionmaking, it is important that there not be strong dissent by any one member of the group about adding a new partner. A group practice has assets. These assets are tangible items like office equipment and exam room chairs, surgical instruments and lasers, etc. Assets are depreciated over time and new assets are acquired. At any given time, the group’s accountant can value these assets. Each partner owns a share of these assets. When a new partner buys into the practice, he or she must purchase a share of these assets. The group determines the cost of the buy-in with the assistance of its accountant. Some practices may have a buy-in that represents only a share of these tangible assets. The new associate would pay that buy-in cost to the partners (who would divide it amongst themselves), and a partnership agreement would then be entered into. A boilerplate partnership buy-in agreement is shown in Appendix B.

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Some practices include a premium to the buy-in for the intangible asset of goodwill, or the advantage that comes with joining an established and well-respected group. There may be some validity to this premium, depending on the reputation of your new partners and the trickle-down effect a new partner gets from joining a good group. The added cost of this premium to the buy-in would likely be negotiated with the group. The buy-in is also a formula for the buy-out. When a partner retires or leaves the group for other reasons, the share of the tangible assets held by that partner will be sold back to the group. A current value will need to be determined based upon the group’s agreed-to formulation.

Owning or Renting Office Space While renting office space is less expensive in the short term, owning your own building offers tremendous advantages for a group practice. In a group, the building mortgage can be held by the practice, so the liability is shared and the cost is divided equally. Therefore, it is much less expensive per partner than it would be for a solo plastic surgeon. The corporation holds the paper on the building and pays the mortgage. Each partner is a member of the corporation and owns a proportional share. As the mortgage is paid off, the equity in the building increases. The partners can pay rent to the corporation for the use of the building. That rental income is then used to pay for upkeep and renovations of the building. In our practice, rent is handled by having a second corporation owning the building, which is separate from the medical group corporation. Income over and above what is needed for maintenance of the building can then be paid back to the partners as passive income, which is not immediately taxable. The rent you charge yourself must be in keeping with the usual and customary rents in your area. In our own case, we each pay US$6000 per month in rent, which is a pre-tax business expense. Twice yearly, we determine the amount of funds held by the building corporation that is in excess of what is needed to maintain the building. We then divide that excess among the partners, and we each receive a check. That income is reported on a K-1 form that we submit to the Internal Revenue Service (IRS) with our tax forms. The tax on that income comes due only when a partner sells his/her share of the building. This past year, I received over US$40,000 back in this passive income. We do occasionally refinance to get a better interest rate. We have also refinanced, taking money out as the value of the building has

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risen, in order to keep the price per share relatively low so that a new partner’s buy-in to the building is not exorbitant. While we do not yet own our building outright, it has been one of the best investments our group has made. When a new associate accepts the offer to become a partner, he or she can also be offered the opportunity to buy a share of the building. The buyin should be based on a current appraisal minus any outstanding loans. The buy-in can be made in one payment, or the group can finance it. Our group allows a new partner to pay for his or her share in the equity of the building over five years, with an interest rate on the outstanding balance of prime plus 2 percent. When a partner retires or leaves the practice for another reason, his/her share of the building is repaid over five years, again with the same interest rate. By financing both the buy-in and the buy-out, we avoid large shifts in the building’s budget. A five-year buy-out also spreads the retiring partner’s tax burden over a longer period of time.

Medical Malpractice Insurance There may also be an advantage in a group practice regarding the cost of malpractice insurance. Our group purchases insurance together and so, by bundling our six doctors, we get a small discount on our premium. Having each of the partners under the same insurer, should a liability issue arise, makes the logistics of coordinating a response simpler as well. Belonging to a group does make each partner somewhat responsible for the behavior of the other partners. One partner’s stellar reputation can have a positive trickle-down effect on the other partners. On the other hand, if one partner becomes embroiled in litigation or bad publicity, that can negatively impact on the group. Groups therefore may be less tolerant of a more poorly performing surgeon, as they are unwilling to risk their own reputations on a bad actor. A group must also police itself regarding workplace harassment. If one of the partners behaves badly with staff, it behooves the partners to correct the situation immediately. Failure to mitigate, in the event of a second complaint about the same physician, can result in group liability. In many states, such liability can be punishable by multi-million dollar settlements. Our office undergoes yearly staff and physician training in the prevention of workplace harassment. This is an ongoing effort not only to make our office a pleasant place to work, but also to reduce our liability.

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How to Administrate a Group How a group is managed administratively is a decision that each group must decide on its own. Some groups have a single physician-manager (usually, the founder or senior-most member of the group). This physician will oversee the day-to-day management of the group and will make decisions on behalf of the group. Some groups have a physician-manager who is fairly autocratic (“It’s my group and I’ll run it the way I want to”), whereas some physicianmanagers only feel comfortable making smaller decisions and leave the big decisions for the group as a whole to come to a consensus on. Our group rotates the physician-manager on an annual basis. While there is less continuity in style and perhaps philosophy, in this way each partner gets an opportunity to know the nuts and bolts of running the partnership. From signing the vendor checks to helping our administrator make decisions regarding employee issues, it allows each of us (at least every six years) to know the business aspects of running our practice. We meet monthly for a corporation meeting, in which we discuss together any issues that have arisen, view our financial statements for the prior month, and make plans for the future. Having six partners is sometimes like herding cats, since we all think that we are pretty smart people and we each know exactly which way the group should go (even though we do not always agree). Sometimes the process of consensus can be a bit arduous, but it does mean that we do not make any decisions frivolously. We also periodically have a strategic planning retreat. We get together on a Saturday for a few hours and discuss the business, the overall economy, our personal plans for the future, and how best to position the partnership. We may make plans for adjusting staffing, setting goals for improving patient satisfaction, or planning renovations to our physical plant. One year, our strategic plan involved developing a revenue stream that was not dependent on the physicians. We remodeled part of our building and built out a separate skin care and laser center. Although it took us a while to find the right registered nurse to supervise the center (thus, it was a loss leader early on), it has now become quite profitable to the practice. Strategic planning can help the practice in knowing when senior partners plan to phase out, when to add new associates, and when to adjust staffing. All of this helps to perpetuate the group, despite changing conditions and personnel. Our group has been in existence for almost 40 years and has had a total of 14 surgeons in the practice. While we currently have six surgeons, we have had a high of eight and a low of three. Five to six surgeons seems to be

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ideal for us in terms of sharing our office and operating room (OR) space, as well as sharing call and overhead expense. With eight, it tended to be difficult for some partners to get enough OR time and the post-operative care was a bit overwhelming for our staff. With fewer partners, the hard choices regarding cutting staff have to be made and the overhead expense per partner eats up a larger percentage of each physician’s income. Because we are a large group, we have an administrator. This person handles the day-to-day operations of our group, organizes the staff, develops and monitors the budget, and oversees our marketing plan. We hire outside consultants for specific needs, such as website development, information technology issues, and specific marketing projects. While a good administrator can command a high salary based on experience and education, as a group the cost of our administrator is divided equally and is therefore a very reasonable expense for an individual partner. The administrator must have the power to oversee the staff. Hiring and firing should be the administrator’s purview (with the advice and consent of the partners). Individual partners must not get bogged down in the minutiae of personnel issues, as it will only undermine the authority of the administrator. When an employee speaks to a partner regarding an office issue, it is important for the partner to avoid taking sides or making promises. Sometimes an employee may seem to be a great asset to one partner, but really is toxic to the office environment. The partners must look to the overall health of the office, and defer personnel decisions to the administrator and the physician-manager. Our administrator also participates in a nationwide consortium of large plastic surgery medical group managers. This group meets annually in person, and frequently by phone/email. In this way, the issues that affect the group practice of plastic surgery can be discussed and solutions brainstormed. Our administrator benefits from the experience of others, and that helps our group to run more effectively.

Conclusion While the group practice of plastic surgery is not for everyone, it does offer distinct advantages. Unlike the solo practitioner, there is shared responsibility and shared expenses. A group offers collegiality with the ability to discuss patient problems and possible solutions. By pooling resources, the practice can have a significant variety of equipment and personnel available. A group can provide more constant coverage and a wider variety of skills, and so is

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often more appealing to health plans than an individual provider. What you give up in personal autonomy is repaid in the freedom that comes from having nights, weekends, and vacations free from worry about your patients’ ongoing care. For those plastic surgeons who cherish their time off and who like being around other plastic surgeons to share ideas with and to solicit advice from, joining a plastic surgery group practice should be strongly considered.

Appendix A: Employment Agreement This Agreement is made on this day, ____________, by and between ________, a professional corporation, hereinafter referred to as “Employer”, and _____________, MD, hereinafter referred to as “Employee”. Term: Unless terminated sooner as provided herein, the term of this Agreement shall be from ___________ to __________. At this point in time, it is contemplated that the entire term of this Employment Contract will be year to year for a period of ____ years. The Employment Agreement for the subsequent years will be presented to Employee prior to the termination date of each prior agreement subject to the considerations described below. Compensation: Employer shall pay to Employee during the initial term of this Agreement a base salary of ___________ dollars per year. This salary shall be subject to State and Federal tax withholding as required by law. In addition, Employee shall receive a bonus equal to ___ % of net production over and above ________ dollars per quarter. Employer shall pay the bonus amount quarterly on the second pay period following each quarter of the initial term. Compensation for subsequent years will be determined after considering the level of production achieved by Employee for the prior year, the willingness to build a practice, and the compatibility to function within the group practice. This contract is for one year only. Service: Employee agrees to devote his/her entire time and attention to the practice of Employer and not to engage in any other business or occupation. Employee may be asked to participate in and perform certain duties pertaining to the business of Employer. Employee also agrees to share in one-fourth (1/4) of Employer’s on-call time. Employee is expected to provide his/her own automobile. (Continued)

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(Continued) Vacation: Employee shall be entitled to ____ weeks of paid vacation during the year of this contract. Employer’s office is closed for eight holidays during each year. Disability: In the event Employee is mentally/physically disabled, the Unemployment Insurance Code of the State of ________ shall govern disability payments. In the event Employee is disabled for a period of longer than _____, Employee shall be determined to have terminated employment with Employer. Continuing Medical Education: During the calendar year, Employee is entitled to ____ workdays to attend meetings that shall be agreed upon in advance by Employer. Employer shall reimburse Employee for essential expenses incurred up to _______ dollars per year. Employer shall pay necessary dues, membership fees, and other similar expenses in local, state, and national medical societies and associations as shall be agreed upon between Employer and Employee. Insurance: Employers shall be responsible for malpractice premium payment on behalf of Employee. If Employee’s contract is terminated, Employee shall acquire and maintain tail malpractice coverage for any errors and omissions that might have occurred prior to termination of employment. Employer shall be responsible for life insurance premium payments for Employee for a defined benefit of ______________ dollars. Major health and medical insurance shall be available to Employee (and family) as provided for all eligible employees of Employer. Profit-Sharing Plan: Employee is eligible to participate in the qualified profitsharing plan of Employer after one year of service as defined by the Employee Retirement Income Security Act of 1974 (ERISA). Termination of Contract: Either party upon 60 days’ written notice may terminate this Agreement. This Agreement may be terminated immediately by Employer if Employee engages in any personal misconduct or substance abuse, is found guilty of a felony, or is disciplined by any professional organization. In the event of termination, Employer shall retain all medical histories, files, and records. At patient request, medical information shall be made available for copying by and at the expense of the withdrawing Employee. Shareholder-Employee: Once Employee becomes certified by the American Board of Plastic Surgery and is producing income in excess of Employee’s salary and benefits, consideration will be given to Employee becoming a (Continued)

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(Continued) shareholder with an interest equal to that of the other physicians employed by Employer who are shareholders. All parties to this Agreement will work in good faith to cause this shareholder/partner agreement to occur. However, nothing contained in this Agreement shall be construed as a guarantee of shareholder/partner status.

Appendix B: Buy-In Agreement This Agreement, made on ______, is executed by and between ______, a professional corporation (herein “Corporation”), and _________, MD. The Corporation and _________, MD have agreed that in exchange for the consideration described herein, ________, MD shall become a shareholder in the Corporation. There are currently ___ shareholders in the Corporation. Each of the shareholders is in agreement with this buy-in as evidenced by the signatures below. The shareholders entered into a stock redemption agreement on ______. _______, MD and his/her spouse evidence their Agreement to be bound to the terms of such stock purchase agreement by their execution of the copies of the agreement attached hereto. The agreed-upon buy-in for _______, MD’s interest in the Corporation is $________. A promissory note attached hereto shall be executed to evidence ________, MD’s indebtedness with respect to this buy-in. Following this Agreement, a new employment contract in the form attached hereto shall be entered into between _______, MD and the Corporation. Any claim or controversy arising out of any provision of this Agreement shall be settled by arbitration in accordance with the rules of the American Arbitration Association and consistent with the laws of the State of _________. ________, MD’s position as a plastic surgeon within the specialized practice of the Corporation offers the opportunity to learn the particularly unique specialized and sophisticated services previously developed by the other shareholders in the Corporation. In addition, certain specific, unique, and proprietary-type procedures may be disclosed to ________, MD as a result of his/her involvement with the Corporation. For the foregoing reasons, ________, MD agrees that in the event employment is terminated with the Corporation, whether voluntary or involuntary, ________, MD will refrain for one year following the date of separation from utilizing those procedures as a sole physician or as part of any position or medical group, within 50 miles of the present corporate office location.

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Internal and External Marketing and Public Relations Anne Cohen, MBA

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egardless of the age of your practice, marketing is essential to build and grow a thriving plastic surgery business. In this chapter, readers will learn the basics of marketing and how to apply them to a particular practice. What is marketing? Some people think it is just advertising, but that is just one aspect of marketing. Marketing is anything and everything that promotes you to the public. Here are some activities that fall under marketing’s umbrella (see Fig. 1): • • • • • • • • • • • • •

Advertising Behaviors of staff and physician Branding Collateral Community participation Cross-channel affiliations Events Internal marketing Internet and viral marketing Media coverage Office condition and location Public opinion Referral programs

Market effectively enough, and you can become ubiquitous in your marketplace. People feel as though they see your name everywhere, but are unable to pinpoint one primary point of awareness. So, how do you become ubiquitous? How can you be the name that people find on the tip of their tongues when the term “plastic surgeon” comes up in conversation, as it did just yesterday somewhere in your city? Some practices have advertised their way to consumer awareness with billboards, bus benches, subway signage, and TV and radio commercials. 111

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Fig. 1.

Forms of marketing.

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Notwithstanding the enormous expense, the risk of becoming a commodity is pretty real. What if, after all that advertising, you are no more visible than a glass of water in a sea of saline? After all, not everyone is moved to action by advertising in a society that is overwhelmed with constant marketing messages. Furthermore, if you do too much advertising, some people may wonder why it is you have to do so much advertising! At the opposite end of the spectrum, some plastic surgeons tell me that they do not need to market the practice because “I’m building my practice strictly by word of mouth” (often accompanied by a slight sniff). Well, what if your patients are not chatty? What if, when pressed by envious, saggy-jowled friends duly impressed by her facelift (“Wow, Mary, where’d ya get that fabulous facelift?”), Mary just says, “Don’t be silly (accompanied by a slight sniff), I ’d never have a facelift. It must be the vitamins.”? If you are terrific at what you do, and you have the wherewithal to wait for word-of-mouth referrals to bring in enough patients to cover your overhead, depending exclusively on referral marketing is certainly an option. However, in an age when it seems that almost anyone with a medical degree is shooting fillers and learning liposuction in a weekend (creating more consumer confusion about quality and ability), I would be afraid to bet the farm on it. Twenty years ago, maybe. Now? No. So, how do you reliably get the word out about your practice in a style which consistently but subtly delivers a message to our informationoverloaded world that you are one terrific plastic surgeon? By creating and implementing an effective marketing plan that employs a broad variety of activities. Those activities should be geared toward your targeted demographic to instill and reinforce positive impressions that you are the obvious choice for plastic surgery services in your geographic area. Your geographic area may be a 20-mile radius from your front door; it may be your county; or, if you have a unique procedure, it may be the entire world. This brings us to our first rule about marketing.

Rule #1: Effective Marketing Follows a Marketing Plan to Avoid Waste of Time and Money A marketing plan is a written document that outlines the steps to be taken in one or more of the activities just described. Include dates for completion; name an “owner” for each item by assigning a person or a firm to perform each

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activity, such as placing advertisements or writing the monthly e-newsletter; and attach a budget to each item. Insure adherence to the plan by benchmarking. By constantly tracking results, adjustments can be made to create better results. Although the marketing plan is somewhat fluid, it is nonetheless written down and followed step by step. I meet surgeons all the time who employ knee-jerk marketing. For example, if your competitor runs an advertisement, you run a bigger one. Your competitor joins an Internet portal, so you join that same portal. If you have no written marketing plan, you will consistently market in a reactive mode. By failing to create a written marketing plan, you are also at the mercy of every skilled sales representative who will try to reach you by phone, text, fax, email, or personal visit to inform you of a product or service that may or may not bring you any business. Unfortunately, low profitability of a product or service is generally discovered long after you have parted with thousands of dollars. If you have no marketing plan, you will fritter away time and money, possibly to the extent that you throw up your hands and decide that marketing is time-consuming, money-sucking, and futile. Oy, such a shonda for you to come to this erroneous conclusion! Keep reading to see how you can avoid this unfortunate end.

Rule #2: Marketing Must be Consistent Marketing is like any discipline: moderate efforts executed on a consistent basis are more effective in the long term than heroic efforts executed sporadically. It is easy to understand that even a mere 20 minutes of daily exercise will yield a higher benefit than a once-weekly 2-hour fitness marathon at the gym. Similarly, a faucet that slowly drips water into a bucket will ultimately result in a bucket full of water; but opening a fireman’s hose at full throttle forces water outside that bucket, resulting in a waste of water and a bucket that may not be filled. You want your marketing to be like the faucet: drip, drip, drip, so that little time or money is wasted to fill the bucket. That bucket, of course, is consumer consciousness. The primary reason why sporadic marketing reaps little reward is that consumers come in three basic types (who knew?): 1. One who is ready to buy now; 2. One who will be ready to buy later; and 3. Referral source or second buyer.

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a. A referral source is someone who either used your services before and refers others to you, or someone who has been exposed to your marketing often enough to remember your name when the subject comes up. Example: Mary’s mother has never been to your office, but she has been exposed to your marketing over time. When Mary mentions that she is interested in having a breast augmentation, Mary’s mother says, “Hey, what about that surgeon on Main Street?” b. A second buyer is a person who can affect the outcome of a transaction. The second buyer is often the one who controls the checkbook or has the emotional ability to approve or deny the transaction for the primary buyer, your prospective patient. This is usually the husband or significant other whose opinion about Mary’s breast augmentation, for example, will seal or nix the procedure for Mary (and for you!). The existence of these three consumer types is why sporadic advertising is not very effective. The exception is the ready-to-buy-now consumer who just happens to notice your advertisement at the very time they are ready to take action. The problem is that the ready-to-buy-now consumer is the smallest consumer group at any point in time. Referral sources or second buyers are the largest consumer group, and the will-be-ready-to-buy-later consumer lies in the middle. This is why even solid, well-known brands like Kleenex continue to advertise on a regular basis. They do want to attract the ready-to-buy-now consumer, but they also want to remind the other two consumer types that, when they need a tissue, Kleenex is the best brand for their needs. Speaking of Kleenex, have you noticed that certain brands have the ability to take over an entire category? Nobody says, “Pass me a facial tissue”; they say, “Pass me a Kleenex.” Kleenex has become so ubiquitous that they own their category: facial tissues. Rollerblade and Xerox are other brands you know well that also reflect category ownership. That category ownership shows the power of regular, drip-drip-drip marketing (no Kleenex pun intended).

Rule #3: Each Marketing Plan is Unique You, your personality, your experience, your staff, and your location are unique. To be effective, your marketing plan must reflect those unique characteristics. Although a lot of people like chocolate, vanilla, or strawberry ice cream individually, only a small percentage of consumers buy Neapolitan ice

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cream, which is a mix of all three. Likewise, consumers need to understand what makes you special in order to effectively differentiate you from other plastic surgery practices.

Rule #4: A Marketing Plan is Research-Based You must answer these three questions before creating a marketing plan: 1. What do you have to offer? a. What are your strengths, weaknesses, opportunities, and threats, both on a personal and a practice level? 2. Who wants what you have to offer and how can you best reach them? 3. Who are the competitors offering similar services? Let’s take each of these in turn to help you create your own unique marketing plan.

What do you have to offer? At first, this may seem fairly obvious: you offer plastic surgery services. In marketing, however, you will need to create a much more unique description of your practice. That unique description is called your unique selling proposition, or USP. In order for your brand to be successful, it must differentiate itself from other similar brands. In other words, you must distinguish yourself from other plastic surgeons in your market. There are several ways to create your USP. Perhaps you have had extensive training in facelifting procedures or breast procedures, and you wish to focus on one type of procedure. Your USP would then be that of the local facelift expert or breast expert. Another way to choose your USP is to ask yourself if there is a procedure you would love to do 30 times a week to the exclusion of all others. If the answer is yes, you have your USP. If the answer is no, and you enjoy performing a broad variety of procedures, then your USP will not be procedure-based. You can choose another focus, like pricing (either the low-cost or luxury leader), more extensive office hours, the most years in practice, the friendliest staff, or the most advanced medical aesthetic center. There are many ways to differentiate your practice from others in your area. The point is, you need to differentiate yourself. Consumers react best to a brand when they understand specifically

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what differentiates that brand from other brands in the same market. In our information-saturated world, differentiation is key. The use of SWOT analysis can help you know yourself and your practice better in order to create your USP. The better you understand both your personal and your business characteristics, the more rapidly you can create your USP, and the faster you can identify and eliminate any barriers to conversion when consumers come to the office. The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The first two are internal and within your control, and the last two are external and beyond your direct control. For example, perhaps you are a terrific surgeon, but you are a bit shy. You find it difficult to communicate during a consultation when you come across as nervous and awkward. That is an obvious weakness, which can be mollified by finding an opportunity for improvement. You could join Toastmasters or work with an image consultant to boost your communications skills. On the other hand, being in practice for 20 years is a strength that can be used to your advantage. I am sure you will think of many characteristics about yourself. Using Table 1, identify your personal strengths, weaknesses, opportunities, and threats. Extra boxes are inserted for you to add more. Keep in mind that there are external opportunities and threats over which you may have little control. For example, if you do not speak Spanish, and Table 1.

Personal SWOT analysis.

Item Interpersonal skills Personal appearance Training, education, and certification Recognition (awards, media appearances) Length of time in practice Public reputation Language skills (second language, signing for the deaf, etc.) Management skills Organizational abilities Personal challenges Family challenges Personal financial situation

Strength, weakness, opportunity, or threat?

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Spanish speakers are a part of your target market, a personal opportunity may be the availability of Spanish courses. A personal threat may be the responsibility for an elderly parent who requires your care, a disorder or disease affecting you or a family member, or the demands of being a single parent. These and similar problems may make it more difficult for you to compete in business because you must spend time away from work to handle other responsibilities. This is not to malign your personal situation, but you should be aware of its effect on your business. Now let’s take some time to identify the SWOT of the practice itself (see Table 2). Armed with the information created from your SWOT analysis, what is special about you and your practice? What can you take from this analysis to create your USP? What impediments need to be addressed to ensure success before you begin marketing? Even the most effective marketing will not overcome the actions of ill-trained or rude staff. Table 2.

Practice SWOT: analysis.

Item Location Office appearance Office hours Equipment Staff (training, experience, friendliness, attention to detail, length of time with you, etc.) Economy Malpractice insurance (do you have it?) Cash flow Practice debt Competitors Changes in social patterns (is the neighborhood up and coming, aging, etc.?) Patient management system (do you have one that works well?) Referral system Patient retention Practice reputation Consumer trends

Strength, weakness, opportunity, or threat?

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Who wants what you have to offer and how can you best reach them? As you undoubtedly know, most elective plastic surgery procedures apply to a broad demographic group: any healthy person who would benefit from a cosmetic procedure, is an appropriate candidate, and has the means to have a facelift, liposuction, or tummy tuck. While the cosmetic surgery market is vast, certain subsets of demographic groups are more likely to want particular procedures. For example, although many 55-year-old women may desire a facelift, fewer of them desire a breast augmentation. The reverse is true of 20–35-year-old women. Before creating your final USP, think about these options: 1. Base your USP on the largest demographic in your market; 2. Base your USP on the procedure(s) you wish to focus upon; or 3. Base your USP on a unique, otherwise-underserved subset group.

USP based on largest demographic Let’s say your office is located in an area in which the largest demographic group is that of retirees. This demographic group is more likely to want laser skin treatments and facelifts than breast augmentations or pectoral implants. Therefore, focusing your practice on the former types of treatments and procedures will attract the largest potential pool of consumers. However, if you are thinking about a USP as the local breast expert, you will either have to ferret out the relatively few consumers of the right average age for this procedure, consider relocating to an area with a younger demographic group, or change your USP to match procedures desired by retirees. Demographic identity can also be based on education, gender, income, race, sexual orientation, and other characteristics (such as family size and home ownership).

USP based on procedure A certain facial plastic surgeon I know has an extremely successful practice based exclusively on deep plane facelifts, with their accompanying high price tag. Although she is in a fairly small community, she is reasonably close to New York City by train. Her USP is that of a deep plane facelift expert, with a target demographic group of the wealthiest individuals within 200 miles. Of course, she has patients who come to her via referral from all over the U.S. and

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beyond. Although she loses the local market’s blepharoplasties, rhinoplasties, and lip augmentation business, she makes up for it with fewer, higher-priced procedures. There are successful niche practices that target very specific demographic groups with great success. Be aware, however, that if you choose to be the facelift expert, for example, you may need to enlarge your geographic radius beyond the typical marketing reach of 20 miles, depending upon your local population’s age, income, and perception of plastic surgery.

USP based on a unique, otherwise-underserved subset group Obviously, the more limited the demographic choice, the smaller the size of the group to whom you can market. For example, another client of ours has an almost-entirely gay staff, although he is not gay (not that it matters; it is merely a point of information that you, yourself, do not need to be part of the demographic). Notwithstanding this, he performs an average of 20 procedures a week on patients who are almost all gay. The benefit is a near-constant referral source. The challenge of niche marketing, however, is that a narrow demographic is limiting in any geographic area. If that demographic group discovers a new preferred plastic surgeon or if a bad economy negatively impacts that niche group, one’s practice survival can be at risk. As an example, during the height of the 2008 market crash, our deep plane facelift expert had no small procedures to shore things up. She only performed rhinoplasties, blepharoplasties, and laser treatments in conjunction with a facelift. By not performing those procedures as stand-alone services, and also by not offering dermal fillers or aesthetician-type services, the narrow focus of her practice put her at risk when the economy tanked. Most practices target the most obvious pair of demographic factors: gender and income. Specifically, they target wealthy women who can afford aesthetic surgery. The next most targeted group is usually non-wealthy women who can qualify for financing. This tactic, however, pits you against everybody else who is marketing to those same groups, including non-plastic surgeons, and that means your marketing is harder to be noticed. Whether you decide to market to the masses or to a selected subgroup, you will need detailed information about your demographic group. How does your demographic group primarily receive information: on the Internet, on the radio, on TV, or in the local paper? Once you have uncovered the primary information source, you need to identify the specific Internet sites, radio stations, TV stations, and newspapers. Where does your demographic

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group go for recreation: to the nightclub, to the gym, to the opera house, or to the mall? How can you effectively market through those venues? Whose opinions does your demographic group trust, and how can you obtain those resources’ recommendations for your practice? Example: if the most popular hair salon for your demographic can be identified, can you create a referral relationship (also called a “cross-channel”) with that salon by creating events or cross-promotions with the salon? Using another example, we have a client in Connecticut. Our research revealed that most women in his very wealthy part of Connecticut choose a plastic surgeon based on personal referral. In order to create a patient base for this client’s new practice, we had to find women with respected opinions who were “hooked in” to other women, and then woo them to this surgeon through a variety of marketing tactics. We went so far as to engage a wellknown gadabout to quietly work for us and bring her friends to our client’s events. Sometimes, one has to go to great lengths to reach the demographic group on their terms. Kernelling down to the fine details about your demographic group will enable you to increase your patient base exponentially with less effort than a scattershot approach. You will know where to advertise, whether seminars are effective, where to hold them, what topics will bring the most attendees, which charitable organizations to work with, etc. How do you find specific demographic information? Check your local census data and talk with the local chamber of commerce. Both are a wealth of information.

Who are the competitors offering similar services? You are missing the boat if you are not aware of your competition. To be honest, I hate to use the word “competition” in the context of medical professionals because, after all, physicians are expected to respect other physicians in a way not expected of ordinary retailers. Because you belong to the same trade organizations and boards, you may view other plastic surgeons in your area as colleagues, and rightly so. Nonetheless, every consumer who becomes a colleague’s patient is a consumer who did not become your patient. Unfortunately, that creates a level of competition. Knowing your competition enables you to offer your services within a context. Be aware of your competition in terms of pricing, hours, staff, and product and service offerings. Know what is happening with local pricing so you can decide how to use that information to your benefit. You need not price-match, but do not think for a moment that Kleenex does not know the

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price of Puffs in every single market in the U.S. — it does. Understanding local pricing enables you to decide whether to price your services and products lower, higher, or in the same range as others in your area. Know what competitors are offering so that you can offer something different. If everybody offers Brand X, offer an alternative that sets you apart. This contributes to your USP. Or, offer Brand X with a twist — when the complete set is purchased, include a facial, a microdermabrasion, or a computerized skin analysis. Kleenex does not just compete by price; it uses product variety to compete with Puffs. Kleenex created Lotion tissues, Anti-Viral tissues, Ultra Soft tissues, Extra Large tissues, menthol-infused tissues, tissues made with recycled paper, holiday-themed tissues, not to mention their Everyday tissues. Likewise, unique offerings that are yours alone will set you apart from other plastic surgeons in your market.

The Importance of Marketing Bridges To create a marketing plan that will grow your business, you will need to address any marketing bridge issues that may be impediments to success. Unaddressed Marketing bridges will turn patients away before you even have a chance to meet them! There is no point in spending time and money to attract prospective patients if you cannot convert them.

What are Marketing bridges? Everything that affects a consumer’s ability to create a transaction with you is a marketing bridge. Marketing bridges can be internal or external; and they can be “owned” by you, your practice, or even by your prospective patients.

Internal Marketing bridges Look at your SWOT analyses. What are the items you identified as weaknesses? These are internal marketing bridge issues which must be remedied if at all possible. There may be internal marketing bridge problems you are not even aware of. Perhaps your front desk staff is inexperienced. After hearing a few Secret Shopper recordings, you discover they do not know how to convert a caller into a consultation. Training them can solve that marketing bridge issue before you spend money geared to drive prospects to call in, only to experience a problem with the receptionist(s).

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In a similar vein, if your website is unattractive or information is difficult to find, take steps to fix it before investing time and money in marketing the practice. If you do not know how consumers are reacting to your website, check your website statistics for clues. If a large percentage of consumers who come to your website leave in 30 seconds or less, your site may not be offering a good experience. Your website must be a marketing tool; if it is not, you have a marketing bridge problem. Prospective patients may experience marketing bridge issues in your office that you do not even notice, like the stain on the carpeting or the lack of a pleasant greeting. Although a single small incident is seldom enough to turn off a prospective patient, several of them together may be killing conversions long before you even meet prospective patients!

External Marketing bridges Look at your SWOT analyses again. Items identified as threats are external Marketing bridges. For example, scarce parking near your office will irritate prospective patients who did not anticipate the pre-planning required to find a parking place. Consequently, they are more likely to arrive late and be upset. Rather than forcing patients to spend an hour trying to find parking, create an arrangement with a parking garage and turn the problem into the benefit of free parking for your patients. It will be well worth the money to eliminate this barrier to conversion.

Patient-owned Marketing bridges Have you ever done a consultation that went extremely well but the patient never scheduled and you have no idea why not? Are your conversion ratios below 50%? Low conversion ratios in an otherwise normal economic environment may be due to poor conversion technique or to a consultation process that fails to earn the prospective patient’s trust. Conversely, you may be seeing prospects who have undisclosed marketing bridge issues and those prospects are unlikely to convert regardless of what you do. Patients have three primary marketing bridge issues, all of which are outside your direct control: 1. Motivation/Desire; 2. Timing; and 3. Ability.

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Patients must cross all three Marketing bridges in place in order to convert from a prospect to a patient. If a patient has a high desire for a procedure and the time to take off work for recovery, but no ability to pay, your incredible skill in the operating room and ability to instill trust in you will still not result in a conversion.

Creating the Marketing Plan Let’s say you have assessed the strengths, weaknesses, opportunities, and threats for both yourself personally as well as your practice; you understand the three types of consumers; you have created your USP; you have identified the demographic group(s) to which you will market that USP; you have researched the various methods to reach that demographic with your message; you have unearthed information about the local competition; and you have checked out your Marketing bridges. Now it is time to create the marketing plan. The first step in creating the actual marketing plan is to create the brand image.

Branding: what is it and why do you need it? Your brand is your icon to the public, or a “nutshell” representation of your business. You are already familiar with the concept of branding. Think about two brands you already know, for example, Cartier and McDonald’s. You recognize these brand names immediately, and you clearly understand what these two business entities do and do not do, along with the level of quality they represent. For instance, the “M” in McDonald’s creates a mental image of their Golden Arches brand, and you know it’s McDonald’s and not Burger King. When you see Cartier’s logo, you immediately connect the information stored in your brain from your previous exposure to Cartier through marketing and personal experience. The goal is exactly the same when creating your practice’s brand image.

Branding is based on consistency Good branding creates a consistent message about the brand, defining what that brand’s name represents and what its mission is. The brand has a consistent look with repeated fonts, colors, and style. There is a logo that visually represents the brand. There is a tagline that reinforces the mission of the brand. Furthermore, effective branding fosters recognition of the brand whether or not one needs the product or service at any given time (remember the three consumer types).

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Creating your brand mission The public should understand what your brand stands for. What is the mission of your business? While it may seem obvious to you, think about the broad variety of plastic surgeons you know personally. Some are strictly aesthetic surgeons. Some perform reconstructive surgery exclusively. Some do both. Some of the strictly aesthetic practices perform only facial surgery, while others offer a broader menu. This is when knowing your USP comes in handy! Here is an example to get you started: Brand X Plastic Surgery is an exclusively aesthetic practice devoted to facial plastic surgery. Our patients are primarily adults who reside within 20 miles of our office. Our focus is on deep plane facelifts as well as rhinoplasties, eyelid surgery, and nasal reshaping. It is our goal to provide the highest level of patient satisfaction through the establishment of an open and honest doctor-patient relationship, the strictest level of patient confidentiality, the kindest care by a highly qualified staff, and the safest surgical experience available in our AAAASFaccredited onsite surgical suite.

You can find a plethora of mission statements on the Internet by physicians of all types that can help you create one that reflects your unique characteristics.

Collateral is an integral part of branding Collateral is defined as all items that visually represent you to the public with a consistent color palette, style, fonts, artwork, and message. Collateral includes your logo, tagline, letterhead, folders, brochures, business cards, stationery, internal signage — virtually every printed item about you in and out of your office.

Thoughts about logo development Develop your logo for the long term to avoid waste in time and money. Although you can certainly order a logo from an Internet firm for US$300, I suggest that you use a reputable freelance designer or a respected design firm to get the best result. A good designer has an artist’s eye for color, style, and balance. Ask to see a portfolio of designs he or she has created for others, both physicians and non-physicians. A logo need not include a visual image or icon; it can be your practice name in a stylistic font or layout. There are literally thousands of fonts available for purchase on the Internet through various companies; before agreeing to a logo design, be sure to ask your designer for the name of the font and make

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sure it is not so common that it is in the list of fonts in MS word or a similar word processing program. If you are ordering a logo based exclusively on a font without the addition of an image, ask to see the logo in at least 5–10 font styles and sizes. Although a logo can consist of nothing more than text (think about Google, which has no image), it is my opinion that logos with an interesting image are the most memorable. The image should reflect your business type (plastic surgery) and associated ideas like transformation, beauty, and elegance. You want an image that will reflect your unique aesthetic style, whether modern, abstract, or Baroque. The image should tie in with what you do and it should be unique, but it should not be so trendy that it will go out of style in two years. I have seen hundreds of logos whose meaning baffles me. In some, strange squiggles and odd patterns that look like wheat or bugs are slapped on top of someone’s practice name. I have no idea what they are or what they mean. The message of any great commercial can be understood even if the television is muted. Likewise, a business that is represented by a great logo/tagline combination can be easily identified, at least by business type if not by name. When hiring a designer to create a logo, you should expect to have an initial telephone or in-person consultation to discuss your color and style preferences before the designer gets down to work. After that, you will generally receive three to five rough sketches from which you choose one for final development. If you do not like any of the three to five that you are initially offered, keep refining until you see something you love, even if it costs you more. After all, you will be looking at this for many years, so you want to really like it. Generally, collateral is paid 50 percent upfront and 50 percent at the finish, though these details vary from one design firm to another. Be careful of designers who charge you a set fee for two revisions and then hourly afterwards. Any good logo will have several revisions, and you should get a price for a logo, not for a certain number of revisions. Obviously, if you go off on a completely new tangent, it will cost more, so be clear with the designer so that you do not end up with a huge unanticipated bill. Remember, printing costs are additional.

Tips on taglines Your tagline should describe a benefit to the consumer in 5–10 words. Although this should be obvious, if you have to explain it to someone, it is not a good tagline! Even though it is fun to create a tagline with a play on words, it is not essential.

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Here are some tagline ideas to get your creative juices flowing: • • • • • • • • • • • • • •

Beyond Beauty Isn’t it time to love the way you look? The Beauty Full Practice We’ll do your image good. Look younger longer. Reaching Beyond Beauty Skilled hands sculpting beautiful results Be transformed At the heart of a beautiful body/face Beauty Crossing Why Compromise? Skill and Experience Matter Great Doctors Performing Beautiful Surgery The Body Problem Solver

Other basic collateral for your practice In general, every practice should have at minimum a basic practice brochure, if not several brochures, to cover different surgical procedures as well as noninvasive and minimally invasive procedures, and a nice folder in which to store paperwork that the patient receives. If you have an aesthetic center that includes facials, massages, permanent makeup, and other spa items, you may wish to create a brochure just for that part of the business. Alternatively, you can create a practice brochure with a menu of services on an insert that covers everything in one piece. Although you can get pretty fancy with a brochure, I urge you to keep it simple. The purpose of the brochure is to get the phone to ring. If you include every minute detail about your business in the brochure, the consumer has no reason to call you. Leave some details for later, and use the brochure to create interest. A glossy or semi-gloss tri-fold is a standard that never goes out of style. Beautiful stock photography, perhaps some testimonials, your biography and headshot, a photo of the staff if you have one (and if your turnover does not prohibit using one!), and an outline of your basic offerings are enough. Stay away from too much text so that the brochure does not appear crowded or fussy. White space is not just acceptable, it is preferable. Your business card and practice folder should match the brochure(s) in style, font, and colors. You may wish to create custom envelopes or have your designer simply make labels for that purpose.

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Of course, you will need bags for retail purchases of skincare products and anything else you sell in the practice. Be sure your name and brand identity are clearly featured so that, when the patient carries the bag, it is a marketing piece for you.

What about promotional items? Some aesthetic surgeons shy away from promotional items because they think such items are silly or cheesy or just a wasted expense. Depending on what you choose, that might be the case. Cheap promotional items like pens, mugs, and small notebooks are pretty cheesy; but worse, almost nobody sees them once the consumer leaves with them. Investing in promotional items that will (1) be used and (2) be used in public (like a beach bag, library bag, computer case, insulated coffee mug for the car, or water container for the gym) will create better promotional vehicles for you. You want your name and logo to be conspicuously present for all to see, and these items are carried around in public, whereas a pen generally hides in the patient’s bag or desk. Those patients who wish to keep their beauty life a cherished secret will not want a promotional item, and that is OK. Those who take them will provide silent marketing for you every time they take them out. A promotional idea I really love are laminated before-and-after cards for patients to show to friends. It is incredibly simple to make these. All it takes is a US$35 laminating machine, which you can buy online or at an office supply store, some laminating sleeves, your business card, and the before-surgery and after-surgery photos. Have your designer create a stack of business cards that are the size of 3 × 5 index cards. One side is the business card; the other side is blank. On the blank side, place two digital photos of the patient, one before surgery and one after. Slide the cards through the laminator and voilà! You have a fun piece that your patient can show around. I would advise against this for breast work; but for almost any other plastic surgery procedure, laser procedure, or skin treatment, this is a perfect marketing vehicle. Women love to show these things off, and your name and contact information are right there for them to share. You can use regular business cards instead of 3" × 5" cards, but we have found that the photos are too small to be a good marketing tool.

In-office signage After investing in creating beautiful collateral, your in-office signage will want to similarly reflect this aesthetic. I have been in many an aesthetic office where the front desk staff has created awful-looking flyers to market specials, events,

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and the like. Be aware that everything a patient sees, smells, reads, and touches affects their impression of you and your attention to detail. Marketing is an all-inclusive sport, and you must insist that your brand always be displayed at its best.

Creating Awareness of Your Practice through Advertising As mentioned at the beginning of this chapter, advertising is just one facet of marketing. In our oversaturated world, brand messages are constantly beamed at consumers on the TV, radio, Internet, bus benches, in the subway, on the train, in every magazine … everywhere! How can you advertise without being lost in the shuffle?

Some basic advertising rules Rule #1: Know what you are selling It is essential to understand what you are selling in your advertising. “Simple,” you think, “I’m selling plastic surgery services.” Actually, if you are a smart and savvy advertiser, you are not selling plastic surgery services. Smart advertisers are not selling products. They are selling concepts — concepts of trust, reliability, dependability, integrity, safety, sexiness, beauty, youth. Your patients are not buying breast augmentations, little jiggly saline or silicone jellies! They are buying confidence, sexiness, youth, and allure. In every procedure or product lies the benefit of that procedure or product, and that is what you must promote: the benefits, not the product.

Rule #2: Advertising must evoke an emotion to create an impression Remember the old AT&T advertisement that showed an elderly woman sitting in her house, hoping her grown kids would call her? It has been about 20 years since that advertisement was on television and yet most of us still remember it! Why? Because it evoked an emotional response. We felt empathy for the elderly mother, guilt that we might be just like her kids, and joy when the kids called and made her day. If your advertisement do not evoke some kind of emotional response, you may as well save your money. “Blah” advertisements that promote this month’s special without attaching the product or service to an emotion will

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only be noticed and retained by the ready-to-buy-now consumer (remember them?). If you are spending money on advertising, spend it in a way that creates an impression in the minds of as many consumers as possible, including the will-be-ready-to-buy-later consumer and the referral source or second buyer. Advertisements need not be overt or salacious to evoke an emotional response. They can play with the emotions of joy, desire, wistfulness, pleasure, lust, hope, yearning, pride, fun, etc. Instilling an emotion in your advertisements creates a memory in the minds of consumers. As more types of customers increase their awareness of your brand, you will build a bigger business faster.

Rule #3: Advertising must be consistent You are better off running a 3

× 5

advertisement in the same location of the newspaper on a weekly basis than a big advertisement once a quarter. Why? Because there are three consumer types and because it takes repetition to instill awareness. If a consumer notices your emotion-stirring advertisement in the newspaper this week, and next week she finally decides it is time to take action but does not see your advertisement in the paper, then she is back to square one. It is the same with radio and TV advertising, but the investment is much higher. If you are advertising on radio, you need two to three impressions per day to get enough exposure to create a stream of response. Again, the advertisement needs to be fun or sexy or evoke another emotion to be remembered.

Advertising options Print advertising Although print advertising is the most popular, I hesitate to recommend it as the return on investment (ROI), is notoriously low. Not only are most print publications choked with advertisements compared to the amount of editorial, Americans are not the readers they used to be and Internet marketing has taken much of their market share. Depending upon your demographic target, you might do better with radio, TV, mall boards, and the Internet than with newspapers and magazines. The only exception to this might be the supplements occasionally offered by your local newspapers. There is generally an annual wedding supplement, a health or medical supplement, and supplements on holidays such as the New Year, Mother’s Day, and the winter holidays. At these specific times of the year, I suspend my recommendation to avoid advertising in print media simply because of the abundance of ready-to-buy-now consumers.

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If you are thinking about print advertising, focus on your demographic group to make sure you are marketing in a manner and location that they frequent in order to boost ROI. Ask the publication if they have an Internet component and evaluate the worth of advertising there along with the print advertisement. But again, I caution you to carefully evaluate print advertising. If you decide to use it, focus on consistent, emotion-driven advertisements located in the same part of the publication each time.

Mall boards An incredibly underutilized advertising vehicle, in my experience, are mall boards. People who go to the mall are consumers. They are shopping, not sitting at home in front of the TV. Mall boards are generally very inexpensive when compared to the “eyeball time” of print publications. The consumer takes as long as he/she wants to absorb the information and, each time the consumer walks by the mall board, he/she is impacted with the advertisement yet again. Some mall boards include the ability to distribute brochures. Some are digital and can show an interview of you or a short clip or even beforeand-after photos. Not to mention, mall boards are BIG! Generally 3
× 5
tall, lit from behind, they are hard to miss. I confess, I am big on mall boards.

Radio advertising Since any radio sales representative worth their sale will push you to spend US$7,000–US$10,000 a week on radio advertising, be aware of the following: • You will get just as much consumer impact in a 30-second advertisement as in a 60-second one. • Some stations have 15-second advertisement options. Repeated often enough, they can be effective. • Go to www.arbitron.com to identify the top radio stations in your market. • Know what your demographic listens to! Ask current patients what they listen to and do not depend on the sales representative to guide you. A listening audience aged 25–54 years is a pretty broad spread and the representatives seldom subdivide beyond that point. • Price is time-dependent, with AM and PM “drive times” (when people are in their cars commuting, i.e., 6–10 am and 3–6 pm) being the most expensive. • Most stations have remnant spots available and some have a Business Builder option for new advertisers.

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• Your advertising copy and voiceover are generally included in the price. • For more impact, consider endorsements. An endorsement is an on-air talent endorsing your practice during his/her radio show. You may be able to barter service for service, assuming this does not violate the ethics code of your medical board or certifying organization.

TV advertising Television advertising, like radio advertising, is extremely demographicspecific. Insist on good demographic numbers before handing over your money. Cable is often a good bet, particularly shows that focus on style, women’s issues, and, naturally, plastic surgery. Your local ABC, CBS, NBC, or Fox affiliates (in the U.S.) often have remnants and short advertisements to offer. But remember, it is a waste of advertising dollars if you are on at 5 am on Sundays!

Internet advertising Portals are the most popular Internet advertising sites for plastic surgeons. A portal is a website that allows access to different sources or services. I urge caution when considering portals. You must insist on website statistics, and ask someone in the search engine optimization (SEO) business to run an analysis of their site before you read your credit card number to the representative. Untold numbers of portal site representatives tell me that they are on the first page of Google for keyword phrases that sound great but, when analyzed, prove to have little traffic-driving value. Keep in mind that portals are your competitors on the Internet. The US$5K–US$10K you spend to be a member on NameMyCupSize.com (can you tell I made that one up?) could be better spent optimizing your practice website to attract local consumers to your services. Even if NameMyCupSize.com has you listed first on their site for your city, sooner or later you will share space with your local competitors with little ability to differentiate yourself. To the consumer, you and your competition will look like so many pigeons on a telephone wire.

Push vs. Pull Technology Now that we have reviewed advertising, let’s compare and contrast the difference between push and pull technology. This will help you quickly understand

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why public relations and internal marketing carry so much more weight than advertising. Imagine a consumer standing in the doorway of your practice. She is not sure whether to come in or not. Pull technology will “pull” her into the practice with promotions such as discounts, one-time specials, and the like. Conversely, Push technology utilizes the opinions of others to “push” the consumer toward your practice. Push technology includes things like media interviews, referrals from others, community involvement, public opinion, and any other kind of third-party endorsement. Public relations, or PR, is essentially push technology. So is internal marketing. Let’s review internal marketing first, since it is generally the least expensive, the easiest to obtain, and the most effective form of marketing available to you.

Internal Marketing: What it is and Why You Need it The first time I heard the phrase “internal marketing” in graduate school, I thought it was some kind of black market organ trade. I soon learned that it was an expression to describe marketing to one’s past customers both to keep them coming back and to get new customers through their personal network of friends and family. Studies have shown that the fastest way to your next patient is via the satisfied patient sitting in your office right this very minute! Imagine that! But wait, it gets better! Envision a database full of satisfied patients. It is almost like hidden treasure, isn’t it? Oddly, most companies that treat their customers exceptionally well never ask their satisfied customers to refer friends and family members. How silly is that? What’s that, you say? You have a database full of current and former patients but you do not stay in touch with them, and you do not ask them to refer you to their friends and family members? It is not uncommon that plastic surgeons fail to capitalize on the immense wealth hidden in the database inside their office computers. Some feel it is not professional to ask for referrals, as it makes them feel like a huckster or used-car salesman. Some think that satisfied patients will automatically refer others without being asked. Of course, some will, but many will not. Why not? They simply get busy and do not think to do it. Let’s use an example from your own life. Unless you bought your practice from another surgeon, it is likely your home is your most expensive purchase.

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But let me ask you this: do you remember your realtor’s name? If you do, it is either because they are related to you or because they have continued to market to you via email, the occasional holiday card, or something similar which keeps your realtor’s name in your memory bank. Did you ever refer anyone to a realtor, sales, or service person who served you well? Probably not. Why not? Because you had no compelling reason to do so. It is the same story with everyone, including your patients. We are all so busy. There are kids to raise, dinners to cook, events to attend, tennis balls to hit, work to do — the time just flies by. It is not that patients do not appreciate you — they do, generally — it is that they just get busy. The bottom line is, you must ask or you will likely not receive. How can you create a compelling reason for a past patient to refer you? To start, one way is to have fewer past patients and more current ones! Are you consistently cross-selling your patients both before and after a surgical procedure to keep them engaged with your practice? I had a facelift a few years ago (no, it is not the vitamins, I am willing to admit to going under the knife), and my surgeon never said a word to me about skin care, either before or after. Although I truly appreciate that surgeon because he did a terrific job, I have not seen him in three years. Had he taught me about good skin care himself or connected me with his aesthetician, I would probably have had a few laser treatments by this time and heaven knows how many boxes of lotions and potions I would have purchased in the intervening three years. To be fair, I am in the business and am the frequent (and grateful!) recipient of untold syringes of Botox® Cosmetic and a plethora of dermal fillers, both because of my intense willingness and because I am the “old broad” who is a logical choice to be a demonstration model at our clients’ events. But your patients are different. They are not getting free or highly discounted services from a slew of great plastic surgeons. So how can you keep them both in the loop and referring their friends and family? By creating compelling reasons to stay connected, that’s how. We live in a disconnected society. People seldom have the deep roots our parents had to neighborhood, community, church or synagogue, clubs, and bowling leagues. We move around more, change jobs more frequently, even change careers more frequently (U.S. Department of Labor statistics show that the average person has three to five careers in a lifetime). We crave connection, but life moves at a dizzying pace compared with 20 years ago. I am going to suggest something radical. I am going to suggest that if you find ways to create community with your past patients, you will keep more of those past patients in the loop and you will find that they will involve their friends and family members.

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How do you create community with your past patients? By continuously reaching out to them without always selling to them, as explained in the following examples.

Do you publish a monthly e-newsletter or a quarterly mailed newsletter? Consider doing so if you do not. It is six times more expensive to get a new customer than it is to recycle a former customer back into the sales cycle with new products. Each newsletter should have an informative topic about skin care or leading a more balanced life, a nutritional factoid you found in the news or on the Internet, a new treatment protocol, or something similar to keep patients aware of your practice. You can offer a special for the month, but you do not have to. Just by offering helpful information, you will keep them in the loop, create and reinforce a sense of community with them, and benefit them in some way. The fact that you are sharing helpful information without trying to sell them something is a subtle gesture that will not go unnoticed. Oddly, these types of newsletters have been shown to increase patient loyalty even without an advertised special or discount. As a recipient of many plastic surgery newsletters, I have to say that most of them are just marketing pieces. I do not feel like part of a community when I receive them. I feel like I am being sold to. It is something to be aware of. How about a fun feature in the e-newsletter, like a drawing every month from the list of readers? You can easily identify who opened the newsletter. Pull a name at random, give them a free microdermabrasion or intense pulse light (IPL) treatment or tickets to some event, take their photo when they come into the office, and put it into the next e-newsletter to show your readers who enjoyed the gift last month. Include a “Patient of the month” story if you have a willing patient who will share his/her before-and-after photos. (Think patients will not do this? You need to go to some of the plastic surgery sites on the Internet, where women gab for days with other women undergoing similar procedures. They post before-and-after photos and share amazingly intimate details about themselves — all to strangers. That is how much we crave connection in our world.)

How about a Patient Appreciation Day for current and past patients? I do not mean just a discount day, but a real Patient Appreciation Day. You schedule it in advance, let your patients know about it through your monthly

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e-newsletter or through a postcard invitation, and on a specific date they come to a local restaurant (or your office if it is big enough) and enjoy a beauty brunch with a presentation from the aesthetician about skin care and a little chat from you about the latest new happenings in plastic surgery. Invite your top 100 patients and 25 will come. Tell them you would love them to bring one friend each and ask them to RSVP. Think this is cheesy? You might be surprised how many women enjoy this! Those who do not will stay home. Those who like this kind of thing will come and bring a friend or even two, some of whom will book consultations that lead to procedures due to that third-party endorsement. How about involving some of your patients in an annual Toys for Tots project during the holiday season? Have a holiday party in which the only requirement for admission is that they bring a toy for a child and put it beneath the Christmas tree, which they will help decorate. Have a cookie exchange and ask attendees to bring four dozen cookies. They choose from everybody else’s platter and leave with a different four dozen. Think this is beneath women who have plastic surgery? Sure, it is for some. But not for most. Look at any holiday magazine and you will see women enjoying these kinds of events. Why leave all the fun stuff to the Junior Leaguers? There is no reason why you cannot create these events for your patients to enjoy. If you have them in the office, they are bound to notice the various new services or procedures you have added since they were last there, and that curiosity leads to bookings for you.

How about friends and family referral cards? These are easy! Have your designer do a two-up vertical layout which describes your Friends & Family Referral Program. It has three tear-off cards that are perforated by the printer for easy removal. Your patients write their names on each card and share them with friends and family members. When a referral comes to the office and presents the card, he or she enjoys a $50 discount off his/her first appointment, and the referring individual “banks” $50 toward his/her next treatment. Giving a discount is not, to my knowledge, against any ethics rules, but check with your board or organization to be sure. Alternatively, instill a “points program” which provides special pricing to patients based on their activity in your office: they rack up points each time they come in and purchase a service or product. There are reward programs that can be entirely managed online with little involvement from you and your staff.

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Are you sending birthday and Thanksgiving cards? Everybody loves getting a birthday card, yet almost nobody gets one anymore. If I get one more virtual rose in my email inbox, I will cry. The last person to send me a real birthday card was my Nana; I was 12 and there was $5 in it. Export your patient database by their month of birth. Purchase birthday cards in bulk or, better yet, have your graphics designer make one that represents your brand. On the first of every month, send cards to all the patients whose birthday falls in that month. Sign it or have a staff member sign your name. Offer a free microdermabrasion in honor of their birthday. Print the addresses right on the card with a script font. If you have a lot of them, your local printer can do this for you. Avoid address labels, as they are too impersonal. Everybody gets holiday cards, but almost no one gets a Thanksgiving card so, if you send one, it gets noticed! It is a perfect time to thank patients for entrusting their care to your practice. Think these ideas are cheesy? Most patients will interpret these gestures as warm and inviting, reflective of a plastic surgeon who values them as a real person, not just as a number in the database.

Invite your past patients to webinars As previously mentioned, people are busy. Webinars are easy to put on and do not require office space, wine, or cheese! There are services that allow you to invite patients to learn more about a specific procedure or new product in the comfort of their homes while viewing the webinar on their computer screen and listening via phone to your presentation. You can record these and save them on your website for later listening. You will find that efforts to involve current and past patients will reward you with a steady stream of appreciative and loyal customers. Yes, it takes work to keep patients in the loop. You didn’t think building a business would be easy, did you?

External Marketing: Finding New Patients External marketing is essential to create growth. Community events, seminars, and cross-promotions with similar business types (beauty and selfimprovement businesses) can help bring in new patients.

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Community events Community events can offer great visibility. Women’s expos, bridal shows, and the like, if they have good attendance, can expose your practice to those who might otherwise have no idea you exist. Keep in mind that bridal events can be especially lucrative, if done correctly, as they are made up of ready-tobuy-now consumers — they have a deadline and they want to look great for the wedding. This includes the bride, her bridesmaids, and her mother as well as the groom’s mother.

How to get patients from an expo First of all, have a booth that is attractive and inviting. Show before-and-after photos on an endless loop so that visitors stop and look. Give samples of skincare items. Have the aesthetician attend with you to offer complimentary treatments that work for most women. Take your VISIA, computer imaging software, or other participatory device. Be there during specific hours, as the attendees will want to meet you, not just your staff. Have a raffle for a skincare line or aesthetician treatment that gives you the names and emails of those interested in aesthetic improvements (you can add them to the email database after the show). When the show is over, follow up with the attendees: send a specific email to those who attended, inviting them to the next in-office event, and keep marketing to them through your e-newsletters.

Cross-channel affiliates (CCAs) A cross-channel affiliate is anyone who serves your demographic: • • • • • • • •

Image consultants Personal trainers Makeup artists Upscale nail and hair stylists Bridal salons and upscale lingerie boutiques Concierge services Massage therapists Cosmetic dentists

What can you do with CCAs? You can run advertisements together, create cross-promotions, organize events, share brochures in one another’s offices, and/or contribute to their newsletter (and they to yours). Essentially, the

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goal is to do presentations on their turf with their customers/patients so that their database is exposed to your practice and vice versa. When done correctly and consistently, working with cross-channels can be extremely profitable.

Seminars When we discuss seminars with new clients, they inevitably say, “I hate doing seminars. Nobody comes but the same patients, I end up paying overtime, and I would’ve treated those patients anyway.” True enough, if you are not doing them the right way. This is where those cross-channels can be handy. We generally schedule one event a month for each of our clients. One might be doing a joint presentation with their image consultant at the practice. Another might be holding an event with a personal trainer at the trainer’s gym. Yet another might be speaking to a local women’s group. You will want to invite all past and current patients, while being certain that the other party (personal trainer, image consultant, etc.) also invites their database. Create oversized postcards as invitations and mail them out. At the time of this printing, an oversized card runs around US$0.80 including printing, labeling, and postage. Have a staff member distribute them by hand to invite employees in the other offices in your building, and drop off 20–50 cards at each of your local hair and nail salons. We recommend doing a raffle and giving patients extra raffle tickets for each additional (non-patient) friend whom they bring along to encourage attendance (be sure to put that on the invitation). Keep the time short: 90 minutes is plenty of time for your average small event.

Non-profit involvement Local non-profit organizations often have fundraising galas, golf tournaments, and other events, to which you can donate an item for the silent auction or gift certificates for goody bags given to attendees. As attendees repeatedly circle the silent auction tables, your brand is repeatedly impressed upon the attendees. Not only that, but attendees see you as a community member who is philanthropically minded, adding more value to your brand. Call the United Way for a list of non-profit organizations. Find out when they have fundraising events. Those events with the highest price per seat are the best in terms of finding attendees who match your demographic. For

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obvious reasons, avoid political or controversial events. Keep in mind that the value in these events is not necessarily your attendance, but the ability to repeatedly offer your brand to the core group of wealthy individuals and couples who attend these events.

Public Relations What is PR? PR stands for “public relations”. PR is your relationship with the public. PR is important because, unlike advertising, it brings along third-party validation that you just cannot get with advertising. Your PR agenda is initially defined by your brand (you) and is then moved forward by “your people,” which can be your publicist or PR firm, you and your computer, or you plus your staff and your mother. When plastic surgeons talk to me about public relations, they are most often seeking media relations — how to get the media to notice them and want to interview them. Although many think that it is a simple matter to send out press releases to get the media’s attention, as my mother used to say, “If it were easy, everybody would do it.” Mom was right. Simply put, you cannot get media coverage unless you are in a RUT: 1. Relevant — Is the story relevant for that particular media outlet’s audience? a. A story about “mommy makeovers” makes sense in Parents magazine, but not in Vogue. 2. Unique — If the story has been done already, it is not newsworthy unless it has a new twist or a great background story. Weight loss stories have been done to death, but if Oprah loses 60 pounds it makes the news. 3. Timely — Does the story fit into the media outlet’s calendar for this type of information or is it fascinating enough to stand alone? a. Some outlets only do plastic surgery stories on a particular schedule. b. Timeliness also refers to trends. If there is a trend in plastic surgery, it is good to let the media know about it. c. Features about plastic surgery are not timely if we have just been attacked by a foreign enemy or if the stock market has just collapsed. At a time like that, even a great plastic surgery story will end up on the backburner with all the other luxury items.

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Below are some pointers based on my experience in securing media coverage for plastic surgeons.

Press releases evoke little to no response on the part of the media outlets Most media representatives (bookers, writers, newscasters, etc.) do not create stories based on press releases emailed or faxed to them or found during an Internet search. This is because media outlets and their individual journalists and guest bookers receive hundreds, if not thousands, of media pitches on any given day. They throw out anything that is not sent by someone they trust or that is not obviously newsworthy. Unfortunately, most plastic surgery stories, particularly about cosmetic procedures, are not newsworthy. Unless you have invented the procedure, it is brand new, or you have a patient willing to “bare it all”, you might not have enough to get you on the 11 o’clock news. If you have donated your services overseas to indigent children, you might get a mention on a small, local program, though even those stories are generally not deemed newsworthy.

As a rule, it is generally easier to get newspaper exposure than television exposure Newspapers have a certain amount of square footage to fill and, if breaking news is “down” that day, they might fit your story into that day’s press run. TV stations, on the whole, have downsized tremendously since the onset of cable TV, and both cable and affiliate stations are feeling the pain of advertising dollars lost to the Internet. Prior to cable, almost every market (even the smallest, one) had its own morning talk show during which anybody with, say, a new avocado dip recipe could get a five-minute interview. Unfortunately, those days are gone. National talk shows and morning talk/news programs (like “Good Morning America”, for example) rule the day. It is extremely tough to get on those programs, unless you have (1) a PR firm with which the media outlet already has a trusted relationship; (2) a new book that is significantly different from the other five plastic surgery books they promoted already that year; (3) a fascinating patient story, and you can bring the patient with you (easier said than done, as most patients do not want publicity about their procedures for obvious reasons); (4) a procedure so new that it is essentially breaking news; or (5) an opinion about a growing trend that is newsworthy to the consumers who watch that program, which

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is often the case immediately following the annual release of plastic surgery statistics.

Media relationships must be cultivated in order to obtain coverage That is why it is called media “relations”. This does not mean that you necessarily need a PR firm to promote you, but it generally moves things along more rapidly simply because the media representatives (journalists, producers, reporters, bookers) have existing relationships with the PR firms. The PR representatives know how to approach the media to get things done, and the members of the media know that professional PR firms will not waste their time with pitches that are not newsworthy. If you wish to approach the media without a PR firm, then you must cultivate a relationship with the media representatives in your area in order to be heard when something interesting occurs for which you would like to be interviewed. How does one do this? First, by taking the time to research what the media are writing about before you approach them with your agenda. Just like you, journalists have a job to do. They are not interested in your agenda unless it serves their agenda. So, prepare in advance before you approach a media representative. Read their byline or watch their program so that you know what they are all about. To break the ice, send emails or snail-mail letters to compliment them on stories that you enjoyed. Send them helpful information about your profession in case they might need it sometime down the road. Depending on the size of your local media outlets (Miami vs. Omaha, for example), you need to identify all the journalists or media representatives who work your “beat”. Aesthetic surgery can be covered by several different beats: lifestyle, health, medicine, or women’s issues, as well as the generic assignment desk. Once you have identified the right people, call them one at a time. Your identifier as “Doctor” has enough power to get you past the secretary in almost any media outlet (OK, probably not Oprah, but almost everywhere else). Armed with the media’s most recent story on plastic surgery, call him or her to offer a compliment, and then confirm that the individual you are speaking with does, in fact, cover plastic surgery. Ask if he or she has anything else coming out about plastic surgery in the near future for which you might be a resource. Do not push your agenda. Just offer to be a resource. It will get you farther faster than pushing to be on their TV program or in their newspaper. If you are helpful, polite, and patient, your time will come.

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Keep in mind that journalists are difficult to reach because they are overloaded. It was not always that way but, since the onset of cable, the local affiliates (ABC, NBC, CBS, CW, and Fox) have had to downsize as their advertising income has been split up among more outlets. The media representative or journalist who previously covered health and medicine now covers kids’ topics and cooking as well as health and medicine. Hence, he or she is torn in many directions. If you want to create a relationship with a media outlet, you must penetrate the blinders the media wear just to get through the day. One of the biggest complaints journalists have is that their email inboxes are full of mass emails that are not targeted to their area of expertise. Avoid sending mass faxes or emails to a list of journalists. Rather, pay attention to what they are writing and what they have written lately to see if you can identify a trend. If they say plastic surgery is for insecure people, that is probably not a journalist you want to approach about your new laser technique. Although this seems obvious, other than PR firms, most people do not do their research before approaching the media, and this can be a fatal mistake. Once you tick off a media representative, they may never want to hear from you again.

Booked for a TV interview? These top 60 media tips can help! I think the very best way to do media training is with the use of a video camera. Have a friend interview you, so you can watch yourself in action. It is the very best way for you to evaluate yourself because we often do not believe we do the things we do until we see it for ourselves! These are the specific issues that generally need to be addressed: • Speech pitch, modulation, and speed ◦ It is important that you maintain a normal pitch. People quite often speak in a higher pitch or become squeaky or strident (or even shout!) when nervous. ◦ The microphones are sensitive. You need not speak with a loud voice. ◦ Speak at a moderate rate (not too fast) and speak clearly, particularly if you have a strong accent. ◦ Remember your audience, and avoid too much jargon or industry-speak. ◦ Avoid speaking in a monotone. Add inflection in the voice (the ups and downs of a normal speech pattern).

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◦ Do not end every statement as if it were a question. People often do this in strange situations like on camera. ◦ Ixnay the speech tics: “umm”, “ahh”, “and-uh”, “ya know”, and the ever-ubiquitous “like”. ◦ Avoid colloquialisms such as “he went” instead of “he said”. ◦ SPEAK UP. No mumbling, throat clearing, or distracting noises. ◦ THINK before you speak. It is OK to give yourself time to gather your thoughts. This helps avoid saying “ummm” and other nasties. Unless the interview is live (which is rare these days), the editors can delete the short empty space. It is usually a lot shorter than you think it is, so do not jump on top of questions. Give yourself the time you need. • Appearance ◦ Avoid rocking back and forth, licking or smacking your lips, touching your face or hair, waving your hands around, and moving around in the seat. Especially avoid putting your hands anywhere near your nose, for obvious reasons. ◦ Tuck your chin under, and keep your neck long and relaxed like a bobblehead doll. This will keep you from slumping. Slumping makes you look weak and old. ◦ Keep your shoulders down and back, with your eyes looking up either into the camera or into the eyes of the interviewer. Keep your chin down! You do not want the video guy shooting from beneath you and showing only your nose hairs! (Take care of those hairs before you get there.) ◦ Do not constantly reshift your focus. Look at either the host or the camera for as long as comfortable while speaking. Look over the host’s shoulder if staring in their eyes distracts you. Otherwise, you risk looking “shifty” and this negates your power. ◦ Sit toward the front of the chair to appear as tall as possible. ◦ Keep your hands in your lap or at your side (if standing). You do not need them; they are a distraction. ◦ SMILE OFTEN. If the topic is not something to smile about, at least imagine something pleasant so you are not frowning. Watch CNN; those guys can deliver catastrophes and still appear pleasant and trustworthy while doing so. ◦ Avoid stripes and herringbone or checkered patterns; and do not wear loud ties, shirts, or dresses that will appear like a blur on TV. Soft blues and solid colors are best for television.

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◦ Women, please, no fussy clothing like ruffles, frills, or loud jewelry. It is distracting. ◦ Make sure all the buttons button easily without pulling, and make sure your clothing fits you well. You will look thinner in clothing that is slightly large compared with clothing that is too tight. ◦ Do not buy a new suit or outfit and wear it for the first time on TV. Wear it a couple of times beforehand at home, sit in it, and walk in it. Check to be sure it does not bind or cut into you anywhere, as this will be even more distracting under pressure and hot lights! ◦ Men, if you are wearing a suit, unbutton all but one button when standing; unbutton all when sitting. ◦ Wear something comfortable to the studio, and change when you get there. DOUBLE-CHECK to make sure you have everything before you leave home! ◦ Once you are dressed, do not eat anything. Drink only through a straw; otherwise, this will be the time you spill coffee all over yourself. ◦ Do not get a haircut the day before; get one a week before. ◦ Make sure you have your roots covered if you color your hair. ◦ Ask them in advance if they plan to do makeup. If they do, do not wear any that morning. They will take it all off anyway. ◦ Men, if they do not do makeup and you are bald, ask them to powder your pate or bring your own powder. Powder yourself before you put on your clothes to avoid getting powder on them. ◦ Ladies, if they do not do makeup, ask the host’s makeup person to check your own makeup. They are almost always happy to oblige and have an absolutely perfect eye about what is too much and what is not enough. Bring your makeup and brushes with you in case the artist wants to add something on top of what you applied at home. ◦ Do not wear false eyelashes unless you wear them on a regular basis. ◦ If you can bear it, do not wear your glasses as they create a glare. However, if you are truly blind without them, it is better to wear them and have some glare than to fall down or trip over something walking to the host’s guest chair! ◦ If you wear contact lenses, think about what you will do if you get dust in them on camera or if they dry out from the lights. Leave them in your case if possible (see warning above about falling). ◦ The lights are HOT and you will be excited and/or nervous. Wear plenty of deodorant. No obvious sweating allowed.

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◦ If you sweat when nervous, take a damp cloth to dab your face when the camera is pointed at the host. Make sure the cameraman knows you might do this if you are a “sweat-er”. Believe me, they have seen it before, and they are happy to avoid shooting when you are wiping yourself. They really do not want to shoot you with sweat dripping off the end of your nose. If you have makeup on, do not wipe the sweat off your face; just dab it. ◦ Men who are wearing a suit jacket can put a small, cold, damp cloth or a soft, cold pack (not frozen!) under their T-shirt against their back to keep them cool under the lights. Ladies can slip a little something over their bra in the back. That tiny bit of cooling can really save you. Make sure it does not show and that the wetness does not come through. If you decide to use a cold cloth or a cold pack, take someone with you to help with placement so that it does not fall out on camera! ◦ Consider teeth whitening before going on camera, as normally white teeth look dull and gray from the intense lights. ◦ Get plenty of sleep the night before and drink a lot of water so that your skin is nourished. ◦ If sleep is difficult because you are nervous/excited, have a turkey sandwich and a glass of milk before bed. ◦ For the same reasons, avoid alcohol the night before. ◦ Floss before going on camera. ◦ Put a tiny bit of Vaseline on your upper teeth. If your mouth gets dry, at least your lips will not stick to your teeth! ◦ Do not chew gum on camera or beforehand. It dries your mouth, and you look like a cow chewing its cud if you forget to spit it out before the interview starts. ◦ Go to the bathroom several times before filming starts and one last time about 10 minutes before they start filming. Nervousness makes most people want to urinate (or worse!), and you do not want bodily urges occurring while you are trying to look great on camera. ◦ Do not interview on an empty stomach. If your gut starts gurgling, the microphone just might pick it up, especially if you have a lapel microphone attached to your clothing. ◦ If you are wearing a jacket and are seated before the camera rolls, pull the jacket behind you and sit on the bottom edge of it so that it does not bunch up at the shoulders. Pull the sleeves down before the camera starts so that the sleeves are not bunched up. Do not do this, however,

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if you must walk onstage and then sit down while the camera is already rolling, because this looks a bit odd. ◦ Do not be afraid of the little red light. The light is your friend; it is your audience. Imagine all the little tiny people inside the camera who are clapping and cheering and hanging on your every word. ◦ Remember that you have a right to be there, and that you have something important to share with others. ◦ If you are horribly nervous, imagine the host is naked and sitting on the toilet. Laurence Olivier used to peek outside the edge of the curtain before each play started and whisper to the audience, “Damn you! Damn you all!” to put himself at ease. Imagine whatever works to put you at ease. • Content ◦ Never appear on a program that you have not watched before you become a guest. ◦ If possible, make bulleted notes about your anticipated topics on cards and review them three to five days prior. You will not always know what the interviewer will ask you, but this advance preparation can help you recall specific points you wish to make. ◦ Do not use the cards on camera. ◦ Ask the segment producer to give you (in advance) an idea of the questions that will be asked. They cannot always do this, as the host will often make up the questions that day, but you should at least know the orientation of the segment in advance so that you can do some preparation. ◦ Never say anything you cannot document by a third party unless you specifically say, “It’s my opinion that …”. ◦ Never say anything that can get you sued. • Maximizing the PR benefit of being interviewed ◦ Either you or your publicist should provide your biography. Confirm that the interviewer and segment producer have it so they can give the audience the salient points about you. Their goal is to show the audience that you have the gravitas to be sitting there in an interview, so make sure to give them only the information that proves your expertise. ◦ Make sure the interviewer knows what to call you: “Dr. Smith”, “Brad Smith, MD”, “Brad”, etc. ◦ Make sure they can pronounce your name. Introduce yourself to the host in advance. If you have a difficult last name, make a little joke about this and say, “I have a difficult last name. It’s pronounced this

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way:_________.” They will thank you for it, if not outwardly, at least in their own mind. Be sure your name appears on screen at least at the beginning and end of the segment. Preferably it runs underneath the entire time, but this is tough to get. Be sure to ask for, and make sure you receive, a DVD or an MP3 recording of the segment for your website and to put on You Tube and other video sites. Get the name of the person who is in charge of this so that your staff or your publicist can follow up and get that footage. Make sure that the segment actually gets put on your website! Notify every patient in your practice database that you are going to appear on, say, “What’s Happening Now” on NBC on Tuesday May 13 at 8 pm, so that they can watch it. Next time you hold an event, be sure you show the segment to your visitors. You can use this segment when pitching for more media exposure; show media representatives the tape so that they can see how comfortable you are on camera.

Marketing is Essential in Building Your Practice Consistent, demographic-focused marketing and public relations can build your practice and brand from a “no name” to the “big name” in your area. Since many items pertaining to marketing can be done by you and your staff, I encourage you to get started. Anything you do is a step in the right direction, so do not think of marketing as an all-or-nothing event. Get going, have fun, and build your business!

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Online Marketing Ryan Miller

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nline marketing is a broad term used here to describe all activities your practice may engage in to increase awareness about yourself, your services, and your practice using the Internet. Many surgeons are put off by the notion of marketing in general. This aversion is exacerbated by the very technical nature of online marketing. Luckily, overcoming that aversion is easy. Ask your next 10 patients if they, at any point while preparing for their procedure, turned to the Internet. Chances are that at least eight of them will say yes, affirming the importance of sharing your message online. Keep in mind that you are not “selling surgery” online. Your Web site allows you to educate your current patients as well as prospects about your experience, your procedures, and your practice. It is also your vehicle to present a case for why a man or woman who is considering plastic surgery should choose you for their consultation. Some surgeons believe the cost of online marketing to be an unnecessary expense, but they cringe when they think of the untraceable return on investment offered by offline marketing efforts in newspapers, the Yellow Pages, and radio. Every day, more people abandon offline sources like the Yellow Pages in favor of online marketing platforms. Online marketing, when run wisely, can be a profit center with an undeniable investment return. The operative word, of course, is “wisely”. This chapter seeks to share some Web marketing wisdom, information, and tactics that will help you plan a productive site, select a skilled vendor, and supervise the marketing and maintenance of your Web pages. Online marketing is “always-on” marketing. If you put in the investment and the effort to ensure that your site can be easily found by people in your local area, you will have a workhorse promoting your practice day and night, whenever a person decides to look closer at their options for surgery or skincare.

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I am challenging you right now to change the way you look at Web marketing. Toss out the old passive advertising idea that might encourage you to post a brochure-like Web site on the Internet and then forget about it. Reset your expectations, and demand a site that serves, educates, retains, and attracts patients by actively marketing to your online target audience. Create a site that reflects who you are as a surgeon, informs patients about their procedure(s) and your industry, encourages loyalty and referrals, creates operational efficiencies in the front office, and guides interested prospects off the Web toward an in-office consultation. Now let’s turn to the steps you will need to take and the choices you will need to consider to develop and maintain a Web site that meets all of these complex and interwoven objectives.

Define Clear and Actionable Objectives A great many online marketing initiatives fail. Chief among the reasons for a failed Web project is the lack of clear objectives, articulated expectations, and a cohesive plan. A Web site is more than a must-have for the modern plastic surgery practice. Executed properly, it can strengthen relations with current patients and attract more new patients to your practice than any other marketing vehicle. Many plastic surgeons approach their first Web site with two simple expectations — they want a site that is attractive and cheap. Some ambitious practices might also proclaim the need to “get it done fast”. A site erected from such an uninspired vision will almost certainly lack the substance and functionality to benefit the practice or their patients in the long run. So what can a Web site do for your practice, other than sit there and look pretty? A site can build your brand and help you extend the image you wish to portray to your local community. It can provide education about your training, your procedures, and your industry. It can encourage past patients to talk you up to their friends and make life in your front office just a little bit easier. Moreover, it can be your single most prolific source of new patient referrals after word of mouth. Be careful not to dismiss the potential of online marketing based on your reputation or years in practice. In July 1993, The New Yorker published a nowfamous cartoon in which a dog is seated at a computer, telling another dog, “On the Internet, nobody knows you’re a dog.” While the comic poked fun at people’s propensity to exaggerate their beauty, youth, and charm in online chat forums, it also uncovered an important opportunity that is often overlooked.

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On the Internet, nobody knows that you are a great surgeon. Nobody knows that you are new to practice. Nobody knows about your specialized training. Regardless of your reputation and experience, you have the obligation and the opportunity to retell the story of who you are to an online audience. Every surgeon has the same opportunity to profit from online marketing. Not every surgeon will have the same objectives or expectations. Begin by listing the things your new site must accomplish. Decide how you will measure the success of your site. Be as explicit as possible. Each of your goals should have a direct impact on the appearance, structure, content, tone, and promotion of your site. The last thing you want is to have completed a site, only to realize that you failed to include elements to satisfy specific objectives. In our experience, most cosmetic surgeons want a site that will: 1. Present an attractive and professional image that reflects the identity of the doctor and practice; 2. Support the needs of, and strengthen the connection with, past patients, thereby encouraging repeat patronage; 3. Educate potential patients about the providers, services, and results delivered at the practice while encouraging in-office consultations; and 4. Achieve and sustain top search engine rankings for the words and phrases used by prospective patients in the target market. Dive deeper into any one of these broad goals, and you are likely to find that you have more explicit expectations than you thought at first. Many doctors desire motion, animation, and interactivity as much as an attractive design. It is common for accomplished surgeons to request a site that highlights the value of their training and certifications. Some mandate that the site demonstrate their interest and experience in one particular procedure. Each of these smaller goals will shape the site’s design, functionality, content, tone, and coding. If you fail to name your expectations now, you can be certain that at least some will be unmet when your site is finished. Before you do anything else, take time to document your expectations up front.

Select an Experienced and Reliable Vendor Selecting the right vendor or vendors to create and promote your Web site can be as important as choosing reliable legal or financial counsel. Your Web vendor(s) will be charged with representing your practice to the world online, managing your online marketing, and attracting a significant percentage of your new patients.

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Any vendor you select will be a long-term partner, so take the time to do this right. Changing Web vendors is a costly proposition; a poorly executed switch from one vendor to another could disrupt the availability of your Web site or cause your search engine rankings to drop. Many practices take a short-sighted approach when selecting their Web vendor, thinking only about the need for an “attractive” Web site. Too often, their due diligence consists of looking at the vendor’s design portfolio and concluding, “Well, their designs look OK.” Allow yourself to think past the creation of your Web site and consider your long-term maintenance and ongoing online marketing needs. Web firms may provide a full range of services or they may specialize in graphic design, information architecture, Web development, copywriting, programming, or promotion. The number of people employed by your vendor is less important than their demonstrated ability to produce attractive Web designs, author clinically accurate and optimized text, achieve and sustain top search engine rankings, lead local Web marketing and email marketing campaigns, guide social media strategy, manage paid placements, and address legal and regulatory compliance issues with whatever staff they have. If you are considering a small firm, ensure that all of these skills are represented among their staff. Ask larger firms to describe their departmental structure and the expertise present in their organization. A common mistake is to hire separate companies for Web site design and search engine optimization. This approach is costly and inefficient. You are better served to finding a single vendor who offers all of the skills required to design, build, and optimize your site. While these are two different disciplines, they should be employed concurrently at the time you create your site to ensure that your site will satisfy the expectations of your visitors and the search engines from the very first day. Since you will rely on your Web vendor for regular site updates, the vendor should be accessible and responsive. You might consider calling their support line before making your decision to uncover how hard it is to connect with an actual human when you need help. Your due diligence should include, at the very least, a review of their past designs, a request for samples of clinical copywriting for your consideration, examples of their top-ranked Web sites, and discussions with at least three clients who have worked with the vendor for no less than one year. You should ask those references how their initial Web development was handled, especially whether it was delivered on time and on budget. Inquire also about ongoing maintenance and the success of their marketing direction. Determine whether

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the vendor has expertise in medical marketing or if they will need to learn about your profession as they go. Do not feel the need to limit your reference check to the few names supplied by the vendor. You can “secret shop” a vendor by selecting clients depicted in their online portfolio or searching Google for the vendor’s name. Often, such searches will reveal more of their client Web site addresses so that you can call for a candid reference. Finally, request and carefully review a copy of their contract before you authorize the project. Many Web vendors structure their contracts so that they, not you, own your Web site. Choose a vendor that grants you full rights to your Web site and the creative files that were used in its construction. Even after you have chosen a vendor, you need to educate yourself on the basics of web marketing so that you can “speak the language” and understand your vendor’s tactics and recommendations. One of the key principles of Web marketing is the concept of search engine optimization (SEO).

Understand the Impact of “Optimization” Roughly 80 percent of American Internet users turn to the Web for healthcare information.1 Most start at one of the top three search engines (Google, Yahoo, or Bling), and few searchers will look beyond the first or second page of results. The math is simple — potential patients are online, and top search engine rankings are the best way to reach them. So how do you get listed in the top of the natural search engine results, those 10 or so results that occupy the majority of the page? Quite simply, you earn your way to the top. Each of the top three search engines is a publicly traded company. Each has a customer: the searcher. Their market valuations are based largely upon advertising revenues; those revenues are tied to their market share (the number of searchers loyal to their engine); and that market share is held by delivering great search results to their customer, i.e., the searcher. The Web site for your practice is simply a means to the search engines’ end. You provide content — text, photos, and videos — that may or may not interest searchers. To the extent that you provide content which a search engine believes will satisfy their customers, you might earn a top ranking. The process of improving your site with the goal of improving your ranking is called search engine optimization (SEO). SEO considers how search engines work and what people type when they search. There are many perspectives on SEO and many different approaches

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as well. Most SEO tactics will address one of three key factors — keywords, content, and links. Keywords are perhaps the easiest factor to understand and the most often overlooked. Keyword research, described later in this chapter, allows you to identify exactly what your potential patients type when searching for your services. The optimization process involves thoughtfully integrating these keywords into your site’s content. Some people would do almost anything for top rankings. This includes stuffing keywords into poorly written pages. Bad pages created solely to earn rankings — pages that searchers find useless — are a big problem for the search engines. To weed out bad sites, search engines today will do the virtual equivalent of a reference check by evaluating the links coming to the site from other Web sites. The idea is simple: people link to good sites and do not link to bad ones. The more links that are pointed at your site from related sites which are in good standing with the search engines, the more this signals to the search engines that your site may be worthy of a high ranking. If you are reaching the conclusion that SEO is complicated and timeconsuming, you are beginning to get the idea. Many surgeons who are discouraged by the effort required to earn top rankings may be inclined to find shortcuts. Let them be warned: the top three search engines have all devoted millions of dollars to blocking efforts to manipulate their results. They have gone so far as to post very public warnings about the “dos” and “don’ts” of SEO. Just visit your favorite engine and search for “Web master guidelines”. While all of the top search engines post warnings that caution against posting duplicate content and creating pages with only the search engines in mind, there are lesser known restrictions that can impact how your site will rank. For instance, many search engines are concerned with making the Internet a safe place for young people to search. Did you know that displaying nudity could get your site classified as adult content and tossed in the same bucket as pornographic pages? Web vendors specializing in cosmetic surgery will help you wrap warnings around photos that display nudity to prevent the adult content stigma that could hurt how you rank. A good SEO effort will take time to identify the keywords that matter most to your practice — keywords that consider not just the services you offer, but also all of the geographic markets you hope to reach. These keywords will shape the map of your site, as at least one page should be dedicated to each of your most important keyword phrases. Those pages are then populated with original, well-written content that answers questions and solves problems, while allowing for regular content updates to demonstrate your commitment

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to your topic. Your SEO effort will also seek to persistently secure new inbound links from related sites. SEO is a way to help the search engines do their job of connecting people with the information they need. After all, your audience is not a piece of automated search software from Google or Yahoo, but a living and breathing human on the other end of a computer screen and keyboard. Always keep this potential patient in mind when engaging in SEO tactics.

Create a Site to Satisfy Patients and Grow Your Practice When taking your Web site from a vision to a reality, the needs and desires of your potential patients should remain at the forefront of all considerations. Along with your Web vendor, you should be thinking about things like accessibility, ease of use, and overall appeal. This section gives an overview of the steps that you or your Web vendor should take when constructing your site.

Research your keyword phrases The majority of people find Web sites by entering a keyword phrase in a search engine. At their most basic level of operation, search engines find pages that contain, or relate to, that keyword phrase. Pick the wrong keywords or ignore keyword selection altogether, and your site will not be found by prospective patients. The first step in any Web development project should be keyword phrase research. The goal of this research is to identify the exact phrases used by real men and women who are actively searching for your services. This is easier than it sounds. The process consists of just two steps: brainstorming and prioritization. During brainstorming, your goal is to catalog every possible phrase that might be employed by a prospect. To do this, create two lists. The first will contain words and phrases that describe the conditions you treat and the services you offer. The list might include anything from “abdominoplasty” to “wrinkles”. Be sure to include common names, scientific names, and slang. Your second list will include all of the regions where you wish to be found and might include cities, counties, regional nicknames, and entire states. To conclude your brainstorm, combine every service term from the first list with every regional term from the second. If you had 10 terms on each list, the resulting list would contain 100 candidate keyword phrases.

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Ranking well for any one keyword is a complex and potentially costly process. Choose the wrong keywords, and you will fail to connect with the bulk of patients looking for your services online. You need to prioritize the candidate keywords, focusing on the most popular phrases and tossing out the ones nobody uses. This can only be accomplished by employing special keyword research software. At the time of writing, the two most popular keyword analysis tools to data are available at www.wordtracker.com and www.keyworddiscovery.com. A free (and less practical) tool is offered by Google. All of these will help you research the relative search volume for each candidate phrase, identify the most common word order (procedural term or regional term first), and uncover related phrases. Undoubtedly you will find that the majority of your keyword candidates are almost never used by real people. A small number of the phrases will account for most of the search activity in your market. Before you proceed with planning your site, you will need to select a finite number of those phrases to target. How do you choose them? Most practices will benefit from selecting the phrases searched most often. You might also wish to include a few key phrases with lower search volumes that appear to be highly relevant to your practice goals. By focusing on 10 to 50 phrases, you are less likely to dilute your online marketing efforts and more likely to see real gains in relevant search engine rankings.

Select your domain name A domain name is the unique name that identifies a Web site, such as www. google.com. Domain names are acquired from registrars — companies like Network Solutions(www.networksolutions.com) or Go Daddy (www.godaddy. com) — that serve as official record keepers for who owns a name and where the associated site can be found on the Web. The domain name you choose should be easy to say and difficult to misspell, and should reflect the nature of your practice. Remember that your domain name will appear in advertisements offline and will be spoken by your staff when they are on the phone. In a perfect world, you would choose a domain name that happens to contain one of your most often-searched keyword phrases. The presence of a keyword phrase in your domain name may have a small beneficial effect on related search rankings, but not so much of a benefit that you should go out of your way to choose a domain name only for this reason. It is common for a medical practice to rely upon their Web vendor to register their domain name. Beware! Many Web vendors, intending no malice, will register your domain in their own name or within their domain account,

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effectively claiming ownership. If your relationship ever goes bad, you will want access to that domain name when they may be least inclined to turn it over. From the very beginning, direct your Web vendor to register the domain in the name of your business entity and in an account that you can control. You should be given the registrar’s Web address, a log-in name, and a password. Once you have logged in, review the registration data carefully to ensure it accurately names you as the owner.

Specify the architecture and the function You can increase the likelihood of a smooth and successful Web site project by carefully mapping out the pages of your site before construction begins. You should create a site map, which is a document you can think of as the blueprint for your new site, to protect yourself and to ensure that you and your chosen vendor share the same understanding of your project’s scope of work. Unfortunately, many doctors will call a Web marketing vendor and say, “I need a Web site for my plastic surgery practice. How much will that be?” The vendor, eager for the business, makes up a number, and away they go. As they figure things out along the way, the doctor’s expectations will grow while the vendor will try to restrict the project before every last penny of profit dissolves. In order for a Web marketing vendor to estimate a project properly, they will need to know the number and nature of pages in your site, how the site will function, and what special features you require. A good vendor will help you clarify all of these points before they provide an estimate. Your site’s architecture — its organization — should address the most common needs of your prospects and patients. This is also the time to revisit your list of documented objectives. Prospects want detailed procedure information, before- and after-surgery photos, an introduction to the surgeon(s) and the practice, payment information, and clear contact instructions. Existing patients need easy access to driving directions, forms, and practice news. Create a map of your new site that will satisfy patient expectations and your business objectives. Along with your site map, you will want to make notes about what you expect the site to do. Does it need to collect consultation requests? Schedule appointments? Gather newsletter subscriptions? Sell skincare products? Support a blog? Anything that goes beyond text and pictures will involve custom programming, and should be carefully documented and disclosed to your Web vendor before they estimate the cost of your project. Your site map should also allow for growth. Any change in your practice should be reflected online. New services will mean new pages. Changes in

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your training or certification will warrant copy edits and graphical promotion. Search engines like sites that are regularly updated; plan now to make adding new content easy. It is important to note that a site map does not address the aesthetics of your site. The site map, whether a simple outline or block diagram, only lays out the structure of your pages. For your first Web site project, the KISS principle (Keep It Simple, Stupid) definitely applies. All you really need to get a foot in the door of the Web marketing world is a clean, appealing design; well-written text; a library of representative before-and-after photos; and a contact form. While many enhancements beyond these features exist and can create a better user experience, consider these add-ons as luxury items until your Web site has become a profit center for your practice.

Know what you will need to contribute You cannot profit from your Web site until it is released to the public. The sooner your site is completed and you begin promoting that site, the sooner you can recover your investment in its construction. Ask your vendor up front what role you will play during the development. At the very least, you will need to present your vendor with background information and photos from the practice; then, you will need to review the site design and each page of text. If you are to be tasked with copywriting, allow a full four hours per page to author well-composed, clinically accurate content. Expedient development will only happen when you and your development team share the same understanding of who is responsible for each piece of the development. Work with your vendor to set deadlines that both of you can meet, and hold yourself to delivering on deadline. After all, any delays you introduce into the process will cost you in money and missed opportunities.

Design and build You want a site design that reflects the image of your practice, connects with your patient audience, and encourages interested prospects to choose you for a consultation. You need a site constructed using coding techniques that enable search engines to easily find and catalog every page of your site. To successfully capture the essence of your practice, your Web vendor will need insight and inspiration. Prepare a brief that describes what is unique about you and your practice, your approach to patient care, and your perfect patient relationship. Gather photos of the facility and staff, samples of your

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print collateral (brochures, etc.), and samples of your advertising. Choose three to five sites, preferably from outside both your market and the plastic surgery industry, that exemplify a design style you like. You might look at sites in fashion, jewelry design, and high-end travel for chic inspiration; or examine sites for hospitals, universities, and banks if you are after something a little more professional. The development process will vary greatly from one vendor to the next. It will also depend upon the scope of your project. For example, if you purchase a pre-made template, your project will follow a very different course than if you have a custom design. There are, however, some common milestones in almost every Web site development project. You can expect to be presented with one or more rough design compositions. You may be asked to select one before engaging in several rounds of design refinement. Once a design is finalized, the development team will begin building a shell of the site while copywriters (yours or your vendor’s) will create or customize your text. Construction methods matter. Many of the most engaging Web page elements can impede search engine rankings. Certain kinds of drop-down menus obscure the addresses of your pages deep in programming code. Many search engines cannot see the text and links that are locked within Flash animation. Remind your Web vendor that you wish to impress both potential patients and the search engines. Ask them to point out the places on your site where search engines might get stuck and where they have implemented the workarounds to ensure that search engines can easily access every page.

Test and release Before you release your new Web site to the public, you will want to perform an aggressive quality review. Do not assume that your Web developer is dotting the “i’s” and crossing the “t’s”. Remember that it is your medical license on the line. Here are just a few of the areas to keep a close eye on: • Images and appearance — Does the site reflect you and your practice? Have you verified that you have rights to use all the images in your design? • Navigation and usability — Is it easy to get from one page in the site to the next? Can a visitor easily find the main sections in your site? Do you offer multiple ways to navigate the site, such as menus, breadcrumb navigation (which helps the user identify where on a Web site a Web page is), site search, and a map?

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• Contact and calls to action — Is your contact information prominently displayed in plain text on every page? Do you ask for and encourage contact or consultation requests? • Composition and clinical accuracy — Is your content grammatically correct and free of spelling errors? Is all procedural content clinically accurate and free of hyperbole? • Consistency and legibility — Are the working Web pages consistent with the design compositions? Can the text be read easily, even by people with vision impairments? • Forms and functionality — Do your custom systems and forms function? Do you know where email from your site is sent, and have you reviewed any automated response text? • Legal issues and compliance — Does the site comply with regulations set by your state’s medical board, your certifying boards, and the societies and organizations to which you belong? Does it observe Health Insurance Portability and Accountability Act (HIPAA) and other federal privacy requirements? The box below offers more advice on this matter. Marketing Mistakes to Avoid Here are just a few best practices when it comes to complying with advertising regulations and restrictions. Of course, for a complete assessment of the laws and regulations that apply to your practice, be sure to talk with legal counsel. Avoid the following: • • • •

Engaging in false, fraudulent, or misleading advertising. Misstating your board certification(s). Making unsubstantiated claims about a product or service you offer. Using hyperbole (for instance, saying, “No hand surgeon is better than Dr. Jones.”). • Using model images or stock photography without indicating that the photos are not of actual patients. • Displaying patient photos without prior written consent. • Performance — Does the site appear the same in all major Web browsers? Does it load quickly? This overview of the site planning, design, and building process should help you hit the ground running when it is time to work with your Web

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vendor. Once you have launched your new Web site, you are ready to begin the next phase of Web marketing — using your site effectively to earn new patient consultations.

Run Your Site Like a Business Your Web site will not contribute to the success of your practice without the support of your staff. The people who search for and find your site have expectations similar to, if not greater than, those patients referred to your office offline. You must plan to update your site regularly, define clear operating standards, train your staff to provide exceptional service to online inquiries, and actively measure your investment return. At the bare minimum, you must designate someone from your staff to serve two key roles: Web site management and Web customer service. The Web site manager keeps an eye on the site and is your primary point of contact with your Web vendors. The person servicing Web customers provides a thoughtful and timely response to your online inquiries. While these two roles could be filled by the same person in a small practice (such as the office manager or a receptionist), for a practice in a major metropolitan area, a successful Web site could require several people just to address inbound emails.

Web site management Your Web site must educate existing patients and attract new ones. To be successful in either case, your site must present patients with content that is both accurate and current. Search the Internet today and you will still find plastic surgeons whose sites claim that saline is the only breast implant option approved by the Food and Drug Administration (FDA). You will find sites promoting seminars that happened years in the past, special offers that have expired, and devices like Contour Threads that are no longer distributed. What do these dated sites say to visitors? Old and outdated content will suggest to some patients that you have poor attention to detail. Others may conclude that you are no longer active in your practice or that you are out of touch with your industry. Whatever any one patient concludes, there is no shedding a positive light on a dated site. Both searchers and the search engines value sites that are regularly updated with new information, breaking news, and special offers. Designate one member of your team to routinely update your site and coordinate relations with your Web vendors. This is by no means a full-time job. At most, it should

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require a few hours each week and a day or two each quarter. When defining this Web site management role, require one person to: • Advocate for the site and your online audience. Test team members to ensure they know your Web address and how patients will benefit from visiting the site. • Review each page of the site once each quarter to make sure it is current and accurate. Remove or revise dated information. • Integrate references to new training, certifications, publications, or media appearances by clinical staff. • Check (1) the confirmation pages visitors see after filling out forms and (2) the auto-responder text that is sent via email to ensure that the information remains accurate. • Ensure that any new procedures are represented in your online menu of services and that any new approaches to traditional procedures are described. • Monitor online calendars and periodic news, on a monthly basis, to ensure that upcoming events are promoted and that time-sensitive publications are not allowed to get too stale. Plan early to promote news and events online or through email. • Augment your photo gallery, patient testimonials, and real patient stories with fresh content as often as possible. • Interview front office staff to uncover ways that the site can be used to help improve workflow at the practice. This might include publishing answers to the most frequent questions or offering new information for download. • Collect Web site update requests from other staff members and provide uniform direction to Web vendors. • Gather and analyze Web marketing performance reports, including keyword rankings, traffic trends, and lead capture counts; and convey these statistics to the practice leader. Your designated Web site manager does not necessarily need to understand the technical details of how particular updates or changes will take place, but does need to understand how to communicate with your Web marketing vendor effectively.

Web customer service Professional and timely communication with patients is very important. A prospective patient may spend months researching their procedure online, visiting your site on several occasions during that period. But the moment

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they decide to reach out and email your office or request a consultation, you can bet that they expect prompt and courteous attention. Numerous studies of online customer expectations all conclude the same thing: the faster you address the inquiring person’s concern, the more you are likely to sell that person a product or service. How fast? We are talking minutes, not hours or days. If you already have a site and are like most practices today, you respond to your email as time allows … and something more pressing always seems to get in the way. Do not blame email as a medium and do not be surprised if you do not earn consultations from email inquiries when you write back days or weeks after the email arrives. In addition to designating a member of your team to take the lead in servicing your online inquiries, you should define office policies about how email is handled. Specifically, that policy should: • Encourage your team to get off email as soon as possible and get on the phone. • Set the expectation that email inquiries are as important as phone calls and require the fastest and most complete response possible. Keep your email program open and set to automatically check email at least every 5 minutes. • Mandate professional language and presentation. Direct your staff to include a salutation, complete sentences, proper spelling and grammar, and complete practice contact information in every message. • Establish guidelines for the types of questions that may and may not be addressed in email. • Guide staff to use time-saving tools, like signature files, templates, and autoresponders, to accelerate email handling. • Inform staff that all email is stored to protect the practice and the patient. HIPAA-covered practices should consult their HIPAA officer or advisor on mandatory HIPAA disclosures and privacy statements as well as legal requirements for the storage of electronic communications. How do you measure the success of your Web customer service agents? Practices using management software should consider entering all Web inquiries into their software and saving detailed notes about the referral source and ultimate outcome of every inquiry. It is easy for someone to appear successful if they promptly delete all of the inquiries that do not immediately come in for consultation. You can also review their sent and deleted email folders to gauge the quality and timeliness of their replies. Running your Web

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site as if it were a separate business will help you grow your actual business (your practice).

Engage in Diversified Online Promotion You should be familiar with the notion of diversification in offline advertising. Radio advertisements can increase awareness of a new procedure or your name and your practice, while advertising in the Yellow Pages can, you hope, help a prospective patient find you when hunting for a surgeon. There are just as many (if not more) ways to connect with potential patients online. Diversifying your online advertising will help you reach different types of patients at different points in their path toward a procedure. Before you consider diversifying your online promotion, make sure that you have taken the time to develop an attractive, well-written, informative Web site that reflects the image of your practice and invites visitors to become patients. There is little reason to invest in driving more potential patients to a site that is ill equipped to provide them with the resources they need once they arrive. Here is more information on several of the most popular online marketing tactics to help steer visitors to your site.

Email marketing Anyone with an email address has experienced the good, and the bad, of email marketing. Email marketing is a fast, interactive, and inexpensive way to push information to, and gather feedback from, men and women familiar with your practice. However, several federal laws restrict how you can build your list of email recipients and govern what content can appear in your messages. Software designed to limit the unwanted email we all receive makes getting your message delivered a challenge. While email can be an extremely cost-effective promotional tool, running a legal and profitable campaign does require some expertise.

Local marketing The World Wide Web is going local. More and more people are recycling their phone books in favor of finding local resources online. It is no wonder this trend is taking off, with choices like map search at the most popular search

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engines, city guide sites, or sites that specialize in gathering consumer reviews of local businesses. Jumping on local online marketing is a good idea for all the same reasons that practices once relied on the Yellow Pages. By now your local market probably has several different phone books all soliciting you for a listing, but there are dozens of local marketing opportunities online, so be ready to spend even more time carefully assessing which ones will work best for you.

Directory advertising Several cosmetic surgery Web sites allow practices to pay to appear in their regional directories. These directory sites offer information about procedures and industry news to attract visitors, who may then choose to learn more about practices featured in their directory. A directory is a nice way to supplement your own search engine marketing and attract more qualified visitors back to your own site, but it is not a substitute or replacement for your own site. Many directory sites employ aggressive sales tactics and use fear to motivate doctors to subscribe. While any marketing investment comes with risk, you can objectively evaluate certain details to inform your decision. Before you invest with a directory site, learn where they get their visitors and how many potential patients already visit their site from your local market. Explore any limits they place on the number of practices they will feature in your market and how you will be able to measure their performance when the question of renewing the investment arises.

Pay per click Many of the most popular search engines allow you to place targeted advertisements on their sites and pay only when your advertisement is clicked. Each site uses a different methodology to determine how high your advertisement will appear on the page and how much you will pay for a click. All of these sites allow you to carefully target your advertisements so that they will only be seen by people who are looking for your services in your market. It is also easy to set daily and monthly budgets so that you are not bankrupted by click costs. Creating a pay-per-click (PPC) campaign is easy enough for most novice computer users to tackle in a weekend. But getting the largest number of clicks for the lowest price takes a lot of learning and constant campaign refinement. Click fraud, which occurs when a person or a piece of software clicks advertisements to generate the per-click charge without an interest in the advertising content, is an increasing risk that requires active monitoring.

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Many surgeons fall prey to “ego bidding”, or constantly bidding to the top position, regardless of the cost or investment return. PPC, like all online advertising efforts, should be run with profit as a central objective.

Blogs Short for “Web log”, a blog is little more than a virtual diary or online column. Each blog entry, called a “post”, can be categorized, labeled, shared, and commented upon. Special software, free from sites like wordpress.org or www.blogger.com, makes it easy for just about anyone to create a blog in minutes. While starting a blog is fast and easy, successful blogging takes a commitment of time and a penchant for writing. Before starting a blog, it is wise to decide whether your blog will be integrated into your Web site or if it will reside at a separate address. You will also need to define the focus of your blog, set a goal for how frequently you will post entries, and develop a promotional strategy to attract readers. Blogs can benefit your practice in several ways, but there are also some risks. You might employ a blog to publish news from your practice and the industry, offer advice to patients, or share your opinions. If your blog is optimized, its individual posts could earn search engine rankings and draw attention to your practice. In addition, links from your blog pages to your main site may help improve the ranking of your site. The quality or substance of your posts may earn the attention or respect of potential patients. But your posts are just as likely to earn criticism or humorous comments, so think carefully before you elect to allow public commentary on your blog (a setting in the blog software). If you find you lack the time to maintain your own blog, you can still participate in the “blogosphere” by actively commenting on posts related to your interests or your practice found on other people’s blogs.

Social media Social media continues to receive an increasing amount of attention. As of the date of this publication, popular social media sites include Facebook and Twitter, as well as video sites like YouTube and social forums like RealSelf. Social media marketing involves developing an online following and then actively communicating with this audience through platforms that make it easy to start a conversation, share information and post multimedia.

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While a solid business case for heavy investment in social media has yet to be made in the plastic surgery context, it is almost certain that social media marketing will play an instrumental role in the success of plastic surgery practices in the near future. Surgeons must be smart about how they approach social media, especially since it is still in its relative infancy. For instance, social media accounts are generally free to create, but a practice can incur a fair amount of expenses and devote a significant amount of time related to configuring the account, cultivating a following of “fans”, writing original and engaging posts, and responding to both positive and negative comments received. Another word of caution: Maintaining a consistent message and communicating quickly (as social media participants expect) requires diligence and active involvement online. Practices that hope to have success in social media with only a half-hearted attempt are finding that inconsistent responses or poorlycrafted messaging often disappoints the expectations of participants. These participants are not looking to be “marketed to”, but instead want to build more sincere and personal connections online. One of the first things you should do if you are considering entering the social media space is to claim your practice name in the most popular platforms, such as Facebook and Twitter. While it is best to have an active presence on these platforms, having no presence at all could cause your practice to fall “off the map” in the minds of potential patients using these sites. Take the time to make your own assessment of the value social media marketing can provide you, but be sure to properly account for all of the benefits, including building goodwill with patients and cultivating long-term relationships, which on many levels are highly intangible yet play a critical role in the success of your practice.

Demand results, track everything, and stay involved One of the fantastic advantages of online marketing is that nearly everything can be tracked. You can easily report on search engine rankings, the number of visitors coming through your site, and the number of inquiries flowing through your email and online forms. Trackable phone numbers can be added to count calls originating from the Web, and special software can automatically reveal the referral source for virtually every lead and track their progress through your site. Although these services are available to every practice, few practices will choose to embrace the full potential of online marketing (or take the time to carefully hire a skilled and proven Web vendor). But there is no reason to

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be uncertain about the return on your Web marketing dollars. While it will take a full nine months for most new Web sites to earn top rankings, if after a year you do not hold a significant ranking in your local market, something is wrong. It is true that no one can just drop your site in the first position on Google for a particular search phrase, but your Web marketing should be the single largest marketing source of new patient inquiries (excluding word of mouth) within 12 months. It is important that you or your designated Web site manager stay involved. Ask for regular updates on your rankings and your site performance metrics. Respond quickly when problems are uncovered and look for opportunities to expand your reach online when times are good.

Putting It All Together Modern surgical practices do not have the luxury of deciding whether or not to get on the Web. That ship has sailed, and the reality is that your only choice now is how you are going to represent your practice online. This chapter has provided the nuts and bolts of constructing a Web site from scratch and implementing the tactics that will help that site get noticed. As should be abundantly clear, online marketing is fraught with a number of potential pitfalls, but at the same time it represents an enormous opportunity to connect with new patients and grow your practice. When done right, online marketing is an asset you can bank on. Spend time finding a vendorpartner you can trust to do a great job for you while your site is being built and also “after the sale”, as your ongoing promotion brings in a healthy stream of Web-based leads. Most of all, remember that you cannot “set it and forget it” if you want your Web site to be a true success. Stay involved in your practice’s online marketing efforts, and track the return on your online marketing dollars. There is plenty of time and plenty of opportunities to get up to speed on Web marketing. Take advantage now to put your practice in the best possible position for the ever-expanding number of patients doing their research online.

Reference 1. http://pewresearch.org/pubs/265/seeking-health-online/.

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Optimizing Your Practice Marie B. V. Olesen

A competitive world has two possibilities. You can lose. Or, if you want to win, you can change. Lester C. Thurow

In this chapter, you will learn about: • • • • •

Using business techniques to better manage your practice; Understanding the similarities between medicine and business; Segmenting your patient relationships to improve practice performance; Using metrics and best practices to improve revenue outcomes; and Optimizing your revenue using key performance concepts.

L

ike many surgeons, you may operate the business side of your practice with the belief that what you do not know cannot hurt you. Unfortunately, nothing is further from the truth. While business issues and revenue management may not be comfortable for you, avoiding business issues is not in your long-term interest either. You have been through college, medical school, two residencies, and perhaps a fellowship or two. The problem, if there is one, lies in the curriculum of your surgical training. Your professors taught you what they knew: how to be a surgeon. They could not prepare you to run a multi-million dollar business. Unfortunately, these missing entrepreneurial skills can have a significant impact on your financial security. If you are in private practice, you must be able to produce revenue and manage your practice to drive the bottom line. This is true in group or multi-specialty settings as well. The better you understand the revenue side of your practice, the more you can influence your personal income.

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Looking at the Similarities Between Medicine and Business There is a prevailing myth that doctors are not good at business. I do not agree. Based on my direct experience with hundreds of plastic surgeons, you can flourish in business as well as in medicine. Your profession is both processoriented and data-based. By learning how to use the business equivalents of these two principles, you can more effectively control your business outcomes and create a more predictable and safe future. • Process-oriented — When you go to the operating room (OR), you operate using proven surgical processes that are known to create predictable clinical outcomes. Sometimes, small changes in operative techniques can significantly improve surgical results. A corresponding process-oriented approach works just as well on the business side of your practice. Using proven business processes for patient care and customer relationship management creates more predictable revenue. • Data-based — You use normative data and medical algorithms to make decisions about your patients. For example, you compare your patients’ laboratory results against known norms to determine if a patient is healthy enough for surgery. The process in business is similar. To manage your practice more effectively, you need to understand how to use the business equivalents: metrics and benchmarking.

Getting from Here to There Virtually all advances in surgery occur because someone has figured out how to do something differently for a better or quicker result. Improvements in surgery frequently arise from questioning current techniques or adopting new technologies. The flow diagram in Fig. 1 depicts that decision process. To improve a surgical procedure or a business process, every step in the process must be isolated and synthesized into the series of “yes/no” decisions involved. Every time you come to a decision point, there are only so many options, and the options change as you move from decision point to decision point. When my husband took his first residency at Columbia Presbyterian Medical Center in the early 1960s, he told me that cautery was not safe to use

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Fig. 1.

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Decisions in medicine.

because so many of the anesthetic gases were explosive. Once non-explosive gases became available, the use of cautery became widely accepted and operating times dropped significantly. Clearly, there are business equivalents to this example. Someone notices that a clinical or business outcome is not ideal and starts thinking about it. In our own field, the business skills and the business processes needed for reconstructive or general medicine are different than those needed in an elective or cosmetic environment. New approaches are developed and adopted over time. To determine whether a proposed change works, it is subjected to an evaluation process containing the following sequential steps: • Test — Set a specific period for evaluating new concepts (typically two to four months or longer, depending on the strategy being evaluated). • Track — Measure results of your changes. Are your practice metrics improving as you anticipated? • Refine — Do you have any other ideas to test as a result of the changes you have made? If so, test and track those as well. • Repeat — Once you are consistently achieving your goal, then you continue until your data show a reason to re-evaluate. You can document decisions using a flow chart. Generally, a series of “yes/no” questions leads to a conclusion. The medical flow chart (Fig. 1) can be used to evaluate core business changes as well, as shown in Fig. 2. • Do you have the same degree of control over the business side of your practice as the surgical portion?

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Fig. 2.

Simple business decision flow chart.

• If your answer is “yes”, then you are satisfied and can stay your current course. • If your answer is “no”, then implement new business processes to achieve your goals. Continue using the Test-Track-Refine-Repeat approach to determine the effectiveness of new concepts. The two flow charts (Figs. 1 and 2) are very simple. An actual surgical or business process flow chart is much more complex, involving many more decisions and possible outcomes. When you perform surgery or when I work on business issues, we make decisions constantly. Often, neither the surgeon nor the manager can articulate each decision point because many are at the intuitive level. • For example, if you are dissecting and encounter a bleeder, you make the decision to stop and control the bleeder before continuing. You do not cancel the operation because encountering bleeders is a known problem with known solutions. Instead, you fix the problem that is impeding the successful outcome of the procedure. • Likewise, on the business side, if I am trying to get the maximum number of callers to arrive at their consults, I do not stop my entire patient acquisition process because we are encountering no-shows. I try to fix the root causes of the no-show problem with known business solutions. Then, I can more predictably increase the number of callers coming in for their consult and ultimately increase surgical volumes.

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Thinking “Retail” to Better Meet Patient Needs In a speech given to the American Society of Plastic Surgeons (ASPS) in the mid-1990s, I quoted statistics about Nordstrom’s outstanding success. In an industry where the average revenue per square foot was US$1.50, Nordstrom earned US$3.90! Nordstrom outperformed its competitors by almost 3:1! Nordstrom transformed the fashion retail industry with three key changes, all of which are applicable to plastic surgery: • Facility — It upgraded its stores and made shopping a more upscale experience. • Staff — It introduced the first commission structure in the industry and transformed its employees into entrepreneurial partners. • Customer relationship — It took the long view and focused on long-term customer relationships versus short-term sales. It empowered its employees to implement this strategy, especially as it related to returns, and thus created an industry-transforming customer experience and made shopping more enjoyable. Some innovative plastic surgical practices implemented savvy business strategies in the early 1990s as well. They recognized that their patient experience was also a customer experience. They redefined their approach and implemented the following changes: • Facility — They upgraded their offices to a more residential appearance. • Staff — They recognized the importance of a motivated team. • Patient relationship — They introduced programs to recognize patient retention and stimulate referrals. By understanding their patients/customers better than did their colleagues, these practices enjoyed substantial revenue growth. Like Nordstrom, they reset the competitive bar.

Getting the Data You Need to Make Things Better We need to talk about patients as “customers”, surgery scheduling as a “buying” decision, and our communications to prospective patients as a

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“selling” process. When you understand your patients’ buying process, you can use that knowledge to create a more successful selling process. The case study example in the box below illustrates the importance of segmenting the customer relationship and collecting data to make decisions. Dr. X is unhappy with his cosmetic surgical volume. His earnings are well below his peers’ and he wants to be busier, but he does not know how. Dr. X has the following data available: • Number of consults seen; and • Number of cases completed. Using this information, he has computed the percentage of consults that completed surgery. Unfortunately, this is not enough information to suggest a solution. • If the percentage of patients who completed surgery is a high percentage of patients seen in consult, he might assume that his low surgical volume is not the result of handling consults poorly. • Conversely, if the percentage of consult patients completing surgery is low, he does not know what to do about it. As you can see, even knowing the percentage of consult patients completing surgery is not enough information to effect change. Neither answer deals with his core issue: he wants to do more surgery. Because he does not know the issues creating the undesirable result, he cannot intervene to change the outcome. He has some data, but not all the data necessary to effect change. A lack of data is a common problem in our practices. We make decisions based on wrong or incomplete data, which lead us to the wrong suppositions or conclusions.

Segmenting Customer Relationships If you are like Dr. X, and you want to improve the performance and revenue of your practice, you need to understand the underlying customer relationship process. This field of business is known as customer relationship management (CRM). It involves tracking the series of decisions customers make as they interact with a business, and it ensures that the business has appropriate followup contact with its customers.

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Your potential patients move through a series of “yes/no” decisions as they consider your practice. We must recognize these decision points and track data relating to them.

Understanding the customer relationship life cycle The segments of customer relationships are plotted using a life cycle approach. Prospective buyers (be they patients or retail customers) move through a series of decision points, which fall into pre-purchase, purchase, and post-purchase categories. Figure 3 shows the customer relationship life cycle (CRL). In Fig. 4, the stages in a medical practice are labeled to delineate a patient relationship life cycle (PRL). Both Figs. 3 and 4 track consumer movement through a sequential series of stages, starting with the process of buying and ultimately moving to the process of retention. The patient’s movement along the life cycle indicates a higher level of commitment and interest. Metrics measure movement between stages, and benchmarks help you evaluate business performance at each step.

Fig. 3.

Customer relationship life cycle.

Source: Touchpoint Metrics.

Fig. 4.

Patient relationship life cycle. Adapted from Touchpoint Metrics.

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You may find yourself asking, “Why does all this matter?” The case study below should answer this question. Dr. Y had a very successful augmentation-based practice, but he recognized that his practice was not optimizing its opportunities. He felt, given his new patient activity, that his surgical volume should be higher, but he lacked the data to validate his instincts and to diagnose his practice performance. 1. We implemented a system that enabled the practice to gather data at each point in the patient decision process. 2. Evaluating the new data, we searched for opportunities for improvement. 3. Analyzing the data by stages, we found: • Inquiry had no problem, as virtually all callers made an appointment. • Appointment had significant issues: 40 percent of patients making an appointment failed to arrive at the consult, either by calling to cancel or by failing to appear for the consult. • Consultation showed high conversion rates of consult patients, but not enough patients were being seen to keep his schedule full. • Surgery Scheduled had no problem, as the only cancellations were medically necessary. 4. Implementation — we worked with the practice to increase the number of patients arriving for their consults as a primary goal and, secondarily, to increase scheduling rates by those who did arrive. • We implemented telephone training to enhance call quality. • We improved the quality of materials sent to prospective patients. • We updated the traditional patient-day schedule to reflect the surgeon’s goals and to better meet patient scheduling needs. • We provided training to the consult team to enhance scheduling rates. This example shows how changes in business processes and staff training can make a big difference. By increasing the number of patients who move forward along the PRL, we can stimulate significant changes in revenue. In this example, Dr. Y was performing surgery on 30 percent of the callers who inquired about his practice. By making these changes, he increased the number of patients he was operating on to 40 percent. His practice’s revenue increased by 33 percent!

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Customer needs change as they progress Clearly, with this much at stake, you benefit from understanding patient relationship theory and implementing it in your practice. This means developing a strategy to meet patient needs at each decision point. Listen to the questions patients are asking and be sure you have the answers they are looking for. The better you understand their needs at each step, the better you can meet them. To complicate matters, your potential customers or patients cannot always articulate their needs. What questions do your prospective patients ask as they engage with your practice and move from stage to stage? Each question represents a decision point that is critical to them and to you! Unless prospective patients receive the information or support they need at their current stage, they stop and do not progress to the next step. They exit your practice, and discontinue their search completely or go to other practices looking for the answers to their questions that your practice failed to provide. Clearly, the more patients who exit your practice, the fewer who remain to reach your surgical schedule. Even worse, you turn out dissatisfied patients who are less likely to remain in your practice or to refer to you. Your revenue and bottom line reflect this negative outcome. In some cases, practices know when they do not meet the needs of their patients. Typically, in medicine, however, many practices blame the patient rather than search for root causes in their own practice strategy or performance. Some of the common complaints about patients exiting a failed care and communication process are: • • • •

“Patients who are no-show weren’t going to buy.” “Patients who need to ask the price aren’t having surgery.” “She was just shopping.” “He wasn’t really serious anyway.”

Learning to listen by tracking decision points As patients progress along the PRL, we can posit some of the questions patients are asking. Their subsequent behavior is your answer about how successfully your practice meets their needs. Once you understand your patients’ questions and their responses, you can use that information to develop a care and communication system to help them progress along the PRL. The following are some, but not all, of the questions your patients are asking. As you reflect on these questions, ask yourself whether your practice

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has a strategy that answers these and other questions. This exercise gives you the opportunity to improve your patient interface, your revenue, and your bottom line. • Inquiry (Telephone, Internet): “Will my initial encounter with your practice confirm my confidence in the quality of this practice?” ◦ If “Yes”, they make an appointment and move one step forward in their relationship with your practice. ◦ If “No”, they exit at the Inquiry stage, and your practice loses the revenue opportunity their call represented. ◦ Information Only: One other possible outcome represents a “Maybe” choice. They do not make an appointment, but agree to receive additional information about your practice. In this case, all is not lost. They are giving you the opportunity to re-engage them, and, if you are successful, they make an appointment after one or more additional interactions. • Appointment: “Now that I have an appointment scheduled, will the practice’s follow-up validate my decision to consult with them?” ◦ If “Yes”, then they keep the appointment and your practice builds on the opportunity of building on this initial contact. ◦ If “No”, there are two options. In either case, you may have an empty consult slot and lose its potential to generate revenue. • No-Show: The most common negative outcome is the disappointing no-show. • Appointment Cancellation: Despite having made the appointment, the patient calls and cancels the appointment. ◦ If “Maybe”, an alternative outcome is that the patient cancels this appointment but still actively considers your practice. Your sales strategy (newsletters, seminar invitations, notice of specials, etc.) for maintaining contact with patients who are at the Appointment stage offers a potential means to re-engage these patients. • Consultation: “Was my consult experience with the doctor and staff so positive that I am going to stop considering all other possible providers? “Do I know them, like them, and trust them to care for me during this important life choice?” ◦ If “Yes”, they schedule surgery and deepen their relationship with your practice.

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◦ If “No”, they exit the practice and either do not go forward with surgery or, more likely, schedule with another practice which better meets their needs. ◦ If “Maybe”, they do not commit initially, but may do so after followup over time. Your sales strategy for maintaining contact with patients after consultation is another clear differentiator. Practices with a defined follow-up system continue to schedule surgery over time and outperform their peers. • Surgery Scheduled: “Having scheduled surgery, does the subsequent active interest and proactive care by the doctor and staff validate my decision?” ◦ If “Yes”, they complete surgery as planned. Your practice earns the opportunity to move them into a deeper long-term relationship, represented by the next few stages. ◦ If “No”, they cancel surgery. The present revenue derived from their surgery along with future revenue and potential referrals are all lost to your practice. ◦ If “Maybe”, they cancel surgery for reasons such as medical clearance, family issues, or financing issues. If your practice has an appropriate follow-up process, you can re-engage them and recapture the revenue at a later point. • Surgery Completed: “My surgery is complete. Am I satisfied with my surgical result and my total patient experience?” ◦ If “Yes”, they progress to a higher level of commitment and relationship. ◦ If “No”, they exit your practice and tell many more people about their negative experience than any happy patient ever does. ◦ If “Not Yet”, then they are telling you “Maybe” when they let you know that they are not satisfied with their surgical or treatment outcome. They give you the opportunity, perhaps with a revision, to restore their confidence and re-engage them for a long-term relationship. • Retention: “Do I want to remain with this practice for future care?” ◦ If “Yes”, they remain in your practice and give you the opportunity to further communicate with them and prompt their interest in additional services. ◦ If “No”, you earned the revenue of their current surgery, which is good, but you have lost the often more valuable future services and referrals.

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• Referral: “Am I so happy with my outcome, both in my care and experience, that I want to become an advocate and share my experience with my friends and family?” ◦ If “Yes”, they refer their friends and family to your practice. They may also agree to share their pictures, serve as a reference for potential patients, and participate in your marketing or on your website. ◦ If “No”, they may prefer privacy about their own surgery, but choose to have future services themselves, which may prompt referrals later. Clearly, from all this potential for interaction and revenue, you must make sure that your practice has a plan to respond appropriately to these questions and others. First, define a process to meet patient needs; then, document all steps, develop patient materials, train your team, and implement your plan. Use the Test-Track-Refine-Repeat process to optimize performance.

Using Metrics to Manage Your Practice Too often surgeons make uninformed decisions about patient behavior or practice performance and wonder why their solutions do not produce the desired results. Multi-million dollar practices cannot be run on gut instincts. We need a data-based approach to diagnose business processes and determine their success. How do you know if your theories about what your patients want and need are correct? Metrics and benchmarks can help you make your strategy or identify where change is needed. Metrics enable you to take and evaluate data objectively to improve business outcomes. You spend less time managing and can have more impact on revenue and the bottom line. Tracking business performance metrics is a well-known business practice in the manufacturing sector. Today’s IT systems can bombard us with data, but the data must be relevant to improving business outcomes and profitability. We are not gathering data from a surgical practice as an end in itself, but as a means to create improvement. There is no point in extensive measurement or reporting unless we can use the information to achieve key objectives. It is sometimes difficult to know the correct metrics to measure and then to gather appropriate data during complex business processes, but the benefits of doing this are clear. • Strategy — Data provide a framework for evaluating your business strategy. Benchmarking your practice against known norms helps you take advantage

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of the best business practices. You can then adjust your strategy to take advantage of proven solutions. • Responsiveness — Your financial statement cannot tell you what is happening in the marketplace until it is too late to do anything about it. By proactively monitoring metrics, you can spot changes in patient behavior or practice performance more quickly and improve your response to threats and opportunities. • Prioritization — When you know which metrics really drive your practice’s success, you can stop monitoring less relevant information and focus on the metrics and benchmarks that will help you determine what is working and what is not. Then, you can use the information to prioritize and work on what is most important — driving revenue to the bottom line. By monitoring a few key business metrics, you can assess what is happening in your practice and take positive action to improve business outcomes. “If you can’t measure it, you can’t manage it” is the mantra of all performance measurement. This entails scientific, data-based approach, and you should find that it is a comfortable fit. I like the variation, “If you can’t measure it, you can’t improve it.”

Applying metrics to patient relationships (and revenue) Figure 5 offers another view of the potential decision points from initial Inquiry to Surgery Completed. All the “yes/no” decisions are shown with the potential impact. This flow chart shows how many opportunities exist for a patient to exit your practice, i.e., “Plan Cancelled”. Avoiding this negative outcome is why we need to work so hard to meet patient needs at each step in their decision processes. Each of the decision points shown on the flow chart in Fig. 5 has at least one associated metric indicating the ratio of patients who move forward from that decision point to the next. It is important that you understand the language related to the metrics that we use to evaluate our practice. We use two dominant terms to measure the movement of patients along the life cycle: conversion rates and capture rates. • Conversion rate measures the ratio of customers who convert from a lower stage of the customer relationship to the next higher one. For example, when a patient who has made an appointment arrives for her consult, she has converted from the lower Appointment stage to the higher Consult stage.

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Fig. 5.

Progression of stages in a cosmetic surgery.

• Capture rate measures the ratio of multiple-stage conversions. Consult capture rate, net scheduling rate, and practice capture rate track multi-stage decisions. ◦ Consult capture rate (CCR) reflects the number of inquiries who arrive for a consultation. It includes the Inquiry-to-Appointment and Appointment-to-Consultation conversions. The resulting CCR counts only the inquiries that advanced to consultation. The CCR excludes all patients who did not make an appointment, canceled their appointment, or were no-shows for a scheduled consultation. ◦ Net scheduling rate (NSR) measures the number of consultations for which surgery was completed. It includes the Consultation-toSurgery Scheduled conversion rate and the Surgery Scheduled-toSurgery Completed conversion rate. The NSR excludes all patients who did not schedule surgery, and deducts the conversion rate of those who scheduled surgery and subsequently canceled. The NSR is the ratio of cases completed to consults. ◦ Practice capture rate measures the multiple stages from Inquiry through Surgery Completed. It excludes patients who did not make an appointment, keep the appointment, schedule surgery, or complete surgery.

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Note: To take advantage of the data and business performance information inherent in these metrics, your practice software must be capable of tracking the decisions on the life cycle.

Using best practice data to evaluate your practice In order to understand metrics, it is helpful to review the history of the development of the Inform&Enhance® (I&E) software that I created for the plastic surgery industry in the early 1990s. In trying to understand the behavior of the cosmetic patient, we: • Determined decision points to be measured (i.e., stage to stage on the PRL); • Measured the decisions using a broad array of procedural, process, and demographic information; • Developed performance metrics by computing the ratios of patients exiting the process at various stages and/or moving forward in our practice; • Tested targeted solutions to change our practice’s results based on our current performance; • Evaluated our solutions based on changes in our own internal metric against our goals; and • Continued to refine in order to achieve the best results possible. What we could not do, however, was compare our results to a best practice standard, which was unknown at that time. We gained the information we needed after working with hundreds of plastic surgery practices and measuring performance in practices of all sizes, in all areas of the country, and in all phases of career development. After tracking multiple levels of practice performance, we arrived at a best practice performance along with a standard practice performance, which is the value that occurs most frequently in our measurements of practice performance. Table 1 shows the resulting best practice standards for the various decision points, as well as the standard practice performance, in terms of conversion and capture rates. What conclusions are possible with the combination of metrics and best practice and standard practice performance? • Given the same opportunity, the best practice operates on 50 percent of inquiries (ratio of 1:2). Presuming an average case revenue of $6000, best practices collect $300K per 100 inquiries. • The standard practice functions at a lower level at every key decision point. As a result, the standard practice operates on 18 percent of inquiries

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The Business of Plastic Surgery Table 1.

Initial Stage

Cosmetic surgery metrics and best practices.

Next Stage

Best Practice

Standard Practice

Conversion Conversion Conversion

95% 85% 65%

75% 65% 45%

Conversion

4%

20%

Conversion

96%

80%

Type Conversion Rates

Inquiry Appointment Consultation Surgery Scheduled Surgery Scheduled

Appointment Consultation Surgery Scheduled Surgery Canceled Surgery Completed

Inquiry

Consultation

Consultation

Surgery Completed Surgery Completed

Inquiry

Capture Rates Consult Capture Rate

81%

49%

Net Scheduling Rate

62%

36%

Practice Capture Rate

50%

18%

(1:6) and collects $108K per 100 inquiries. This represents a decline of 74% in completed surgical cases as against the best practice. These outcomes demonstrate the remarkable differences in revenue when compared to effort and expense. The data also point the way to practice growth for standard practices. By improving conversion and capture rates at key decision points, it is possible for standard practices to improve revenue and performance significantly. Looking at it another way: • If the best practice wants to schedule 50 cases and earn revenue of $300K, it needs 100 inquiries. • The standard practice needs 278 inquiries to generate the same 50 cases and the same $300K of revenue. The standard practice needs almost three times as many inquiries to achieve the same revenue. Standard practices are working much harder and spending significantly more money to attract patients — most of whom will exit the practice life cycle without scheduling. In the standard practice, the majority of patients exit the PRL. A much smaller number of patients enter the life cycle and remain for surgery or treatment. To increase the number of cases, practices presume the problem is

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that not enough people are entering the life cycle. Instead, practices should be evaluating why people are leaving and use that information to fix the problems that cause the mass exodus. You can understand why most practices, lacking the metrics to diagnose the cause of their low surgical volumes, conclude that they have a marketing problem. After all, they need 278 inquiries to schedule 50 cases.

Analyzing your practice with deeper levels of data Think of tracking the decision points as “Level 1”. Level 1 metrics enable you to pinpoint problem areas in your practice’s performance. To move to the solution phase, however, you need Level 2 data as well, reflecting the tracking of other factors at decision points. These other factors provide more data for further evaluation within your own practice or in benchmarking against other practices. • Stage: What is the decision point being analyzed? • Procedure: What procedure is involved? • Time Frames: What time frames are involved? When did the patient enter the lower stage and when did they move to the next higher stage? Or, when did they exit the process? • Referral Source: What is the patient’s referral source? • Demographic Data: What demographic data are you collecting that might be of potential use in trying to understand patient behavior? • Staff: What are the names and roles of key staff members interacting with the patient? • Physician: Which doctor is involved?

Dealing with a problematic stage issue — no-shows Suppose that, by comparing data from your practice and best practice metrics, you determine that your no-show rate is too high. Your rate is 25 percent, while the best practice rate is 15 percent. While a 10-percent difference may not sound like a lot, your rate is actually 67 percent higher than the ideal! If you schedule consults at 50 percent, then every no-show is costing you half of one case. If your average case is $6K, then each no-show deprives you of $3,000 of revenue. If you have 10 no-shows in a particular month, you lose five cases and $30K of revenue. Therefore, these issues are significant and merit attention to details. Knowing that your no-show rate needs intervention does not help you find

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solutions. You need additional information. If you run your data, you may find one or more problems. The examples that follow could apply to one procedure, or aspects of these examples could apply to multiple procedures. • Stage: Appointment. • Procedure: Breast augmentation. • Time Frames: Significant increase in the no-show rate if patient waits more than two weeks for an appointment. • Referral Source: Internet (in the old days, it would have been the Yellow Pages). • Demographic Data: The highest rate of no-show is the twenty-somethings. • Staff: Your new receptionist has a higher no-show rate than anyone else taking calls. • Physician: Your younger, less well-known doctor has a higher no-show rate. With two levels of analysis, you can now move to the solutions phase. First, in contrast to many in the industry, I do not think high no-show rates are the fault of the patient. In my view, this just passes the practice’s problem onto the potential patient. If patients do not arrive at our practice, I presume there is something I can do to change my business processes and attract the patient to our practice. I do not punish potential patients for practice issues that have known solutions. Continuing with the data analysis above, let’s look at how we could change the patient interface as a result of what we have learned. • Stage: Appointment. • Procedure: Breast augmentation. • Time Frames: Significant increase in the no-show rate when patients wait more than two weeks for appointments. • Solution: Lower the no-show rate by making sure that all breast augmentation patients are seen within two weeks. • Referral Source: Internet inquiries have a higher no-show rate. • Solution: Develop special protocols for Internet inquiries. Make sure your practice deals with these patients in the here and now. • Demographic Data: The highest rate of no-show is the twenty-somethings. • Solution: Get patients’ birth dates and change your appointment confirmation protocols by age. • Staff: Your new receptionist has a higher no-show rate than anyone else taking calls.

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• Solution: Remove her from your new patient call rotation and transfer callers to staff with lower no-show rates. Also, provide additional training so that she can be part of the call rotation. • Physician: Your younger, less well-known doctor has a higher no-show rate. • Solution: Improve the talk track on the initial call and the materials sent subsequently to confirm the appointment. Make sure your staff and materials do a better job of “selling” the new doctor.

Taking advantage of a positive stage issue — surgery scheduling In this example, we can use a positive benefit of Level 2 data to grow practice revenue. By comparing data from your practice and best practice metrics, you determine that your combined surgery scheduling rate is 10 percent below best practice. Your practice’s blended rate is 55 percent, rather than the best practice standard of 65 percent. Examining Level 2 data, you find elements of your practice that are already performing at best practice. Again, a seemingly small difference translates to big revenue impact. If you can find ways to raise your practice-wide conversion rate by 10 percent, then your surgical revenue increases by 18 percent. Presuming that you see 50 consults a month, and you have a $6000 average case, then an 18percent increase adds five cases per month; over a year, those five cases per month add up to $360K! These numbers are significant enough to merit your attention. Any Level 2 data showing some conversions at or above 65 percent can be used to grow practice revenue. The examples that follow could apply to one procedure, or aspects of these examples could apply to multiple procedures. • Stage: Consultation. • Procedure: Breast augmentation converts at 65 percent. • Time Frames: The average time frame for conversions reaching 65 percent is 60 days after consult. • Referral Source: Physician referrals convert at 65 percent. • Demographic Data: You find a range of zip codes that convert at above 55 percent. • Staff: Your coordinator has had a tummy tuck, which she converts at 65 percent. • Physician: One of your two doctors converts liposuction at 65 percent while the other converts at 45 percent.

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Continuing with the data analysis approach above, let’s look at how we could change the patient interface as a result of what we have learned from Level 2 data. • Stage: Consultation. • Procedure: Breast augmentation converts at 65 percent. • Solution: Increase the breast augmentation portion of your practice. To achieve this goal, you might improve the augmentation section of your website and add additional photos to your site. You might start a blog and focus on breast augmentation. You could also increase marketing for augmentations by analyzing which referral sources produce breast augmentation buyers for your practice. • Time Frames: The average time frame for conversions reaching 65 percent is 60 days after consult. • Solution: Review your post-consult follow-up protocols and add additional follow-up steps so that your patients receive longer-term follow-up. Also, set up management controls to be sure that your coordinator is continuing to follow-up according to your prescribed protocols. This should help you reach your 65-percent conversion goal. • Referral Source: Some physician referrals convert at 65 percent. • Solution: Review your referral program and communication to referring doctors. Determine the conversion rate per referring doctor. Monitor the revenue per referring physician and be sure that the attention from your practice (and from you personally) recognizes the value of these referrals to your practice. For physicians referring patients who schedule at a 65-percent rate, you may need to develop a special program of recognition. You might institute a “Lunch and Learn” program for such referring practices to keep awareness high. You could ask for patient approval to include pre- and postoperative pictures in your follow-up letter to the referring physician. At the very least, be sure that your communication with these referring physicians is optimal. With each patient’s permission, be sure to write about the outcome after surgery and recovery. Continue to make sure referring physicians know that you appreciate their referrals and care for their patients optimally. • Demographic Data: Significant parts of your revenue come from key zip codes and these produce higher conversion rates for some procedures. • Solution: Use this information to target your marketing to these areas. Feature the “winning” procedures when communicating about your

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practice, and use the media that target these zip codes to reach out to residents in these zip codes. • Staff: Your coordinator has had a tummy tuck, which she converts at 65 percent. • Solution: Recognize and use this positive attribute. What can you do to improve your website information about tummy tucks? Try to transfer all incoming new patient calls about tummy tucks to your coordinator. Make sure your coordinator is available to talk with all patients interested in tummy tucks. She can speak about her experience and show her beforeand after-surgery photos. • Physician: One of your two doctors converts liposuction at 65 percent while the other converts at 45 percent. • Solution: How you handle this depends on the revenue structure of your practice, but here are some of the possible ways to take advantage of the difference in conversion rates. ◦ Agree that, when undecided callers are interested in liposuction, the doctor with the higher conversion rate will be suggested. (These referrals could be offset by other procedure referrals to the other doctor or, if the doctors are partners, their joint incentive should be to schedule procedures at the highest proven rate.) ◦ Try to analyze why one doctor converts at a higher rate and transfer those consult processes to the other doctor. The examples above demonstrate ways that your practice can benefit from taking an open-minded and data-based approach to improving revenue. Benchmarks can help you pinpoint areas of concern where the appropriate percentages of patients are not converting to the next stage. You can also use benchmarks to find opportunities where you can learn from the positive responses to your practice and redirect your efforts to attract similar patients. Seemingly small differences — shaving a 10-percent loss off no-shows or gaining 10 percent in the surgery scheduling rate — may seem small, but their cumulative effect represents hundreds of thousands of dollars of additional revenue to your practice each year.

Adding metrics-driven processes to your practice Over the years, I have watched hundreds of practices become stronger and better organizations by using metrics. Revenue grows more predictably. Everyone

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knows what is being measured and why. When you make decisions based on data, everything is easier and more rational. If this thought process and business approach appeals to you, then you might ask how to go about adding a metrics-driven process to your practice. Implementing metrics as a management approach follows the same path as most new initiatives. You follow a sequential process that enables you to capture the data points, enlist the support of your team, and then use the metrics to evaluate your current performance and improve future performance. • Define your goals. It amazes me how few practices set specific goals. Most practices do not have budgets for revenue as well as expenses. They lack daily or weekly sales objectives. They do not set expectations for conversion rate goals in patient encounters. The result is therefore very laissez-faire and far less effective. You cannot manage nearly as effectively without knowing where you want to go and how close you are to getting there. • Communicate to your team. Expect some staff resistance when you begin using metrics. Unless you explain your reasons carefully, they may feel threatened. Never use the metrics to punish, but to teach and to train. As they see positive changes occurring, you can expect more buy-in. Metrics provide far more protection than not. Your team should also find that they have more of a voice in the practice because data often confirm their view of what is happening with patients and why patients are exiting rather than moving forward. • Gather data and report routinely. You may need new software or new businesses processes to gather the data you need to manage revenue more proactively. If you cannot track the key metrics in your practice management software, then you may need to create manual systems or change software. The information is too vital to miss. • Determine how you are going to measure progress. Presumably, your main goal is to drive revenue. If you want more patients on your OR schedule, then use the conversion metrics outlined above to segment and analyze key patient interactions. • Compare your practice to others. Once you have actual data about your practice, then you can benchmark it vis-à-vis key metrics. Are you at best practice standards? Is this true for all of your metrics? Alternatively, does your performance on some metrics indicate the need for improvement? Data is your friend. When you know your practice’s strengths, you can take advantage of them. When you spot weaknesses, you can act to overcome

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them. You will find yourself creating your own future rather than evolving into a future that does not fulfill your goals. • Make data-based decisions. Metrics help you improve decision-making. You can focus on the changes that drive income and the bottom line. In your clinical practice, you use blood tests to determine if patients are healthy enough for surgery; if a patient’s blood count pinpoints a problem, then the deviation from normal ranges guides your intervention. It is the same on the business side of your practice. If a metric is “healthy”, then you can move on and treat the ones that do not fall within normal ranges. Think of it as triaging. Focus on the areas of performance that are most life-threatening, and then work your way back to less critical issues.

Focusing on What is Most Important My focus is on revenue production rather than cost containment. If you made a list of great entrepreneurs, you would not find a single one who “saved” his or her way to success. Certainly costs matter, and if you can effectively grow revenue and manage costs, you will achieve the best possible results. If you want to grow revenue, then you need to focus on what is important and what will have the greatest impact in the shortest amount of time. The Pareto principle (80-20 rule) is an extremely useful rule of thumb in business. It is used in a variety of ways, the most common being the observation that 80 percent of revenue comes from 20 percent of customers. For a number of years, I have applied the Pareto principle to the top six procedures that produce revenue in practices, i.e., 80 percent of revenue is produced by 20 percent of procedures. If you look at the top six revenue-producing procedures in your practice, you will probably find that this group represents approximately 80 percent of your practice revenue. Similarly, this observation has been borne out in hundreds of practices where the top six sources produce 80 percent of revenue. At a second level, it appears that your top three procedures should produce at least 50 percent of your revenue. Let me share some examples. Randomly, I gathered data for a dozen surgeons who practice all over the U.S. Their time in practice ranges from practicing a few years to many decades. The top six procedures vary from breast and body practices to facial surgery practices. As seen in Table 2, the average revenue produced by their top six procedures comprised 79 percent of the total revenue and the average revenue produced by the top three procedures was 60 percent of the total revenue.

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The Business of Plastic Surgery Table 2.

Data on top revenue-producing procedures in plastic surgery.

Surgeon

Region

1 2 3 4 5 6 7 8 9 10 11 12 Average

East East East East South South South South West West West West

Revenue Produced by Top 6 Procedures

Revenue Produced by Top 3 Procedures

70% 70% 79% 83% 83% 91% 81% 88% 71% 83% 70% 78% 79%

46% 47% 62% 67% 66% 77% 66% 69% 44% 63% 49% 60% 60%

If your top procedure or source generates 30 percent of revenue, then optimizing that procedure or source is going to improve or protect 30 percent of your revenue. Most of the surgeons shown in Table 2 can affect 60 percent of their surgical revenue by focusing on their top three procedures. The Pareto principle helps us focus on the customers, procedures, and sources that matter the most. If you want to make changes in your practice revenue quickly, then use the 80-20 rule to analyze and prioritize your practice. You need to be watching your top six procedures for changes in percentage of revenue, new patient activity, scheduling rates, etc. A decline in your top procedures will have a greater impact on your revenue than procedures that produce a lower percentage of your revenue, and such a decline endangers your practice. Similarly, if you want to grow revenue, then use a top-down approach. To have the quickest impact on your revenue, concentrate on your “winning” procedures. Start with the procedure that produces the most revenue. Ask yourself how you are making sure it remains strong. Is your website up to date? Are your before-and-after photos current? Do you have patient testimonials for your top procedures? Is your staff trained to turn emails or phone calls about your top procedures into consults and cases? Are you planning a seminar or marketing campaign? You know where your focus should be: on your winning procedures.

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Using Key Performance Indicators (KPIs) in Your Practice My expertise is on the revenue side of cosmetic practices, and I want to provide tools that can help you make better decisions about the revenue and management of your practice. While these principles apply most directly to the cosmetic component of your practice, they can also help you evaluate reconstructive and insurance revenue issues as well. Your practice can grow revenue if you can adapt the concept of key performance indicators (KPIs), defined in the glossary at the end of this chapter. For our purposes, presume that the goal of your practice is to increase revenue per surgical patient. One seemingly obvious approach would be to increase the number of multiple procedure cases. Depending on your practice mix, this may or may not be possible. Certain combinations can potentially be featured together: eyelid lifts with facelifts, tummy tucks with liposuction, or nosejobs with chinjobs. However, it is hard to have a strategy to add additional procedures to augmentations. To increase revenue per patient, you need to evaluate your top procedures using revenue per (surgical) hour or RPH as your approach. This method presumes a fixed professional fee rather than a variable time-related fee. To determine RPH, the professional fee is divided by your surgical time in the OR. The times associated with opening and closing the OR are not included. Using a basic example for any procedure: • • • •

Your professional fee, is $2000. A 1-hour case equals $2000 RPH. A 1.5-hour case equals $1333 RPH. A 2-hour case equals $1000 RPH.

We use RPH to evaluate various procedures. Table 3 includes actual RPH from a number of plastic surgeons around the U.S. Some are relatively young, others are mid-career, and still others are approaching retirement. Their practices run the gamut of procedures, but have a common thread: there is a measurable difference in RPH depending on whether they are operating at the income of their most profitable procedure or their least profitable procedure out of their top six procedures. The average difference is 31 percent, and ranges from 10 percent to 41 percent. Using the average, they need an extra hour in the OR for cases based on their number six RPH if they want to produce the same revenue that two hours of their highest RPH-generating procedure produces.

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The Business of Plastic Surgery Table 3. surgery.

RPH data for the top six revenue-producing procedures in plastic

Surgeon Highest RPH Lowest RPH Percent Difference Average RPH 1 2 3 4 5 6 7 8 9 10 11 12 Average

US$2575 US$3131 US$1388 US$2083 US$2023 US$2003 US$1860 US$2364 US$4189 US$3074 US$2718 US$2083

US$2103 US$2154 US$1091 US$1874 US$1305 US$1525 US$1105 US$1667 US$2763 US$1983 US$1817 US$1874

18% 31% 21% 10% 35% 24% 41% 29% 34% 35% 33% 10% 31%

US$2338 US$2308 US$1218 US$1954 US$1589 US$1831 US$1592 US$1920 US$2891 US$2286 US$2055 US$1954

Once you have this information, you can make changes in your business strategies or in your surgical approach. You can market to attract procedures with higher RPH. You can work on your surgical techniques to reduce OR times (and increase RPH) for procedures that produce high percentages of your revenue, but at lower RPH. This analysis can be combined with patient and source information to help you craft the practice that meets your goals.

Creating the Future You Want My goal in this chapter is to give you business concepts and information that can help you achieve your goals for your practice and yourself. The business outcomes you seek will not just happen; rather, they occur because a consistent series of events creates a predictable outcome, just like in surgery. The business management guru Tom Peters observed, “Process beats substance every day.” When you have the ability to provide the substance of quality medicine, then your family, your patients, and the marketplace need you to understand the value of process. Otherwise, you will find yourself losing cases to less capable doctors who have better business processes. All of us know of bad doctors who are financially successful because they employ successful business strategies.

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The cornerstones of success are: • • • •

Delivering consistent, high-quality surgical outcomes; Empowering your team to help you create a quality patient relationship; Defining your goals and strategies to achieve them; and Optimizing practice revenue and your personal income by using metrics and benchmarking.

Quality medicine supported by the right business strategies creates a winning combination that leads to financial success. Revenue and Profitability Your practice isn’t automatically profitable, but at some point, revenue drops to the bottom line — straight into your pocket. You need to know where that is and to do whatever you can to reach that point on a daily, weekly and monthly basis. A few extra cases can make all the difference in what you take home or what you don’t. To illustrate this point, let me share an airline example that applies both to consults and to your OR schedule. If an airplane takes off with empty seats, the airline can never recapture that lost revenue opportunity. It’s the same in your practice. If your consult schedules are not managed well and your operating suites are not scheduled optimally, then you’re forfeiting revenue just like the airlines. And, like the airlines, it is virtually impossible to recapture their lost revenue. Here’s an example from the book, Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success, by Jackie and Kevin Freiberg. As you probably know, Southwest Airlines (SWA) is the only profitable airline in history. Yet look at what creates their profit. The authors quote the following statistics. In 1994, SWA’s average oneway fare was $58. SWA flew 624,476 flights that year which generated an annual profit of $179,331,000 or $287 per flight. Only 3 million of the 40 million customers SWA carried that entire year determined whether SWA made a profit or not. Said another way, the entire profit at SWA came from just five passengers per flight! The corollary is that it took 74 passengers per flight to pay the expenses. Every time I fly on SWA, I remember this example as I watch the passengers board. In 1994, it wasn’t until the 75th passenger got on board that SWA became profitable. What if SWA had not had the business practices that enabled them to sell those extra 5 seats per flight? If SWA (Continued)

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(Continued) lost only one of those customers per flight, their profit would have been 20% lower. The equivalent for our practices relates first to filling budgeted slots in our OR schedules. At an earlier point in the customer relationship lifecycle, you also have to be sure your consult slots are filled with patients that your staff have determined are likely to schedule surgery and have the means to pay for it! Think about SWA’s profit and take the time to get that extra patient in to your consults and into your operating rooms. You’ll see the difference this approach makes in your bottom line.

Glossary • A business metric is any type of measurement used to gauge some quantifiable component of a company’s performance, such as return on investment (ROI), employee and customer churn rates … and so on. Business metrics are part of the broad area of business intelligence, which comprises a wide variety of applications and technologies for gathering, storing, analyzing, and providing access to data to help … users make better business decisions. Systematic approaches … can be employed to transform an organization’s mission statement and business strategy into specific and quantifiable goals, and to monitor the organization’s performance in terms of achieving those goals. (Source: SearchCRM.com Definitions.) • Key performance indicators (KPIs) are financial and non-financial metrics used to help an organization define and measure progress toward organizational goals. KPIs can be delivered through business intelligence techniques to assess the present state of the business and to assist in prescribing a course of action. The act of monitoring KPIs in real-time is known as business activity monitoring. KPIs are frequently used to “value” difficult to measure activities such as the benefits of leadership development, engagement, service, and satisfaction. KPIs are typically tied to an organization’s strategy. A KPI is a key part of a measurable objective, which is made up of a direction, KPI, benchmark, target and time frame. For example: “Increase Average Revenue per Customer from £10 to £15 by EOY 2008”. In this case, “Average Revenue Per Customer” is the KPI. The KPIs differ depending on the nature of the organization and the organization’s strategy. They help an organization to measure progress towards their organizational goals,

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especially toward difficult to quantify knowledge-based processes. (Source: Wikipedia.) • Best practice is an idea that asserts that there is a technique, method, process, activity, incentive or reward that is more effective at delivering a particular outcome than any other technique, method, process, etc. The idea is that with proper processes, checks, and testing, a desired outcome can be delivered with fewer problems and unforeseen complications. Best practices can also be defined as the most efficient (least amount of effort) and effective (best results) way of accomplishing a task, based on repeatable procedures that have proven themselves over time for large numbers of people. Despite the need to improve on processes as times change and things evolve, Best practice is … used to describe the process of developing and following a standard way of doing things that multiple organizations can use for management, policy, and especially software systems. (Source: Wikipedia.) • Benchmarking is the process used in management in which organizations evaluate various aspects of their processes in relation to the best practice, usually within their own sector. (Source: Wikipedia.) • Customer relationship management (CRM) consists of the processes a company uses to track and organize its contacts with its current and prospective customers. CRM software is used to support these processes; the software system can be accessed, and information about customers and customer interactions can be entered, stored and accessed. (Source: Wikipedia.)

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Preventative Maintenance of Your Practice G. Marshall Franklin, Jr., MBA, MHA

M

anaging a physician practice is the ultimate “multi-task” in business. Most entrepreneurial ventures allow the entrepreneur to be dedicated full-time to the development of the venture and to the functioning of the business. There is, however, a difference in the case of the physician entrepreneur. The physician’s primary effort should be devoted to providing quality care, refining surgical skills, and developing the clinical practice. If that is the case, then, who manages the business? The true entrepreneur, physician or not, will decide, “I will manage the business.” In that case, how does a business owner, who is also the primary revenue-generating employee, fulfill both responsibilities? This chapter will help to address that question.

The Organization and Systems According to Dictionary.com, the term “organization” is defined as: “Something that has been organized or made into an ordered whole.” In the case of a physician practice, the “ordered whole” is the sum of more parts than most people ever realize. To make order of the whole, first dissect the component parts. By breaking the business into smaller parts and focusing on each aspect individually, we end up with more manageable units, making the task less daunting. Approaching a practice systematically is very similar to the systematic approach physicians take in tackling problems in clinical medicine. Much like a clinical problem is broken into parts, entrepreneurs should break their organization into parts. The irony, however, is that the practices I visit usually exhibit no significant organization or identification of the component parts that make up the practice as a whole. A simple solution to this disorganization is the use of systems and processes. By taking every major function of the business and applying defined rules and

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processes to the execution of this function, effective management emerges as a possibility. Taking it one step further, the codification and requirement of staff to follow these processes relegates the physician owner to the role of “systems inspector” rather than that of coder/biller/receptionist/nurse/aesthetician/ patient coordinator/bookkeeper and finally surgeon. Developing systems addressing all areas of the functional practice allows the surgeon to provide objective guidance for the staff. This guidance facilitates execution of business processes in a fashion consistent with the desires of the physician owner. Having objective systems in place, the physician can then focus on his or her key role — providing excellent clinical care — while being assured that the remainder of the business operates in the efficient manner envisioned when the venture began. The mere establishment of systems for practice operations, however, never guarantees that they will be followed. The owner must inspect what is expected. It is paramount as a business owner to ensure the staff is actually following established procedures and processes. Address and correct deviations immediately. Failure to correct a problem or deviation from policy sends a de facto message to the staff that the deviation is acceptable. To manage and run an efficient operation, any system needs regular evaluation, feedback, and correction to stay on point.

Thermodynamics and Practice Management Entropy is a thermodynamic concept establishing the tendency of all matter in a closed system to move toward a greater state of disorder. A simple example is the construction of a house. To build a house, significant energy (labor, machines, and materials) is applied to the creation of order of various pieces of matter (lumber, nails, wiring, plumbing, etc.). When complete, the energy expenditure results in significant order of the matter (materials). This order is what we call a house. Now fast forward and suppose you walk away from this house and never maintain it, repair it, or protect it. In other words, you never put energy towards maintaining the order of the matter. What will happen? Undoubtedly the house will deteriorate and eventually fall down, and ultimately many of the component materials will return to their most random state. Wood rots, nails, and pipes will rust away, and in the end all components will eventually return to their lowest molecular derivatives. The practical application of this principle to the business of practice management is that any system, no matter how well-established, thorough, or

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valid, will move toward a state of greater disorder without the input of energy. This energy input is the essence of business management. A business owner, no matter how intelligent and well-meaning, will fail if he or she does not deliver the energy necessary to maintain the established systems. Much less energy is needed to maintain a well-ordered system than the initial energy required to establish the system or the energy necessary to recover a broken one.

Operational Systems in Practice Management In order to demonstrate the details involved in developing functional systems defining the scope of management, let’s explore the most important ones. The example systems represent a composite best practice model and will not necessarily meet the needs of every practice or every physician. Best practices should be adapted to fit the most efficient process for your practice.

Patient Intake and Handling Handling phone calls As with any business, the initial patient interaction with the practice is a critical juncture determining whether the patient takes the next step in the relationship (i.e., scheduling an appointment) or leaves and calls a different practice. The receptionist answering the telephone holds one of the most critical positions in any plastic surgery office, yet he or she is often the least experienced, lowest-paid employee in the practice. The staff person on the phone determines whether the caller hangs up or comes in for an appointment. Given the importance of call handling in the overall success of the practice, having defined systems in place outlining the expectations and responsibilities of the staff regarding incoming calls is critical. What are the components of a successful telephone handling policy? • Make sure a live person answers the call. Does anyone have a positive story related to an automated attendant? • Use names (staff member’s and patient’s names). • Handle the call or know where to direct (training). • Use voice mail minimally. • Do not use an answering service as a crutch during lunch or late afternoons. • Establish a system for handling calls from referring MD offices. • Set up a back line for staff, families, and vendors.

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Creating a systematic and repeatable process for handling the calls as they come in will maximize the chances that the patient will ultimately schedule an appointment. Many practices employ a “cheat sheet” to ensure that the proper dialog occurs on each and every phone call. A telephone intake record (TIR) can serve this purpose. A sample TIR is included below, but can always be customized to suit the needs of the individual physician.

Telephone Intake Record: Name: ______________________________ Procedure: _______________ How did you first hear about our practice? Referral Source: _______________________ Detail: _________________ I would like to make sure that I answer your questions and give you the information you need about the procedures you are interested in. Would you mind if I ask you some questions? • How long have you been considering having this procedure done? • Are you familiar with this procedure? What do you know about it? • Do you know anyone who has had this procedure? What did you think of the results? • Do you have any concerns as you think about __________? • Do you have any family members who have questions or are unsure of your decision to have ________? • Have you been to any other offices? It is important to be informed, research your options, and choose your doctor carefully. • Is there a special event coming up you are preparing for? • Once you have determined where you want to have your surgery, do you have a time frame in mind? What do you know about Dr. ________? Great bedside manner Board-certified by the American Board of Plastic Surgery Top doctor recognition Emphasizes the highest standard of safety and quality care for our patients Locally/Regionally/Nationally well known Lectures/Teaches other leading plastic surgeons We always let our patients know in advance the cost of the procedure. Ballpark fee given: _____________. Is that what you expected? (Continued)

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(Continued) Objection to price: Other patients have felt the same way, but once they see their end result, they are happy they spent the extra money. Dr. ____________ does great work, and his patients love him. • We have several different payment options available. We accept credit cards, checks, cash, and financing through several agencies. • I would like to refer you to our website for additional information and to review some of our before/after photos. Consult: Based on your needs, I would love to schedule a consultation for you. Our consultations are __ minutes long. You will watch a video, meet the doctor, review before-and-after pictures, get a finalized fee quote, and review surgery dates. The fee for this consultation is ___. • Objection: Many patients have commented on the quality of our consultations. The doctor will spend at least 30 minutes with you and provide you all the information to make the right decision about your concerns. Address: _________________________________________ _________________________________________________ City: ____________________ State: _________ Zip Code: __________ Daytime Phone: ________ Other Phone: _______ Cell Phone: _________ DOB: ________________ Interest Level: ________________ Appointment Date & Time: _________________________ Wait List Request? _________ Inquiry Only: As you are calling around trying to determine where you will have your consult, I would like to send you some information about the doctor and the procedure you are interested in. Can I get your contact information?

Appointments/Templates The one constant in any surgeon’s practice is his or her time, not only time spent in the operating room, but also time spent in the clinic. Clinic time is often viewed as a necessary evil for surgeons who usually prefer spending their time operating. Establishing appointment scheduling templates allows for a more efficient use of the surgeon’s clinic time. Putting the right patient in the appropriate appointment slot during clinic hours ensures that the physician sees the maximum number of patients during his or her clinic time, runs on schedule, and is able to provide patients with the quality visit they expect. Using appointment templates designed around the type of patient visit is a

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good approach to accomplish this goal. A typical plastic surgery clinic day may be templated as follows: 9:00 AM 9:15 AM 9:30 AM 9:45 AM 10:00 AM 10:15 AM 10:30 AM 10:45 AM 11:00 AM 11:15 AM 11:30 AM 11:45 AM 12:00 PM 12:15 PM 12:30 PM 12:45 PM 1:00 PM 1:15 PM 1:30 PM 1:45 PM 2:00 PM 2:15 PM 2:30 PM 2:45 PM 3:00 PM 3:15 PM 3:30 PM 3:45 PM 4:00 PM 4:15 PM 4:30 PM 4:45 PM 5:00 PM

New Patient Consult Post-op Post-op New Patient Consult Post-op Post-op New Patient Consult Follow-up/Re-talk Post-op New Patient Consult Post-op Follow-up/Re-talk Lunch Lunch New Patient Consult Post-op Post-op New Patient Consult Post-op Post-op New Patient Consult Post-op Post-op Follow-up/Re-talk Office Procedure

Office Procedure

The underlying concept in the above-listed schedule allows for adequate time to be scheduled for new patient appointments while accommodating the post-operative, follow-up, and local procedures necessary in any practice. In

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a typical plastic surgical new patient consult, best practice dictates that the patient first be greeted by the physician while clothed. This recognizes the patient’s need to be most comfortable in a setting where the capture and transmission of information is often critical. The majority of cosmetic patients are women, and the majority of plastic surgeons are men. Oftentimes the patient is uncomfortable in a clinical setting, and the last thing she wants to do is meet her potential surgeon for the first time while undressed, in a paper gown, showing a part of her body about which she is most insecure. After the initial meeting and procedure discussion, the physician should ask the patient to change into the exam gown and robe and then excuse himself. While the patient is changing and having photographs taken, the surgeon can see other patients on the schedule such as those coming in for postoperative visits. These are usually shorter in duration, simply involving a brief physician–patient encounter, taking a quick look at the results, and answering patient questions. Upon completion of the post-operative visit, the new patient should now be ready for the physical exam. The physician returns with escort in tow, conducts the exam, and then discusses the proposed treatment plan. The patient may then dress and talk to the patient coordinator about price quoting and scheduling. Once again the physician is free to conduct another post-operative or follow-up visit, while the next new patient is brought to the consult room. Many opinions exist as to the most efficient clinic scheduling, but the underlying concept is to establish and follow a realistic system allowing the office and the physician to run on time. Exceptions and double-bookings should be used sparingly, since these scheduling add-ons can throw the entire schedule into disarray, resulting in a negative patient experience, especially for new patients. A further refinement to the scheduling template involves predetermining the surgical interest of new patients. Breast augmentation patients are more likely to schedule and complete surgery if they are seen within 10 days; outside of 10 days, the data show the incidence of no-shows and cancellations increases dramatically. Blocking slots in the appointment schedule specifically for breast augmentations can improve patient attendance in this demographic group.

New patient paperwork While the use of electronic medical records (EMRs) is becoming more common, the majority of plastic surgery practices still operate with traditional

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paper charts. Many purchase pre-assembled charts with tabs installed for the various components of the patient’s treatment experience. Some example tabs may be: • • • • • • •

Correspondence History and Physical Photographs Labs Clinic Notes Operative Notes Demographic and Insurance Information.

Regardless of the order, the blank chart should be pre-assembled with the required documentation ready to be put into immediate use upon arrival of the patient. This allows for maximum productivity of the office staff time when they are in the midst of a busy patient clinic day. New charts can be preassembled on days when the physician is in the operating room. Depending upon your known conversion numbers, you may choose to make permanent charts for cosmetic patients only after they schedule surgery. If 50 percent of cosmetic consults schedule surgery, then half the time your staff is making a thick, expensive chart for someone who will not be your patient; instead, use single manila charts without dividers for cosmetic consults. What new patient information should be included in a chart? While obviously the medical-legal information (such as patient history, dictation, operative notes, and exam findings) is included, other items are important as well. For the cosmetic patient, a copy of the TIR should be included. This allows the physician to refer quickly to the document as he or she is preparing for the consult to understand what the patient’s desires, motivations, and interest level are. It also allows for personal data to be used by the physician to “break the ice” and establish a personal bond with the patient. These personal items may include a known referral source or a possible upcoming life event that the patient wants to prepare for, such as a family wedding or a high school reunion. For the reconstructive patient, the TIR can yield relevant data for a letter to the referring doctor giving an update on the care and progress of the patient. It is important to keep referring physicians apprised of the patient’s treatment and progress so that the doctor will be assured the best care is being given and will continue to refer patients. On the topic of referrals, many insurance plans require patients to have a referral in order to access specialty care. Insurance plans will not reimburse specialists for office visits which were scheduled without a valid referral. It

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is the patient’s responsibility to obtain this referral. Therefore, it is important to have a patient intake procedure that includes not only a verification of insurance benefits, but also referral requirements. Once this information is verified at the initial telephone call, the staff can then inform the patient a referral is required. The patient will then have the time to ensure the referring provider completes the referral and transmits it to the office. Upon receipt, this referral should become part of the patient’s chart. As part of the appointment confirmation process, the staff should also confirm receipt of the referral and verify it is valid for the scheduled visit date. If it is determined the referral has not been obtained, two days remain for this to happen. With referral needs and verification systems in place, patients will be much less likely to appear for their consult without the referral. Nonetheless, there are patients who will still arrive for appointments without the proper referral. In these instances, we recommend the patient be sent to the reception area to call their referring physician and obtain the referral. While this measure may sound draconian, it is burdensome and inefficient to have the front desk staff tracking down multiple referrals for patients while trying to conduct a clinic day. It can also disrupt the orderly flow of a clinic day schedule.

The Consult There are a few important components necessary to make a cosmetic consult successful. The first concept is implemented before the patient even arrives. In order for a cosmetic patient to be prepared to schedule a procedure when the consult is finished, they must be adequately qualified. They should be told: • • • • • •

What the procedure will likely cost; What will happen during the consult; Educational information on the procedure being considered; Information about the office and its staff; Finance and payment options available; and Recovery and healing times.

The better the patient is informed prior to their arrival, the less time the patient and the physician have to spend establishing a minimum level of background information. The physician can instead spend consult time focusing on the individual patient’s needs. This usually provides for a richer consult

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and reduces the number of decision points for the patient. The patient can then consider whether they: • • • •

Are comfortable with the physician; Are getting a good value for their money; Feel they will have a safe, predictable result; and Will like interacting with this physician and the office staff.

While the qualifying information is an important first step, other actions need to be taken as the patient prepares for and arrives at consult. If the patient has scheduled the appointment a while ago and the schedule is full, the staff should have a system in place to maintain contact with the patient to ensure they arrive for the consult. This system should include an appointment confirmation two days before the consult. I advise confirming appointments 48 hours in advance to allow patients to adjust their schedule if they have forgotten about the appointment. Likewise, two-day advance confirmations allow the practice some time to schedule another patient should the patient indicate that he or she cannot keep the scheduled consult time. When the new patient arrives for their consult, they should walk into a neat and professional-looking office and be greeted by an unhurried and friendly staff who appear to be there only for that patient. The waiting time should be minimal, and the movement from reception to consult should happen quickly. With the advent of managed care, physicians’ schedules have grown in response to the downward reimbursement pressure. As a result, patients suffer lengthy waits during most of their interactions with the healthcare system. A fantastic opportunity exists for the plastic surgery office to differentiate itself by eliminating waiting times for its patients. Having a clinic schedule that reflects the value of the patients’ time will be rewarded by word-of-mouth referrals and happier patients ready to schedule. During the consult, patients should first meet the physician in a tastefully decorated consultation room. The expectations and desires of the patient, procedure-specific details, recovery and healing times, and other relevant information should be discussed. The physician then excuses himself or herself so that the patient can change into a gown, have photographs taken, and prepare for the physical exam. The physician then returns and conducts the physical exam. Many surgeons do not take pictures at the time of the consult unless doing so helps the patient make a buying decision. While the patient is getting dressed, the doctor can discuss the recommended treatment with the patient coordinator, including a recap of the discussion with the patient, the procedures proposed, and any other information

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the patient coordinator needs to prepare the price quote. The coordinator should prepare the quote and find possible surgical dates before meeting with the patient. Once the quote is shared with the patient, objections are addressed and financing options (if indicated) are discussed. Statistically, about 20 percent of patients schedule surgery at the time of their consult. Since the vast majority do not schedule at consult, your practice must have systems in place for a regular follow-up with patients after the consult. One-day and one-week post-consult phone calls improve surgical scheduling. There are significant data demonstrating that if a patient has not scheduled within seven days of the consultation, they are four times less likely to schedule. In the interest of business process management and correction, many practices elect to use post-consult surveys and questionnaires to shape and adjust their office processes in order to maximize the patient experience. This valuable feedback can help improve the effectiveness of pre-consultation paperwork, office contact, patient service, and the actual consultation. A truly evolved practice listens to its patients and makes the necessary changes to improve.

Surgery Deposits and Prepayment The most valuable resource any surgeon has is his or her time. Before allowing a patient to schedule this valuable time, a scheduling deposit should be required. There are multiple methodologies regarding scheduling policies, but the amounts are mostly irrelevant. More important is the patient’s demonstrated commitment to the procedure and the surgery date. The deposit amount can vary; some practices require a fixed amount such as US$500 or US$750, while others require amounts ranging from 10 to 25 percent of the total surgical quote. The practice’s financial policies should clearly outline to the patient that the deposit is non-refundable, with only extreme exceptions justifying a refund. If a patient elects to cancel surgery and reschedule outside of a certain time frame, we recommend carrying the deposit forward and applying it to the new date. An example might be a patient calling three weeks before surgery to cancel and reschedule. In this case, it may be permissible to carry the deposit forward to the new date. Usually, this allows enough time to fill the opening on the surgical schedule with another case. Nonetheless, there is a date after which the surgical deposit is no longer refundable under any circumstances. At approximately 10–14 days from the scheduled date of surgery, the office should require payment in full for the surgery. Cash, a bank certified check, and credit cards are all acceptable forms

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of payment. If the practice accepts personal checks, adequate time should be given to allow the checks to clear the bank, and verification should be made that there are sufficient funds. It is exceedingly difficult to collect surgical fees after the surgery has been completed. If a patient financing company is used to finance the surgery, certification of the patient’s credit approval is necessary to move forward. Most finance companies will verify approval and intent to fund the surgery.

Revision Policy In order to provide the best patient experience and surgical outcomes, revisions are a necessary component of cosmetic surgery practices. A revision policy should be created and given to the patient at the time of quoting. The policy should list a finite number of revisions in order to keep the surgeon’s time efficient as well as reduce the associated expenses related to performing revision surgery. The spectrum of revision policy is wide, with some practices offering unlimited free revisions while others charge slightly reduced surgical fees and supply expenses. Regardless of the policy, the quality of the ultimate outcome and the patient’s satisfaction are the goal. The revision policy is more for those patients who seem inconsolable with regard to surgical outcomes and less for those who may need a slight scar revision to be happy. Common components of a revision policy may include the following: • Free revision must be within one year of the original date of surgery. • The practice may want to pass through the cost of supplies if the revision is done under local anesthesia. • If the case is done in a facility not belonging to the physician, it may be necessary to further define the financial policy of the facility regarding the cost of supplies and anesthesia.

Financial Controls Practice finance Nowhere is it more important to have reliable systems in any practice than in cash handling and finances. Funds flow in and out during the operation of businesses, and retrospective reports are created to monitor this flow. These reports are commonly known as profit and loss statements or, to use the appropriate accounting verbiage, income statements. Profit and

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loss statements are historical documents many business owners use to evaluate their financial performance for some previous period, be it the previous month, quarter, or year. They are the foundation of a practice’s financial measures. The quest to have accurate and useful financial statements begins with the bookkeeping function within the practice. As revenue is received and bills are paid, most commonly the practice uses an accounting program such as QuickBooks®. The diligence and attention given to the initial setup of the financial software goes a long way to ensure the relevance and accuracy of data you will be able to access later. Important to any financial management system is a comprehensive chart of accounts. This is simply a list of line-item categories of revenues and expenses within the practice. The establishment of the chart of accounts is also where many practices go wrong. A chart of accounts needs to be concise, simple, and relevant to the data the physician owner will need to evaluate the financial performance of the practice. A recommended chart of accounts is included below. A sample revenue portion of the chart of accounts may look like this: Patient Revenue — Cosmetic/Self-Pay Patient Revenue — Insurance Skin Care Revenue Product Sales Service Sales Laser Botox® Restylane Ambulatory Surgery Center (ASC) Revenue Patient Refunds A sample expense portion of the chart of accounts may look like this: Labor Clinical Salaries Administrative Salaries Billing Office and Reception Salaries Aesthetician Salaries Contract Labor and Other Payroll (P/R) Taxes, Benefits, Workers’ Compensation Advertising and Marketing Answering Service

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Association Dues Bank Fees Dues and Subscriptions Equipment Lease Gifts and Flowers Instruments Insurance — General Liability Interest Expense Laboratory Laundry and Linen Legal and Accounting Meals/Entertainment Medical Supplies Clinic Supplies Botox Restylane Other Meetings and Travel Miscellaneous Expense Office Expense Office Supplies Parking Payroll Service Photography Postage and Delivery Rent Repairs and Maintenance Taxes and Licenses Telephone Transcription Utilities Total Operational Expense Pre-Compensation Margin Physician Discretionary Expense Physician Salaries Physician Benefits and Payroll Tax Malpractice Insurance Total Physician Expense Net Income

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The flow of money Money arrives at the practice in multiple areas. Cash and checks are received by the front desk or the patient coordinator in the form of copays, surgery deposits, and cosmetic surgery prepayment for cosmetic surgery. Checks arrive in the mail from insurance companies and patients. Electronic transfers are delivered directly to the practice’s bank account from credit card merchant services, insurance companies, and government payers like Medicare and Medicaid. If the practice operates a surgery center or a medical spa, funds are also received there. It is important to have a system in place to ensure the money is: • Properly recorded; • Properly deposited; and • Properly accounted for in the financial system. In a perfect world, the physician owner of the practice would be present to receive every cash payment, check, and credit card received. The reality is that there must be delegation to trusted office staff to receive and properly care for the money. Simple systems can be created that provide control and verification of the proper handling. Most practice management systems allow for the creation of encounter forms (charge sheets) with unique numerical identifiers. An encounter form should be created for every transaction that occurs within the practice. Examples of such transactions may include: • • • • • • • •

New patient visits; Follow-up visits; Post-operative visits; Surgical procedures; Local procedures; Skincare treatments; Skincare consultations; and Skincare product sales.

By documenting each and every interaction with a patient and tracking it by a unique identifier, the practice may reconcile these transactions at the end of the day by verifying what should have been received from each visit versus what was actually received. Most systems either track encounter forms automatically or provide a report of encounter forms issued for any period of time. The physician can use this report, derived independent of staff actions, to reconcile the day’s events.

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Each day, the appropriate designated staff member should compile the encounter forms and the receipts for the payments relating to these encounter forms, and summarize the day’s activities in what is called a daily close. The daily close is a compilation of all encounter forms created for the day and the associated payments and receipts, all summarized into one batch. It is from this batch that the physician or office manager may reconcile the activity in the daily close with the expected activity derived from the practice’s encounter form tracking report. Special care should be paid to encounter forms that are missing, incomplete, or lacking a corresponding receipt when one is expected. Credit card batches should be closed at the end of every business day, and checks and cash deposited either at the end of the day or first thing the next morning. If deposits are held overnight, a reliable safe should be installed in the practice for keeping the funds until they are deposited. The person in charge of making bookkeeping entries should use the daily close to enter the receipts into the appropriate revenue categories in the practice’s financial system. It is important to apply tremendous diligence to this process, as it will ensure that the control of funds is tight and will make reconciliation with the bank statement at the end of the month much easier. At the end of each financial period, a bank statement is usually issued from the practice’s financial institution. It is imperative that the statement be opened by the physician owner or other staff who does not write checks or pay bills. This ensures that the statement is first analyzed by someone in the practice who is not in a position to embezzle funds. Once a review of the statement and canceled checks has been conducted, the statement may be forwarded to the bookkeeper for reconciliation in the practice’s financial system. The reconciliation should be done as soon as possible after receiving the account statement. This allows for discrepancies and errors to be corrected before too much time passes and memory fades. If a practice uses QuickBooks®, the application provides excellent systems for recording bills and invoices as they arrive. Each day, as the mail is opened, bills can be entered into the system and set to the appropriate terms of that vendor. This allows for control of the cash flow by timing when bills are due and subsequently paid. By following this process, if the office manager or physician needs to predict the practice’s cash demands in the future, a simple aging report is available at the click of a mouse.

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Human Resource Systems After years of advanced training, multiple tests and board exams, and years of late nights on call doing the “grunt work” of medicine, the days of private practice finally arrive. While the years of preparation almost guarantee one’s chances of success in the operating room, they do not begin to address the critical elements needed for success in business. Quite simply, there is no more important decision that can be made in the creation of a plastic surgery practice than hiring the staff to work in it. The staff answers the calls, schedules the appointments and surgeries, fields all manner of questions, accepts the money, orders the supplies, pays the bills, and supports the physician owner. The following are some basic rules in hiring, developing, and retaining the office staff.

Applications and interviewing At the hiring stage, it is paramount to first determine the practice’s needs when selecting potential candidates to interview. While everyone’s personality is different, there are some personalities which are better suited to the dynamic environment of a cosmetic surgery practice. Sorting these personalities and accompanying skill sets will be a career-long challenge. The first step in this process is the employment application — a generic and objective document allowing for an “apples-to-apples” comparison of applicants’ experience, employment history, expected salary requirements, and previous employers. Find a standard form and use it consistently in your practice. When qualified candidates are identified, schedule an interview. The interview is the best chance for a potential employer to evaluate a candidate’s personality, demeanor, presentation, and knowledge. This is often the point at which most hiring mistakes are made. Unfortunately, most people spend a great deal of the interview time talking about the practice and the position the candidate is considering. While no one challenges the importance of clearly outlining the responsibilities of the position, critical time is lost which could be used to better understand the candidate. The time spent describing the position should be limited within the context of the larger interview. The majority of the time should be spent asking the candidate questions in order to gauge their personality, views towards patient service, and organizational skills, as well as in-depth questions regarding their previous employment history.

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Typical red flags in an interview can come both verbally and non-verbally. Some common negative behaviors and warning signs can be detected in the interview stage. Examples may be: • Late arrival for the interview. Will they show the same disregard for the time of the patient and the surgeon? • Unkempt or unprofessional dress. The business of plastic surgery is truly an image business. It is important that the staff understand the need to dress appropriately, depending on the situation. What is more important than an interview? If the candidate cannot attend an interview with a professional appearance, how can he or she be expected to come to work dressed appropriately? • Never smiling during the interview. What does this convey? Universally, a smile is welcoming and friendly. The ability to transmit this warmth and comfort will be important when competing for cosmetic patients. • Being misleading or indirect regarding previous employment and the reasons for leaving. Certainly everyone has bad experiences in the work environment; however, the ability to overcome these experiences and learn from them is necessary. If a candidate has a questionable employment history, extra attention should be given to checking references. The preceding list outlines some of the more common red flags. There are a multitude of others. To list them all would consume a book itself! Just as there are characteristics indicating less desirable candidates, there are also characteristics capable of predicting success in the practice. Some of these include: • • • • • • •

Being punctual; Presenting a professional appearance; Smiling when you meet them; Having good eye contact and body language; Speaking and communicating well; Feeling comfortable when speaking to a superior; and Showing indications of organization.

Did they make their bed this morning? After over 10 years of managing hundreds of employees in a plastic surgery office and the related ambulatory surgery center and medical spas, I have learned that there is one characteristic which is universal among successful office staff: they are organized. This goes beyond keeping their appointments

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and being on time. This level of organization borders on obsessive and is typified by the statement, “I would rather do it myself than trust anyone else to do it.” The challenge is to find a way to recognize this characteristic during the interview. Obviously, a candidate cannot simply be asked if they are organized. Undoubtedly the answer would be “yes”. Through polling various high-performing employees, one common thread was that they always made their beds. Realizing this fact, I began to incorporate the question in my interviews. The response is telling and usually consists of one of the following: • “Of course! [Indignant] I make my bed every day.” This is good. • “Umm, not today but I normally do.” This is OK, but they may not be truthful. • “No, I don’t make my bed.” This is bad. Of course, there are exceptions to every rule. There are great employees who have never made their beds and horrific employees who have always made their beds. However, this test has, over the years, proven to be a fairly reliable rule of thumb.

References It is critical to verify and evaluate the potential staff members being considered for hire. Some previous employers only give limited information, such as the hire date, the termination date, and whether or not the candidate is eligible for rehire. Others give more information. The more information obtained, the better. Previous employers can be tremendous sources of information on how an employee performed as well as on their strengths and weaknesses. In some cases, for additional expense, background checks can be conducted. Of course, this needs to be disclosed to the candidate. In a typical background check, criminal history as well as credit reports can be obtained. In situations where significant money will be handled, it is advisable to check the candidate’s record. Physician practices are commonly embezzled from in the form of cash, products, and other materials. With the advent of social networking sites such as Facebook and MySpace, a new dimension of employee verification is possible. While the individual’s profile page may be restricted, many are not. A good bit of information may be obtained from these sites to support a hiring decision or to confirm a decision not to hire. These sites support the other factors under consideration; decisions should not be made solely on this medium.

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Hiring and training Assume the perfect candidate has been found. A formal offer of employment should now be made. This consists of a simple offer letter outlining the job description, the employment terms, wages, and benefits. The start date should be included along with any special considerations agreed upon in the interview. A place for the employee to sign should be provided, and this letter should be the second item added to the newly created employee file after the employment application. When the employee arrives for the first day, what happens? If the practice is like most physician offices, the employee will complete the tax and payroll paperwork. They may be given an employee manual and be shown how to clock in and out. The new employee is then likely paired with an experienced employee who gives them a primer on the use of the practice management system, and off they go. This brief introduction often results in a frustrated, low-productivity employee. Some will quit; others will struggle through the difficulties, operating at a solid level of mediocrity, and then quit or, rarely, excel. In order to retain and develop employees into true human assets in the practice, processes must be in place to maximize their potential. The most effective businesses have systems to integrate a new employee into the office, establish expectations, and train employees on the desired procedures and policies. This process begins with a well-written employee manual. The legal aspects of an employee manual vary from state to state, but the core policies and procedures outlined should be easy to create. The manual should outline the following areas of office protocol: • • • • • • • • •

Punctuality standards; Dress code expectations; Office surgery policy; Vacation and sick policy; Progressive discipline policy; Work rules; Computer and electronic media policy; Benefits; and Holiday schedule.

A well-written employee manual begins the integration process and establishes the core structure in which the office operates. However, it does not address the day-to-day functions of the employee in their new role. In order

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to address those functions and provide the best opportunity for the employee to develop, a thorough position description and training guideline should be used. The position description establishes the foundation on which the training program is based. The training document accomplishes dual functions. The first goal of the document is to explain in detail the specific office functions required of the particular position. Secondly, it creates expectations and performance measurements for the position. This latter component is important because it establishes a baseline of accountability for the position and for the employee. Now the essence of a management structure has been created. Expectations and performance guidelines have been established, and the employee is aware of them. A tool is now in place to ensure accountability within the position. It is now up to the owner and the management of the practice to enforce this accountability and address shortcomings through additional training or progressive discipline.

Discipline and terminations Unfortunately, structured employee discipline and work improvement programs are rare in smaller physician practices. Practices both operate with, and accept, mediocrity until a tipping point is reached. At this point, employees will leave or ultimately be terminated. If handled properly, there should have been an extensive amount of time and money invested in the hiring and training of any given employee. To protect this asset and ensure the investment is not lost, a logical progressive discipline policy should be established in the employee manual and used in the office. Progressive discipline is simply a standardized set of steps used to address negative office behavior, deviation from policy, and poor performance. An additional benefit of using a progressive discipline policy is the creation of solid documentation that may be used as a defense for challenging unemployment claims as well as a foundation for a legal defense should a terminated employee decide to pursue legal action for wrongful termination. A simple progressive discipline policy may include the following: • First policy violation — verbal warning. The verbal warning should be a formal discussion with the employee in which the policy breach is clearly explained to the employee. The proper course of action and expectation for improvement should be outlined so that the employee understands clearly. Additionally, consequences for failure to improve should also be articulated. It should be noted in writing, in spite of the name; the discussion should be

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documented, dated, and signed by the employee. The warning will become part of the employee’s permanent employment record. • Second policy violation — written warning. The written warning is second in the sequence of progressive discipline. It should be noted that this is a second violation of the same office policy. Once again, the breach should be explained clearly, be stated in writing, and reference the previous verbal warning. Steps for improvement should be clearly outlined, along with the consequences for failure to improve. At this stage, the consequence may be articulated by the language, “Failure to improve may result in additional disciplinary action up to and including termination.” Expectations have clearly been established, and failure to improve at this point means that the employee is either incapable of or unwilling to improve their behavior. There are two options from this point forward. • (Optional) Third policy violation — probation. In some instances, it may be desirable to offer a “third strike”. Probation provides an objective, last chance for improvement. Quite simply, the employee is informed in writing that, for some specified period of time, any further violation will be grounds for termination. Usually, if an employee has made it to this stage, their destiny is a done deal. It is just a matter of time. I like this third stage of discipline because it provides for a truly defensible position regarding unemployment and legal exposure. • Final violation — termination. After two to three violations of policy, it should become clear that the employee is not improving their behavior. Inevitably, it is in the best interest of the office operationally and financially, as well as for staff morale, to terminate the employee. If a clear progressive discipline policy is in place, it should not be a surprise to the employee when they are terminated. In fact, experience shows that when a progressive policy is in place, many underperforming employees will simply leave after having their behavior documented. Should they make it through the entire evolution of the discipline policy and continue to fail, the termination becomes a perfunctory process. Terminations should always be done with another trustworthy staff member. Ideally, it should be done at the end of the day in order to reduce the disruptions to the office operations and other staff members, and to preserve a little dignity for the terminated employee. There should be no display of emotion, no negotiation, and no blame. The process should very clearly involve an outline of the policy violations without discussion, the result (termination), and a thank-you for the service. A trusted employee should also escort the

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terminated staff member to their workspace to collect their items and return any office property they possess. Any passwords, keys, and other proprietary office property, be it a physical object or organizational knowledge, should be returned or captured. Examples may include the processes for filing payroll, logging into the time clock system, and accessing bank accounts. It is never enjoyable to terminate an employee; unfortunately, it is a necessary event in the management of a business with employees. It is human nature to feel bad, and if you are indeed human you will feel bad. Avoid the overpowering need to negotiate and justify your decision with the departing employee. The time for this discussion was well before the problem reached this stage. You will be doing yourself and the employee a favor by keeping all emotions, sympathy, and justifications out of the termination discussion. A simple statement of fact, the outcome, and a departing wish of good luck are all that is really needed. If you wonder whether you made the right decision, simply ask yourself, “Will the practice be better tomorrow without this employee?” If the answer is “yes”, then the correct decision has been made.

Inventory Controls In a structured and well-run business, systems exist to keep operations efficient while defining, in a stepwise fashion, what actions should be taken and when. As more and more plastic surgery offices increase product inventories of injectables, skincare products, and other high-value items, inventory management and tracking systems need to be in place to follow the items and to ensure that they are being properly handled and sold for the correct price. The importance of a formalized system cannot be underestimated. Products are given away or stolen every day in physician offices around the U.S. A formalized system, no matter how rudimentary, enforces policy, physical counts, and general awareness of the flow of material through the practice. Basic inventory starts with a simple formula: Starting Inventory + Purchases − Sales = Ending Inventory. A simple Excel spreadsheet, as shown in Table 1, can be created and kept current with a few minutes’ attention each week. In order for this tool to be truly effective, a physical count needs to be made periodically to verify the expected inventory level. Discrepancies should be noted and explained by the

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The Business of Plastic Surgery Table 1. Item AHA Tretinoin Sunscreen 4 oz Sunscreen 2 oz

A simple inventory spreadsheet.

Beginning Inventory Purchases Sales Ending Inventory 12 16 7 8

6 9 6 10

9 10 3 12

9 15 10 6

staff responsible for maintaining the items. If problems persist, disciplinary action may need to be taken. Once the system is in place and the staff is comfortable with the process, some additional enhancements can be added to the tracking sheet. An example of this is given in Table 2. Any variance, positive or negative, as noted in the two entries with question marks, should be investigated and accounted for immediately. The appropriate responsible staff should be informed and also held accountable for the variance if it remains unexplained. It is amazing what a simple inventory system can do to preserve the highvalue products in a medical office. The staff who is aware that the practice is watching the inventory is less likely to lose track of where it is going. Not all items need to be tracked and recorded through a formal inventory system. The intent is to track those high-value items which are considered to be critical items.

A special word about injectable inventories The prevalence of injectable items in the practice is increasing. As the population ages, lower-cost injectable treatments allow more patients to access these treatments without having to commit their resources to surgery. This trend is likely to continue, thereby increasing the necessary inventory levels of these items in the cosmetic practice. Combining increasing inventory levels with sloppy or non-existent inventory controls is a recipe for disaster. If all the plastic surgery practices in the U.S. were to audit their injectable usage as compared to their injectable purchases, it would not be surprising to find that a majority have products missing or otherwise unaccountable. For those practices that do not currently have an inventory system in place, a quick mathematical calculation can be conducted to determine if the product is being used properly. The calculation is simple; let’s use Botox® as an example.

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Beginning Inventory

US$9.41 US$17.99 US$3.46 US$2.99

12 16 7 8

Ending Purchases Sales Inventory 6 9 6 10

9 10 3 12

9 15 10 6 Total

Value US$84.69 US$269.85 US$34.60 US$17.94 US$407.08

Physical Count

Variance

9 14 10 5

0 1 0 1

Reason ?? ??

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Cost

A more detailed inventory spreadsheet.

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The Business of Plastic Surgery Table 3.

Botox® log.

Date

Patient

Provider

1-Jan 10-Jan 12-Jan

PURCHASE Doe, John Doe, Jane

Dr. J Dr. J

Units

Waste

Units on Hand

85 30

15

1,000 900 870

• Let’s assume the Botox® cost per 100 units = $500, or $5 per unit. • The practice has Botox® purchases for the last 12 months amounting to $75,000. • The practice reports Botox® revenue for the last 12 months of $151,000. The audit would look like this: • Total Botox® units purchased in the last 12 months = $75,000/$5 per unit = 15,000 units. • If the practice sells Botox® for $14 per unit, the expected revenue on the sale of 15,000 units would be 15,000 × $14 per unit = $210,000. • Assume 10-percent waste and no free product was earned through purchase rewards; the practice could expect a net revenue of $189,000 from Botox® sales. • Given that there was $151,000 of Botox® sales and no dramatic change in inventory levels, the practice is “missing” 96 vials of product, amounting to $48,000 of lost revenue. While this example is extreme, it happens more than anyone can imagine. A simple solution is to implement a modified inventory procedure much like a controlled substance log. A simple injectables log may look like the example shown in Table 3. The log should be reconciled daily, weekly, or monthly, depending on how closely the practice wishes to monitor the product. Case Study: What’s Your Two Ounces? Some time back, I was preparing to open my second restaurant. An interesting debate began regarding the weighing of portion sizes and the practicality of doing this in real time. The concept for my second restaurant was different than that of my previous restaurant. While my first was a full-service, broadmenu restaurant, this new one was a casual, high-end fast food franchise. The key to any franchise’s success is the ability to deliver consistent product (Continued)

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(Continued) and service. If you question this, you have never been to more than one McDonald’s! In my case, the standard portion size for an order of French fries is five ounces. In order to address the consistency issue, the franchise had a crude method for measurement of this five-ounce portion size. A nicely rounded pile of fries in a #10 paper boat (tray) approximated five ounces. This was a quick and dirty method for measuring the portion size in the heat of battle. The restaurant’s drive-through window made the speed of the order preparation and the delivery to the customer a primary concern. Many existing owners of this franchise argued that the time for their kitchen crew to weigh the fry portions would cost valuable time. This argument had some validity, given the importance of speed and of keeping drive-through times low. Studies show that a five-second reduction in a drive-through time can increase restaurant revenue by 1 percent. The key issue being missed was the fact that, when tested, the average crew member was overportioning the fries by an average of 2 ounces. Rarely would a crew member ever underportion. This was great for the customer in terms of value, but very poor for the franchise in terms of consistency, and for the owner in terms of food cost. You might think, “What’s an extra two ounces?” Well, I set about to take a scientific approach to this problem: 1. How much extra time would it take to measure every order of fries? 2. If we did not measure and ran the risk of overportioning, how much would it really cost us in the long run? Upon testing, the extra step of dropping the fries onto a properly calibrated kitchen scale and then onto the plate took an extra two seconds for an experienced crew member. So, the argument of time became a moot point. I now turned to the cost of not weighing and what that extra time was worth. On average, the restaurant prepares 485 orders per day. On some days, orders run as high as 600; and on slower days, orders are as low as 375. Using the 485 orders as a baseline and considering that approximately 350 orders required fries, if we did not weigh the fries and we risked overportioning, we would send an extra 700 ounces of fries out the door every day!!! These 700 ounces equate to 43.75 pounds of fries per day. With a case of French fries weighing 30 pounds and costing US$16.80 each, the daily cost was US$24.50 per day. Taking into account the restaurant is open 360 days (Continued)

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(Continued) each year, the cost of not weighing would, at a minimum, cost us US$8,820 annually. More importantly, if we were to assume that we could have sold the lost French fries (considering the opportunity cost of the waste), the numbers become very powerful. Eight ounces of fries sell for US$1.99. The costs are astronomical at roughly US$174 per day or US$62,685 annually. This cost was essentially waste and resulted from inconsistency. It was a no-brainer. We were going to weigh our fries. I estimate, over the four years I have had this restaurant, that I have sent over US$35,000 to the bottom line that would not be there if we had not weighed the fry portions (or close to US$250,000 if we consider the opportunity cost)! Certainly not all the “saved” fries would sell at retail, so the number more reliably lies somewhere between US$35,000 and US$250,000. Now you ask yourself, “What does this have to do with practice management?” Just about every physician practice, ambulatory surgery center, and medical spa has its “two ounces”. Whether it is various consumable supplies in the clinic, sterile supplies opened and not used on the back table of the operating room, or products and injectables given away or wasted in the medical spa, without systems and policies to address and track the use of supplies in the world of healthcare management, it is a near certainty that there are supplies of value walking out the door which will never be reimbursed. A real-world example occurred in an ambulatory surgery center I know. One of the physicians insisted that sutures be opened on the back table in order to improve his speed and efficiency in the operating room. In his view, the process of asking for the suture and then waiting as the circulator opened the package took too long. In reality, the process added about five seconds to the case. However, the cost of pre-opening the suture and then not using it ran at roughly US$25–US$40 per pack of suture per case. Simple arithmetic applied to this practice alone: the surgeon, who performed 400 cases annually, was yielding a value of US$12,000 of wasted suture each year! Clearly, the compounding nature of the same supply being used the same way over and over again makes the economics of inventory management a worthwhile endeavor. Small episodes of inefficiency, repeated multiple times per day, every day that the practice is open yields a powerful argument for a defined process in just about everything a practice undertakes.

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Part III Enhancing Both Practice and Career

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Developing, Establishing, and Operating Your Own Surgical Suite Gordon Merrick

S

ome surgeons see owning and operating their own operating room (OR) suite as a dream, while others see it as a nuisance or even a nightmare. For those who see the “dream”, this chapter can provide some guidance in pursuing that dream and some insight into the process.

Why Develop Your Own Surgical Suite? Depending on where you practice, the impetus for developing your own operating suite may vary, but many reasons are universal, such as (1) convenience of scheduling; (2) cost savings over using a hospital’s or another surgeon’s OR; (3) control of turnover time; (4) control of quality of care, choice of instrumentation, and equipment; and (the most common) (5) time saved by avoiding travel to and from another surgical suite. With your own operating suite, you can start operating at 7 am, dictate and see a post-op, make a few phone calls, and then return to the OR for the second case. This time saving is essential in today’s environment. Other benefits include the ability to return to the OR for unexpected occurrences, such as a hematoma, or to schedule a revision without scheduling conflicts or expensive OR time. In some states, reimbursement by insurance for covered procedures is a huge incentive. One plastic surgeon in California complained to me (just after he got his OR going) that his OR was paid more for a breast reduction than he was; then, he realized what he had. Reimbursement can drive the consideration of building a surgery suite. If facility reimbursement is a motivation to build an OR, then one must consider which accreditation agency to use and whether to seek Medicare deemed status. 229

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Which Agency to Use for Accreditation? There are several considerations when deciding which accreditation agency to use for your facility’s approval. The big three are the Accreditation Association for Ambulatory Health Care (AAAHC) (www.aaahc.org), the American Association for Accreditation of Ambulatory Surgery Facilities, Inc. (AAAASF) (www.aaaasf.org), and the Joint Commission (www. jointcommission.org). In California, there is also the Institute for Medical Quality (IMQ) (www.imq.org), which is related to the California Medical Association. In choosing an accreditation agency, consider three things: reimbursement, paperwork, and physical facility. There are also credential and personnel considerations. Which agency you use depends upon your reason(s) for seeking accreditation (see “Why Be Accredited?”). See Table 1 for a basic comparison of the agencies.

Third-party reimbursement If 25 percent of your cases are reimbursable by third-party payers, and your state allows reimbursement for unlicensed surgical facilities, you should consider either the AAAHC or the Joint Commission. If the number of your reimbursable cases is above 33 percent, you should seriously consider Medicare deemed status as payers are pushing more and more for Medicare approval for the facilities that they reimburse. Medicare deemed status refers to Medicare certification through one of the big three agencies instead of through your state Health Department. Please note that although you may see only one Medicare case per year, you can benefit greatly by receiving Medicare certification. The AAAHC and Joint Commission have been around the longest as agencies that inspect multi-specialty practices and facilities, and insurance companies recognize them more than the other agencies. In California, Aetna and other payers are requiring all facilities they reimburse to have received Medicare approval. At the time of writing, the California Assembly Bill 832 (Jones), requiring a “minimum” of Medicare approval, was revised and pushed to Committee for further review. No matter what the outcome of that bill, the writing is on the wall: regular accreditation may not be enough in the future. If you are going to seek reimbursement for the use of your OR (the days of billing for recovery room services are gone), you will want to establish a separate entity (say, outside of New York). If you attempt to seek reimbursement under your practice tax ID, the bill will be rejected since the enriched global fee that is paid to the surgeon includes the use of the office space.

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Table 1.

Comparison of the accreditaion agencies for OR surgical suite appproval. IMQ

Yes

Sort of

Sort of

Sort of

Board certification

Yes

No

No

No

Hospital privileges

Yes

No

No

No

Surveyor leeway

No

Yes

Yes

Yes

Timing

Fastest

Slowest

Not Fast

Medium

3rd party reimbursement

$

$$$

$$$

$

All but AAAASF are not absolute; but each surveyor expects to see an RN/PA in charge, not a tech/MA Board eligibility is okay for all but Director for AAAASF All agencies want proof that the surgeon is qualified. Requirements vary (proctoring and/or privileges). AAAASF surveyors can say a lot during the inspection, but the Central Office can snap them back into reality AAAHC can take 90 days to show up for a regular survey from receipt of complete application

(Continued)

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RN required

Comments

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AAAASF

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Recovery room

Required, but no # beds Want separate; but if flow is good, combined area is fine with “separation” Not specific

Clean/Dirty areas

Support

IMQ

Physical Facility Appropriate, Safe safe

Safe

Unclear

Unclear

Unclear

Unclear — leave leeway to surveyor

Unclear — leave leeway to surveyor

Unclear — leave leeway to surveyor

Not specific

Not specific

Not specific

AAAASF provides a plan review service for a small fee

But, surveyor can ask, “How do you clean between cases?” b902-ch12

Note: RN, registered nurse; PA, physician assistant; tech, technician; MA, medical assistant. Exhibits : equipment list, OR and recovery room layouts.

Comments

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Joint Comm.

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(Continued)

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Table 1.

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Basically, insurance companies will pay the surgeon more to do a procedure in the office, since they do not have to pay a facility fee billed by a hospital or a surgery center. So, if you plan on billing for the use of the OR, establish a separate entity (LLC, LP, Corp. — your state may require a “professional” designation), then obtain a tax ID number and a National Provider Identifier (NPI) number for that entity (see “Billing for the OR”). Increased recognition does not mean increased reimbursement per case, but it does mean increased “awareness” by payers; in other words, you will get paid more often. While a payer that reimburses a facility will not reimburse more based on accreditation or Medicare certification, they may still pay the center when another, unrecognized accreditation would have yielded a rejection.

Paperwork requirements Organizations that are widely recognized by third-party payers are under more scrutiny and, thus, require more paperwork. Assume that the greater the benefit of the approval, the more difficult it will be to gain approval. I have often been asked how many hours per day/week/month maintaining the accreditation process takes. Once the structure is established, and the office gets past the initial ramping-up period, the basic, daily tasks (completing logs and checklists) should take no more than half an hour of staff time. Most approvals require the same logs (OR temperature, refrigerator temperature, pathology log, autoclave log, biological monitoring, etc.). Every few months, credentialing of physicians and licensed personnel must be updated and documented, since licenses, Drug Enforcement Administration (DEA) registrations, and insurance expire. While some variances occur in logs and checklists, and some agencies require much more in terms of medical staff and personnel files (e.g., more background checks), these are not regular, time-consuming activities. The big variables come in quality improvement. In very broad terms, the amount of paperwork required by each organization from the most paperwork to the least is as follows: • Medicare — It does not matter which agency you use if you are seeking Medicare deemed status certification; the Medicare process will increase the amount of paperwork. Even if it is just because the surveyor has to go through more paperwork, so he will make sure you also have to go through more. There are very few specific paperwork requirements exclusive to Medicare, but there are some (e.g., a backup power log showing testing

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at full load for 30 minutes every 30 days and checking of the fire safety devices each month). • Joint Commission — I believe the Joint Commission is really trying to become more user-friendly and understand the outpatient arena. Some of their surveyors do not seem to know this, however. In addition to the basics of quality improvement, credentialing, and complete and accurate medical records, the Joint Commission adds a few twists that seem logical to some and ridiculous to others. • AAAHC — Just an eyelash under the paperwork requirements of the Joint Commission, the AAAHC is firmly entrenched in the “if you didn’t write it down, it didn’t happen” camp. Regular quality improvement studies, minutes of meetings, and gobs of credentials and credential verification activities are required. The AAAHC requires some specific policies that may not seem to be a part of your practice or your surgery center (e.g., how would you respond to a terrorist attack?) but, if you have read the standards book cover to cover while taking notes, you will be okay. • AAAASF — Of the big three agencies, the AAAASF requires the least paperwork. It is creeping up, though, as it wishes to avoid the embarrassment of unannounced surveys where its facilities do not match up with either State or Federal inspectors. For those states requiring accreditation, an unannounced survey is always a possibility. Do not need the stories of yore regarding the laxity of AAAASF surveys. While the AAAASF has not aggressively sought recognition by third-party payers, it has worked well with states that require accreditation.

Physical requirements The accreditation agencies are not very clear about physical requirements for the surgical areas. The Joint Commission and AAAASF provide a little guidance, but not much. Most states either have their own very prescriptive requirements, or they adopt the guidelines of the American Institute of Architects (AIA). Do not listen to those who tell you that operating rooms of 400 square feet, showers for staff, and step-down areas are required for accreditation or Medicare certification (unless you are in a Certificate of Need (CON) state). Medicare says very, very little about the physical facility. People often confuse surgery center approval standards, and apply state license requirements to Medicare certification and accreditation. However, outside of the AAAASF, surveyors are given large amounts of leeway in how they interpret the physical standards.

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All the agencies and their surveyors want to see a space that has some logical flow to it. They are interested in (1) patient privacy (not only when talking about their surgery, but also when walking down a hallway with their backside exposed); (2) infection control (vague air conditioning requirements, low traffic flow past the OR, no dragging of hazardous waste bags through patient areas, one-way flow of dirty instruments from washing to wrapping to sterilization); and (3) awareness of patients’ fear and trepidation (pre-operative patients should not walk past recovering patients to get to the OR nor should bandaged patients be escorted to their car in a wheelchair in view of the waiting room). The Joint Commission and AAAHC use words like “adequate”, “appropriate”, and “safe”. The AAAASF has a limited guide for those facilities that are sites for doing surgery, including: • Seamless flooring in the OR with 4-inch self-coving; • Washable ceiling in the OR (“hard lid” of sheetrock or washable tiles are acceptable, either mylar or vinyl-covered drywall); • 4 feet around each side of the table (rolling carts do not count as obstructions as they can be moved to allow emergency personnel around each side of the bed in an emergency); and • Separation of clinical areas from surgical areas. Assume that there must be a door to the surgical area which includes the OR, recovery room, sterilization, and janitorial areas. No consult rooms, exam rooms, doctor’s offices, or lunch rooms should be within the surgical area. Remember, there are no standards anywhere that tell you the basics of space planning for a surgical suite. Just because someone else you know got away with having their bathroom double as the sterilization area, it does not mean that it is okay. Be observant if you work in another surgeon’s officebased surgery suite, and note down what you like and do not like. Check out more than one. Assume that the surgeon whose office you are observing did the same thing and tried to trim down the amount of space required, cutting corners where possible. Do not assume you will be able to cut more corners; instead, focus on improving flow and making your space work for you while considering patient, staff, and purveyor flows (e.g., Where will deliveries be dropped off?). Then there is Medicare. There are two ways to educate yourself, your contractor, your architect, and your engineers about the physical requirements for Medicare certification. You can find the form that Medicare and AAAASF inspectors use when surveying a surgery center for compliance with Medicare guidelines. It is known as the CMS2786R, and you can find

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it at http://www.cms.hhs.gov/cmsforms/downloads/CMS2786R.pdf/. The other way is to purchase the Life Safety Code checklist from the AAAHC. The standards include the following: • The building in which the surgical suite is housed must meet minimal firerating standards. The suitability of the building depends on how many floors the building has and which floor will house the surgical suite, among other things. Fire sprinkles are required on every floor. If the surgical suite is on the first floor, the building must be rated a minimum of a Type V — 1 Hour. The rating becomes more stringent the more patients may be “incapable of self-preservation”, and the higher up in the building the surgical suite is located. • Physical separation (at least a one-hour firewall) from the surgical suite to any other occupancy, including your office, the place upstairs, and the office downstairs. • Autonomy of the space. That is, the Medicare-certified center, including the waiting area and the sterilization area, cannot share any space with another facility. Some surveyors balk at having a telephone/computer within the walls of another tenant (a neighbor who happens to be you, usually), so be sure to allow enough space for those items in the surgery area. Assume that the Medicare surgery center will have multiple owners; it must have a lease just like any other tenant. If you must use some of your own office space for the surgery center, set up a lease for that space. It sounds silly, but you are dealing with the Federal government. Also see “Physical Requirements for a Medicare Surgery Center”. • Difficult electrical requirements, including a Type 1 essential electrical system (EES) for those who wish to perform procedures utilizing general anesthesia in their OR. This is, without a doubt, the most painful part of the physical process at this point, as engineers, architects, and contractors often disagree about the interpretation of the codes and often do not agree with State codes. The code states that there must be a generator, but currently there is a waiver to allow battery emergency power. No one knows if or when that waiver will be removed. Just because you were approved five years ago does not mean that you will pass once the code has changed. Separate electrical panels are required for different functions, and the cost of changing the panels — before construction — can be more than US$10,000. • Nurse call system (pull chains at each recovery room bed and bathroom with an annunciator panel at the nurse station). • Other (e.g., tracheostomy set).

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State License If you decide to be so bold, a state license for your ambulatory surgery center may be in the works. The difficulty of obtaining a state license depends on whether you practice in a Certificate of Need (CON) state. Briefly, the CON was created to protect hospitals. The process includes submittal of many documents (lease, architectural and engineering plans, environmental effect reports, etc.) before you receive initial approval. Then, notices are sent to the local governments, and the hospitals can argue against the development of the new center if it will negatively effect their bottom line. If there is capacity available (open OR time), the hospitals will successfully argue against the new surgery center, saying it will harm the hospital, which in turn will harm the community because emergency services and gratis services will need to be cut, etc. In a CON state, a significant investment is required just to make the submittal to the regulating Board. Several surgeons who can bring substantial volume and can make an initial investment must form a significant critical mass before the decision to move ahead can be made. If you are in a state without a CON, there are usually very succinct and detailed guidelines regarding the construction of the center, including large ORs, lots of sterilization space, many bathrooms, etc. Many states without their own guidelines defer to the guidelines of the AIA. The AIA requires large ORs, step-down areas, exam rooms, and other space-eating requirements. California has relatively mild architectural requirements, but its mechanical, plumbing, and electrical requirements are “simplified” versions of the hospital code. Obviously, state license regulations vary from state to state, and you need an expert to help you determine whether you and your proposed space can meet those requirements. Sometimes this can be an architect, sometimes a general contractor or, most often, a surgery center consultant. Make sure you are fully informed of the state’s requirements before you sign a lease, purchase property, or dive into the CON process. In California, as of April 2009, a state license for ambulatory surgery centers is not available after the Department of Public Health bowed out of the process due to a court loss. However, there is legislation being considered which would require all outpatient centers to be at least Medicare-certified, if not licensed. This would mean bringing back the licensing process, but the legislation has not yet determined who would do the inspections, when they would be done, and how they would be paid for.

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Approval Terms Know the difference between accreditation, certification, and licensure. Only the State can license your facility. Only Medicare can certify your facility. The Joint Commission, AAAASF, and AAAHC can provide accreditation for your office and facility. The Joint Commission, AAAASF, and AAAHC can also provide Medicare deemed status certification if your facility (not your office) meets the physical and administrative requirements. If your State requires accreditation of offices that do more than local anesthesia, your office may receive accreditation and be State-approved, but that is not the same as being State-licensed. So if you are accredited and if an insurance company asks for your office’s license, the only license you may have is your business license. Medicare deemed status certification is the program that allows surgery centers to obtain Medicare certification through accreditation agencies rather than through the local Department of Health. The deemed status route is more expensive than regular accreditation, means more work for you and your staff, includes more stringent physical requirements, and, for the most part, takes longer from the receipt of the application by the accreditation agency to the day of the survey. Medicare surveys are unannounced, so scheduling them requires patience. In some states — New York, for instance — how you refer to your space makes a difference. New York is a CON state and, with legislation that took effect in July 2009, prohibits office-based surgery practices from calling themselves a “center” (as in a surgery center), “facility” (as in a hospital), or other related terms. Payers insisted that they were confused by office-based surgery facilities that called themselves a “center”, assuming they were CON-approved facilities. Now the State has very stringent requirements for naming these practices if they are other than the physician’s name. So, in addition to the state’s control of the naming of your office, your policies and procedures must reflect your state’s preferences and requirements.

Development/Construction Recommendations If you are going to build from scratch, build a suite that can at least be accredited, since states are headed in the direction of requiring accreditation (there are other reasons to be accredited listed below). If you can afford to take on the financial responsibility of additional space, pursue Medicare certification

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(if you are not a CON state). If you are seeking reimbursement for the use of your OR, be aware of the payer environment, as many payers are now requiring Medicare certification for all surgery facilities to whom they make payments. If you have a reasonable number of reimbursable cases that you perform each month, you should consider designing a suite that meets Medicare guidelines. Medicare certification may also be an insurance policy against future regulations which may require Medicare certification for facilities seeking reimbursement or for those performing procedures under intravenous (IV) sedation or general anesthesia.

Differences Between Accreditation and Medicare Deemed Status Certification The upside to Medicare certification is reimbursement for use of the facility. The downsides include the upfront expense for construction, the long-term rental expense of increased square footage, and the slight increase in staff paperwork to fulfill Medicare requirements.

Physical requirements for a Medicare surgery center Unlike an office-based surgical suite which will integrate the waiting area, the doctor’s office, the OR, the recovery room, and the exam rooms, the Medicare surgery center is a “single-use” facility where only one thing happens: surgery. So, the Medicare-certified suite has its own waiting room, its own sterilization area, its own recovery room, its own janitor’s closet, and its own OR which is not used by or connected to an adjacent office practice. The Medicare center can be separated by a firewall from an office practice or other occupancies, but dirty areas such as a corridor cannot open straight into the OR. There are no written size requirements for Medicare certification. Just like AAAHC accreditation, the regulations use terms like “adequate” and “safe”. Your state may have requirements, but not Medicare. So if you are doing only light sedation and only blepharoplasties, you do not need a 225-square-foot (15
× 15
) operating room. But if you are doing surgeries requiring armboards, general anesthesia, lasers, or liposuction machines, you may need a larger room. Similarly, there are no guidelines for the number or type of rooms or the size of the support rooms. That does not mean you can do what you want; you must still please the surveyors who may work in larger, well-designed

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spaces. Here are some basic tenets to follow, especially if you are pursuing an accredited facility: • Operating room — Assume that, with general anesthesia, you should start with a basic 225 sq ft. Do not assume that a 22.5
× 10
room will do. Be reasonable and be aware of the details. The AAAASF standard of 4 ft around each side of the bed is a good place to start. Anesthesia machines, video towers, and lasers take up a lot of room. • Recovery room — Do not assume that an exam room will be a good size for a recovery room. Stretchers are usually 30

(with rails up) × 78

, and do not turn on a dime. To accommodate patients being discharged on a stretcher, leave enough space to move the stretcher around and to move things around the stretcher. The recovery area must also have a nurses’ station, where Schedule II–V medications can be stored in a double locking cabinet; forms can be kept; and records for ordering, invoices, and supplies can be stored. You may or may not need a privacy curtain around the stretcher. If you do, make sure it is fire-retardant. Having a door from the recovery area to the public corridor or exterior is very desirable, so that recovering patients do not get pushed past nervous patients awaiting their procedures in the waiting area. • Janitor’s closet — This is often forgotten, but you must have a way to clean up your center. A fire-rated room with a rated door and walls and a ceiling with automatic closure must be created to house a janitor’s sink, a mop, and a mop bucket. The mop must have extra heads and one mop handle designated for OR use only. Try to allow enough space to store your biohazardous waste (usually in a 30-gallon trash can). That way, all your very dirty, hazardous stuff is in one place. • Clean/Dirty utility area(s) — Neither Medicare nor the accrediting agencies require that a facility have a separate room for each function. There can be one room for washing, rinsing, preparation, wrapping, and sterilization of instruments. Ideally, the flow of the room should be one-way, with everything eventually crossing back into one room. Speak with your scrub technicians and nurses to make sure that adequate space is allotted to perform each function. The AAAASF requires a physical separation of clean and dirty areas, but this can consist of a Plexiglas divider with signs indicating which side is which. Always keep your dirty area smaller than your clean area. To allow maximum storage, nothing should be stored in the dirty room except dirty equipment and soiled, bloody items. In the clean room, you can store sterile packs, sterile supplies, etc. Know what kind of

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sterilizer you will want. If you are planning to use a tabletop unit, make sure that upper cabinets are not directly above the unit and that you have a ceiling fan above the sterilizer to prevent false alarms from your smoke detectors and/or sprinkler heads. Waiting area — You must have a separate waiting area for your center’s patients. Do not count on the benevolence of your surveyor allowing you to use your practice’s waiting room for your center. Even if you do not see patients in your practice on Tuesdays because you are in surgery all day, your surveyor may ask, “What if someone else uses the Medicare-certified center? Will you limit them to only working on Tuesdays?” The size of the waiting area is not specified, so use that to your advantage. If you expect to have a maximum of two people in the waiting area, make a very small waiting area. There is no requirement for a receptionist in the waiting area. Small Medicare-approved centers have had just two chairs in the waiting area. The room can be equipped with a buzzer that the patient presses upon arrival. The pre-operative nurse can then open the locked door to greet and escort the patient to the pre-op area. If you will be seeing workers’ compensation patients, consider a larger area. Remember, you do not make money in the waiting area and you have no need to impress patients at this point, since they have already chosen to have their surgery with you. Storage — I have never seen a center that had too much storage. No, it does not make any money, but it will ensure that your center works efficiently and effectively. Storage is necessary in the clean area, and space must also be available for purveyors to drop off their dirty boxes. One mistake many people make is not providing an area for dirty boxes to be dropped off, as they cannot be stored in any clean or sterile area. The hallway is not appropriate because the boxes would block a fire exit. Consider an unused area of the recovery area, especially if a door designed for patient discharge from the recovery room leads to the exterior. Flow — One-way flow is always the best. Just as in the clean/dirty area, the entire center should have a one-way flow so that there is no crossing back over for patients. The flow should allow patients to go from check-in to pre-op, then to the OR to the recovery room, and finally to get discharged from the recovery room (patients can walk or get wheeled by recovering patients, but it is not best; privacy curtains can at least prevent pre-operative patients from seeing recovering patients, but it is possible for them to hear occasional moaning). Air-conditioning requirements — Medicare (nor accreditation) has no specific requirements for the air-conditioning system, even for the OR.

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However, your city or your state may have its own regulations. The best — and most expensive — designs include a HEPA filter and humidification. The AAAASF requires that the OR stay between 68◦ F and 72◦ F, and most states require a separate air-conditioning unit for the OR to ensure proper air changes and good infection control. If litigation ever occurs, you will feel more comfortable knowing you have a system that is similar to what free-standing surgery centers have. • Medical gas — Piped medical gases (in-wall) are not required by any agency or by Medicare. Side tanks in the OR are permissible, as are E tanks of oxygen at each bedside in the recovery room. Piped gases are very expensive, but much more attractive than side tanks and portable suction units. The standard requirement is that there be oxygen and suction available for each bed, including pre-op beds. Shared suction and oxygen is not permitted, since this arrangement would not allow coding or suctioning an OR patient and a recovery patient at the same time. • Space for backup power — For accreditation, the uninterruptible power source (UPS) is acceptable. Currently, the Centers for Medicare and Medicaid Services (CMS) has provided a waiver to allow UPS battery systems instead of generators, but that waiver may be pulled at any time. All agencies but the AAAASF require 90 minutes of backup power to be provided to patient areas for the monitors, lights, surgical table, anesthesia machine, etc. The AAAASF requires 120 minutes of backup power. Your electrical engineer will respond to your prepared equipment list, which should include the voltage and amperage of each item as well as which equipment will be on the backup power (not everything has to be). This information will determine the size of the UPS required. Smaller UPS units are economical when compared with generators. However, large UPS units (more than 12 kVA) are less cost-effective than generators. Note that if you do not give the engineers an equipment list, they can make up whatever they want and you are then at their mercy. They have been known to plan for only about 80-percent capacity of true needs. Therefore, plan that all the equipment will be on at the same time for the full 90 minutes. You must get the equipment under control; otherwise, a large portion of your budget will go to a gigantic UPS. If you are able, plan for a generator (propane, diesel, natural gas). Usually, a generator takes up about one parking space due to required clearances around the unit. Do not forget to plan for the generator when you are planning the space for your surgery center, because your city may have restrictions

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on where it can go. Furthermore, some building developments may have made agreements with the city regarding how many square feet (or minimum percent) of the development must be landscaped, and the generator may cut into that landscaping. Your city will have minimum parking requirements for medical business occupancies (usually about five spaces per 1,000 square feet), and the generator will take up one of those spaces. Many fire departments do not allow generators to be installed on roofs due to the difficulty of getting fuel to them. Some do not allow natural gas generators, some do. California requires that you apply for a generator that has been approved by the Air Quality Management District (AQMD). In addition, you or your staff must obtain approvals and signatures from local residents and businesses to install the generator within a certain distance of any schools. Some new projects will not have the option of a generator, as the city may require that things like the building’s elevator be on the backup system. This is an example in which a UPS system would be cost-prohibitive when compared to a generator. Despite the difficulty, if you have the option, go with the generator for the extra added “insurance”, knowing that a generator meets state licensing regulations and the Life Safety Code, and that any future code revisions will not negatively affect your center.

Why Be Accredited? Recognition of quality The benefit of marketing as an accredited office has lost some of its cache because patients are not that aware of the requirements and the difficulty of obtaining the approval. Still, it is a nice seal of approval, which can help with risk management.

Risk management If something should ever happen with a patient, having the seal of approval can be beneficial. Accreditation is another shield which can protect you from prying attorneys’ fingers. Accreditation can provide your practice a layer of validity and protection, and show that you and your staff have a habit of providing quality patient care and attention to detail. On the flip side, not having accreditation when your colleagues in the area are accredited can be problematic.

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Imagine an attorney challenging your infection control techniques, but your office/facility has a policy and procedure in place with documented staff training, logs of each load and their contents, and a log of your weekly biological testing. In addition, at regular intervals you have had an inspector walk through your space to ensure compliance with hundreds of other standards. You have mounted a significant defense without uttering a single word.

State requirement More and more states are requiring accreditation for those offices that provide anything more than local anesthesia. When California first adopted this regulation (AB 595, which became Health and Safety Code 1248), many physicians tried to skirt the gray line by saying, “The patients breathe on their own and are awake and alert.” California’s law was distilled as this “If you yell fire, can the patient walk out?” If not, you had to be accredited. In New York, the law is much more specific and even provides a limit on the number of cubic centimeters (cc) you can aspirate during liposuction. If your state requires accreditation, you have no choice. If the state-adopted effective date has not yet arrived, do not procrastinate as you may have to postpone surgeries if surveyors are not available before the deadline. Note that the effective date of your accreditation is not the day you apply, and it may not be the day of the survey.

Reimbur$ement Reimbursement is the icing on the cake for some and the main impetus for others for developing a surgical suite. Reimbursement for surgical facilities can be significant, although less significant than in past years. Although there are the odd cases where reimbursement is substantial (5–10 times Medicare), most payers are looking at 100–150 percent of Medicare as the reimbursement for most procedures (see “Establishing A Fee Schedule”). If breast reconstruction or hand surgery is a big part of your practice, reimbursement should be a motive for developing a surgical suite. As discussed in the “Which Agency to Use for Accreditation?” section, careful consideration must be given to your payer mix (HMOs, PPOs, Medicare, and cash) and your volume before thinking of reimbursement as a motive for developing a surgical suite. As stated previously, you may almost never see a Medicare patient to benefit from Medicare approval as many payers are requiring Medicare certification for those facilities they reimburse (Medicare requires seeing one Medicare patient every six months to keep a Medicare number active). If reimbursement is your

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primary focus (because of your volume of third-party reimbursable cases), you must consider Medicare certification.

Tenant Improvements (TIs) vs. Free-Standing Building When you have made the decision of creating your own surgical space, the next question is whether to find a medical office building and then lease the space and build out the suite, or to seek a long-term investment and build your own building. The two biggest differences are time and money. A brand new building (de novo to surgery center developers) can provide a good longterm financial return while ensuring that your landlord treats you well. The benefits of owning real estate need no embellishment. If you find a location that allows for your space and the potential for additional, income-earning space, even better. There are some rare opportunities that arise whereby an existing free-standing building can be converted to a surgical space. The major concern of the existing building will be the presence of fire sprinklers and the parking requirement for medical use in your locale. New facilities must meet the Americans with Disabilities Act of 1990 (ADA) access requirements, of course. The downsides of a de novo free-standing building are the upfront hurdles and the long-term upkeep of the building. The biggest upfront hurdles are time, time, and time. The design process will take three times longer than you think … and that is just for the shell. If your city has an architectural review board, be prepared. If/when your exterior is approved, you and your team must ensure that there is limited impact on street traffic flow, the natural habitats of spotted owls, etc. Of course, on a long-term basis, you, as landlord and landowner, must keep up the building including the parking lot, landscaping, roof, stairwells, and common areas.

Growing the Business If you are located in a state where reimbursement for unlicensed centers is possible, think about bringing in other physician-users. If you have developed a Medicare-certified center, this is much more likely to be an option and should be one of the reasons you develop a surgery center. There are many states that keep a close eye on who uses the center. Some states require that all owners be

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physicians, some say all physician-users must be owners, and some say both. With a Medicare-certified center that has its own waiting, recovery, and discharge areas, it is much more likely that other physicians will show interest in your space. If other physicians fear that their patients will perceive that they are going to your surgery center, other physicians will most likely not want to use your center or participate in its ownership. The benefits of bringing in other physician-users can be significant. While you are vacationing in Cancun, for example, your partner could be performing a week’s worth of cases that could pay for a significant portion of your vacation. The downside is that the space is no longer your own sandbox to do with as you wish. So, with increased income-earning ability comes some democracy (depending on how you structure your entity and who gets to vote on matters such as capital equipment purchases or construction improvements). Other physicians, even those who practice in your specialty, may want different sutures, different equipment, or different staff. Be prepared to make decisions based on economics and experience (theirs as well as yours), not on emotion. And, of course, be prepared to compromise. There are entire seminars held on the subject of selling “shares” (sometimes called “units”) in a surgery center. The most important issue in determining a share price is risk. Obviously, the earlier someone becomes involved in the development of the center, the more risk they take and the lower their price should be. Theoretically, the physician who joins you in the venture while in the design phase should (not “must”) pay less than the physician who joins the project when the center is ready for business, who in turn should pay less than the physician who joins when the center is breaking even. Setting the share price is as much art as it is science. The easiest way is to add up the cost of the construction plus the cost of professional fees (architect, lawyer, CPA), plus the cost of equipment plus the operating capital required to float the business until it can support itself; then, divide that number by 100 and that is your price for 1 percent of the business. Do not gouge. The money is in the use of the center on a long-term basis, not on the sale of shares. Yes, the price of shares must be high enough so that, if the physician loses that money, it will hurt. But, you do not want to scare away the new surgeon in the area who is building his or her practice but is business-savvy. Be reasonable in setting the share price and how much control you think you need. If you have several physicians who show interest, do not be afraid to sell a good portion of your shares if it means that you can make money off those hard-working, quality surgeons. A legal structure may be established that allows for voting control while having minority interest.

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Equipment Considerations You must know early on what your plans are for equipment, as the engineers must decide on the electrical and heating, ventilating, and air-conditioning (HVAC) systems that can handle your needs. You will also need to know if you require 220 V or use a dual headlight vs. a single headlight, if you want wall-mounted vs. table-top monitors in pre-op and recovery, etc. Do not assume that the engineers and the architect know the size or the electrical draw of all the equipment, even if they are experienced. Their level of amnesia from one job to the next is frightening. Take the initiative and research the equipment. Take notice of the equipment where you are currently doing your surgeries. Ask the staff if they like the recovery monitors and ask the anesthesia providers if they like the anesthesia machine and anesthesia monitors, but try to spot the prima donnas. Do not assume you must buy the latest and greatest color monitor and anesthesia machine with the smallest miniscule footprint. Always consider refurbished equipment as an option for almost all your equipment needs. The two areas that tend to be more problematic for refurbished equipment are OR lights and large sterilizers. Other than those two items, consider refurbished surgical tables, stretchers, monitors, and stools. Purchase refurbished equipment from someone local or someone who has been used by one of your peers. Many purveyors will simply purchase a piece of equipment at a hospital auction, wipe it down, and sell it. You want to make sure that your provider does testing, replaces parts, etc. As always, if the price is too good to be true . . . .

Construction Preparation Just as you should assume that everything will take longer than expected, assume that each phase of the project will take three steps where you thought there was one. Equipment needs guide the requirements for electrical and HVAC specifications. Once the space has been chosen and found to be appropriate, the design phase begins. Being prepared is essential to a smooth and timely process. The following steps will help: 1. Prepare a wish list for your rooms. Give your space planner/architect an idea of how much space you need, what functions you want to cover, and how busy your practice will be. Put all the things you want to include,

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such as a spa room, laser room, aesthetic room, private shower, etc. Start with all the things you want and let your professional decide what can fit in. Preparing the list before you look will give you a better idea of how much space you will really need, which may be different from what you had hoped you would need. While you are looking for a space, you can have the space planner/architect look to determine if your wish list will fit (they will eventually charge for these visits). 2. Prepare an equipment list for the surgical area. Once you have found the space and have finalized the design, the equipment list will help the designer and the electrical and HVAC engineers. Engineers want to design a system that will not fail, so they will want to know all the functions that will take place with the equipment, their electrical draw (in amps), and their voltage (almost everything is 110 V in the U.S., but you never know if any of your equipment will be an exception). Providing a layout of the OR and recovery areas can maximize the efficient use of your space (later on, you will need to indicate where you want power outlets to be placed; do not leave it to the engineers or architect). 3. Consider colors. It may not be surprising, but this aspect often takes the longest time of any of the preparations. Get your spouse, or significant other, or — be smart — hire an expert to avoid relationship disaster. If you are in the aesthetic business, your office must reflect an aesthetic awareness. Unless you are a born artist with color and texture awareness, do not be afraid to invest in a professional who can guide you. If nothing else, an expert will provide you with resources and will open your mind to different options.

Choosing the Key Players • Realtor — Surprisingly enough, the realtor can play an important role in finding the right space and can open up your options. • Architect — Often the architect is the first person you will choose besides the contractor. This can be the most important person on your team. With the right architect, you have an advocate who can stand by you throughout the entire development. Many architects will see you through the entire construction process, while others will leave you hanging during the construction. Some architects assume that they are done when they complete the drawings. Some follow through by making construction site visits to ensure that the contractor will follow what the drawings say and

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not make strange assumptions. It is worth it to pay extra for the right architect who has surgery center experience and who will see you through at least part of the construction process. If they do not know surgery centers, architects and engineers can double the space and double the budget by specifying hospital-type air conditioning, plumbing, and electrical equipment. • Engineer — The engineering team, usually chosen by the architect, is extremely important and must have experience with surgery facilities. If they design to the stricter State standards for full-blown multi-specialty surgery centers that do total knee and spine work, you will spend thousands of dollars too much. The engineering team draws out the electrical, plumbing, and HVAC systems. Do not assume that they know what they are doing or that the architect knows what to tell them. They often do not verify simple things like the height of the ceiling. This may not seem important until they tell you your OR ceiling must be as low as 7
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for clearance for all the ductwork. Incidentally, if you must have a low ceiling (e.g., you are in New York on garden level), consider a bonnet for your surgical light. You can run the ductwork around the exterior of the room and leave height for a real surgical light that you will not hit your head on. You can do the same thing in hallways by running the ductwork where height is not as important. Humidification is important for the OR. • Contractor — This team member is perhaps second in importance only to the architect. The contractor can often even cover mistakes that the architect and engineers have made, but they can also magnify the mistakes of the engineers and architect. Do not use your brother-in-law or the guy who did your patio cover. Experience matters with surgical spaces, but experience with hospitals does not mean that the contractor will be good with a surgery center. • Consultant — This is a big question: do you hire an accreditation/ certification consultant or do you go it alone using a nurse who has been through a few surveys? Experience from many physicians says make the investment, but be careful. Picking the wrong consultant may mean he/she recommends the wrong architect, who in turn recommends the wrong contractor and engineer. An experienced and honest consultant can work with a less informed architect and contractor to steer them away from oversized generators and 8-foot hallways, male and female staff showers, etc. Passing the accreditation and Medicare survey is more than just paperwork; an experienced consultant can assist in choosing the right location or the right building prior to making a significant investment. Many a

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project was downsized after the fact because the physician brought in the accreditation/certification consultant after the building was purchased or the shell completed. The order of involvement is usually as follows: 1. Real estate broker — Unless you have found the magical space while wandering the streets, you should find a broker who knows what a surgery center is, knows that sprinklers are required for most uses, is familiar with medical parking, and knows simple ways to discharge patients in a wheelchair. 2. Architect — In an existing building, the architect designs the space. If the project is de novo, the architect designs the building. 3. Engineers — The engineering team tells the architect what he or she forgot as they design the electrical, mechanical or HVAC, and plumbing systems. These people are very important; do not ignore them. They can cost you lots of money or save you from disaster. 4. Contractor — We all know the horror stories of change orders, so good planning is essential and good architects and engineers are crucial, or you will hear the dreaded phrase, “It’s not on the plans!” repeated many times. The contractor should provide a bid only after the engineered drawings are complete; otherwise, the contractor is bidding blind and guessing at requirements. Always get more than one bid, even if your best friend is the perfect contractor with years of experience. Sometimes people miss details, and if you do not catch those oversights early, the change orders to fix it are costly. Somewhere in this process, there is usually an accreditation consultant, nurse, and/or equipment consultant/purveyor. The consultant can save you money by keeping the engineers from overdesigning for non-existent equipment (like planning for 220 V when not required) or from assuming that the equipment draws much more power than it actually does (which causes the “requirement” for a larger backup power unit). The consultant can also inform the engineers and the architect about the difference between state licensing (which requires 400-square-foot ORs and staff showers) and accreditation (which does not). The consultant can also help in the design of the space so the accreditation/certification inspector does not tell you that physical changes must be made, e.g., you must rip up that travertine you had shipped in from Malta to allow for a new door (the AAAASF has a space plan review process which is quick and inexpensive). Consultants do not have licenses, only clients, so check their references.

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Timeline and Milestones For a TI project, the tasks that must occur include the following. The information that is pertinent to a new building is included in square brackets. 1. Locate a suitable building/space (consider issues such as exiting, fire rating, visibility). This will likely take weeks. [For a new building, it will likely take months.] 2. Choose the accreditation/deeming agency (this may be the #1 task if Medicare is involved). This will take one week once you have chosen your priorities. [You should better know this before you find the building.] 3. Design and finalize the space plan. Assume four weeks or less if you are diligent, or more if you have more than one person making recommendations to the architect. [Add four to six weeks for the shell design, and more if you have an Architectural Review Board in your city.] 4. Prepare the construction documents (after you have provided an equipment list to the engineers). Assume four weeks. [Assume six to eight weeks plus more if the city rejects the exterior.] 5. Submit the plans to the city for approval. Assume four weeks for TIs. [Assume six to eight weeks for new buildings plus soils work, environmental impact, etc.] 6. Begin construction. Assume 13–18 weeks for standard TI work with no major structural issues or change orders. [Assume three to nine months for exterior work, then add the TI time.] 7. Purchase equipment. Sometime after TI work begins, start getting readyto-order equipment. Make decisions on the equipment as soon as you can and be ready for lots of people to provide alternatives. Assume six weeks for delivery of new equipment. Refurbished equipment is sometimes difficult to get if it is a hot item, but can often be delivered the next day if available and if the purveyor is local (C-arms were impossible to obtain in 2007–2008 due to problems GE had). Timing is very important, since you do not want expensive equipment getting damaged or stolen at the construction site. 8. Recruit staff. If you are not moving from a current location to a new spot, and if you have not located your clinical staff, you cannot begin planning too early. Keep in touch with staff who you have worked with and thought to be competent. You do not need to hire them when construction begins, but do not wait until one week before your survey date to panic and hire a registered nurse who told you she had gone

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through an accreditation process once at the hospital. If you respect their opinion, get them involved in some of the planning of the surgical areas as they may provide insight that your architect cannot, especially in regard to patient flow as well as outlet and light switch locations. Try to get your nurse or scrub technician involved with the design of the instrument area. Get your application in. Do not wait until you are ready to open your doors to send in your application, as you will be left waiting with bills for rent, payroll, loan payments, etc. All agencies have a time limit for the applications, so do not send them when you have located the dirt lot for the parking. The AAAHC takes about 12 weeks to show up for surveys, while the AAAASF and Joint Commission are a little faster. If you want a survey to be done soon after you have completed construction, get the paperwork in early. Note that Medicare paperwork is filed separately, so if you are considering Medicare certification, you can send that in a little earlier than the accreditation paperwork as the accreditation agencies may want to see a copy of the Medicare paperwork. Some agencies want the paperwork approved before they will schedule the survey. Begin accreditation/certification paperwork preparations. Medicare requires that a center have written agreements with ancillary providers including laboratories for pre-op and pathology, radiology (even if you do not think you need it), medical waste pick-up, janitorial service, linen, consultant pharmacy, peer review, hospital transfer, etc. Identify these providers so that you or your staff can contact them to get the paperwork in place. It usually takes lots of phone calls, so I recommend you delegate this. Some providers are not familiar with the process, so you will have to provide a template for an agreement. Keep it simple. Medicare surveyors often require back-up documentation for your ancillary providers, so start making those requests early. Receive equipment. Do this close to completion, when the space can be secured and someone you trust is there on a regular basis. Receive final construction approval. For the AAAHC, this document is necessary to schedule a survey. Just the final sign-off on the construction card will do, so you do not have to send a Certificate of Occupancy. A temporary occupancy approval will also do. Prepare for your survey. There is much to do after construction begins and before the survey, so do not assume that you will be ready the day after you start moving boxes in. There are in-services, fire drills, etc.

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Time Investment for You Assume that your time investment will be quite significant when starting an office-based or Medicare-certified surgery center. A rough breakdown follows. • Broker — There will be meetings where you drive around town with the broker to find a suitable location. You will have meetings to find the right space, and then meetings to negotiate and finalize the lease. Even after the terms of the lease are agreed upon, you will probably meet once or twice more with your broker along with your attorney. • City — You may be required to visit the city and schmooze a little. Maybe the city does not want a medical space in the “perfect” location you have chosen or there is not enough parking in the lot (you can sometimes get a variance if you tandem park or have a valet). If you have an Architectural Review Board, plan on meeting with them and bring the architect. • Architect — You will have meetings with architects (at least two architects, please) to look at their work and to see if you can get along with them. If you must negotiate every agreement, you will meet with them to do that. Then, there will be more meetings with the chosen architect to get the space plan correct. Look at your agreement to see if there are limitations on the number of meetings or iterations the architect will provide, and be aware that, if you run over that amount, you will be billed. Be fair with them — revisions take time! Most revisions can be done over fax/phone/email to relieve your time investment. Then, meet to go over the details and the final version. Choosing finishes can take a great deal of time and is very important, so do not put that off or assume that the architect will do a good job. You can hire a designer who has a good reputation and has improved the design and feel of other spaces. Having your spouse do the colors is not recommended, and doing it yourself involves more time than you know or want to invest. If you care how it looks, hire someone who knows what they are doing. Assume at least two meetings to choose finishes, no matter if you have a designer or not. Changes in finishes can be costly, and many high-priced items have long lead times. If not ordered early, those changes can slow the construction process and cost you lots of money both in construction costs and in the loss of potential income by not being able to utilize the space. • Engineer — You probably will not meet with the engineers. • Contractor — Once the architectural and engineered drawings are complete, the set of drawings will be sent to contractors for bidding. Get at least two bids, but do not get more than three, as this can alienate the

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contractors or cause them to lose interest. They will need to visit the site to verify measurements including ceiling height, the location of the generator and HVAC units, restrictions on parking, etc. You do not need to be there with them while they measure, but assume that you will meet with them at least twice. Meet with each contractor at least twice to get a feel for their knowledge as well as to see if you can get along with them. Once the construction starts, do not be an absentee owner. If you are building a brand new building, assume that, you will be having many more headaches requiring many more meetings. Meet with the contractor on a regular basis (weekly is good) to get a feel for the progress and to make decisions such as the placement of outlets and switches along with unanticipated occurrences. The subcontractors will have questions about locations of things and the purpose of items in the plans (e.g., “Why is this fan above the autoclave area?” “So the steam from the autoclave doesn’t set off a smoke alarm and damage the ceiling tiles.”). • Equipment — When you purchase equipment, you will have meetings with the seller, whether it be McKesson or an independent distributor. I strongly advise against purchasing equipment from an auction or online. These items are as is. You do not want to have to repair newly purchased equipment yourself. Leave it to experts. Assume two in-person meetings with the seller, along with lots of emails and phone calls. • Consultant — If you are planning to be accredited or certified, hire an accreditation/certification consultant early in the process (recommended!). Have them visit the site a few times, first to check on the location’s feasibility, and then during the construction process to see if anything jumps out (check the agreement and make sure sites checks are in there). The consultant should meet with you, the architect, the contractor, and the subcontractors. You will then need to meet with the consultant again in separate meetings as construction is completed and accreditation preparations begin in earnest. You can delegate much of the paperwork to your office manager/business office manager/clinical manager. You should be in contact with your consultant throughout the process, asking questions that the contractor may relay to you regarding equipment placement, the size of the backup power, etc.

Billing for the OR Should I? The first question is, “Will I bill for the use of the OR?” I say, “Why not?” Unless there is a state law prohibiting it, and you are doing non-cosmetic

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work that is covered by the patient’s insurance, attempt to be reimbursed for the expense you underwent to provide a personalized, non-hospital surgical experience for your patients. Do not rely on hearsay or gossip to determine if billing for the OR is illegal. I have yet to hear of it being so in any state.

In-house vs. outsourcing? Billing for the OR is not rocket science, but many dollars are not captured due to the lack of experience of a biller/collector. So, do not assume that the office person who does your professional fee billing knows how to bill for the facility. There are many nuances that an outside expert can provide, which results in more income, and you do not have workers’ compensation and health insurance issues as well as payroll taxes to pay with an outside billing source. The biller/collector is incentivized to collect because otherwise you do not pay them.

Establishing a fee schedule There is no longer big money in surgery centers. You do not have to only bill Medicare rates, but it is a good idea to bill as a multiple of Medicare. Of course, you do not want to be the tallest blade of grass and be constantly sent for review. One rule of thumb is a multiple of Medicare. Know that payers will always ask for “reasonable and customary” fees and ask for a reduction in fees. Leave some room for negotiation. If you can, see what others in the area are billing, though it can be tough to get that kind of information.

Establishing a legal entity If you decide to bill for the surgical entity, you must establish a separate entity. Most states now require that the entity be a “professional” entity. Many states take quite some time to approve medical entities that are not “Joe Smith, MD. A Professional Corporation”, for example. Some states have very particular restrictions on what can and cannot be in a name for a surgical entity (for example, New York does not allow “Surgery Center” or “Surgical Center” without a CON/Article 28).

Ongoing Accreditation Do not forget to maintain the accreditation effort. If you, the surgeon, the monarch, do not make maintenance of accreditation requirements a priority,

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you may lose your accreditation. It takes time, effort, energy, and intuition. It is not rocket science, but it takes a team that sees accreditation and certification as an honorable goal that has meaning — even if money provides the meaning. If you, the leader, do not see it that way, you may jeopardize the approval of your facility and, in some states, remove the ease of utilizing your own OR through non-compliance.

Rewards Many know the benefits of owning an OR that is available at a moment’s notice. The benefits of providing a convenient and safe environment for your patients can be immeasurable. The time savings for you as the surgeon can be substantial. If you can receive reimbursement for the cases you perform at your center, all the better.

Risks The risk in not receiving accreditation can be fines and a loss of license, depending on your state. If proposed Assembly and Senate bills pass in certain states, having only accreditation will not be enough — you will need to find a location that is Medicare-certified. Financially, the risk to building an accredited OR is the cost of the additional floor space, the equipment expense, and the wages for OR personnel.

Expectations Do not assume that having your own OR will solve all your woes and double the size of your practice. Competition is very stiff right now, so if you can offer a lower OR fee than a competitor because you run your OR efficiently, you may create a competitive edge. You will not get rich from the collections from your OR, but it can pay for itself and more, depending on your mix of cases. Hand surgery cases pay very well, as does all bone work. But, do not forget that your OR will cost you money to operate.

Summary The benefits of having an office-based operating suite are not a mystery and not new. The leap to a Medicare-certified center is newer and requires more

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risk, but provides the potential of more benefit. Many payers are requiring Medicare certification (or, in the case of Blue Cross, confirmation of a Type 1 EES), and some states are considering legislation requiring Medicare approval. Be careful, do your homework before you start, and the rewards — both subjective and financial — can be substantial.

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Publishing in Plastic Surgery Deepak M. Gupta, MD, Nicholas J. Panetta, MD, Geoffrey C. Gurtner, MD, FACS and Michael T. Longaker, MD, MBA, FACS

Introduction he field of plastic surgery has long prided itself on innovative approaches to disease, which have largely come from the contributions of surgeons around the world even before plastic surgery was recognized as a unique surgical subspecialty. Names such as Gillies, LeFort, Tessier, Millard, Buncke, Murray, Mathes, and Sarnat are household names in plastic surgery today. Their wisdom has imparted to others much of the basis of modern plastic surgery. Beginning in the 1940s, Tessier1 outlined novel approaches to address craniofacial deformities, yet it was not until 1997 that craniofacial surgery was officially recognized by the Accreditation Council for Graduate Medical Education (ACGME) as a subspecialty of plastic surgery. Such contributions have brought plastic surgery to the level of specific expertise that we know today. So how were these men able to apply their observations from within the walls of their facilities to fertilize plastic surgery as a field around the world? How were surgeons worldwide able to learn to correct craniofacial anomalies without observing Tessier firsthand? How have pioneers of our specialty shared the modern principles of plastic surgery if they are not here to teach them? The answer to all of these questions, and the legacy of these founders, lies in their written works in the form of books, manuscripts, essays, and others. The publication of their observations stirred curiosity among other professionals and fueled the evolution of plastic surgery. Plastic surgery is a relatively nascent subspecialty. Surgery has been performed since before the advent of written records, yet it was not until the 1900s that Sir Harold Gillies, who is commonly regarded as the father of plastic surgery, established the field’s principles for the first time. The evolution of plastic surgery continues, and we are acquiring new clinical and basic scientific knowledge and publishing at a rate faster than any other time in history. In 2005 alone, more than 3,000 articles were published related to our specialty. Not only is the volume of information growing, but so is the diversity of clinical

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and basic science reports — both in content and context — in academic as well as private settings. Publishing sustains and expands the field. The growing body of literature provides guidance and opportunities for individuals at all stages of their careers.2 For the basic scientist, the literature explains disease at the molecular or genetic level. With parallel advances in gene therapy, stem cell biology, developmental biology, and regenerative medicine, disease is being understood at a deeper level than ever before. We stand poised to change the face of clinical plastic surgery, as did the field’s founding fathers. For example, lessons used in dealing with difficult wounds were gleaned from close and detailed examination of wounds in vitro and in a number of in vivo animal models. This basic science knowledge has helped us to address deficiencies in our clinical approaches, such as in the treatment of non-healing ulcers, chronic wounds, and debilitating conditions that lower the quality of life. A great example of this type of translational research is the use of negativepressure wound therapy, which has become a cornerstone in treating difficult wounds. This revolutionary clinical technology was introduced by Kinetic Concepts, Inc. (KCI). Negative-pressure wound therapy relies on increasing blood flow to hypoxic wounds, reducing pressure, drawing out excess fluid and infection, and clearing cellular wastes. Since its Food and Drug Administration (FDA) approval in 1995, the vacuum-assisted closure (VAC) device has been studied in several settings in which wound management is complicated, difficult, and often suboptimal. These settings include burns, composite tissue loss from trauma, high-grade pressure wounds, diabetic foot ulcers, as well as wound reconstruction mediated by a skin substitute. Furthermore, Argenta et al.3 and Morykwas et al.4 have published several basic research reports on the effects of subatmospheric pressure on tissue. These studies have examined parameters such as blood flow, granulation tissue formation, mechanical deformation, and tissue factors as well as in vitro cell biology. The authors note that mechanical deformation can draw fluid out of the interstitial space, shortening the distance over which growth factors must diffuse. As such, the phenomenon is familiar to plastic surgeons and underlies de novo composite tissue engineering in the form of tissue expansion.3,4 Scherer et al.5 have also reported that cell proliferation is stimulated by negative pressure. Furthermore, microscopic strain was documented specifically in subatmospheric conditions. The literature also allows surgeons to share their clinical experience in an objective and meaningful manner. Publications written by clinical practitioners have changed the field of plastic surgery. One example is an article by Hidalgo6 reporting on the use of the microvascular fibula flap to reconstruct the mandible after extirpation for orofacial cancer. Segmental mandibular

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defect reconstruction with a microvascular fibula flap was discussed, including considerations such as shape, bone length, donor site morbidity, and quality of bone stock. This article has made the microvascular fibula flap a mainstay for mandibular reconstruction. Publishing in plastic surgery can fuel improved patient care, optimize efficient surgery, and reduce the biomedical and socioeconomic burdens of disease. However, the expansion of the literature is insufficient by itself to advance the field, as critics have noted several deficiencies in our publications. Several reports have detailed the nature of the plastic surgery literature, and regrettably it is largely limited to case reports, anecdotal experience, and other studies that are “low” in their level of evidence. While many of these studies have made invaluable contributions, plastic surgery as a field is perhaps lagging, given the overall trend towards evidence-based medicine and, increasingly, evidence-based surgery. This new paradigm of “best practice” in medicine and surgery is already affecting patient care and payer policy. The implications of this trend are potentially significant, and it will be interesting to follow the evolution of the plastic surgery literature as the field progresses. For now, the community will continue to rely on contributions from its members, and we should not forget that everyone has something to contribute. The following information may serve to rally those who have questions regarding publishing in plastic surgery.

How to Publish? The question of how to publish in plastic surgery can be daunting to the novice. Of foremost importance, publishing is made possible by our peers. When a manuscript is submitted to a journal, experts in the field are consulted not only to assess the study, but also to indicate opportunities for improvement. As such, review of our work by our peers assists the editors in making an informed and objective publication decision; in providing constructive feedback to authors in order to enhance quality; and in maintaining standards of the journal, the field, and modern science and medicine. Peer review of a manuscript takes time, effort, and expertise. An effective peer review impacts editors, the authors, and the evolution of the very field of plastic surgery itself. Peer review begins with manuscript preparation and the pre-submission process. During this time, authors demonstrate their understanding of the scientific method, ponder a research question, formulate a hypothesis, design methodology, collect data, and analyze their meaning.

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First, a manuscript usually begins with an abstract. It should be a concise representation of the text of the manuscript, structured to a journal’s preference. Next, the introduction should establish a logical case and context for the current study and clearly state the research hypothesis. The introduction should include a brief literature review and touch on the manuscript’s relevance to the mission of the journal. Overall, the introduction must provide a basis for why this study is important. Following the introduction, the methods section outlines the design of the study that aims to answer the authors’ question or explore their hypothesis. Of utmost importance in the methods section is the acquisition of appropriate control data, the absence of which can render the study unpublishable. In this section, the authors establish the study’s validity and reliability and address confounding variables, such as unique materials, so that the study is reproducible. Information regarding human and animal subjects should be clearly stated. Finally, a plan for statistical analysis of the data is discussed under the methods section. Information can be cited from previous peer-reviewed reports. This common practice reduces the manuscript length, increases its readability, and strengthens this section with supporting data from commonly accepted practices. The results should be presented clearly. Tables, figures, and other visual aids can be useful as long as they are easy to follow, logical, and straightforward. Data are presented in relative or absolute terms, whichever is appropriate. Actual numbers should be included, if applicable. Too often, authors make the mistake of stating that “X is significantly greater than Y ” or “X is comparable to Z” without actually providing the values for X, Y , and Z. The authors should first present the data and then establish their statistical significance, where appropriate. Any figure that is used should be formatted according to the journal’s specifications for size, graphic resolution (dots per inch or DPI), color or black/white, and file format. Failure to adhere to these guidelines will prompt a revision. Each figure should be associated with a short figure legend that describes the data presented in the figure and defines any abbreviations, arrows or dotted lines, etc. that may be used. The figure legends are listed in a separate section of the manuscript, usually following the references. A discussion of the results should follow next. This section revisits, but does not repeat, the introductory material or results. The discussion should clearly frame and interpret the main findings of the study, and also assess its strengths and weaknesses. The discussion should avoid speculation, but clearly suggest future directions and opportunities for further study. Finally, a manuscript should include an accurate list of references. This section should demonstrate consultation of the current literature, but items

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should not be too many, too few, too old, or too obscure. Accuracy is paramount. Any of these mistakes will prompt revision. Authors also have other miscellaneous considerations when preparing a manuscript. They should choose an appropriate title, and disclose potential conflicts of interest and financial support for the research (e.g., NIH grants, private funding, etc.). Of course, they also need to be certain that none of the text is plagiarized. In considering which journals to submit the article to, authors should consider the readership of each journal and the expertise each journal is looking for. A journal’s impact factor is associated with its ability to reach a broad readership.7 Each journal will use this impact factor to guide its peer review process. For example, Nature’s impact factor varies significantly from that of Plastic and Reconstructive Surgery, yet the latter is likely the most widely read journal among plastic surgeons. Authors should consider the novelty of their work, the applicability of the study, the soundness of their methodology, the strength of their data, and the target audience when submitting a manuscript to a particular journal. In the modern era, manuscripts are largely submitted to journals online through various systems. Authors should adhere strictly to these guidelines delineated by each journal. The initial submission of a manuscript includes completion of copyright and release forms, figures, supporting material, and other information that is sometimes requested by a journal. Once the editor has received the manuscript, a tracking number is assigned to it. Usually, this number is a reflection of the number of manuscripts a journal has received for consideration during that calendar year. This stage marks the first point at which a manuscript can be turned down by the peer review process. Editors will perform an internal brief review of the manuscript. It will be sent to several outside peer reviewers only if it is deemed worthy of further review. This decision is based on a number of factors largely determined by a manuscript’s potential to make a novel contribution to the literature. Once the manuscript is sent out for review, usually between two and four reviewers are invited to review the manuscript. They will receive an email that will allow them to accept the invitation and then guide them to the manuscript materials. In most cases, reviewers are chosen from within the field, so they will understand the hypothesis underlying the work and will be familiar with the model systems and methods. They will be able to judge the quality of the data and analysis, assess the validity of the conclusions, and judge the significance of the work. Peer reviewers provide feedback regarding the manuscript, ranging from spare comments to lengthy assessments. Peer review is blinded so that authors

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will not be able to learn the identity of the reviewer. This anonymity helps ensure that the review process will not impact collegiality or ethics. Once the reviewer has assessed the manuscript for the components described above, they will provide a specific commentary on the manuscript’s strengths and weaknesses, including constructive strategies for improvement. The reviewer will also fill out a rating form provided by the journal regarding novelty, importance, soundness, relevance, etc. Depending on the journal, this rating form may also contain an area to designate an overall recommendation to accept, reject, revise and resubmit, or provisionally accept pending revision, etc. The rating form also contains an area allowing confidential feedback to the editors for any concerns of conflict of interest, plagiarism, etc. These feedback items are returned to the authors. In some cases, reviewers or editors accept or reject the manuscript outright, but usually they suggest revisions and further review. Revisions can come in different forms. Minor revisions include correction of grammatical errors or inclusion of methodology minutiae. Significant revision suggestions include requests for additional samples and data points, additional experiments, or consideration of conflicting published literature. Reviewers may also ask how the study fits into the larger picture of the field, medicine, and modern science in general. Authors should not be discouraged by requests for revisions, since reviewer comments indicate that the reviewers have taken an interest in improving the work and making it a part of the permanent body of literature. Thus, authors should pay careful attention to addressing each reviewer comment as the manuscript is revised. Journals usually have a set window of time (e.g., 30 or 90 days) for making and resubmitting revised manuscripts. The submission process expires if the manuscript is not resubmitted by that deadline. In most cases, suggestions for revisions are not optional for the authors. Failure to adequately address each reviewer comment will not go unnoticed in further review. The potential for abuse of the peer review system arises when there is a conflict of interest between authors and reviewers. Such conflicts should be brought to the attention of the editorial staff. However, in most cases, each reviewer comment can be addressed tactfully and adequately. Revisions are usually enumerated in a point-by-point rebuttal letter accompanying the resubmitted manuscript. Each reviewer comment should be listed alongside a clear response indicating exactly where in the manuscript the pertinent change was made. Within the manuscript, the revision should be indicated by a distinct font, often bold and bracketed or in a different color. Revising a manuscript requires significant attention and consideration by both the authors and the reviewers, but it is the essence of peer review.

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Once the revised manuscript is resubmitted with a point-by-point response, it re-enters the peer review process. At this point, it may be accepted, rejected, or returned for revisions again. Each journal will have its own threshold for revisions. Some journals allow one round; others will allow two, three, or more revisions. If the manuscript is ultimately rejected, it may be revised at the authors’ will or it can be submitted to another journal. If the manuscript is ultimately accepted, it will enter the editorial staff’s publication queue, which can be expeditious or lengthy, depending on the journal. At this stage, the manuscript is formatted to the journal’s specifications and the editors may request clarification of manuscript information, such as figure quality, references, correspondence details, etc. These requests are returned to authors in the form of a galley proof, after which the manuscript gains the status of being “in press” and is slated for publication in an upcoming issue. As a final note, when considering in which journal you may want to publish a manuscript, it is important to submit your work only in serial fashion, not in parallel. That is, one should not submit a manuscript to multiple journals at the same time. While this may be a tempting option to increase the chances that a report may get accepted for publication or to optimize your visibility and expedite the overall process, one should instead be open to constructive criticism from the peer review process. Parallel submissions can lead to “double publishing”, do not allow for manuscript improvement as the manuscript is reviewed, and is not considered an appropriate strategy. Rather, serial submissions allow multiple edits and subsequent review and re-edits to improve the quality of the work. The serial approach also allows improvement of the quality of investigation at every step of the manuscript review and publishing process.

Where to Publish? Choosing a journal can be a difficult decision. Multi-factorial considerations that overlap and conflict with one another can be confusing for the novice author. The choice of journal will largely determine who will read a given article. For example, Plastic and Reconstructive Surgery is likely to have a relatively narrow audience compared with Nature. The readership for the former consists largely of plastic surgeons and residents. In contrast, the basic scientist will preferentially read the Journal of Biological Chemistry or Cell rather than Plastic and Reconstructive Surgery to find the latest data on a given

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molecule or in vitro mechanism. Consequently, choosing a journal is often a strategic consideration. Where will the work be best received, and where will it be perceived as having the greatest impact? Where an article is published can also influence people’s impressions of the authors’ abilities. A journal with a higher impact factor raises the level of regard held for the novelty of the data, the rigor of methods, and the applicability of findings. Work published in a high-impact journal is more likely to be considered high-impact work that will be noticed more quickly by others in the field, potentially changing the field instantly or impacting the field’s future. High-impact work may also play a significant role in the authors’ career development, and is often noticed by academic departments during potential job negotiations as well as by funding institutions during granting opportunities. In general, having a tentative target journal in mind and following its guidelines when preparing a manuscript can save time and energy. Reformatting a manuscript’s body, abstract, figures, references, etc. to a different journal’s format can be extremely cumbersome and tedious. Some journals accept a variety of manuscript formats. For example, a full-length research article differs from a short (or brief) communication, and sometimes a rapid communication can have its unique form. It is important to decide early which type to submit to the journal to avoid making changes later. Each type has its advantages and disadvantages. The majority of research manuscripts that are published are full-length articles describing comprehensive investigations. They usually follow the structure described above, with introduction, methods, results, and discussion sections. This standard type of manuscript is the most important form of publication for authors who come under consideration for tenure or promotion in researchoriented environments such as universities. Short and rapid communications are less structured and less comprehensive than full-length research manuscripts and should not be the bulk of one’s curriculum vitae, especially in an academic setting. These types of manuscripts often contain information that can stand alone and make a significant contribution to the literature, but may combine into one section introductory material, methodology, results, and a discussion. Few journals offer this option. Often these types of manuscripts are used to disseminate information in “hot”, quickly moving, competitive fields or when the material may have immediate implications for public health. Choosing the type of manuscript and planning ahead during manuscript preparation is only part of the decision impacted by the choice of where to publish. Almost every editor provides information regarding the journal,

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including a set of author instructions, the scope and mission of the journal, and the potential formats in which a manuscript may be submitted. Usually, this information can be obtained electronically. Beyond the manuscript type, there are other considerations that go into choosing the right journal for your manuscript, including language, focus, availability, reputation, time to print, and nature of its review process.8 Among these factors, the nature of the peer review process is perhaps the most important. As a general guideline, the value of submitting a manuscript to a journal that is not peer reviewed is equivocal. A manuscript is likely to be widely accepted and readily respected only if it is published in a peer-reviewed journal. The focus of a journal is another important consideration. Does the journal publish only clinical articles, only basic science articles, or both? The journal’s orientation should be compatible with the goals of the author.9 However, there is a potential benefit to submitting the manuscript where there is not an obvious fit. For example, submitting a basic science research paper to a clinically oriented journal may underscore the potential clinical relevance of the work. The reputation of a journal should also be an important consideration. How is reputation determined? Established colleagues in the field will be able to identify which journals are regularly read and respected. Most people will have a short list of high-profile journals and a somewhat longer list of acceptable journals. The acceptance rate of a particular journal is also an important consideration in determining its reputation.10 Is the journal very selective or does it publish most of the manuscripts that are submitted? Are the standards so high that it would likely be a waste of time and resources to submit a manuscript to that journal? Experienced researchers can help gauge journal selectivity. The reputation of a journal is also reflected in its editorial board. Are the editors well-known leaders in their field? The reputation of a journal may also be associated with the length of time that the journal has existed. Many journals are launched each year, and only a small fraction of them survive. Consequently, junior investigators may want to stick with more established journals, while senior researchers may have less to lose from publishing in newer journals. Finally, and most importantly, the reputation of a journal is associated with its impact factor. This number is an annual measure of how often articles in a particular journal are cited by other authors. The impact factor can be misleading, though.11,12 For example, methods and review articles are often cited more than primary research articles, so journals that publish a disproportionately high number of these articles will be cited more often,

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leading to a falsely high impact factor. In contrast, an outstanding journal with superb quality that serves only a small group of researchers or a relatively small field (e.g., plastic and reconstructive surgery) will, by definition, have fewer readers and a smaller audience. The narrow focus of the journal can lead to a falsely low impact factor, even if all the articles are exceptional in quality and of great importance to their audience. Though it may not be obvious to some people, the availability of a journal is another important consideration when choosing a journal for publication. A journal that is not easily available to readers is less likely to make a difference for the authors or for the field. Online availability, library holdings, as well as personal subscriptions all impact how accessible a journal is. Indexing in electronic databases like MEDLINE/PubMed (National Library of Medicine) can exponentially disseminate your manuscript to a wide variety of readers, authors, and investigators. While the above factors are important determinants in finding a good fit for a manuscript, they are not the only ones. Most authors consider a small set of target journals before expanding their considerations. This set usually consists of journals with foci that closely parallel an author’s work. These journals may also be the target journals for an author’s peers, who may then recognize the work when presented at scientific meetings and symposia.

Who Should Publish and When? Because plastic surgeons are required to complete a long training course before becoming attending surgeons, first as medical students, then as residents and fellows, the question of when to publish is often closely associated with who you are when you publish. For the dedicated basic science researcher, the objective to publish is obvious. However, for clinicians and surgeon-scientists, private practitioners and academics, a common misperception exists that publishing in plastic surgery may be less critical than it is for basic scientists. For academic surgeons, publishing is critical. Dissemination of one’s surgical practice and outcomes is paramount when building a reputation, expanding one’s catchment area, and building camaraderie among peers both within the academic institution as well as beyond. Not only can publishing attract attention to a specific faculty member, but it also contributes to divisional/departmental recognition. First, the division/department will automatically be recognized when the manuscript is published under the corresponding author’s contact information. Second,

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any work that is presented at regional, national, or international meetings will highlight the home institution from which the work originated. Third, any awards that the work wins will also be associated with that specific division/department. Fourth, invited lectureships to present this work confer recognition on the division/department of which the author is a faculty member. Publishing in academic plastic surgery is also associated with promotions along the tenured faculty member track. Typically, a number of years is required to move between assistant professor, associate professor, and professor positions. Having a body of published work is a testament to an academician’s clinical expertise and facilitates peer recommendations and promotions. Publishing can also establish one’s expertise in a particular area, which can lead to invited review journal articles, book chapters, and invited commentaries. Furthermore, publishing can increase the number of clinical referrals which an individual may receive, as others recognize an author’s expertise. For the plastic surgeon in private practice, publishing can achieve many of the same objectives as described above. In short, publishing can help to distinguish oneself from others. Private practitioners often prioritize businessrelated considerations without realizing that publishing can fertilize business growth and development, although it may not be obvious. A private practitioner depends on practice volume for livelihood and business survival. It is possible for publishing to increase that practice volume. Scientifically sound, reproducible work with favorable results can fuel the growth of one’s practice. Publishing can bestow a private practitioner with clout that can be advantageous when a number of surgeons are competing. This is true in both reconstructive and cosmetic surgical cases. Published private practitioners can quickly capture a niche market in a competitive environment. Residents, fellows, and medical students also have an opportunity, as well as a responsibility, to publish in plastic surgery. Often, these individuals are the “laboring oars in the water” and can drive the process with guidance and mentorship from their attending surgeons. Opportunities to publish are valuable for trainees, the faculty, and their training programs. Trainees benefit from a mentored experience as they begin to establish themselves within the field of plastic surgery. On a more advanced level, publishing provides a platform for contributing innovative solutions that may serve the rest of one’s career. The community of plastic surgeons is relatively small and, given the long course of training, they are likely to cross paths with each other more than once. Publishing can foster camaraderie in these scenarios, and can help to stratify candidates for faculty positions and other employment opportunities. In addition, faculty members benefit from the valuable opportunity to

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teach as they are exposed to the new ideas and opinions of trainees who think with a different, nascent, often refreshing perspective. In turn, mentors can then use these ideas to further direct research efforts. This interplay of ideas and exchange of information is synergistic and spawns resident-, fellow-, and medical student-driven research in plastic surgery.

What to Publish? Plastic and reconstructive surgeons come in all forms, shapes, and sizes. As such, each member of the field can make a unique contribution when the time is right. The manner of contribution varies. In general, published studies form the hierarchy of evidence in current evidence-based medicine (and surgery) paradigms. Meta-analyses have the unique advantage of synthesizing results from many studies. A meta-analysis is a comprehensive survey of a topic in which all of the primary studies with the highest level of evidence have been systematically identified, appraised, and summarized according to an explicit and reproducible methodology. During the process of collecting primary data, the authors include studies that are generally statistically similar enough so that the results can be combined and analyzed as if they were one study. A good systematic review or meta-analysis will often be a better guide to practice than an individual article. There are certainly numerous strengths to the metaanalysis, but there are several weaknesses as well. First, it is rare that the results of several primary data sets precisely coincide; instead, they usually overlap or merely identify a trend. This is often due to the fact that the number of patients in a single study may not be large enough to come up with a decisive, highpowered conclusion. Second, since the authors are charged with the responsibility of reviewing all primary data available related to the current topic, it is possible to include studies that support a particular preferred conclusion and omit studies that do not. To address the potential for this problem, the authors should explain exactly how the chosen studies were evaluated for inclusion. As readers, we should then ask ourselves, “Do these reasons make sense?” Third, meta-analysis is peculiar in that it may amplify publication bias. Biases appear because studies with documented positive or statistically significant findings are published more often than those that have a negative or an insignificant result. If the authors include only published studies, several weakly positive studies may now result in a strongly positive review. To address this potential confounder, it is important to consider whether negative studies exist.

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After the meta-analysis, randomized controlled trials (RCTs) provide the next greatest level of evidence in the evidence-based medicine (or surgery) paradigm. This type of work typically exhibits random (ideally a doubleblind) assignment, an intervention, and a control group. The study covers a specific period of time and measures a specific outcome or outcomes. Briefly, a randomized controlled study is one in which there are two groups. One group receives an experimental treatment under investigation. The control group receives either no treatment or some standard default treatment, such as a placebo. In randomized controlled studies, patients are randomly assigned to either group. Random assignment reduces the risk of bias and increases the probability that differences between or among the groups can be attributed to the treatment, and not to the selection, of subjects in each group. The control group allows comparison of the experimental intervention with alternatives, including standard choices. For these reasons, RCTs are commonly accepted as the standard and highest-level method of answering questions regarding the effectiveness of a particular therapy.13 For example, the statement that a particular medication can reduce microvascular flap complications to 1 percent is not very informative unless we also know how many patients have complications either without further treatment or with a different treatment. Certain research questions cannot be answered by randomized controlled studies for ethical reasons. For example, it would be unethical to study the prospective effects of smoking on microvascular flap success by asking one group to smoke two packs per day and another group to abstain, since the smoking group would be subject to unnecessary harm. Finally, RCTs have the advantage of being prospective studies, further minimizing bias. However, they can also be very expensive and time-consuming to administer. A cohort study compares one group of patients with a particular condition to another group not affected by that condition. Both groups are followed and compared over time. Sometimes the initial group receives a treatment that the second group does not receive. We discussed the ethical issues associated with a randomized controlled study to document the effects of smoking on microvascular flap complications. A reasonable alternative would be a cohort study in which a group of people who already smoke is compared to a group of non-smokers. This type of study can be performed prospectively to see what, if any, microvascular flap complications may develop. Cohort studies, in general, are relatively high-level evidence studies, but are also associated with several weaknesses. First, they are not as reliable as randomized controlled studies, since the experimental group may differ from the control group in

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an unknown way. Furthermore, like randomized controlled studies, they can be expensive and time-consuming. Both cohort studies and RCTs are also subject to changes over the course of the study. For example, subjects may expire, move away, or develop other conditions. New and promising treatments sometimes arise and can be adopted by some of the patients. This and other factors can prove confounding to an investigation. Case control studies are similar to cohort studies. Both types of studies identify patients based on current information, but case control studies have the disadvantage of being retrospective, unlike cohort studies. In a case control study, subjects who already have a certain condition (e.g., microvascular flap failure) are compared with patients who have not developed this condition (e.g., their microvascular flaps survived). For example, patients who exhibit microvascular flap failure may be asked how much they may have smoked in the past. Their answers would be compared with those of a sample of patients with successful microvascular flaps using the same procedure by the same surgeon around the same point in time. Case control studies are less reliable than either RCTs or cohort studies, as they are retrospective and do not demonstrate causation. The main advantage of case control studies is how rapidly they can be done because the data are gathered simply by asking patients about their past history. As such, it is possible for researchers to quickly discover effects that would otherwise take many years to show themselves. For this reason, case control studies are often the first study to suggest a new hypothesis, which can then be corroborated (or refuted) with results from an RCT or a cohort study. Finally, case series and case reports are the lowest-level evidence articles found in the literature. These types of studies report on the treatment of individual patients. These reports should be written with caution and under rare circumstances because the low-level evidence limits their value. They can be beneficial if a patient has a rare condition and the physician is uncertain regarding what treatment to pursue. In such a situation, a case series or case reports can help guide the physician. However, evidence derived from other studies based on designs described previously would be considered better and should be used whenever possible. Case series and case reports use no control group with which to compare outcomes and hence have no statistical validity. Useful background information is contained in other types of articles such as editorials, commentaries, descriptions of ideas, and opinion pieces. The authors of articles of this type are frequently experts in the field. Those experts are often invited to write about a particular topic by journal editors. Often a journal sends out a manuscript for peer review to an expert within the field, who is then invited to provide a commentary regarding the work. This

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commentary can identify the strengths and deficiencies of the article under review, but it can also provide a stage for the reviewer/invited author to discuss his or her own work, either previously published or preliminary. This side-byside, compare-and-contrast format is useful for some readers. Also included in the background body of literature are studies of varying importance that document in vivo findings in animal models. With regard to clinical plastic surgery, this is low-level evidence. However, many modern day plastic surgery techniques, like distraction osteogenesis, are rooted in animal models. In the future, it will be interesting to follow the impact on clinical plastic surgery of animal studies investigating composite tissue allotransplantation, tissue irradiation, tissue regeneration, and genes. Finally, in vitro basic science studies provide background information in some cases and have the potential to have far-reaching implications for clinical plastic surgery. For example, molecular mechanisms underlying some syndromic forms of craniosynostosis have been elucidated in the literature, but due to immaturity in translational molecular therapies in the clinical setting, these studies have had limited impact to date in clinical plastic surgery. Nonetheless, these in vitro studies hold great potential for the future.

Why Publish? Perhaps most importantly, publishing in plastic surgery can drive the field forward. Many of the benefits from publishing in plastic surgery have already been outlined above, but an appreciation for the far-reaching impact of publishing is sometimes underestimated. Perhaps as long as medicine has been practiced, its practitioners have been guided by either personal or collective experience. Today, clinical medicine is guided by literature and the experience it documents. This trend is now referred to as evidence-based medicine (EBM),14 a term coined in the 1980s. Almost undeniably, EBM is increasing in its pervasiveness and is integrally taught in most medical school curricula. For example, according to some sources, over 50 percent of general inpatient medicine practices are based on RCTs. In contrast, less than 25 percent of surgical interventions are based on high-level evidence.15,16 Clearly, EBM is not universal, especially among surgeons.17 This trend is widely documented. Plastic surgeons should be aware of this deficiency as they consider making potential contributions to the field. EBM involves the integration of clinical expertise with the best available clinical information to deliver optimal patient care.18 In most cases, this

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practice necessitates the use of high-level methodology, including metaanalyses, RCTs, and prospective cohort studies, to answer questions focused on why rather than how plastic surgeons do what they do. Randomized controlled studies have several advantages which make them the gold standard for the assessment of medical interventions. Specifically, randomization, blinding, and prospective observation allow for elimination of potential biases that may confound other study designs. For these reasons, RCTs can directly affect patient care more than any other study design.19 However, in a recent study of the plastic surgery literature, only 3.3 percent of all articles could be classified under high-level evidence.20 Of these articles, only about half were of the highest-level evidence, namely, RCTs. This rate is consistent with other surgical disciplines, such as otolaryngology, pediatric surgery, and neurosurgery, which report between 0.3 and 3.7 percent of studies of highest-level evidence.21–23 This rate has remained unchanged for the majority of the last two decades.20 In contrast, several reports suggest that over 47–86 percent of studies may be of low-level evidence, including case series and expert opinions.24,25 EBM is important for the field of plastic and reconstructive surgery to move forward, as personal anecdotes, experience, traditions, and opinions are not sufficient for guiding medical decisions. Yet high-level evidence reports have been difficult to produce.26 EBM offers a paradigm by which optimal outcomes are obtained and inefficient practice is minimized, potentially reducing clinical complications and administrative costs. Such an outcome would benefit a health care system that must survive on increasingly limited resources. EBM offers an opportunity to increase efficiency, reduce complications, and achieve best outcomes. Payers, along with society in general, can hope that EBM will reduce the socioeconomic burden imposed by the diseases that we see in our plastic surgical practices.

Conclusion Publishing in plastic surgery is critical for the field to sustain itself. Plastic surgery is already facing increasing competition for cases from other surgical specialties, yet plastic surgeons may be the most innovative, resourceful problem solvers in any tertiary care center. Innovation in clinical plastic surgery and research has distinguished plastic surgery historically and will continue to do so in the future.27 It is through publishing in plastic surgery that this identity will continue.

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References 1. Wolf SA. Paul Tessier, creator of a new surgical specialty, is recipient of Jacobson Innovation Award. J Craniofac Surg 12: 98–99, 2001. 2. Rohrich RJ. The sandbox rules for plastic surgery. Plast Reconstr Surg 122: 303–305, 2008. 3. Argenta L, Morykwas M, Marks M et al. Vacuum-assisted closure: state of clinic art. Plast Reconstr Surg 117: 127–142S, 2006. 4. Morykwas M, Simpson J, Punger K et al. Vacuum-assisted closure: state of basic research and physiologic foundation. Plast Reconstr Surg 117: 121–126S, 2006. 5. Scherer S, Pietramaggiori G, Mathews J et al. The mechanism of action of the vacuum-assisted closure device. Plast Reconstr Surg 122: 786–797, 2008. 6. Hidalgo DA. Fibula free flap: a new method of mandible reconstruction. Plast Reconstr Surg 84: 71–79, 1989. 7. Rohrich RJ, Sullivan D. The role of the journal impact factor: choosing the optimal source of peer-reviewed plastic surgery information. Plast Reconstr Surg 117: 2495–2498, 2006. 8. Labanaris AP, Vassiliadu AP, Polykandriotis E et al. Impact factors and publication times for plastic surgery journals. Plast Reconstr Surg 120: 2076–2081, 2007. 9. Caulfield RH, Maleki-Tabrizi A, Pleat JM et al. The factors considered by editors of plastic surgery journals in evaluating submitted manuscripts. Aesthetic Plast Surg 32: 353–358, 2008. 10. Dong P, Loh M, Mondry A. The “impact factor” revisited. Biomed Digit Libr 2: 7, 2005. 11. Jacso P. A deficiency in the algorithm for calculating the impact factor of scholarly journals: the Journal Impact Factor. Cortex 37: 590–594, 2001. 12. Seglen PO. Why the impact factor of journals should not be used for evaluating research. BMJ 314: 498–502, 1997. 13. Sibbald B, Roland M. Understanding controlled trials. Why are randomised controlled trials important? BMJ 316: 201, 1998. 14. Godlee F. Milestones on the long road to knowledge. BMJ 334 (Suppl 1): s2–3, 2007. 15. Howes N, Chagla L, Thorpe M et al. Surgical practice is evidence based. Br J Surg 84: 1220–1223, 1997. 16. Ellis J, Mulligan I, Rowe J et al. Inpatient general medicine is evidence based. A-Team, Nuffield Department of Clinical Medicine. Lancet 346: 407–410, 1995. 17. Maier RV. What the surgeon of tomorrow needs to know about evidence-based surgery. Arch Surg 141: 317–323, 2006. 18. Sackett DL, Rosenberg WM, Gray JA et al. Evidence based medicine: what it is and what it isn’t. BMJ 312: 71–72, 1996. 19. Altman DG. Better reporting of randomised controlled trials: the CONSORT statement. BMJ 313: 570–571, 1996. 20. Momeni A, Becker A, Antes G et al. Evidence-based plastic surgery: controlled trials in three plastic surgical journals (1990–2005). Ann Plast Surg 61: 221–225, 2008.

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21. Gnanalingham KK, Tysome J, Martinez-Canca J et al. Quality of clinical studies in neurosurgical journals: signs of improvement over three decades. J Neurosurg 103: 439–443, 2005. 22. Hardin WD Jr, Stylianos S, Lally KP. Evidence-based practice in pediatric surgery. J Pediatr Surg 34: 908–912; discussion 912–913, 1999. 23. Yao F, Singer M, Rosenfeld RM. Randomized controlled trials in otolaryngology journals. Otolaryngol Head Neck Surg 137: 539–544, 2007. 24. Chang EY, Pannucci CJ, Wilkins EG. Quality of clinical studies in aesthetic surgery journals: a 10-year review. Aesthetic Surg J 29: 144–147; discussion 147–149, 2009. 25. Davis Sears E, Burns PB, Chung KC. The outcomes of outcome studies in plastic surgery: a systematic review of 17 years of plastic surgery research. Plast Reconstr Surg 120: 2059–2065, 2007. 26. McLeod RS, Wright JG, Solomon MJ et al. Randomized controlled trials in surgery: issues and problems. Surgery 119: 483–486, 1996. 27. Longaker MT, Rohrich RJ. Innovation: a sustainable competitive advantage for plastic and reconstructive surgery. Plast Reconstr Surg 115: 2135–2136, 2005.

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Technology, Toys, and Traps Francisco Canales, MD

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any years ago, every resident about to finish plastic surgery training got the same sage advice for a successful private practice: be affable, able, and available. In other words, do good work, be patient, be nice, and your business will grow. As far as accouterments, all one really needed were a pair of loupes and an anatomy book. Fast-forward to today’s 21st-century world, and the advice has thus expanded: be affable, able, and available; but also be sure to create a website, obtain a large credit line through your bank, pretend you have an MBA so you can run a practice, act as if you have a degree in marketing, and make like you are prescient about which technologies will be around in five years. The terminology is now vastly different than it was 25 years ago. From lasers to Vasers, from computer imaging to computerized records — most of us could not have imagined the vast change in landscape that has been brought upon us in the last two decades. To make matters worse, the increased competition for the cosmetic surgery patient is evident as more physicians who are not plastic surgeons crowd the field. There is intensified pressure to have an edge over the competition, and it is no longer possible to sit idly by expecting that the waiting room will gradually fill up because “I am a good doctor”. Technology and instrumentation have played an increasing role in our practices for the past 20 years, and they will continue to be even more necessary. Although technology is not the panacea that salespeople announce at every meeting, it is here to stay. How to negotiate the hurdles of decisionmaking over the purchase and finance of new equipment is a subject that rarely gets addressed during residency, and there are few resources for the established practitioner to turn to. Here are a few words of advice, hard-won by experience.

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Beware of the “Latest Technology” For those who have heard the phrase “the latest advance” aimed at almost any new device, it comes as no surprise that the latest technology is not necessarily the best technology. Many techniques that have been around for decades still work very well and require no more instrumentation today than they did 25 years ago. An older, well-respected colleague once told me that he was done learning new techniques. As a matter of fact, he said, “I am trying to forget some of the things I learned.” In the golden years of his career, he was clearly successful, busy, and happy with his results. He saw no need to climb a new learning curve so late in his surgical career. For the newer practitioner, however, there is a combination of pressure from patients who want the “latest” device seen on a plastic surgery television show along with pressure from vendors who self-servingly peddle their wares at trade shows, combined with still more pressure from one’s own desire to remain ahead of the competition. Whether we like it or not, plastic surgery is consumer-driven, and consumers are driven by what they see or hear in the media. Technology does not a good surgeon make, but lack of technology in one’s practice can be perceived as old-fashioned or, worse, out of touch with the latest techniques.

Will It Be Here Five Years from Now? It is difficult to know when a breakthrough in technology is here to stay. Every month, practicing plastic surgeons are bombarded with advertisements for emerging invasive and non-invasive technologies, not to mention the advertisements for newly improved surgical equipment. Companies take their case straight to the consumer through carefully orchestrated marketing blitzes. All one has to do is linger at the grocery line and scan the headlines of magazines to learn what these supposed breakthroughs do. Stories abound of products that are a new hit with celebrities, or products that have the magic label “as seen on TV” or on some talk show. The fact is that, in less than a year, many of those magical products will have been pulled from the market because of unwanted or unforeseen consequences. Some plastic surgeons cannot tolerate the potential uncertainty and unpredictability of these new technologies. After all, bad outcomes can lead to unhappy patients, repeat surgery, and, of course, litigation. Even if there is no threat of a lawsuit, the perceived lack of results can also lead to unhappy

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patients who will want their money back and who will go out of their way to let friends know of their poor experience at your office. To use stock market terminology, the “bears” among us prefer to use techniques that are tried and true without venturing outside of our comfort zone. After all, “If it ain’t broke, why fix it?” This approach is understandable, particularly for the surgeon who may soon be contemplating retirement. There is security in achieving good results with minimal financial outlay. An expensive technological adventure requires time to pay for itself. The “bulls”, on the other hand, are forever optimistic about new technology, since it may be the equivalent of having invested in Microsoft when it first became available as a public offering. There is nothing more enticing than having a tool that no other plastic surgeon in the community has. The quandary, of course, is how to predict the longevity of a new technology and whether to commit precious resources to such a technology. For the young, or even the mid-career plastic surgeon, there are many reasons to venture into buying new equipment and devices, tempting as it may be to sit on the sidelines.

Predicting the Future Since I went into practice in 1990, medical innovation has brought plastic surgeons products and techniques that are undoubtedly worthwhile. Among those worthwhile additions, I would count computer imaging and photo archiving, endoscopic surgical techniques, laser technologies, and advanced forms of liposuction. Some advances, like electronic medical records, are sometimes too expensive to implement for an individual surgeon, but they make sense for large multi-specialty clinics. On the other hand, there are so many devices that either disappeared from the market or underwent enough changes so as to be unrecognizable that caution needs to be the foremost word of advice. Plastic surgery offices are littered with stories of poor investments in technologies that no longer exist or of machines that cost more to run than they bring in revenue to the practice. Just take a look at the expansive secondhand market for expensive plastic surgery machines. So, how do we avoid being one of those practices that never should have bought an expensive white elephant that sits idle most of the time? All of us practicing plastic surgeons have a limited budget to run our practices. Employee salaries, marketing expense, rent, purchase of supplies, and

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insurance are costs that never go away and continue to rise each year. Deciding how much to budget for new technologies is a complex matter that cannot be answered in a short paragraph, but there are guidelines that can be followed to avoid being taken advantage of.

Should I Be One of the First to Buy to Get an Edge on My Colleagues? In general, I prefer not to be the first one on the block with the latest machine. Invariably, the earliest users find that there are quick upgrades to the technology as long-term results, feedback, and complications start to come in. A faster, sleeker version is inevitably in the pipeline as you are buying the original, soon-to-be-outdated machine. A salesperson will glibly describe the wonders of a machine they are about to sell you without ever mentioning that in three months the company will come out with a better product. They will also gloss over complications that are reported by early users, while emphasizing the benefits and financial return to the practice. As soon as the updated version is introduced, that same company representative will sing a new song, praising the new version while listing a litany of limitations of the old version. It is easy to feel like Sisyphus. Quarterly sales goals demand that a salesperson meet certain thresholds despite their inside knowledge of what may be coming soon. We once bought a multi-platform laser where one of the heads was outdated before we actually got to use it. The company demanded an additional US$20,000 for the new head, despite the fact that the original head had not been used and was clearly in line for replacement when we signed the papers. One other recent example of early obsolescence is a laser device that had three major upgrades in one year. Although the company was willing to credit the initial purchase price (about US$75,000), each upgrade (which added speed and power) cost an additional US$20,000 to US$30,000. The actual cost of a device can sometimes double after the new upgrades are out, thus making it impossible to calculate the cost-benefit ratio of a brand-new technology. It pays to have in writing a guarantee of free upgrades and service for at least 12 months after your purchase. As a rule, I also prefer not to be the last one on the block. When every patient starts asking for a particular technology by name, it becomes harder to continue to say, “I get good results out of my 1927 Ford relic.” Patients expect any cutting-edge practice to keep up with the latest advances. It then

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behooves us as plastic surgeons to decide if a particular technology is worth the price and whether the technology delivers the proposed results. It used to take years to get patient feedback, but in the age of the Internet, patients’ responses and reactions come at the click of a mouse. There are many patient blogs and websites set up specifically to give feedback on treatments they have had. If you visit one of these online networking sites, you can get a general idea of how happy patients are with their results, how willing they would be to undergo the treatments again, and just how much money they are willing to spend on a particular treatment. This constitutes an unscientific approach, but it is still worth considering because, in the end, patient satisfaction will drive or kill your business. If a particular technology gets consistently low marks from customers, stay away from it despite what vendors and brochures may tell you.

What is the Clinical Research that Supports the New Technology? Although white papers abound about all the devices that are out in the market, I would caution you to pay most attention to white papers that appear in peerreviewed journals. Interested companies will contract with a plastic surgeon to be an early user and then that plastic surgeon compiles his or her experience into a white paper for the company. I take these company-provided papers with a large grain of salt. It is too easy to be elated by being the first in your community to use a device and to have a three-month patient waiting list. It is human nature to want to spin the most positive view, and papers written specifically for a company tend to be less rigorous than peer-reviewed papers. Surely one of the worst ways to decide whether to buy a new device, program, or system is the fact that we saw it at the annual meeting that we all attend. Shiny brochures, friendly salespeople, an evening extravaganza sponsored by the company, peer pressure, and “a great financial deal that expires at the end of the show” are some of the reasons many of us arrive back in our offices with signed documents for very expensive machinery and the promise of more patients. Gluttony in the halls of a crowded exhibit hall invariably leads to indigestion in the not-so-crowded waiting room of one’s practice. It is best to leave emotion behind even when it means that we will not get “the deal” available at a society meeting. Contact colleagues who already own the machine, and ask hard questions. Would they buy this machine again? What is the worst complication that they have had? How often do patients demand

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their money back? It is easy to be misled by salespeople, but it is harder for a trusted colleague to sell you down the river with a device they are not happy with. Another surefire way to be misled is to listen to the written testimonials sent into your office by “experts” in the field who are willing to teach you not only the technology, but also how to get your practice to boom as a result. Invariably, many of these experts are mercenaries who will pitch one machine today and the next highest bidder’s machine tomorrow. I have received personal letters from one such expert who, in one year, associated himself with three different companies with similar technologies. Each letter made the newest company sound like the “real deal”, backed by his expertise in the area. It is disturbing to see more plastic surgeons become pawns of the companies. Companies will offer titles such as “medical director” or “consultant”, offer a retainer or a salary, and shazam! The doctor has never seen better results in his or her career. Some doctors now make more money from the courses they teach during the year than from their practice of plastic surgery.

Customer Service After You Buy is of Utmost Importance For any new technology you purchase, you will have a customer service representative. Before you buy, it is imperative that you poll several colleagues who own that particular machine about what happens when the machine breaks down (they usually do at some point during the lease). Ask how quickly the sales representative returns calls when a repair is needed. We know that representatives return calls very quickly when they are trying to make a sale, but their true measure is how well they respond when you are having problems. How does a 200-pound laser get returned to the company for service? Who pays for the shipping or the FedEx charge? How quickly does the laser get returned, and do you get a free replacement in the meantime? These are extremely important questions to ask because when you have a broken-down laser in the middle of a fully scheduled day of treatments, the fallout is tremendous. Patients will understand, but they will not be happy, since they may have scheduled a day off work. They will lose some or all of their confidence in the treatment. Not only does the day end up without revenue, but worse, if the machine breaks down in the middle of a treatment, you will end up returning money. Unreliability of a machine and poor company support can cost you dearly.

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Beware of the Cheaper Version New technologies invariably spur competition among rival firms. No firm wants to miss out on a particularly lucrative slice of the pie. One promising technology will inspire an immediate sprouting of competing technologies that claim to deliver the same results, although at wildly varying prices. The temptation is to choose the cheapest machine, since they are all supposed to produce the same results. But beware! Several years ago, a new laser hair reduction machine was marketed at a fraction of the cost of the mainstream laser hair reduction machines. We did our due diligence and called the individual responsible for the white papers that the company sent us. He, of course, told us that the machine of interest was one of several he used in his practice (he probably received a commission from each company). He encouraged us to go ahead with the purchase. Since he was a respected name in the laser hair reduction community, we quickly purchased the machine. The painful lesson learned is that when something seems too good to be true, it probably is. The machine cost us 20 percent of the cost of a comparable laser hair reduction machine at the time. We were ecstatic at our business acumen, and we were able to pay in cash for an even better deal. Unfortunately, the machine we bought was slower, more cumbersome for the operator, more painful for the patients, and much less reliable than anything on the market at the time. Several patients were burned and demanded their money back. Not a single patient had a good result for the intended laser hair reduction. We ended up literally throwing the “bargain” laser hair reduction machine in the trash after returning thousands of dollars to unhappy customers who saw no results.

“All You Need is Three New Patients per Month to Cover the Payment” One measure of how long it will take to make your investment back is the relation between the cost of your lease and the number of treatments it takes to cover that lease. When an eager salesperson tells you that “all you need is three new patients per month” to cover your lease payment, they are omitting a lot more than they are telling you. Let’s consider a lease payment for, say, Magic Laser Extraordinaire (MLE). After the salesperson has knocked 10 percent off the price, thrown in some disposables, and let you defer your payments for

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three months, your new laser arrives at your office with a five-year lease that “only” costs US$4,000 per month. In order to keep the pitch simple, the salesperson has told you that if you charge US$1,000 per patient, you only need to have four patients per month to cover your lease payment. Never mind that you will end up paying over US$125,000 to lease or buy this new laser. The four patients per month will merely cover the cost of your lease, but the company representative conveniently ignores other costs associated with MLE. Who will operate the laser? How much does technical support cost? How will people know about your new machine without some marketing? Are there hidden costs? The person who will operate the machine may not be the physician. Many of the technologies available, such as laser hair reduction, intense pulsed light treatments, and fractional resurfacing are run by physician extenders. Depending on your state of residence, this means that your new machine will be run by either a nurse, an aesthetician, a medical assistant, or a physician assistant. The salary and benefits that the physician extender commands can be significant, especially in a state where only nurses or physician assistants are allowed to run the machines. So, if you are paying US$40 to US$50 per hour for the person to run the machine, remember to account for that in your costs. If that person is doing 10 hours of work per week in your practice, remember to allocate another US$400 to US$500 to your actual weekly costs (US$1,600–US$2,000 per month added to your lease cost). Some nurses work as independent contractors rather than as salaried employees. These nurses usually take a share of the profits. Make sure you are paying the nurse a share of the profit rather than a share of the gross receipts; otherwise, the nurse will make a nice profit and you will be lucky to break even. Sometimes, the nurse will go in with the doctor on the purchase of the equipment. If you contemplate such an arrangement, make sure you have a contract lawyer review the terms of employment as well as exactly who pays for the lease. Recently, I spoke to a nurse who had been sharing lease payments with a doctor. When the business went south because of the economy, the nurse quickly exited and left the doctor holding the entire lease payment for the remainder of the five-year contract. Her name had not been on the original lease and they had no more than a gentleman’s agreement to obligate her to pick up half of the lease payments. With a departed nurse and no business, the doctor was left to figure out how to continue to make payments. Meanwhile, the nurse looked elsewhere for employment without any financial burdens.

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An extended warranty is an additional cost associated with a new laser. Representatives for laser companies often minimize or neglect to mention continued service for their machines. While most lasers come with a 12-month warranty, continuing a warranty beyond 12 months can cost an additional US$1,000 per month! Remember to add that US$1,000 to your lease payment to calculate your total cost. If you elect to not continue the service program, you risk paying to have the laser serviced at a time when you are desperate. The rate for an uncovered service is extremely high, and you will be in a position of weakness when you call. In addition, you will be forced to rent a replacement laser at a high cost until yours is repaired. Better than the best technical support is having a reliable machine. The cost of having a machine that fails or malfunctions is high. We had experience with a laser company that prided itself in customer service. Their machine had continuous problems that the company blamed on our staff who had been trained extensively by the company. The machine broke down repeatedly, requiring extensive rescheduling of patients, idle nurses, and angry customers who demanded some compensation for the time that they wasted by showing up for their scheduled appointments. Customer service meant that we would ship our machine out for repair, wait for the company to ship us a replacement, and have our staff reschedule entire days of treatments. Despite repeated assurances by the company that the latest repair would be the last one, we proceeded to have to send back our US$150,000 laser to the company more than five times in a short period of time. The disturbance that the mechanical failures caused in our practice paled in comparison to our loss of faith in the laser and our patients’ loss of faith in our practice. I would urge anyone who is willing to spend US$150,000 on a machine to spend a full hour on the telephone speaking with present owners of the machine to ensure that they are happy with its performance. More importantly, ask them if they would buy the machine again, knowing what they have learned since they bought it. Once you have purchased or leased your special, new machine, how will you attract people to come in and have treatments? No one will know you have the “latest weapon” unless you get the word out. While many of us with established practices can utilize internal marketing techniques, sometimes it requires a combination of both external and internal marketing to make sure you can bring in the very patients you are targeting. No one can tell you how much to spend, but marketing campaigns for new technologies can sometimes be very expensive, and they may require you to use radio and newspaper advertising or offer seminars in addition to any internal marketing you plan.

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Hidden costs are the most deceptive. No one ever tells you that your accounting bill is also about to go up, but it will. In addition to discussing new equipment purchases with your accountant (not a bad idea), adding the equipment lease payment to your bills, adding a physician extender to the payroll, and figuring in the bookkeeping for your additional marketing costs, your accountant will want to be compensated. Other hidden costs include new supplies such as towels, distilled water, ultrasound gel, and drapes. New towels and sheets can mean additional laundry costs. All those hidden costs must be accounted for if you are to become profitable. Another hidden cost is appeasing patient dissatisfaction. Bringing the latest technology to your community can raise expectations, sometimes to unreasonable levels. Beware of raising patient expectations too high, for you will soon be returning money to unhappy patients who believed that a non-invasive procedure would make them look as if they had just had a facelift. In the long run, it may be better to return a dissatisfied patient’s money then to let them stew in anger. If a new technology is truly successful, traffic through your office should really ramp up. Increased traffic will mean more new appointments, more phone calls, and more follow-up visits. Simply stated, your present staff will have more to do. At some point, you will need to consider hiring additional staff. As your practice grows, and as you invest in an additional one or two laser machines, you might possibly need additional space. Crowding existing rooms can counter any calming effect that your practice or medical spa is trying to portray. You may find that adding space or dedicating a new area to the new equipment is the only way to allow treatments and follow-ups to proceed within a pleasant setting. You may also need new software programs for scheduling, photograph archiving, and management. The extended warranty Catch-22 also applies to this new software. You will find that every year there is a “modest” charge for continued software support of each of your new programs. These costs can run upwards of US$5,000 per year if you run several high-end programs that are a must in sophisticated cosmetic practices. The compatibility of any new software program with your existing programs you already own is also extremely important. There is nothing more inefficient than having to enter the same data (patient name, address, etc.) into three different programs that do not talk to each other. It is worthwhile paying more for programs that have multiple functions and data-sharing capabilities.

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How Do I Pay for an Expensive Machine? Always keep your accountant in the loop. Tax laws, such as Section 179, change frequently. What applied in your previous discussions may no longer hold true. Your accountant will be aware of potential tax implications (both good and bad) of any large purchase you are contemplating. He or she will also be able to help you make a decision on how best to pay for the equipment. Is it better to buy or lease? This question will, and should, come up with every acquisition you make during your practice. The answer may be different during different portions of your career, but make sure that your accountant sees the terms of the loan or lease before you commit to something that may take you five years to pay off. An experienced accountant will also help you determine the true cost of incorporating the new technology into your practice. The information will determine how many new patients you actually need after factoring in marketing costs, staff time, maintenance contracts, and all the other costs mentioned above. It is also helpful to have a close relationship with a bank. Most banks are eager for your business, and they will usually assign you a personal banker if you place the deposits from your practice into that bank. Many cities have smaller, community-based banks with outstanding reputations. I have found that community-based banks usually deliver more personalized service than the national brands. As a rule, you should always have a credit line open for times when cash flow is tight. You should spend some time getting to know your personal banker at a time when you do not really need their service. Getting to know them then will make it easier to make a call at a time of need. That personal banker should get to know you and your business so well that, when you find your ideal new machine, all you need is to tell your banker the price along with the terms you want, and the papers should be delivered to your office for signature. Balancing the financial and medical risks of a new technology will continue to require common sense and investigative skills. A dose of skepticism toward any device that promises to revolutionize the field can also protect you from making a foolish investment. Our field has always been one where creativity is rewarded. There is a saying that “he who dies with the most toys wins”. In plastic surgery, you only win when the toys pay for themselves before they become obsolete. We cannot turn the clock back to the days when all we needed to succeed was diligence, a pair of loupes, and knowledge of anatomy.

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Plastic surgery and technology are forever tied at the waist. We can only expect the field to become more crowded and the expectations to be higher as the media selectively play up the benefits of the newest devices. If you plan well and arm yourself with unbiased information, you should sail through the plastic surgeons’ Toys “R” Us with flying colors.

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A Medspa: To Have or Not to Have M. Dean Vistnes, MD, FACS and Lynn Heublein, MBA

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wning and running a medical spa is enticing. The media constantly trumpet the latest advances in medical spa services through television, magazines, websites, and blogs. All that media coverage is contributing to an explosion in the age management industry in the U.S. In 2007 alone, consumers spent US$13 billion trying to stave off the ravages of time, and non-surgical options to reverse or slow the aging process are growing every year as companies strive to capitalize on people’s craving to look their best without having to go under the knife. Opening your own medical spa seems clear … or does it? Is it really something you should consider as a plastic surgeon? While the growth of the age management industry is impressive, anyone considering opening a medical spa should consider the time and costs required before embarking on such a venture. An analysis of the overhead of a practice with a medical spa should be compared with the overhead of a practice without a medical spa. Let’s first consider a purely surgical solo cosmetic practice in a geographic area that has a hospital or a surgery center with affordable cosmetic rates. This type of practice can be run very profitably with a reasonably low overhead. The office space can be relatively small, and the staff size can be limited to just one to three employees. The principal recurring expenses are rent, payroll, and insurance. Capital equipment expenses, inventory, and supply costs are minimal. A purely surgical cosmetic practice usually has fewer overall patients on a weekly basis, but the margin on each procedure will be relatively high. It does not take many surgical procedures to cover your overhead and show a significant profit. Of course, the downside to having a purely surgical cosmetic practice is that you fail to capitalize on the demand for all the non-surgical cosmetic treatments. The cosmetic surgical patients in your practice will naturally be a population that is pre-selected to have a high interest in ancillary services and medical grade products. The public loves to hear about non-surgical ways 289

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to look younger or fresher, so they are well publicized by the media. If you as a plastic surgeon do not offer at least some of these treatments, patients will go elsewhere. You will lose not only those patients and their money, but also their potential referrals. Consequently, most cosmetic plastic surgeons decide to offer at least a nominal choice of non-surgical or medical spa services. If you think you do not need to make a profit on your medical spa because you anticipate that your profit will come from converting medical spa clients into surgical patients, think again. There will be some referrals to your surgical practice, but nothing like you might expect. Embark on creating a medical spa only if you intend for it to be a profitable business in its own right. Entering into a potentially risky venture separate from your surgical practice is a big decision. Find someone to talk to who can give you good, sound advice. This person generally will not be a medical spa franchise representative or a spa consultant. Spa consultants are in the business of selling their services to you. Avoid them. Instead, find someone you would like to emulate who runs a successful medical spa. If you plan well and seek advice from reliable sources, you will be more likely to position yourself for success. A well-run, wellmanaged medical spa can generate significant revenue and can even increase your surgical patient flow. Once you decide to not only start a medical spa, but to make it profitable, you will need to figure out what service(s) you are going to offer. What are the most popular non-surgical offerings that are driving the medical spa industry? Botox, fillers, laser and light-based treatments, radiofrequency skin tightening procedures, skin and body contouring procedures like VelaShape and Endermologie, microdermabrasion, chemical peels, laser vein treatments, sclerotherapy, facials, massages, and a countless array of skin care products just scratch the surface of what is available and what is yet to come. The high demand for these treatments is fueling research and development in biomedical device and cosmeceutical companies. Consequently, new and more effective procedures and products are introduced every year. So what should you offer and in what type of setting? The options range from a very narrow assortment of services that meet select patient interests to a full gamut of products, treatments, and services. The setting can range from a single, parttime treatment room in an existing facility to a free-standing multi-million dollar complex. What facility size should you look for, what services shall you provide, and what data do you use to decide all these things? As with the undertaking of any endeavor, opening a medical spa, large or small, entails potential

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risks as well as potential rewards. It is seductive to imagine a buzzing medical spa affiliated with your surgical practice, but not all medical spas are productivity centers whirring with activity. The costs can be high, and the profits are not always forthcoming. Consider risk vs. reward. Some of the benefits of opening a medical spa include a greater number of potential patients to support a cosmetic surgery practice, cross-referrals for services between surgical and non-surgical practices, additional income, and retaining your patients’ interest and loyalty so that they do not flee to your competitors. Other less tangible benefits include increased public visibility that can occur over time with a successful medical spa. This in itself can lead to other business and financial opportunities. But, as we know from the practice of medicine, along with the potential benefits come the possible risks. It is important to know those risks, and then minimize them if your medical spa is to be a success. The two greatest risks in starting a medical spa are financial and medicallegal. The risks of a small operation will be low and easily manageable. With fewer variables to control, direct supervision should be easy. As the medical spa grows in size, you will have to delegate some responsibilities. Direct supervision of your staff at all times becomes increasingly difficult as the patient load grows. This increases the risk of complications. By maintaining a high level of involvement with the professional staff, you should be able to minimize the occurrence of complications and problems. If you allow a small medical spa practice to grow without adequate oversight and management, you invite disaster. There are a number of basic protocols that must be implemented to minimize the risk of medical complications in business of any size: 1. All providers must be adequately trained with proper documentation of their training. Ideally, they should pass a standardized written test that demonstrates their knowledge of the procedures they are performing. 2. A detailed policy and procedure manual should cover all the procedures that are typically performed with strict guidelines. 3. Routine meetings should be held with all staff to review quality assurance issues. 4. Direct physician oversight is a must. Critical chart review is essential as part of this oversight. In addition to the medical-legal risks, the financial risks of starting a medical spa can be significant as well. Unfortunately, as most of us know, physicians have little or no training in business, nor do they have any experience in

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the actual running of a business. Opening a private practice is a trial-by-fire learning process for most plastic surgeons. If we try something and it works, great; if it does not, we will try something different. Sometimes we find out what our competition is doing; other times we get advice from older, more established colleagues who have learned the ropes through their own mistakes. This rather unsophisticated approach is how many plastic surgeons launch their private practice. They only hope their little start-up practice can become a million dollar business if they do not make too many mistakes. Naturally, trial-and-error is not the smartest approach to starting and running a million (or a multi-million) dollar business. It can work for a small, uncomplicated practice, but it is not the way that the best business schools teach their students to start and run a company. As the business grows, there will be more variables to consider and more elements to manage. To navigate your way, you will need a map. We call this type of map a “business plan”. Your business plan can be simple if you are starting small, or more detailed if you are starting with a million dollar facility. There are numerous books and resources available that discuss business plan development, employee hiring, management, training, customer service, and day-to-day operations. Included in any business plan should be a formal set of business goals, data supporting why those goals should be attainable, and a detailed plan for reaching those goals. Also included should be a marketing strategy, conservative financial goals, and standards for quality of service. The business plan should also reflect the legal and malpractice issues in your state, so you will need to familiarize yourself with those. Confirm that your malpractice insurance covers all the professionals under your umbrella as well as the procedures they will be performing. Also make sure that your general liability insurance policy extends to cover what and where you plan to operate. Finally, check with the city to see if your facility location is zoned for what you plan to be doing. As part of your business plan, anticipate adding capacity as you grow, whether in your current location or in an adjacent new location. Add up all your expenses. You will need to calculate how much money you need to bring in every month just to break even. Securing more funding later can be difficult, so anticipating costs as you write up your business plan is essential for survival. Be sure to include the expenses for rent, insurance (malpractice, general liability, and workers’ compensation), property and other business taxes, payroll, supplies, disposables, utilities, cleaning and laundry services, marketing costs, and equipment lease payments. You will likely find yourself in the red for 12 months or longer, and you may have to finance that

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debt with added capital. In fact, you should plan for it. An undercapitalized, fledgling business can fail unless additional funding is secured as the need arises. Consider taking out a small business loan or a line of credit. Close tracking of all expenses, inventory, and revenue is important. If you are too busy to do it yourself, hire someone competent who can do it for you. Large medical spas will naturally require a larger inventory of retail products as well as medical products, such as Botox and injectables. The cost of this inventory can be enormous if it is not controlled properly. Part of running a successful medical spa is figuring out what services to offer to attract clients. Determining your services menu is an essential element of your business plan. What do potential patients really want? Look around and do your homework. Visit various medical spas, large and small, in different geographic areas. What are the best services and products they offer? What does not work, and what can be improved upon? Check out your competitors’ marketing materials and websites. Note what products and services they offer and how the information is presented. Have treatments done yourself. Also consider sending in friends, spouses, or key employees with a list of questions that they can have answered for you. Start out with a basic, manageable service menu. Expand only as the demand grows, along with your knowledge of and comfort with new products and procedures. As you do your research, you will likely see a variety of services, including facials and massages alongside intense pulsed light (IPL) and Botox. Remember that traditional day spa services make very little profit; the average margin for day spas in the U.S. is only 5–10 percent. The medical services offered in medical spas are far more profitable. With the overhead you will pay on equipment leases, well-trained staff, and expensive products, you can actually lose money by offering such services as waxing. So, choose your menu carefully. Once you have determined your menu, you will need to set your prices. Do a competitive pricing analysis of competitors in the area. Your own prices should be neither too cheap nor too expensive. If your prices are too low, you will develop a reputation for being the low-price leader. Patients attracted to the lowest prices will not be your long-term clients. On the other hand, if your prices are too high, you can price yourself out of the market. Mid-range prices give you the flexibility to offer discounts or specials if needed or to raise your prices as you get busier. Your goal should be to attract clients who will be your lifelong patients and who will refer their friends. If you decide to go ahead and open a medical spa, how do you decide what to offer and how to go about making it work? Whether starting with a

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small operation in your existing facility or a brand new full-scale operation, the essential elements to guarantee success include the following: 1. Make it a great experience for the patient. Unparalleled customer service is essential. From the first telephone call before the visit to the minute they walk in until they leave and including all the follow-up communication after the visit, patients should be treated the way you would want to be treated. 2. Location, location, location. You hear it all the time. Good building signage is free advertising 365 days a year. You are running a classy operation, so do not put it in a strip mall, a rundown area, or an obscure hidden location. 3. Offer the right combination of procedures and products. Do not offer a procedure unless the results will make patients want to come back again and again. After all, that is ultimately what all patients want — predictable positive results. 4. Make sure you have the right equipment for the job. Selecting and buying the right equipment can be very difficult with all the procedure and vendor choices available. 5. Hire the right staff, from administrative personnel to providers to managers. They can make or break you.

The Experience Create an environment that is clean, updated, relaxing, and professional. You are not creating a day spa; you are creating a medical spa. The ambiance should be inviting and relaxing, yet patients should still sense the medical professionalism that will instill confidence. Even if you start out with just one room, avoid making it look and feel like a doctor’s office exam room. First impressions make a huge difference, so make it special. Details like comfortable, relaxing exam chairs in a professionally decorated office will work in your favor as your client considers whether to stick with your medical spa or search elsewhere to have his or her treatments. If possible, consider a separate waiting area as well as a separate entrance and exit for your medical spa patients. Medical spa patients should not be sitting with post-surgical patients who may be in pain, nauseated, or just scary to look at. If possible, divide your existing waiting room into two separate areas with curtains or partitions. Be creative. Ask an interior designer for assistance with space layout and patient flow. If you have the space, create a relaxing and inviting area to display retail products and other educational items to

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promote what you do. Digital photo frames with before-and-after pictures and LCD screens with promotional movies can help educate patients about the possibilities within the array of services and products you offer. Customer service is critical. Greeting patients when they walk in the front door, using the names of established clients, and making them feel at home makes a huge difference to building a sustaining relationship. People will pay a few more dollars for a service if they feel like they belong to your family. There is no place for attitude in a service-oriented business like this. Excellent telephone skills are important when calling patients or giving information. Do not leave patients on hold, and answer telephone calls promptly. Treat your patients like stars and celebrities. Make it all part of the experience. Those little details will add up and make patients tell their friends what a great place you have. In fact, treating customers well will be as important to your success as having good products and effective services. If you hire good staff and train them to be experts in customer service, your patients will develop a relationship with your medical spa.

Menu At some point, you will need a separate, professionally designed, and professionally printed brochure listing the services and products you offer. It does not have to be elaborate or expensive, but it should be professionally done. The brochure serves to tell prospective patients what you do and why you are different than the competition. Along the same lines, you should consider having a separate website for your medical spa that is linked to your surgical website and vice versa. You should try to give the medical spa its own identity, especially if it is in your existing facility.

Location The importance of finding a good location cannot be understated for the longterm success of a medical spa. This is particularly true if you are considering a stand-alone facility. How many people will even know that you exist if you are inside a medical professional building on the third floor with no visible signage from the street? What if you are in a strip mall set back from the street where nobody can see your business? Your success will depend in part on having a large database of active patients. Good visibility is free advertising, so you will want your medical spa to be visible to the people that you want to attract as

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clients. In order to choose the best location, look at the types of businesses in the area and the demographic of people they attract. Look for a location that has a lot of drive-by traffic and pedestrian flow. And, of course, unless you are in a major urban center like Manhattan, make sure that parking is easy. You can have a great facility, but inconvenient parking will frustrate your patients, and ultimately your patient scheduling will be a mess. If you are designing a build-out for a new facility, make it look inviting from the street. Do not create an intimidating, sterile, medical-looking facility that people will be reluctant to walk into. Large, open spaces for strolling by and windows that allow people to peek in from the street will attract curiosity. Good signage in front of and on the building will build brand name recognition for the public. You want people to notice your building each time they see it so that they consciously know where it is. It might be a year or more before one of your patients mentions your medical spa to a friend, but if they have a mental image of your facility, they will be more likely to call up and make an appointment. Do not underestimate the long-term benefits and power of brand name recognition in business success.

Employees and Staffing Depending on the size of your operation, you will need administrative support staff, nursing staff, massage therapists, aestheticians, and managers. You may also need someone to do your books, accounting, and inventory. In some cases, you get what you pay for when it comes to employees, but this is not always true. When hiring a massage therapist or an aesthetician, make sure you hire someone who has the ability to retain customers. Patients come back to aestheticians and massage therapists because of the experience, the results, and the relationship they build with that provider over time. Someone with a great personality ultimately will be unable to retain clients if they are not able to deliver the results. Similarly, you can have great treatments and great ambiance, but if the aesthetician or massage therapist is not able to connect with the client, the client will not come back. Take the right time to find the right person with a great personality who can deliver great results. Many medical spa owners stumble over how to pay their service-oriented staff. Be sure you pay by the hour, not by profit sharing or commission. The old rule of paying a nurse, a massage therapist, or an aesthetician 50 percent of the revenue generated is nothing more than absurd. By the time you factor

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in your overhead and cost of goods and services, you may generate zero profit for the business and you can potentially lose money. Instead, set goals and incentives for the staff to reach certain financial targets. Pay bonuses based on production and revenue generated. In addition to hiring personnel with great personalities, you will also want to select staff with a strong work ethic. They should present themselves with a professional demeanor and appearance. After all, they represent you and your medical spa. If you want to have and retain the best staff, train them well and pay them accordingly. Nurses, nurse practitioners, and aestheticians who are really busy in your medical spa will be able to make more than they would be able to in their traditional work environment, and the lifestyle and the job itself will be significantly better than anything else they could do. They realize that there are no night and evening shifts in general, and that there is no call. Working in a successful and respected medical spa is a highly sought-after position, so be selective in who works for you. Review the requirements of the medical board of your state to see if you need to have a nurse practitioner, registered nurse, or aesthetician for certain job descriptions and equipment operation such as lasers. A nurse practitioner will give you the most latitude and flexibility in treatments, but will cost you more; in the long run, however, it may be a better value. Your medical spa will ultimately succeed from the efforts of all your staff, including management, administrative assistants, and providers. While you are still building up your medical spa, hire employees part-time or at least use them for different functions. Make sure that expectations are clear upon hiring that every employee will be expected to pitch in and help out in all aspects as needed. Full-time, benefited employees who are not generating revenue will burn through your capital very fast. Starting with part-time employees initially will be easier on your budget, and you can increase their hours as their schedules fill up. If they have holes in their schedules and are not seeing patients, find something for them to do, especially if they are being paid on an hourly basis. Be leery of nurses, massage therapists, or aestheticians who promise to bring all their existing clientele. It rarely happens. If things seem too good to be true, they probably are. Be careful of hiring well-known famous nurse injectors with years of experience from working at other practices. These people will often turn out to be prima donnas who do not work well with others. Find someone who is smart, motivated, energetic, has the ability to get along with others, is a team player, and has the basic skills but a great ability to learn. Teach them well and treat them well, and they will stay with you.

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High staff turnover is a huge hindrance for success. To minimize turnover, make the work environment a place people want to come to. Treat employees with respect, make them feel valuable, and pay them appropriately so they feel they are getting justly compensated. Manage people up or manage them out. Do not be afraid to let someone go if they are not performing duties up to your expectations or to the standard of the business. There are plenty of people out there who will thrive in a great job. Find them. It is better in the long run to take the time to find a great employee than to hire someone in a hurry who is only average.

Procedures What exactly are medical spa services and the products that go along with them? What should you offer your patients? As a plastic surgeon, you have a lot of choices. Depending on your state medical board laws, you can offer a wide variety of medical procedures that be performed by either a physician or a nurse under direct physician supervision. You can also include more traditional spa services such as facials, waxing, and massages, but be mindful of the potential to lose money on such services unless you set your day spa services apart from other spas and price them accordingly, create packaged services that are sufficiently priced, or limit the duration of the less profitable services without dropping the price. Skin care products can range from medical grade prescription products to “feel-good” spa products. Let’s look at the top five non-surgical procedures from the 2007 American Society for Aesthetic Plastic Surgery statistics: 1. 2. 3. 4. 5.

Botox. Injectable fillers. Laser hair removal. Microdermabrasion. IPL treatments.

These are probably the areas to focus on first based purely on the demand. Botox and fillers require little or no capital equipment purchases, so they can keep start-up costs low. Botox injections are far easier to learn and do than fillers, which can be an art to learn and master. Start with one or two fillers that are easy to learn and forgiving, like hyaluronic acid fillers. Everything your staff does, they need to do well. When starting out, they cannot possibly master everything at once. Start with procedures that are easy to master and will guarantee success and happy patients.

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Equipment If you are trying to decide on a laser hair removal machine or an IPL machine, consider that twice as many patients have laser hair removal done annually compared to IPL. The cost of capital equipment for these treatments can be US$50,000–US$100,000 per machine. Consider starting out by offering laser hair removal, then adding IPL later on when you can afford the added expense and when your larger patient database will provide treatment opportunities. Should you buy new or used equipment? If you buy a used machine, does it come with a warranty? If you buy new equipment, should you buy an extended warranty? What are the costs of consumables that need to be replaced? IPL heads need to be replaced on occasion at a moderate expense. Most laser hair removal machines, if properly maintained, last a long time with little required maintenance, and they generally do not require replacement of heads or tips. Their lower cost of consumables is a big plus. Machines like Thermage are built on a “razor-razor blade” model. The cost of the machine is kept on the low side, but the tip is good for only one patient and it costs hundreds of dollars to purchase each tip. All of these things will affect your margin on the procedure and your ultimate profitability. When looking at equipment, you will see that some machines perform several types of treatments. Unfortunately, such a machine usually does none of them well. Sales representatives will frequently try to tell you that their machine is able to do laser hair removal, IPL treatments, skin tightening, and resurfacing all with one device. This is rarely the case. Buy the gold standard technology for the procedure you are going to offer. Carefully evaluate each company you are considering purchasing from. How long have they been in the industry? Look at their product line over time. Have they tried to modify one of their old technologies to meet a new need or demand? Many companies will do this because it is a lot easier and cheaper for them to repackage an existing technology than to develop something new and better. Ask for details on equipment. Be careful if you are considering buying used equipment. If you get a warranty, get it with the device manufacturer, not with some third-party repair company that a used machine vendor has a deal with. Consider buying a laser demo machine, if possible, as long as it comes with a full warranty. You can save considerable money by doing this. Buy from companies that have been around and in business for a long time, and that have a proven track record and excellent customer service and support. Make sure that training is included and that there is good customer support. Ask to speak with physicians or nurses who use the different machines you are

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considering. Remember that in many cases a nurse is the best person to speak with, as they may be doing most of the actual treatments. Would they select it again? Do they have any experience with any other lasers or machines that you are considering? Have they had any problems with the equipment? What is the service and support from the company like? Many larger companies will have a replacement or loaner machine delivered overnight to your facility if you have a problem. If one of your machines goes down and you are without it for weeks, this can be a huge problem for patient scheduling and your revenue flow can take a big hit. If you decide to buy a new machine, do not buy it at a meeting. Do your homework first. Sales representatives will almost always extend the same deals and prices to you that they offer at meetings, and sometimes you can even get a better deal. If they will not consider some sort of deal, consider taking your business somewhere else. They want your business. A good time to make a purchase is at the end of their fiscal quarter or year when they need to make their target numbers. Leasing is generally the best approach for acquiring capital equipment, as it allows you to pay as you go, and you can preserve the capital you will need to make the business grow. Most large companies have delayed or deferred initial payment plans. If you buy or lease used equipment, which can save even more money, make sure you do so from a reliable source. Get the warranty in writing in case there are problems, and review it in detail before signing any purchase agreement. If you buy anything used, it is best to assume that something will go wrong. Make sure you are covered and there are no costly surprises. Potential revenue and anticipated growth projections are almost always exaggerated by sales representatives. Be skeptical and conservative in your predictions of how many patients you will treat in any given time period. Do not spend all your capital on building out the facility and purchasing equipment, because you will not have anything left over for the marketing necessary to attract new patients. Develop an effective marketing plan. An average product with great marketing will always beat out a great product with average marketing. Your goal should be to have a great product with great marketing. As your medical spa grows, new devices and treatments will enter the market. Be skeptical of new technologies and procedures. Do not be the first one to jump on the bandwagon just so that you can offer something new to your patients. Go with proven technologies from tried and true companies that will be around in the future to back and service their equipment.

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Research things exhaustively before considering a purchase, and do not buy on impulse.

Products What about retail products? There are many medical and spa grade skincare products to choose from. Again, stick with well-known companies that have products which are proven to work. Look for the science behind the product claims. Patients want skincare products that will slow and reverse the aging process. Limit the number of stock-keeping units (SKUs), or individual products, that you have in order to keep your inventory costs low and to simplify choices for your clients. There is no need to stock seven different cleansers, five different toners, and six different sunblocks from eight different companies. Most large product vendors will extend volume discounts and rebates when you hit certain purchase targets. If you are spreading your purchases out over too many vendors, you will not be able to hit any of these targets. Do not feel compelled to buy every product from every vendor. It is often better for your inventory and simpler for the patients if you are selective and only carry what you know you will sell. Pick product vendors that have a short turnaround time for processing orders and delivery, so that you do not have to stock a large inventory. Ask about their policy for returned products if a patient has a reaction to it. Do not get stuck with boxes of returned products and lose money on them. Avoid the temptation to carry a product line that your clients will find on the shelves at the local department stores and all the days spas in the area. Your niche is medical, so focus on the medical grade products available only through a physician’s office. Day spa products do sell well in a medical spa setting, so it is OK to have a few select non-medical products to round out your product selection and to compliment the facial and massage offerings, but start slow and add things only if and when the demand for them materializes.

Should You Have a Medspa? Now that we have discussed different aspects of a medical spa, should you open one or not? Think very carefully about the risks and downsides before you commit. Do not proceed under the assumption that if you build it they will come; they will not. There is too much competition out there today. If you build a huge, beautiful, elaborate facility that is fully staffed and offers

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everything available, you will have a huge money pit on your hands unless you have the revenue and income to sustain it while it grows. Marketing and acquiring market share to sustain a large operation takes a long time, stalwart persistence, and high visibility in the community. You can have the greatest medical spa out there but, without visibility, no one will come to your facility. Consider that the complexity and time required to run and manage an average-sized medical spa will far exceed that required to run a surgical practice. As the medical spa and your surgical practice grow, you may find that you simply do not have the time and energy to manage and oversee the medical spa. Anticipate this, and be prepared to hire someone capable of managing the daily operations. As the medical spa grows, the demands will grow far beyond what the busiest surgical practice demands. Consider having both entities in the same physical location to allow sharing of resources and improved efficiency, especially when you are starting out. Then, have a long-term game plan that allows for possible expansion and growth. Before you move forward with opening a medical spa, your business plan should give you an absolutely reassuring answer to the important question of why a patient should choose to come to you over all the other competitors. It should answer what you are going to do and what services you will offer, and how your medical spa will set you apart from everyone else’s and ultimately lead to tremendous success. Price is not the answer. Copying a business plan out of a book is not the answer either. Look hard at what makes a business successful. A great medical spa should address each of the following areas: the patient experience, the physical setting, a system to assure predictable results without complications, great customer service, and excellent management. Failure to excel in any or all of these areas is a recipe for potential failure. A well-executed business plan is critical to your success.

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Medical Inventions: From Idea to Funding Joshua M. Korman, MD, FACS

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any people have good ideas. Physicians have a lot of good ideas, partly because they are inquisitive people, but also because physicians see opportunities in the course of their practice — things that could be done differently or better. Many plastic surgeons are also entrepreneurial, so it is logical to believe that plastic surgeons often come up with some clever ideas. What is not so clear is what to do with a good idea. This chapter is designed to help guide you through the process. There is a well-publicized myth that some people thought the U.S. Patent and Trademark Office should close at the start of the 20th century because there was nothing left to invent. Ideas are like the universe, ever-expanding. There is no shortage of good ideas; it is what to do with them that matters. There are big ideas such as personal computers and organ transplants, and there are smaller ideas such as the pulse oximeter and the electrocautery scratch pad. But they are all good ideas that got past the blood-brain barrier. As a medical student in the early 1980s, I asked my chief resident in general surgery about using gynecological laparoscopic techniques to do general surgery operations. He thought that was the dumbest idea he had ever heard of. Obviously, I was not the only one who thought of that.

Step 1: A Good Idea When you think of a good idea, write it down. Many famous people keep notebooks close at hand to jot down anything that might be useful. Our brains are like the freeway — we have so many things going on at the same time that we may lose a passing thought unless we know when to get off the exit. Somehow, the shower seems to be an excellent place to come up with good ideas. Maybe it is the hot water on the scalp that stimulates the neuronal connections. A really good idea seems hard to forget. It may start as a fleeting 303

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thought, but then when you least expect it, you think about it again. However you come up with it, write it down and date it. This is useful for at least two reasons: first, it puts the idea on your radar screen; and second, it documents when you came up with the idea in case you need to prove it later on.

Step 2: Protecting Your Idea There are many ways to protect your idea. You could just not tell anybody, but then not much would happen to it. It is also useful to remember that most ideas have been thought about before. In fact, many inventions and “discoveries” of the last century were known thousands of years ago in previous civilizations. They were just never patented thousands of years ago; it was the latecomers who got the patents and received the credit (and the profits!). There is a section in the Code of Ethics of the American Society of Plastic Surgeons which states that a member may be subject to disciplinary action if “the member seeks or obtains a patent for any invention or discovery of a method or process for performing a medical procedure or employ trade secrets, confidentiality agreements or other methods that limit the availability of medical procedures and the dissemination of medical knowledge”.1 This means that should a light bulb shine above your head, you should be as educated about the process as possible.

Method vs. device patents There are method patents and there are device patents. Method patents are much broader and also harder to obtain. Device patents are narrower, but are easier for a competitor to design around. In general, regardless of the type of patent you apply for, patent attorneys will tell you that generally one patent is just the center and then, as you grow, you build fences around the first patent in the form of other patents. When you apply for a patent, there is a little bit of a Catch-22. You do not really know everything about your invention when you apply for a patent. You want to put in as much as you can to start building the fence, but at the same time you do not want to end up being your own prior art (an idea of yours that blocks you from getting an additional patent later on). Before you embark on protecting your idea, it is worth spending the money for an hour to consult with a good patent attorney. There are many ways to get ideas patented (online, etc.), but it is worth beginning with professional advice. Do not be dissuaded by pessimistic patent attorneys, and do not be deluded by

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those who will take your money just to take you down the yellow brick road. Ultimately, you need to get advice, but use it wisely.

The nondisclosure agreement At the end of the chapter are two examples of nondisclosure agreements. These are general agreements, which should be signed by anyone you tell confidential information regarding your idea. Of course, all nondisclosure agreements are only as good as the people who sign them. A lawyer I once hired told me that when he worked as an attorney for a big medical device company, they would hear ideas and then promptly figure out ways to design around them. Nevertheless, it is important to get these agreements signed to help prevent individuals from unwittingly divulging information. However, as will be discussed later on, few venture capitalists will ever sign a nondisclosure agreement, which is why patent applications are better done sooner rather than later.

Step 3: Building a Prototype Regardless of whether you are thinking about a method or device patent, you should design a prototype first. Even if your idea involves complex machinery with an integrated circuit, you still should figure out a way to build a “kluge” prototype to see if it will work. Think hardware store before you think expensive industrial design company. Even before you make the trip to the hardware store, try to draw out different ideas in your notebook. Date everything, and remember that drawing is a very inexpensive way to make progress. You have more information and knowledge than anyone else at this point. Do not let practicality get in the way; reality will sink in soon enough. After you have drawn out a few different ideas, go to the hardware store and get supplies to try to build a prototype. You will probably learn things from that expedition. Afterwards, you can go back and forth between the prototype idea and the drawing board. Do not ignore anything, and do not cross anything off. Tracking every detail will help you refine your device. At some point in this process, you will need to gain additional information. With the use of the World Wide Web, you have access to a worldwide web of information. As with patients learning more about plastic surgery, you will find a lot of good information, but you will also encounter some confusing and conflicting information. Eventually, you will need assistance.

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Lawyers are not the ones to help you design a prototype; they are there to help protect your idea. Engineers are the ones who can help you work on the device or improve your idea. There are many types of engineers (electrical, mechanical, biomedical, industrial, structural, software), so you need to figure out which kind you need. Mechanical engineers can generally help with tubes and clips, while electrical engineers are better for wiring and electrical connections. Sometimes you need more than one kind of engineer to help make your prototype, though it is probably best just to start with one. Remember, they should definitely sign a nondisclosure agreement, and you will need to figure out how much to pay them. They generally will not work for free, and most seasoned engineers know not to take “stock” in exchange for their work (usually there is no stock yet at this point, and promised stock is even more questionable). Set an hourly rate or a not-to-exceed amount before they begin work on the project. While you are working on the prototype, you will learn more about how to develop your idea. This is a good stage to begin work on the patent application. Most companies will not look at anything unless a patent application has already been filed, so start early. Patents take years to issue. You do not need an issued patent to show it around, but an application is helpful.

Step 4: Proof of Principle Once you have a prototype, the next step is proof of principle, which is when you show that your device or method actually works. This is usually where cost becomes an issue, especially with most medical devices because you bump up against human subject issues. Unlike the proverbial “start the company in the garage”, any device or system that you plan to market for human use must be approved by the Food and Drug Administration (FDA). An entire industry has been built around figuring out the best path to approval. Since you absolutely cannot do it by yourself, you need expert help, and help costs money. Proof of principle usually comes in the form of clinical trials, which is another overwhelming process that requires assistance. The FDA delegates Institutional Review Boards (IRBs) to act as their agents for the first line of approval and clinical studies. There are IRBs set up in many hospitals, but there are also independent IRBs to do clinical trials in an outpatient and clinic setting. Before you go to the FDA or to the IRB, you should think about the regulatory path for your device. Minimize your errors because the clinical trial process is very costly. To begin, determine if your

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device is a non-significant risk (NSR) device or a significant risk (SR) device. The decision, which is made by the investigator, is very important, as detailed below from FDA guidelines: The effect of the SR/NSR decision is very important to research sponsors and investigators. SR device studies are governed by the IDE regulations (21 CFR Part 812). NSR device studies have fewer regulatory controls than SR studies and are governed by the abbreviated requirements [21 CFR 812.2(b)]. The major differences are in the approval process and in the record keeping and reporting requirements. The SR/NSR decision is also important to the FDA because the IRB serves, in a sense, as the FDA’s surrogate with respect to review and approval of NSR studies. The FDA is usually not apprised of the existence of approved NSR studies because sponsors and IRBs are not required to report NSR device study approvals to the FDA.3

The next decision point is to determine if your device requires a 510(k) Pre-market Notification, Investigational Device Exemption (IDE), or Pre-market Approval (PMA) application submission. In general, a 510(k) clearance is for devices that are basically like other devices on the market, do not require invasive techniques, and have proven safe technology. A PMA is the longest and hardest approval to get. Breast implants require PMAs because they are “permanent” and they are placed inside a human. Breast tissue expanders, on the other hand, are 510(k) devices because they are temporary and the materials used in them (saline, silicone envelope) have been used for decades in a variety of technologies. As mentioned above, you cannot do this work alone; you need guidance and assistance from expensive experts.

510(k) Pre-market Notification This is the primary mechanism by which medical devices are accepted to the market in the U.S. This notification is made under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, and shows the intention to manufacture a medical device for use in the U.S. market. Its purpose is to demonstrate to the FDA that the device to be marketed is “substantially equivalent” to another that was on the market prior to May 28, 1976, or to a device that has already been accepted through the 510(k) submission process. Most devices, unless they employ novel technologies or applications, can be submitted for review under this process. The FDA will require data — descriptive data and

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performance data — to back substantial equivalence claims in order to support this type of submission. There are a number of variations to this process, e.g., the Abbreviated 510(k) for products conforming to agreed standards or the Special 510(k) for changes to existing devices.

Investigational Device Exemption (IDE) New devices cannot be used in human subject trials without prior permission from the FDA and an Institutional Review Board. The application filed for this approval is called an Investigational Device Exemption (IDE). It allows for the investigational medical device to be used in a clinical study to collect safety and effectiveness data, in support of a PMA application or a 510(k) submission to the FDA. A device is: An instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is: recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.4

Pre-market Approval (PMA) This involves the formal approval by the FDA regarding the safety and effectiveness of a medical device based on valid device-related scientific data, rather than comparison data as in the 510(k) process. This process mostly applies to Class III medical devices, which have the most novel and complex technologies. Applications are subject to rigorous scrutiny by the FDA. For existing Class III devices, any changes to the product, the process, or the indications for use must be approved by the FDA through a PMA Supplement submission. In short, the regulatory path is quite confusing, but having a clear regulatory path is crucial to the success of any medical invention. Knowing the basics will help in beginning to ask the right questions of your experts. However, as in tax preparation, it is best to have a general idea of the rules.

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Step 5: Getting Funding Whether you are buying supplies at the hardware store for your first prototype or trying to raise Series C (third round) venture capital funding, you still need to ask the same questions: how much money do you need, and what do you need the money for? The difference between the hardware store and the venture funding comes down to how much money you should invest yourself before you ask others for money. Several film producers are well known for avoiding using their own money as an investment for making movies.

Your own money Much of the decision to use your own money depends on how much you believe in your idea. In general, if you do not believe in your idea, no one else will either. Still, you do not want to spend every last penny of your own money on this venture. Even if you think it is the greatest idea since the pyramids, it is still a risky venture. The real question is, how far will your money get you before you need more money? Set milestones which include things like prototype, proof of principle, etc.

Money from relatives It is not hard to find success stories where big companies were started by a young entrepreneur who borrowed US$10,000 from his or her relatives to get the business started. But it is equally important to remember that, for every bright star, there are a thousand broken hearts on Broadway. Specifically, borrowing money from relatives is generally fraught with human relation obstacles. Nevertheless, it is important to figure out how far the money will go and when you will need additional funds. For example, if your uncle Henry lends you US$20,000 for 50 percent of the company, then the post-money valuation is US$40,000 (since the price was set when he lent you the money for a certain percentage of the company). This US$40,000 will be the “premoney” valuation before the next round of funding. If your Aunt Henrietta (on the other side of the family) later puts in US$20,000 for 50 percent of the company, the post-money valuation will still be US$40,000 (no bump-up in value), but your Uncle Henry’s share will be diluted so that his ownership after the Henrietta round will be 25 percent (half of what he had before). If, however, value has been put into the company (such as making a prototype or applying/receiving a patent), then the value for the company has gone up, so you can perhaps convince Aunt Henrietta that if she wants to invest,

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the value has doubled, so the post-money valuation is now US$80,000. Her US$20,000 will only buy 25 percent of the company. Uncle Henry would need to put in an additional US$20,000 if he wants to maintain his percentage in the company. So, before you start taking money from relatives, make sure you and they understand the complications that can arise while going forward, both financially and emotionally.

Grant money Entrepreneurs do not necessarily find grant money sexy, but it can often be much more valuable money than venture capital. Grants tend to have deadlines, reports, milestones, and a long lead time from application to funding. In addition, they give out amounts in the thousands, not the millions of dollars. Obviously, there are several hurdles with grant funding, but they usually do not have financial strings attached (you do not have to give away a percentage of the company for the money). For example, the Defense Advance Research Projects Agency (DARPA), an agency of the U.S. Department of Defense, gives significant grants each year but, as with most grants, the lead time is long and the chance of success is unpredictable.

Small business loans and bank loans Bank loans can be good, if you can get them. The main problem is that you generally need to personally guarantee those loans. You are already taking on all the risk yourself, but you will not ultimately be rewarded with the value. In the best case scenario, your loan will help you make enough progress to get funded and the loan will get paid off, but you will not get any extra “credit” for taking the loan out in the first place. Small business administration loans are an excellent source of funding new businesses, but again, some amount of collateral is often required and the risk to you increases.

Angel investors These tend to be individuals or groups of individuals with “high capacity” (people with money to invest who are looking for the next big thing). Many are social networking groups or groups who fund early-stage companies. The investments are usually up to a few hundred thousand dollars. Before taking money from angel investors, make sure that they have access to larger investment pools for the next round. The good thing about angels is that, unlike

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venture funding, they are more likely to invest in ideas that do not necessarily have a billion dollar future.

Venture capitalists There is a reason they are called “vulture capitalists” or modern-day loan sharks. They have money, and you don’t. You need their money, so they can basically name their price. When choosing a funding source, it is better to take money from someone who inherently brings value to your concept. What this means is that while Aunt Henrietta was very nice to invest US$20,000 in your project, she probably does not know too much about it. As a result, she probably cannot find the right people to work on the project, get the right board of directors, etc. Most importantly, when you need US$200,000 instead of just US$20,000, Aunt Henrietta will most likely send you on your way, if you even have the guts to ask. Venture capital companies have money — relatively lots of money. They do not like investing a few thousand, or even a few tens of thousands, of dollars into a company. It takes too much of their time. They want to find companies which are just starting but have proof of principle, have no encumbrances (like Aunt Henrietta), are going to make a gazillion dollars, whose market value is US$500 million or more, have great patent protection, etc. In other words, they want to minimize their risk. At the same time, legions of cheerleading entrepreneurs are sure their idea will change the world and come knocking at the venture capitalists’ doors in search of a few million dollars to make that happen. Medical devices are different from technology and other devices specifically because of governmental regulation. Understanding your regulatory path is crucial to your success with venture capitalists. Venture capital firms talk to each other, and they generally play “Follow the Leader”. One firm will lead the round and then go to other firms to load the boat of risk, and also to establish a cabal to set the valuation. In this way, they basically decide how much of your company you will have to give away to get their money. Usually, entrepreneurs are grateful to have anyone give them the money they think they will need. The days of companies like Microsoft are over, when Bill Gates was able to give away only a relatively small amount of the company for the first big tranche (infusion) of funds into the fledgling entity. It is not unlikely to have to give up 50–80 percent of the company. What you are left

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with will be further diluted as the company requires further investment. It is helpful to find investors who are able to invest further in future rounds. They will do so to protect their investment (as in the Henrietta example above), and to attract other investors at a higher price. This increases the value of the company. At the end of the day, companies go one of three ways: they go out of business, they get acquired, or they go public. The vast majority of medical companies that do not go out of business get acquired. However, when first presenting the idea for the company to venture capitalists, it is a good idea to think of a platform technology and show how your idea can support further development of other products. Venture capitalists do not like a “one-trick pony”. They think big. They are interested in companies with a potential market value of over US$500 million.

Conclusion Successful medical inventions begin as good ideas. But the good idea is only the beginning of a road that is long and full of twists and turns. For surgeons who are accustomed to quick decisions and actions, it is easy to get frustrated, not only by the process, but also by the expense and the need to get help at almost every step of the way. This tortuous route is designed to protect patients and to bring new ideas to market. Those who persevere can sometimes find success, and have the chance to see their idea spring to life.

References 1. American Society of Plastic Surgeons. Code of Ethics. 2009. 2. Zenios S. et al. Biodesign — The Process of Innovating Medical Technologies. Cambridge University Press, 2010. 3. Food and Drug Administration (FDA). Significant and Nonsignificant Risk Studies. FDA information sheet, October 1995. 4. Food and Drug Administration (FDA). IDE Approval Process. FDA information sheet. Available at http://www.fda.gov/MedicalDevices/DeviceRegulationand Guidance/HowtoMarketYourDevice/InvestigationalDeviceExemptionIDE/ucm 046164.htm/, July 2009.

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Recommended Reading Zenios S et al. Biodesign — The Process of Innovating Medical Technologies. Cambridge University Press, 2010.

Appendix A: Mutual Nondisclosure Agreement This Agreement is made effective on ____ by and between ____ (first party) and ____ (second party) (collectively, the “Parties”), to ensure the protection and preservation of the confidential and/or proprietary nature of information disclosed or made available or to be disclosed or made available to each other. For the purposes of this Agreement, each party shall be deemed to include any subsidiaries, internal divisions, agents, and employees. Any signing party shall refer to and bind the individual and the entity that he or she represents, whereas the Parties desire to ensure the confidential status of the information that may be disclosed to each other. Now, therefore, in reliance upon and in consideration of the following undertakings, the Parties agree as follows: 1. Subject to limitations set forth in paragraph 2, all information disclosed to the other party shall be deemed to be “Proprietary Information.” In particular, Proprietary Information shall be deemed to include any information, marketing technique, publicity technique, public relations technique, process technique, algorithm, program, design, drawing, mask work, formula, test data research project, work in progress, future development, engineering, manufacturing, marketing, servicing, financing, or personal matter relating to the disclosing party, its present or future products, sales, suppliers, clients, customers, employees, investors, or business, whether in oral, written, graphic, or electronic form. 2. The term “Proprietary Information” shall not be deemed to include information that (i) is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available information, (ii) is known by the receiving party at the time of receiving such information as evidenced by its records, (iii) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure, (iv) is independently developed by the receiving party without reference to the information disclosed hereunder, or (v) is the subject of a written permission to disclose provided by the disclosing party. (Continued)

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(Continued) Not withstanding any other provision of this Agreement, disclosure of Proprietary Information shall not be precluded if such disclosure: a. is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof, b. is otherwise required by law, or, c. is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary. In the event that the receiving party is requested in any proceedings before a court or any other governmental body to disclose Proprietary Information, it shall give the disclosing party prompt notice of such request so that the disclosing party may seek an appropriate protective order. If, in the absence of a protective order, the receiving party is nonetheless compelled to disclose Proprietary Information, the receiving party may disclose such information without liability hereunder, provided, however, that such party gives the disclosing party advance written notice of the information to be disclosed and, upon the request and at the expense of the disclosing party, uses its best efforts to obtain assurances that confidential treatment will be accorded to such information. 3. Each party shall maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any Proprietary Information received from the other party. Each party may use such Proprietary Information in the extent required to accomplish the purpose of the discussions with respect to the subject. Proprietary Information shall not be used for any purpose or in any manner that would constitute a violation on law regulations, including without limitation the export control laws of the United States of America. No other rights or licenses to trademarks, inventions, copyrights, or patents are implied or granted under this Agreement. 4. Proprietary Information supplied shall not be reproduced in any form except as required to accomplish the intent of this Agreement. 5. The responsibilities of the Parties are limited to using their efforts to protect the Proprietary Information received with the same degree of care used to protect their own Proprietary Information from unauthorized use or disclosure. Both Parties shall advise their employees or agents who might have access to such Proprietary Information of (Continued)

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(Continued) the confidential nature thereof and that by receiving such information they are agreeing to be bound by this Agreement. No Proprietary Information shall be disclosed to any officer, employee, or agent of either party who does not have a need for such information for the purpose of the discussions with respect to the subject. All Proprietary Information (including all copies thereof ) shall remain the property of the disclosing party and shall be returned to the disclosing party within one week after the receiving party’s need for it has expired, or upon request of the disclosing party, and in any event, immediately upon completion or termination of this Agreement. The receiving party further agrees to destroy all notes and copies thereof made by its officers and employees containing or based on any Proprietary Information and to cause all agents and representatives to whom or to which Proprietary Information has been disclosed to destroy all notes and copies in their possession that contain Proprietary Information. This Agreement shall survive any termination of the discussion with respect to the subject and shall continue in full force and effect until such time as the Parties mutually agree to terminate it. This Agreement shall be governed by the laws of the United States of America and as those laws that are applied to contracts entered into and to be performed in all states. Should any revision of this Agreement be determined to be void, invalid, or otherwise unenforceable by any court or tribunal of competent jurisdiction, such determination shall not affect the remaining provisions of this Agreement, which shall remain in full force and effect. This Agreement contains final, complete, and exclusive agreement of the Parties relative to the subject matter hereof and supersedes any prior agreement of the Parties, whether oral or written. This Agreement may not be changed, modified, amended, or supplemented except by a written instrument signed by both Parties. Each party hereby acknowledges and agrees that, in the event of any breach of this Agreement by the other party, including, without limitations, the actual or threatened disclosure of a disclosing party’s Proprietary Information without the prior express written consent of the disclosing party, the disclosing party will suffer an irreparable injury such that no remedy at law will afford it adequate protection against or appropriate compensation for such injury. Accordingly, each party hereby (Continued)

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(Continued) agrees that the other party shall be entitled to specific performance of a receiving party’s obligations under this Agreement as well as further injunctive relief as may be granted by a court of competent jurisdiction. 11. The term of this Agreement is for two (2) years after the date of last disclosure of any Confidential and/or Proprietary Information, commencing on the “Effective Date.” AGREED TO: Signature Printed Name: Title: Company: Date: AGREED TO: Signature Printed Name: Title: Company: Date:

Appendix B: Nondisclosure Agreement This Agreement is made effective as of ____ by and between ____ (hereinafter the “Company”) and ____ (hereafter the “Receiving Party”), to assure the protection and preservation of the confidential and/or proprietary nature of information to be disclosed or made available by Company to the Receiving Party in connection with certain discussions. In reliance upon and in consideration of the following undertakings, the parties agree as follows: 1. Subject to the limitations set forth in Paragraph 2, all information disclosed by Company to the Receiving Party shall be deemed to be “Proprietary Information.” In particular, Proprietary Information shall be deemed to include any information regarding inventions, trade secrets, patents, patent applications, know-how, discoveries, samples, (Continued)

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(Continued) formulations for producing any such sample, media and/or cell lines, processes, formula or test data relating to any research project, work in process, research and development plans, engineering, manufacturing, marketing, servicing, financing or personnel matter relating to Company, its present or future products, sales, suppliers, clients, customers, employees, investors or business, whether in oral, written, graphic or electronic form. Proprietary Information shall also include all third party information and information that Company has received from others. 2. The term “Proprietary Information” shall not be deemed to include information which the Receiving Party can demonstrate by competent written proof: (a) is readily available to the public through no act of failure to act on the part of the Receiving Party; (b) is hereinafter furnished to the Receiving Party by a third party, as matter of rights and without restriction in disclosure; (c) is known by the Receiving Party at the time of receiving such information, as evidenced by its records; or (d) is the subject of a written permission to disclose provided by Company. 3. The Receiving Party agrees at all times during the term of this Agreement and thereafter that it will take all reasonable steps necessary to hold all Proprietary Information in trust and confidence and shall not disclose any Proprietary Information to any third party or use any Proprietary Information in any manner or for any purpose not expressly set forth in this Agreement. The Receiving Party may use such Proprietary Information only to the extent required to accomplish the intent of this Agreement. 4. The Receiving Party shall advise its employees who might have access to Proprietary Information of the confidential nature thereof and agrees that its employees shall be bound by the terms of this Agreement. The Receiving Party shall not disclose any Proprietary Information to any employee who does not have a need for such information, nor shall it disclose any Proprietary Information to any third party without Company’s written consent. 5. No rights or licenses to trademarks, inventions, trade secrets, copyrights, or patents are implied or granted under this Agreement. Proprietary Information shall not be reproduced in any form except as required to accomplish the intent of this Agreement. (Continued)

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(Continued) This Agreement shall continue in full force and effect for so long as the Receiving Party continues to receive Proprietary Information. This Agreement may be terminated by either party at any time upon thirty (30) days’ written notice to the other party. The Receiving Party’s obligations under this Agreement shall survive termination of this Agreement and shall be binding upon Receiving Party’s heirs, successors, and assigns. The Receiving Party agrees to indemnify Company for any loss or damage suffered as a result of any breach by the Receiving Party of the terms of this Agreement, including any reasonable fees incurred by Company in the collection of such indemnity. This Agreement, together with Exhibit A attached hereto and hereby incorporated herein, contains the final, complete, and exclusive agreement of the parties relative to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements relating to its subject matter. This Agreement may not be changed, modified, amended, or supplemented except by a written instrument signed by both parties. The Receiving Party hereby acknowledges and agrees that in the event of any breach of this Agreement by the Receiving Party, including, without limitation, the actual or threatened disclosure of Proprietary Information without the prior express written consent of Company, Company will suffer an irreparable injury such that no remedy at law will afford it adequate protection against, or appropriate compensation for, such injury. Accordingly, the Receiving Party hereby agrees that Company shall be entitled to specific performance of the Receiving Party’s obligations under this Agreement, as well as such further relief as may be granted by a court of competent jurisdiction. The parties’ right and obligations will bind and insure to the benefit of their respective successors, heirs, executors, and administrators and permitted assigns. This Agreement shall be governed by the laws of the State of California, excluding its conflicts of laws principles. If any provision of this Agreement is found by a proper authority to be unenforceable, that provision shall be severed and the remainder of this Agreement will continue in full force and effect. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify (Continued)

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(Continued) in writing. Such notice shall be deemed given upon the personal delivery, or sent by overnight courier upon written verification of receipt, or certified or registered mail, return receipt requested, upon verification of receipt. IN WITNESS WHEREOF, the Receiving Party has executed this Agreement as of the date first above written. Agreed To (Company):

Agreed To (Receiving Party):

________________________ Signature ________________________

________________________ Signature ________________________

________________________ Address

_______________________ Address

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Contracts Carol K. Lucas, Esq.∗

E

very medical practice will inevitably be a party to a number of contracts, including contracts among the practice and its owners, employment and independent contractor agreements with physician and ancillary staff, leases, and financing agreements. In addition, many plastic surgeons may be presented with management services agreements, managed care contracts, or surgery center or spa agreements. Of these contracts, some are printed form contracts, the form and terms of which are dictated by the other party. Examples of these are equipment leases, standard bank loan and note documents, and office leases. Others are individually prepared and negotiated to address the desires and concerns of the contracting parties. Either way, it is important that physicians read and understand all of their contracts prior to signing them. It is also important that contracts be clear and unambiguous. History teaches us that contracting parties often develop disagreements. In a perfect world, those disagreements are resolvable by the terms of the contracts. If contracts do not resolve the dispute or provide a mechanism for resolving the dispute, they have failed in their purpose. This chapter surveys some of the more important and common contracts that medical practices (or their physician owners) enter into. It will discuss, among others, entity contracts (i.e., partnership and shareholder agreements), employment and independent contractor agreements, and management services agreements.

Entity Contracts Any medical practice that is not a sole proprietorship of a single physician should have a written agreement among its owners. A medical practice may ∗ The author gratefully acknowledges the generous assistance of Marilyn Marchello Bautista,

Lecturer, Stanford Law School, USA, with this chapter.

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be organized as a corporation, a partnership, a limited liability company, or a limited liability partnership. The legal form that a medical group will take is dictated, at least in part, by state law. In California, for example, medical practices must be organized either as professional corporations or as general partnerships. Other states permit medical practices to be organized as limited liability companies or limited liability partnerships. This agreement addresses matters such as the financial relationship among the owners, governance of the entity, professional expectations of the owners, exit strategies, and agreements not to compete. Each of these areas is discussed below.

Financial matters Whether the practice is organized as a corporation (in which case the applicable document is a shareholders’ agreement) or a partnership (in which case the applicable document is a partnership agreement), the contract among the owners of a medical practice will necessarily address the financial relationship among the owners. The agreement should specify the contribution, either in cash or in property, of each owner. If ownership interests will be sold to additional physicians over time, the agreement should address how the buy-in price will be determined. The agreement will also need to address the relative ownership of each of the owners. Some partnerships and professional corporations require that each physician owner have an equal ownership interest. Others permit some owners to have a greater ownership interest, as a result of either seniority or service to the group. This structure is frequently employed when a junior partner is brought into the entity. That junior owner may or may not gradually achieve equal percentage ownership over time. The entity agreement will also need to address how the entity compensates its professional owners and how its profits are divided. Because medical practices are professional services organizations, there are two components of the amount it distributes to its owners. First, each medical practice must address how the physician owners, who are practicing medicine on its behalf, are compensated for their efforts. Second, the owners must address how profits (if there are any) are distributed after all expenses are paid. A medical practice entity may compensate its owners for their professional services almost any way that it wishes (subject to Stark Law and Anti-Kickback Law restrictions in the case of Medicare and other federal program patients, as discussed at the end of this chapter). Generally, physician owner compensation is related in some fashion to the productivity of the physician. Such arrangements run the gamut from a pure “eat what you kill” system in which

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the physician is paid his or her collections, less his or her overhead, to a more elaborate system in which each professional employee is paid a stated salary and is entitled to share in a bonus pool based on productivity as well as intangible factors that may relate, for example, to administrative services rendered to the entity. Profit distribution generally mirrors ownership percentage. However, in entities where each physician owner owns the same percentage of ownership notwithstanding differences in contribution to the entity, profits may be distributed not in accordance with strict ownership but on a basis that takes into account ownership, contribution, and seniority, among other factors. It should be noted that distributions on a basis other than strict ownership are easier to effect in a partnership than in a corporation. Most corporate law requires that dividends be paid to shareholders equally based on the number of their shares. In this instance, differential distribution of profits is accomplished by re-characterizing some profit as compensation, generally bonus compensation. If the entity is a corporation that has not made a Subchapter S election, it is desirable to distribute as much as possible of the profit as bonus compensation rather than recording it as income. Bonus compensation, assuming that the Internal Revenue Service (IRS) does not view it as clearly excessive, is a deductible expense, whereas a business corporation’s income is taxable.

Governance It is possible in the entity agreement to completely divorce governance issues from financial issues. That is, even if all owners own an equal percentage of the entity, the entity agreement — whether a partnership agreement or a shareholders’ agreement — frequently sets forth detailed provisions regarding the governance of the entity. For example, a shareholders’ agreement will generally specify the number of members of the board of directors and how they are selected. If the entity has a relatively small number of owners, each will generally serve on the board. If there are only two owners, a shareholders’ agreement will frequently specify a board of three in order to avoid deadlocks and will specify the selection process for the third director. In partnerships and limited liability companies, the governing agreement may provide for an elected board or a management committee or even a single managing partner. In those instances, the agreement also specifies the responsibilities and authority of such body or person. Most entities are wise to devote a fair amount of time and attention to governance provisions. Although partners may believe that they will always govern by consensus, it frequently

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happens that interests and opinions diverge and entities can become deadlocked, adversely affecting the business as a whole.

Professional expectations Many professional entities incorporate provisions into the entity agreement that would otherwise appear in the owners’ employment agreements. For example, a medical practice shareholders’ agreement frequently includes provisions regarding the minimum time commitment expected of physician owners, maximum vacation time allowed, continuing legal education (CLE) time and reimbursement, and similar terms. In these instances, the shareholders’ agreement or partnership agreement will also address termination events for physician owners. These events must be carefully drawn and unambiguous. A temptation exists in the case of any acrimonious termination for the terminated physician owner to sue for wrongful termination. In those instances, the termination provisions of the agreement will be crucially important.

Exit strategies Entity agreements vary in their handling of departing owners. Almost all provide that the ownership interest of a physician owner who dies, becomes disabled, or loses his or her license is subject to repurchase by the entity. In many states, repurchase is mandatory on a physician’s loss of license because only a licensed physician is eligible to own an interest in the entity. In agreements that provide for mandatory repurchase upon certain events, including but not necessarily limited to death, disability, and loss of license, the agreement must specify the terms on which the interest will be repurchased. Some agreements provide for a repurchase price based on an appraisal, although this can be a cumbersome and expensive process. Others delegate to the board of directors the responsibility to set the value of shares prospectively on an annual basis, so that the determination is made before anyone knows whose shares it will apply to. Still other entities use a price formula based on the entity’s financial performance, generally measured by its earnings before interest, taxes, depreciation, and amortization (EBITDA). Other mandatory repurchase events include retirement, relocation out of the area or where competition is prohibited, and breach of the covenant not to compete. Some entity agreements also provide repurchase upon failure of a physician owner to practice in accordance with the group’s standard of care or other subjective, qualitative measures.

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Aside from involuntary repurchase, most entity agreements prohibit transfers without consent and generally provide a right of first refusal. In instances where there are only two or a small number of owners, owners may put in place mutual buy/sell agreements, which are intended to permit separation of the physicians without permitting either owner to “game” the other.

Covenants not to compete Most entity agreements contain some form of exclusivity agreement or covenant not to compete. The least restrictive of these is generally an agreement during the time a physician employee is an owner of the entity that he or she will practice medicine exclusively for the entity and will not participate in other practices within a particular radius of the entity’s practice sites. Many entity agreements also extend the covenant not to compete for a period of time from one to three years following termination of the physician owner’s ownership interest. Not all states will enforce post-termination covenants. However, even California, which generally severely disfavors covenants not to compete, will permit them to be enforced when a physician sells all of his or her interests in the business. It is important that such sale be a genuine sale at a price that includes the value of the entity’s goodwill. Courts in California, for example, hold that, where physician owners are all issued the same modest percentage of ownership at a nominal price to buy in and a nominal price on exit, the ownership arrangement is a sham and the covenant not to compete is unenforceable. In instances where an entity agreement contains a covenant not to compete, courts will generally only enforce them to the extent that they are reasonable in geographic scope and duration. Therefore, it is incumbent upon the owners to determine how large an area is really necessary to protect the entity’s practice. The enforceable non-compete radius in a high-density urban environment, for example, will be much smaller than in a low-density rural setting, where patients will presumably drive farther to obtain health services. A covenant that provides reasonable protection to the entity for one year may be viewed as unreasonable (and hence unenforceable) if it restricts the activities of a departing owner for multiple years. It is also important in drafting these provisions to clearly specify what is considered a competing business. Many entity agreements distinguish between merely practicing medicine on the one hand and owning or managing a competing entity on the other. Similarly, activities other than the strict practice of medicine may or may not be covered by the covenant. Entity

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owners should determine exactly what they wish to restrict, and assure that the language in their agreement is precisely and narrowly drawn to accomplish that goal.

Medical practices vs. ambulatory surgery centers In most instances, medical practice entity agreements are different from the agreements governing ambulatory surgery centers. With medical practices, the owners are generally more integrated and the practice represents all or nearly all of their practice activities. Whether organized as a corporation, limited liability company, or partnership, the entities are essentially partnerships and their professional owners tend to view themselves and each other as partners. With an ambulatory surgery center, the entity will generally represent a secondary relationship. Physicians invest in surgery centers for a number of reasons, primary among them being investment returns and surgical convenience. However, the relationship among the owners of an ambulatory surgery center is primarily that of promoter or investor than that of partner. Ambulatory surgery centers, whether organized as limited partnerships, limited liability companies, or corporations, are generally managed by a relatively small group of owners who may be commercial operators or physicians. Most physicians who purchase an interest in the surgery center do so as investors. They do not expect to be actively managing the surgery center; rather, they are looking for a convenient place to do surgery and a return on their investment. Because of these differences, and because physicians are referral sources to surgery centers, surgery center agreements generally require that physician investors purchase their interest at fair market value; that the surgery center not finance the purchase of the interest; that all distributions be made strictly in accordance with ownership; that all physician investors have an equal opportunity to invest; and that, on repurchase of a physician investor’s interest, the price represents fair market value, frequently expressed as a multiple of EBITDA. Governance in surgery center documents generally vests in a general partner or manager the responsibility to manage the entity and the surgery center. Most surgery center entity agreements permit physician investors to vote on a limited number of fundamental matters. Otherwise, they are generally treated as passive investors with no say in management. The specific list of matters on which surgery center investors may vote is frequently determined with reference to state law, but generally includes dissolution, sale of all or substantially

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all of the entity’s business, removal of a general partner or manager, addition of a new or substitute general partner or manager, and continuation of the entity following loss of the sole remaining general partner or manager. Surgery center entity agreements also generally contain regulatory requirements, such as a requirement that physician investors certify compliance with the ambulatory surgery center safe harbor under the federal Anti-Kickback Law (discussed below), that they agree to disclose their ownership interest to patients and payers, and that their decision to perform a particular procedure at the surgery center is based on their professional judgment and not upon any payment for referrals.

Employment and Independent Contractor Agreements At one time or another, most medical practices will bring in additional professionals, either as employees or as independent contractors. Generally, if a physician is expected to work full-time and exclusively for the practice, he or she will be characterized as an employee. If the physician is working only parttime and renders similar services at other locations, he or she will most likely be an independent contractor. Sometimes, full-time physicians prefer to be treated as independent contractors because they receive their gross compensation without withholding and because, as self-employed professionals, they are able to deduct business expenses that are not deductible for employees. However, for the employer, it is risky to characterize someone as an independent contractor if they are, in fact, an employee. It exposes the employer not only to employment taxes that remain unpaid, but also to interest and penalties. Consequently, employers should consult their tax advisors and/or accountants regarding IRS requirements for independent contractors’ status.

Employment contracts Even if a physician employee is an at-will employee, meaning that the employer can terminate the employment at any time without cause, it is advisable for the employer and employee to enter into an employment agreement that sets forth the terms of the employment, including duties and responsibilities, compensation, benefits, termination events, authority of the employer, and administrative responsibilities. In addition to the listed items, physician employment agreements also frequently address such matters as responsibility

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for call, non-solicitation of patients and employees, dispute resolution, and responsibility for tail coverage on termination. With respect to duties and services, the employment agreement generally spells out practice location, what is meant by “full-time” (i.e., 4 days, 41/2 days, 5 days, etc.), working and on-call hours, and the fact that the employee is serving in the employer’s medical practice. As a practical matter, the employment agreement should explicitly require the employee to conform to the standards and practices established by the employer from time to time. The agreement should also explicitly require the employee to cooperate with any administrative procedures that may be adopted by the employer regarding the services being provided. Finally, the agreement will explicitly state that all charts and medical records are the property of the employer and that the employer is entitled to all fees for professional services collected. Many physician employment agreements also explicitly require the employed physician to submit, on a timely basis, charge sheets, face sheets, and other documentation necessary for billing. Compensation may be stated as salary alone, salary plus an incentive component, or compensation determined by a formula. If the agreement uses a formula to determine the employee’s compensation, it is important that the terms be defined and that the formula be clearly set forth, so that both parties have the same understanding of how the formula will be applied during the term of the employment. The ability to pay employees on a basis that takes into account their productivity is a benefit of employment, as opposed to independent contractor status. Under the Stark and Anti-Kickback Laws, and under many state laws, percentage-based compensation is legal if the person receiving it is a bona fide employee, but may constitute fee splitting or payment for referrals if the person receiving it is an independent contractor. The employment agreement should clearly specify the benefits that the employed physician will be entitled to receive, including (as applicable) vacation time; health insurance; pension or other retirement plans; and expense reimbursement for items such as licenses, medical staff dues, continuing medical education (CME), and publications. In addition, the amount of time off that a physician employee may take for CME should be specified. Some physician employment agreements include time off for CME as part of vacation time; others list it separately. Although many states will not enforce a non-competition agreement following termination of employment, most states will enforce ongoing confidentiality and non-solicitation covenants. Thus, the physician employment agreement will generally specify that the employee has no interest in the

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employer’s confidential information, including patient and referral source names and contact information. The agreement will generally prohibit the physician employee from using or disclosing such information. Finally, physician employment agreements generally prohibit the employee, on termination, from soliciting either the employees of the medical practice or the patients of the medical practice. Most physician employment agreements contain a specified term of at least one year, which may be automatically renewed if not affirmatively terminated by either party. They frequently provide for termination without cause on 30 or 60 days’ prior written notice. They also always provide for immediate termination on the occurrence of certain events, including loss of license, death of employee, conviction of the employee of a felony or any crime of moral turpitude, failure of the employee to qualify for malpractice insurance, and failure of the employee to maintain an active Drug Enforcement Administration (DEA) number. In addition, most physician employment agreements are also terminable upon breach of the terms of the employment agreement and/or upon a determination by the employer that the employee has violated any code of ethics established by the employer or that the employee is engaged in illegal drug use or substance abuse. Under the doctrine of respondeat superior, the employer will be liable for torts committed by the employee, so all of these termination events are necessary to protect the employer. Physician employment agreements frequently contain arbitration provisions. Because of court decisions designed to protect employees from abusive dispute resolution mechanisms, care should be taken to conform any employment agreement arbitration provision to applicable state law. In California, for example, it is necessary to provide that the employee will not be liable for any expenses of arbitration greater than the cost of filing an action in court. In many instances, physician employment agreements also address the future possibility that an employee will be offered an ownership interest in the practice. If this matter is addressed in a physician employment agreement, it should be clearly stated to be in the discretion of the employer and to be an offer that “may” be made rather than “will” be made. Frequently, employees request that provisions like this be inserted into their employment agreements with a time frame for consideration. From the employer’s perspective, the lesser detail that accompanies this statement of potential ownership, the better it is. No medical practice will know in advance whether a particular employee is a good fit, either clinically or culturally, and it is always better for the practice to keep its options completely open.

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Almost all physician employment agreements require the employer to provide malpractice insurance for the employee. However, physician employment agreements differ widely with respect to the responsibility to procure tail insurance on termination. Some employment agreements require the employer to obtain and pay for tail coverage, regardless of the reason for the termination. This approach makes some sense, because the employer is protecting itself (i.e., the practice) from liability for claims made after the employee leaves. Other agreements require the employee to obtain tail coverage in all instances. This approach is risky, because the employee may fail to do so and the practice may be exposed. Still other agreements require the employee to obtain tail coverage if the termination is for cause or if the employee quits, and the employer to procure tail coverage if the practice terminates the agreement without cause. For the reasons noted above, this may also expose the practice to some risk. In the instances where the employee is required to provide tail coverage, the agreements generally permit the employer to procure it on failure of the employee to do so and to demand reimbursement. However, reimbursement may not always be easy to obtain, especially if the employee moves out of state.

Independent contractor agreements As noted above, independent contractor agreements are generally used for part-time, specialty services. In many respects, their terms are the same as those of employment agreements, with the following exceptions. In an independent contractor relationship, the contractor physician may do his or her own billing and may own his or her own charts (if this is not the case, it may provide inferential evidence that the contractor is actually an employee). The contractor physician will generally not receive any employment benefits, including malpractice insurance. Frequently, contractor physicians are required to provide certificates or other evidence of malpractice insurance at the inception of the agreement and periodically thereafter. Compensation of independent contractor physicians is generally on a perhour or per-day basis. As noted above, regulatory considerations militate against paying an independent contractor physician on a percentage basis. Independent contractor agreements generally specify that the relationship between the practice and the contractor physician is that of independent contracting parties, and specify that neither party may bind the other. The term is usually for at least one year, and it may or may not be automatically renewed. Generally, in the case of physician independent contractors,

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the termination provisions are the same as for physician employees. There is generally a without-cause termination provision as well as a provision for immediate termination upon the occurrence of certain events.

Ancillary professionals Physicians frequently desire to employ ancillary professionals and/or licensees in their practices. For plastic surgeons, such persons could include those responsible for providing aesthetic services in the physician’s office or a medical spa, including nurses and aestheticians. Frequently, such persons desire to be treated as independent contractors and many may not work in the practice full-time. However, as noted above, if such persons are to be compensated on a percentage-of-collections basis, they must be employees and not independent contractors. Compensating independent contractor aestheticians or nurses on a percentage basis could expose the physician to liability for fee splitting. If such persons are independent contractors, they can be compensated on an hourly or fee-schedule basis, but should not be compensated on a percentage basis. It is also important that the employment or independent contractor agreement between the practice and such persons clearly specifies their responsibilities, the expectations that they are required to meet, and the terms upon which the agreement can be terminated. Like physician employment agreements, such agreements should specify that they are terminable in the event of any licensure action with respect to the employee and are terminable immediately in the event that the practice becomes concerned about the safety of its patients.

Outsourcing Administration: Management, Billing, and Marketing Agreements Management, billing, and marketing agreements allow a physician practice to outsource various functions. Of the three, the management agreement is generally the most extensive. It often provides for a management company to assume responsibility for all non-professional aspects of the physician’s practice, including employees, equipment, supplies, billing, personnel, accounting, and marketing for the practice. Billing agreements and marketing agreements represent more specialized services agreements; rather than contracting out all administrative aspects of the practice, these agreements deal only with welldefined and specific functions.

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The most important provisions in any of these agreements are the description of the services, the termination provisions, and the compensation provisions. With respect to the description of the services, it is vitally important that the agreement be as complete and precise as possible. In a management services agreement, this requires spelling out all non-professional aspects of the practice and generally specifies whether the medical group or the manager has control over the various functions. For example, if the manager is responsible for financial functions, the agreement should specify that the manager will provide bookkeeping and accounting services, will provide reports to the medical group, will reconcile the medical group’s records with its bank statements, will supervise the medical group’s outside accountants, and so on. In the case of supplies, the agreement should specify whether the manager or the medical group is entitled to decide which supplies and which equipment are purchased. Frequently, once the manager and the medical group have agreed upon an annual budget, the manager is authorized to purchase equipment, supplies, and services in accordance with the budget, and is only required to obtain the group’s authorization for items exceeding the budgeted amount by a specified dollar amount or percentage. The management services agreement should specify which employees are the responsibility of the management company (i.e., receptionists, billers, etc.) and which employees are to be employed by the medical group. Generally, the medical group is responsible for all professional employees, which certainly include physicians and may also include nurses, physician assistants, and technicians. The term of a management agreement is frequently heavily negotiated. Management companies, especially management companies that invest significant resources in a particular practice, generally seek a long term for the management agreement, such as 10 or even 20 years. Practices, conversely, generally do not like to be locked in for this long a term and negotiate for a shorter term. As important as the term itself are the termination provisions. Again, in instances where the management company has invested significant resources, it frequently attempts to limit termination events to termination for cause; if the agreement permits termination without cause, the notice period is generally fairly long, such as 180 days. The medical group, on the other hand, may agree to a very long-term management agreement if it has the ability to terminate the agreement without cause, either from inception or from a designated point by which time the parties assume that the manager has recouped its investment. For example, the management agreement could provide that the agreement is terminable only for cause for the first five

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years, and then may be terminated by either party without cause on 90 days’ notice. As with employment agreements, it is important that the events giving either party grounds to terminate the agreement be clearly identified. Having vaguely worded cause events will almost certainly lead to litigation if one party (usually the manager) wishes the agreement to continue. Compensation is an extremely sensitive area in management agreements. If the practice provides services to any federal program patients, the federal Anti-Kickback Law generally prohibits percentage-based management fees, although most management arrangements are on a percentage basis. Similarly, many state laws address whether a percentage fee is appropriate. For example, California Business and Professions Code Section 650 provides that a fee for management services may be based upon a percentage of gross revenues as long as the fee bears a reasonable relationship to the value of the services. Notably, the percentage must be based on gross revenues rather than net revenues, and the compensation must be reasonable. Most healthcare lawyers therefore advise both the management services organization and the practice (because either party could encounter regulatory trouble from these agreements) to carefully document not only all the services that are provided, but also the charges that would be made by other parties for similar services in the area. This careful accounting is important in connection with management agreements because a referral relationship frequently exists between the practice and the management company. Billing arrangements are almost always compensated as a percentage of collections. Generally, this does not raise the same regulatory concerns because there is no referral relationship between medical groups and their billing companies. Almost all medical billing contracts provide for percentage compensation. The most important consideration with a billing agreement is to clearly state the compensation formula. It is very easy to calculate a percentage of collections. However, the agreement should also address whether the billing company or the practice is responsible for amounts recouped as overpayments or other refunds. The agreement should also clearly specify whether or not the practice can adjust or write off billed amounts, and on what terms. Marketing agreements raise significant regulatory issues because, by their nature, marketers are being paid for referrals. If the practice provides services to Medicare or other federal program patients, it must be cognizant of the Anti-Kickback Law, which prohibits payment for referrals of business that can be paid for by a federal healthcare program. Therefore, practices that have Medicare patients either restrict marketing activities to non-federal program

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patients or pay marketers on a basis other than percentage of collections from patients they originate. For this reason, when management agreements include marketing services, even if the management agreement is paid on a percentage basis, marketing services will frequently be carved out and paid on another basis, such as hourly or cost-plus. Aside from compensation, the most significant issue in a marketing agreement is whether or not the practice will have approval rights on advertising and marketing activities. It is vitally important that the practice be able to veto advertisements or marketing events that are viewed by the practice as unseemly or misleading. This oversight ability is especially important because many states regulate physician marketing, and the practice will be held responsible for the content of the advertisements.

Sharing Space with Other Physicians: Overhead Sharing Agreements It is not uncommon for physicians to share office space and support services without joining their practices. Sometimes, the arrangements are as simple as a sublease agreement between the physician who leases the office suite and another physician who takes over a portion of the suite such as an office and an examination room. However, because a subtenant also probably uses certain services in the suite, such as reception, patient sign-in, supplies, and laundry, for example, it is generally better practice to enter into an overhead sharing agreement than a simple sublease. The reason for this is that almost all physicians who share office space have a referral relationship. Under the Stark and Anti-Kickback Laws, described below, it is illegal for physicians to pay or accept payment for a referral. When two physicians are in a referral relationship, then, it is important that their financial relationship strictly reflect the fair market value of items and services exchanged between them. If a subtenant uses services other than space in a physician office suite and does not pay for them, such subtenant is arguably receiving a benefit which could be characterized as a payment for referrals to the sublessor. In determining each physician’s share of expenses, both fixed and variable expenses should be included. Purely separate expenses of the incoming physician (such as stationery) should be borne by that physician alone and should not be shared. Overhead sharing agreements address each of the items and services that the parties are sharing, including but not limited to space and employee time,

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and divide the cost of such items and services strictly in accordance with usage. Thus, if one physician is using 40 percent of the suite full-time, that physician will generally pay 40 percent of the expenses. If one physician is using 40 percent of the suite half-time, such physician will generally pay 20 percent of the expenses. Because parties to an overhead sharing agreement have not integrated their practices, care should be taken in the agreement to delineate the areas of authority (if any) that one party will have over the practice of the other. For example, it sometimes happens that one physician’s employee will disrupt the staff or patients of the other. The overhead sharing agreement should state the mechanism for addressing issues such as these. Also, because physicians who are sharing an office suite have not integrated their practices, it is important for the overhead sharing agreement to address the issue of signage, telephone answering, and stationery. If the parties are not careful to maintain the separate appearance of their practices, they can become de facto partners, which could render one financially responsible for the actions of the other. Frequently, such office suites will post a sign on the front desk indicating that the physicians in the suite are not part of a single practice in order to avoid confusion.

Managed Care and Insurance Contracts As noted above, provider agreements with insurance companies or health maintenance organizations (HMOs) are examples of contracts that are not highly negotiable. While a physician may have an opportunity to negotiate price, most of the terms are standardized across all of a carrier’s contracts and are unlikely to be modified in a particular instance. Because insurance contracts are not generally negotiable, it is important for a physician who signs one to be aware of his or her responsibilities under it. Insurance contracts are generally very specific and detailed regarding procedures to be followed by the physician in terms of authorization and claims payment. Frequently, such contracts will also specify responsiveness standards, such as the maximum amount of time before a patient’s call is returned and the maximum waiting time for an appointment. It is important for any physician signing such a contract to be aware of these requirements and to be sure that the office is capable of satisfying them. Other issues to watch out for in an insurance contract include the “silent PPO”. This term describes a contractual provision under which a physician,

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by virtue of signing a single contract, has agreed to participate in multiple networks. On the one hand, this can result in additional volume to the physician, in which case it could be a good thing. On the other hand, it widens the circle of payers to whom the physician has agreed to give discounted pricing. There might also be “most-favored-nation” clauses, which obligate the physician to give the carrier the best price he or she has agreed to give any payer. Physicians should also be careful about entering into exclusive arrangements. Carriers frequently desire to use a physician’s name and reputation to enhance the perceived quality of their networks, and for that reason will require a physician to contract only with them. Obviously, the physician should think twice about entering into an exclusive arrangement with any carrier that controls only a small amount of business, because the benefit is unlikely to outweigh the burden of such an arrangement.

Boilerplate Contract Terms Many non-lawyers consider the miscellaneous provisions at the end of almost all contracts to constitute boilerplate, which is not important to the parties or to the way a contract would be interpreted. In many instances, this is a misconception. The following provisions, typically included in the general or miscellaneous section of contracts, can have a significant effect on the parties to the contract.

Amendment Not all contracts require agreement by all of the contracting parties to amend them. To the extent that a contract may be amended by fewer than all of the parties, it is important that each party understands that the contract can be amended without his or her consent. This amendment provision also generally specifies that amendments must be in writing and signed by the parties to be charged. Contracting parties frequently agree among themselves to change a contract’s requirements. If the amendment provision specifies that amendments must be in writing, these changes may or may not be enforceable modifications of the contract. It will frequently depend upon whether one party renders performance in reliance upon the amendment; in that event, the other party will generally not be excused by virtue of the amendment being purely oral.

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Assignment Most assignment provisions prohibit assignment without consent of the other party. A common exception is assignment to a party’s affiliate or successor organization. Any practice that may undergo a reorganization should have this exception in its assignment provision.

Attorneys’ fees The general American rule is that each party pays its own attorneys’ fees. Some contracts provide that the prevailing party’s attorneys’ fees will be paid by the losing party in the event of a dispute. This provision can be a double-edged sword. Most contracting parties do not know ahead of time whether they will prevail or not in a particular dispute. The exposure for not only that party’s own attorneys’ fees, but also the other party’s attorneys’ fees, can wind up magnifying the significance of a dispute far beyond the merits of the dispute itself. In close cases, the presence of an attorneys’ fees provision may prevent a contracting party from attempting to assert its contractual rights in the first place. Alternatively, the in terrorem effect of an attorneys’ fees provision can sometimes prompt disputing parties to work out a resolution short of litigation.

Dispute resolution Many contracts include dispute resolution provisions. These provisions may be as simple as declaring that all disputes between the parties will be resolved by binding arbitration. Other dispute resolution provisions specify preliminary steps such as good-faith informal attempts to resolve the parties’ differences and then mediation. Contracting parties should be aware that binding arbitration, although speedy and generally less expensive than litigation in court, may not be beneficial to them. If a dispute is litigated in court and the judge makes an error of law, the aggrieved party can appeal. In arbitration, there is no appeal. Arbitrators may or may not apply the law strictly to the facts before them and may apply the law erroneously. Furthermore, many arbitrators have a tendency to “split the baby” — a practice in which the arbitrator attempts to arrive at an equitable resolution that gives each party something, rather than necessarily strictly applying the law. While this can be a benefit to the party who would lose under the law, it is frequently frustrating to a party who is

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legally in the right. Consequently, parties should consider arbitration carefully and should not automatically agree to it.

Entire agreement/integration An integration provision is seemingly innocuous, but can have profound effects on the parties to a contract. It provides that the agreement is the entire understanding and agreement of the parties regarding the subject matter and supersedes any prior oral or written agreements, representations, understandings, or discussions between the parties. It is especially important to pay attention to this clause when a transaction is reflected in a number of different agreements. Each should be referenced in the integration provision, lest significant understandings between the parties be excluded from the parties’ formal agreement.

Governing law In most instances, this section will designate the law of the state in which the parties are located. In rare instances, a different law is specified; this is generally done to access provisions of a different state’s law that are considered to be favorable. Any contracting party should inquire about a choice of law that is different from the state in which he or she resides and practices.

Renegotiating a Contract Parties to a contract always retain the power to change the terms of their agreement, as long as both parties agree. The changes can be reflected in an amendment in which the parties identify the particular portions of the original agreement that are being changed. Once the changes are listed, the amendment should explicitly provide that all other terms of the agreement remain in full force and effect. In order to avoid having a contract reflected in multiple documents and having to refer back and forth from one to the other, some contracting parties prefer to amend and restate their agreements, a practice that essentially incorporates the changes into the agreement itself. In order to avoid confusion, the amended and restated agreement should specifically recite the original agreement and recite that the parties desire to amend and restate their agreement in order to incorporate certain changes. Finally, some parties, rather than amending or amending and restating their agreement, merely negotiate a brand new agreement to govern their

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relationship from that point forward. In such instances, most parties intend that their new agreement be considered a “novation”. A novation is an agreement that completely replaces and supersedes the prior agreement. In order to have a contract be a novation, it must say so. If a new contract does not explicitly state that the parties intended it to be a novation, confusion can be created about whether the original contract was ever terminated. This can become an issue in litigation involving the contract. The parties, of course, understand that they intended the new contract to replace the old. However, if the parties can no longer agree and litigate the contract, the original contract could be deemed to have continuing effect if the replacement contract is not explicitly stated to be a novation.

A Brief Word about Regulatory Matters All physicians are generally aware of the Stark Law and the Anti-Kickback Law, two federal laws intended to reduce fraud in the Medicare and Medicaid programs. Because these laws can prescribe certain terms in contracts involving healthcare entities, a brief discussion of them is provided here. As noted below, the laws operate differently, although they have the same ultimate goal. Nonetheless, it is important to be aware of the particular reach of each one when analyzing a contract under them.

Stark Law The Stark Law provides that a physician may not make a referral to an entity if the physician (or an immediate family member of the physician) has a financial relationship with the entity and if the referral is for designated health services for which payment may be made under Medicare, Medicaid, or other federal programs. Note that the Stark Law applies only to physicians. If a physician or a family member has a financial relationship with an entity, the physician may not refer a patient for “designated health services” if payment will be made by a federal program and if no exception applies. The threshold question in any Stark analysis is whether the referral is for “designated health services”. These include clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging (MRI), computed tomography (CT), and ultrasound; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies;

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prosthetics and orthotics devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. Note that physician services and ambulatory surgery services are not designated health services under the Stark Law. Inpatient and outpatient hospital services are included, but services rendered in settings other than a hospital (or an outpatient department of a hospital) are not covered. If the contract concerns a designated health service, then the next step in the analysis is to determine whether the physician has a financial relationship with the referral entity. For purposes of the Stark Law, the financial relationship can be an ownership interest or a compensation arrangement relating either to the physician or to a member of the physician’s immediate family. Remuneration includes not only direct payment of compensation, but also forgiveness of obligations or the provision of items, devices, or supplies that the physician would otherwise be required to purchase. Investment interest can include debt as well as equity. If the referral is for designated health services and if the physician or an immediate family member has a financial relationship and if the patient is a Medicare, Medicaid, or other federal program patient, it is necessary for the contract at issue to fall within a Stark Law exception. This most often comes up in connection with rental of office space, rental of equipment, employment, and personal services arrangements (such as medical directorships, for example). In all of these instances, in order to take advantage of the exception under the Stark Law, the contract must be in writing, signed by the parties and specifying the services, equipment, or space covered by the arrangement; there must be an actual need for the space, equipment, or services; the term must be for at least one year; the financial terms must be set in advance, be consistent with fair market value, and be determined in a manner that does not take into account the volume or value of any referrals or any business generated between the parties; and the terms must be commercially reasonable even if no referrals are made. Under the Stark Law, an arrangement must satisfy each element of the applicable exception; otherwise, the Stark Law is violated. It is not required that any party intended to violate the Stark Law, merely that the elements of a Stark violation are present and no exception is satisfied.

The Anti-Kickback Law The Anti-Kickback Law also applies only in the case of Medicare, Medicaid, or other federal programs. However, it is significantly broader than the Stark

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Law in that it applies not only to physicians, but to any party in the healthcare industry. The Anti-Kickback Law is a criminal statute which prohibits any person from knowingly and willfully soliciting or receiving any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring an individual to a person for the furnishing of any item or service for which payment may be made in whole or in part under a federal healthcare program. Thus, the Anti-Kickback Law is not limited to a list of designated health services. It applies to any item or service for which payment may be made under a federal healthcare program. Because the Anti-Kickback Law is stated so broadly, it requires scrutiny of every arrangement between persons in the healthcare industry, assuming they do any Medicare or Medicaid business. In any commercial arrangement, if there is a difference between fair market value and the amount paid or received, that difference can arguably be characterized as a payment for referrals. Because the Anti-Kickback Law is so broad, the government has developed a number of “safe harbors” which tend to indicate that the parties to a transaction are not paying or receiving a kickback. Like the Stark Law, there are safe harbors for space rental, equipment rental, personal services and management contracts, employment, and numerous other arrangements. Similarly to the Stark Law, the safe harbors most applicable to medical practice contracts require that the contract be in writing and signed by the parties; the contract clearly identifies the services to which it relates and that such services be all of the services provided between the parties; the term be for not less than one year; the aggregate compensation be set in advance, be consistent with fair market value, and not be determined in a manner that takes into account the volume or value of referrals; and the aggregate services contracted for not exceed those which are reasonably necessary to accomplish the commercially reasonable business purposes of the parties. Unlike the Stark Law, which is violated regardless of the parties’ intent if any element of an exception is not met, the Anti-Kickback Law is a criminal statute and requires intent to violate it. Furthermore, failure to satisfy every element of an anti-kickback safe harbor does not indicate that the statute has been violated. The statute is not actually violated unless the party pays or receives payment for referrals of federal program business. However, it is wise to satisfy the terms of the applicable safe harbor, if possible, and most healthcare-related contracts are drafted in order to accomplish this goal.

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The Wheel of Misfortune: Avoiding Medical Liability in Elective Surgery Mark Gorney, MD, FACS

General Considerations plastic and reconstructive surgeon practicing in the United States in the last 40 years will find it virtually impossible to end his or her career unblemished by a claim of malpractice. Whoever does so is certainly the rare exception. This chapter, however, is not the place to review the pathogenesis of the single most overriding socioeconomic issue of the medical profession in our time. What is called for are some clear, cogent, and immediately applicable guidelines which, if followed, should certainly reduce the probability of your involvement. As anyone reviewing significant numbers of plastic surgical claims can testify, well over half of the claims are preventable. Most are not based on technical faults, but rather on failures of communication and patient selection criteria. Patient selection is the ultimate inexact science. It is a mélange of surgical judgment, gut feelings, personality interactions, the surgeon’s ego strength, and, regrettably, economic considerations. Communication, on the other hand, is the sine qua non of building a doctor-patient relationship. Unfortunately, the ability to communicate well is a personality characteristic that cannot be readily learned in adulthood. Regardless of how brilliant the mind is or how deft the hands are, someone who appears to be cold, arrogant, or insensitive is far more likely to be sued than one who relates to people at a “human” level. The common denominator of all malpractice claims is a breakdown in communications (rapport). It is highly unlikely that you will commit no errors in your career. It is, however, entirely possible to alter the subsequent outcome of an error by adhering to a few simple rules.

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Standard of Care Malpractice is defined in legal lexicon as “treatment which is contrary to accepted medical standards and which produces injurious results in the patient.” Although most medical malpractice actions are based on laws governing negligence, the law recognizes that medicine is an inexact art and that there cannot be absolute liability. Thus, the cause of action is usually the “failure of defendant/physician to exercise that reasonable degree of skill, learning, care, and treatment ordinarily possessed by others of the same profession in the community”. In the past, the term community was accepted geographically, but this is no longer true. Now, on the supposition that all doctors keep up with the latest developments in their field, community is generally interpreted as the “specialty community”. The standards are now those of the specialty, without regard to geographic location. This is usually referred to as standard of care. Standard of care has special implications in plastic surgery, a specialty that encompasses many variations to achieve the same end. Thus, to a certain extent, the plastic surgeon has more latitude than do other surgeons.

Warranty The law holds that, by merely engaging to render treatment, a doctor warrants that he or she has the learning skill of the average member of his or her specialty and that he or she will apply that learning and skill with ordinary and reasonable care. This warranty of due care is legally implied; it need not be mentioned by the physician or the patient. However, the warranty is for service, not for cure. Thus, the doctor does not imply that the operation will be a success, that results will be favorable, or that he or she will not commit medical errors which are due to a lack of skill and care. One of the by products of technology and the crunch of competition is the increasing popularity of imaging devices. Although useful in planning craniofacial operations, these devices are now often used as inducements to aesthetic surgery. If a surgeon cannot deliver what was created on a computer screen, he or she may face a breach of warranty action. To a lesser extent, the same is true of showing pictures of only great results or enthusiastic testimonial statements of former patients. I strongly advise the use of a carefully worded disclaimer, written by legal counsel, for anyone who wishes to use an imaging device in patient consultation. If patient photographs are used, they should represent both excellent and only fair results to avoid an implied warranty.

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Informed Consent For centuries, Anglo-Saxon common law has respected the individual’s right to the integrity of his or her person; any unauthorized harmful or offensive touching has technically constituted battery. Thus, a physician who treats a person without that person’s consent is usually guilty of battery. How does informed consent differ from routine consent? In the former, the patient has sufficient understanding of the nature, purpose, and risks of the procedure to make an intelligent decision to accept or reject the procedure. Obviously, in discussing the risks, a certain amount of discretion must be employed. Is this consistent with “full disclosure” of the facts necessary for informed consent? The emphasis is the word informed. While attempting to define the yardstick of disclosure, the courts divide medical and surgical procedures into two categories: 1. Common procedures, which incur minor or very remote serious risks (including death or serious bodily harm), e.g., the administration of antibiotics; and 2. Procedures involving serious risks, for which the doctor has an “affirmative duty to disclose the potential of death or serious harm and explain, in lengthy terms, the complications that might possibly occur.” Affirmative duty means that the physician is obliged to disclose, on his or her own, without waiting for the patient to ask. It is the patient, not the physician, who has the prerogative of determining his or her best interests. Thus, the physician is obliged to discuss with the patient the therapeutic alternatives and their particular hazards. The question of how much to explain, and in what detail, is dictated by a balance between the surgeon’s feelings about his or her patient and the requirements of the law. You need not, in the words of a justice of the U.S. Supreme Court, “engage in an orgy or open-minded disclosure.” It is simply not possible to tell all patients everything that can happen without scaring them out of their surgery. Rather, as the law states, the patient must be told the most probable of the known dangers and the percentage of that probability. The rest may be disclosed in general terms while reminding the patient that he or she also has a statistical probability of falling down and hurting himself or herself that very same day. Obviously, the most common complications should be volunteered frankly and openly, and their probability — based on your personal experience — should also be mentioned.

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In summary, although it may seem the ultimate platitude, the best way to stay out of trouble is to be honest, warm, and compassionate. If you use common sense and behave toward the patient as you would want another physician to behave toward your spouse, it is highly unlikely that you will have need for this information. Unfortunately, in the current state of the art, any or all of this information is wasted unless you document it. There is an 11th commandment: write it down!

Patient Selection The growing popularity of aesthetic plastic surgery has, unfortunately, created a carnival-like atmosphere in which advertising by unqualified practitioners is only one aspect. In this climate, it becomes imperative to establish clear criteria for patient selection; without these, there will be an inevitable parallel increase in patient dissatisfaction and litigation. Who, then, is the ideal candidate for aesthetic surgery? There is no such thing, but the surgeon should note any personality factors that will enhance the physical improvements sought. A person who is obviously intelligent (preferably educated) who listens (not merely hears), and who clearly understands the pros and cons of what he or she seeks is a good candidate. A person who has a clearly discernible physical problem about which he or she has an understandable, but not neurotic, concern is a good candidate. A person whose job requires him or her to look alert and well or who must compete with younger people is probably a good candidate as well. All of these attributes are generally true with the exception of immature, overexpectant, narcissistic patients, who should be evaluated with the utmost care. Generally speaking, men make more difficult patients than women. They do not tolerate pain as well and are generally more fussy. There are basically two categories for rejection. First is anatomic unsuitability. Second is emotional inadequacy. Since the latter is by far the more important, the inexperienced surgeon must learn to differentiate between healthy and unhealthy reasons for a patient’s desire for improvement. In the case of male patients, it becomes absolutely critical to develop a sixth sense regarding motivation. The vast majority of poor results in males are on the basis of emotional dissatisfaction rather than technical failure. Motivation rather than specific psychodynamics should be the plastic surgeon’s overriding concern. Is it a pragmatic desire to improve one’s appearance

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or rather a pathologic focus of channeling subconscious problems on a physical fault? Strength of motivation is critical. It has a startlingly close relation with patient satisfaction. Furthermore, the strongly motivated patient will have less pain, a better postoperative course, and a significantly higher index of satisfaction regardless of the result.

Great expectations Increasing experience invariably teaches the plastic surgeon to avoid patients who expect surgery to change their lives. The surgeon who operates on someone with a large, crooked nose and large hang-ups is likely to produce a smaller, straighter nose and larger hang-ups, or worse. Plastic surgery, regardless of its excellence, is dubious therapy for severe personality disturbances.

The demanding patient As a general rule, the patient who brings pictures, drawings, and exact specifications of what he or she wants should be viewed with suspicion. Such a person has little insight into the realities of plastic surgery and, by definition, often forces the surgeon to try to satisfy demands that are too restricting. More than likely, this type of patient is very explicit, very fussy, and very demanding about tiny imperfections. He or she cannot understand that the surgeon is working with human tissue, not clay.

The indecisive patient To the question, “Doctor, do you think I ought to have this done?” the perceptive surgeon responds, “This is a decision I cannot make for you. I cannot encourage or discourage the operation. I can only tell you what I think we can accomplish. If you have any doubts, I strongly recommend that you think about it further or not have it done at all.” It is very difficult to dissuade a jury or an arbitration panel when one of the patient’s claims is that he or she was “talked into” the surgery.

The immature patient For reasons other than growth and development, you should evaluate the degree of maturity of a young applicant. There is, of course, no linear relationship between maturity and growth. However, immature patients often

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have excessively romantic and unrealistic expectations from their surgery. Postoperatively, when confronted with a mirror, they sometimes exhibit disconcerting shock reactions and alarming behavior. If they have been talked into the surgery by a relative or a friend, the problem is compounded.

The “important” patient Beware of patients who make a conscious effort to impress everyone with their stature, their profession, their standing in the community, their peer groups, and the like. Such individuals often suggest that their successful result will immediately bring on a flood of referrals and undying fame. They often turn out to be very difficult patients with a weak ego structure that needs constant shoring up. They are difficult to satisfy and are prone to forget their financial obligations.

The secretive patient Some patients make a fetish of absolute secrecy about their surgery. Besides the fact that such an arrangement is difficult to guarantee, exaggerated concern over the secrecy of the operation often indicates a suspicious degree of guilt.

Familial disapproval It is preferable to have the immediate family in agreement with the proposed operation. Too often, failure of communication or an unsatisfactory result produces an automatic, “See, I told you so” reaction, which only deepens the guilt, the dissatisfaction, and the associated headaches. When the family disapproves, another red flag is raised.

Failure to establish rapport The experienced aesthetic surgeon can usually determine within minutes after entering the room whether the individual sitting there will become his or her patient. Early in the conversation, there may be discernible “bad vibes”. To take on as a patient a person whom you truly dislike is a fatal mistake. A clash of personalities cancels out all other factors, regardless of how challenging the case is.

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The “surgiholic” Beware of the patient who has had multiple or repeated aesthetic procedures. Such a patient obviously has a severely, and probably incorrigibly, distorted body image. Aside from the technical difficulties involved, you will suffer from comparison with the other surgeons. If you are more successful, you may wind up like Sir Harold Gillies’ favorite image of the patient running along beside your coffin pleading, “One more, please.”

An Ounce of Prevention There should be a frank discussion of fees and costs, if not by you, then by someone on your staff. Experience has shown that payment in full (and in advance) for cosmetic surgery diminishes subsequent unhappiness with final results. It is axiomatic that all patients undergoing surgery with local anesthesia be adequately sedated. No operative permit should be signed after sedation is administered, since it may be held invalid. Every member of the surgical team should understand clearly that the patient, under the influence of narcotics, may misinterpret the most innocent words or jokes. Under no circumstances should there be arguments of any kind. There should be no swearing for any reason. Assistants and/or observers should be warned to save questions and comments for later. Finally, there is no such word as “oops” in the operating room; whether the surgeon drops a hemostat or comminutes the nasal bones, the word simply does not exist. It helps to talk to the patient and to be highly visible at the beginning and end of the procedure. Also, if the surgery is being performed with local anesthesia, it is extremely therapeutic to have music in the operating room. Music not only defuses the unfamiliar and terrifying atmosphere, but also covers up the sounds of the operating room (which in themselves may be quite anxiety-producing). At the end of the operation, the surgeon should immediately report to the family. If no family members are present, a telephone call may be a very inexpensive investment. A visit to the patient on the evening of the operation is immensely reassuring. The surgeon should be the last person the patient sees before the anesthetic takes effect and the first one on whom he or she focuses in the recovery room. Discharge instructions should be clear, specific, and in writing. Availability during the first few days is essential. If the surgeon

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signs out, it should be to someone equally competent, and the patient should be apprised in advance. When dressings come off, there are innumerable questions, all of which require simple, reassuring answers. These questions will be fewer and less anxious if they have been answered preoperatively. All litigation in plastic surgery has as a common denominator poor communication. Underlying all dissatisfaction is a breakdown in the rapport between patient and surgeon. This vital relationship is often shattered by the surgeon’s arrogance, hostility, and coldness (real or imagined), and mostly by the fact that “he or she didn’t care”. There are only two ways to avoid such a debacle: (1) make sure the patient has no reason to feel that way, and (2) avoid the patient who is going to feel that way no matter what is done.

Effective Communication as a Claims-Prevention Technique Although the doctor’s skill, reputation, and other intangible factors contribute to a patient’s sense of confidence, a substantial part of what is called “rapport” between patient and doctor is based on forthright and accurate communication. It is faulty communication which most often leads to the inevitable vicious cycle which follows: disappointment, anger or frustration on the part of the patient, reactive hostility, defensiveness and arrogance from the doctor, deepening patient anger, and finally a visit to the attorney. The art of listening, as well as that of expression, both verbal and nonverbal, merits serious attention in your efforts to reduce malpractice lawsuits.

Listening Obviously, hearing and listening are extremely dissimilar processes. Unlike hearing, which is the perception of physical stimuli to our ears, listening is the active cognitive process of interpreting what is heard, evaluating that information, and deciding how that information may be used. It is a fact that people like those persons who demonstrate their interest by listening and talking with them. It is also a fact that people are reluctant to sue someone they like. Therefore, learning to listen can be a powerful claims-prevention tool. Accurate communication is a two-way process. It is a give-and-take situation. Many psychiatrists and psychologists define listening as “giving” of oneself, while talking is defined as “taking” from others. On average,

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70 to 80 percent of our total waking day is spent in some form of communication, and 45 percent of that is listening. These percentages translate into an average of six hours of listening daily. In the practice of medicine, this figure may be a conservative estimate. Of the four basic communication skills — listening, speaking, reading, and writing — the last three get the most attention in our educational efforts. The most used skill is the one least formally taught. The generally mistaken assumption is made that if you can hear, you can (and will) listen. Not so! Efficient listening requires conscious effort.

Not allowing distractions The surgeon’s office environment permits interruptions that make effective listening difficult. If possible, distractions that steal attention should not be allowed when communicating with a patient.

Listening not only for details or facts Medical training and examinations are geared toward facts and figures. Consequently, there is often a failure to take into account the equally important emotions, behavior, and intentions of the patient.

Reflective feedback This technique indicates to the speaker whether his or her message is being understood. This is accomplished by asking questions, making statements, or offering visual cues that indicate whether you understand, agree, do not understand, or disagree with the message. It is withheld until you confidently understand what the patient is trying to communicate. Use of this technique also makes it clear to the speaker that you are listening carefully.

Listening with your eyes It is reported that 80 percent of all communication of emotion from one person to another is nonverbal. You can stay attuned to what the speaker is saying through his or her body positioning, eye movement and contact, physical contact, and other body language. It helps to “listen” with your eye. Two books written by Desmond Morris, Manwatching and Bodywatching, are excellent references on the subject.

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Communication Tailoring your language One of the most common complaints in patient attitude surveys has to do with physicians’ use of complex terminology or medical jargon. There is a substantial choice of words available to communicate with the patient, depending on his or her level of intelligence and educational level. You may even have to resort to basic description using Anglo-Saxon terminology. Just make sure you are understood. It is best to choose words that do not produce anxiety. While “excise” might be misunderstood, “cutting it out” sounds painful. “Removing it” is a better way to convey the message without inducing stress.

Repetition Various studies have shown that the average patient retains 35 percent of what he or she has been told. Thus, it does no harm to repeat, in summary form, the essential points of your message at the end of the consultation or examination. It will strongly reinforce what you have said.

Requesting written questions The anxiety of a visit to the doctor often causes patients to forget important questions or information until they have left your office. The French call this esprit d’escalier, or “spirit of the staircase”, which is where many people remember what they forgot to ask. Encourage patients to write down whatever questions occur to them and to bring their lists with them on their next visit. If they already have a list, do not — by word or body language — express impatience. In the event of an unfavorable outcome, the conversation about that list may prove extremely useful in your defense. Physicians should not permit their own emotions or frustrations to reflect on the patient. The anxieties of preoperative and postoperative patients often act as a lens that greatly magnifies the physician’s body language. A frown or a simple “Hmmm” may exacerbate that anxiety. A sigh, raised eyebrow, or look of skepticism when evaluating a colleague’s results is enough to trigger a visit to the plaintiff’s attorney’s office. Positive rapport, on the other hand, can weather all sorts of treatment failures and complications. The art of effective listening and speaking is rewarded by friendship, understanding, and good rapport. In the

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doctor-patient relationship, this interaction assumes critical importance, since the treatment outcome may literally depend on it.

Anger: A Root Cause of Malpractice Claims As plastic surgeons, we tend to forget that medical litigation is inevitably a distillate of a simmering cauldron of emotional, psychological, and even psychiatric ingredients. All malpractice claims have anger as one of their root causes. It may be on the part of the patient, the doctor, or both, but anger is always present. If we understand and learn to control this emotional aspect of medical misadventures, we can dramatically modify the outcome of an unfavorable result. Virtually every patient contemplating medical treatment experiences variable degrees of anxiety. They seek reassurance from the surgeon against their uncertainties. An unfavorable outcome evokes feelings of despair and helplessness that may quickly turn into hostility. Regardless of the true cause of the result, such hostility will be focused on the most convenient and visible target — the doctor. An unfavorable outcome also produces anxiety for the physician. More often than not, patient complaints are interpreted as personal affronts that strike at the doctor’s sense of professionalism, pride, and competence. When the complaint is perceived by the doctor as being unwarranted, this complex human interaction may quickly degenerate into mutual hostility. A vicious cycle is then established: the physician’s anxiety, guilt, hostility, and arrogance are countered by hostility of the patient, and the physician’s hostility mounts. In this climate, the possibility of a lawsuit quickly becomes a probability. It is very difficult, if not impossible, to be objective when one is a party to an incipient lawsuit. Nonetheless, if it were possible to change the course of events prior to the onset of mutual hostility, the vast majority of malpractice actions could be avoided. The pretreatment or preoperative consultation, during which informed consent is obtained, can become a unique occasion for the doctor-patient relationship to be firmly established through the sharing of uncertainty.

The normal psychodynamics of patients’ anger It is entirely appropriate for patients to feel a sense of bewilderment and anxiety, especially when elective surgery does not go smoothly. The borderline

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between anxiety and anger is very tenuous, and the conversion factor is uncertainty — the fear of the unknown. How do we cope with uncertainty? Blaming someone else places the responsibility elsewhere and gives one a sense of “control”, which, however inappropriate, is easier to cope with psychologically. A patient frightened by a postoperative complication, uncertain about the future, may gain a distorted sense of security by blaming the physician. The natural consequence of this distortion, then, is: “If it is the doctor’s fault, the responsibility is the doctor’s to correct.” The patient’s distorted perceptions may clash head-on with the physician’s understandable anxieties and wounded pride. The patient blames the physician, who in turn becomes defensive. It is at this critically delicate juncture that the physician’s reaction can set in motion, or prevent, a natural chain of reaction. The physician must make a supreme effort to put aside feelings of disappointment, anxiety, defensiveness, and hostility that are natural to all of us when we are attacked. The physician must understand that he or she is probably dealing with a frightened patient who is using anger to gain “control” of the situation. The entire mood and subsequent developments can be changed by whatever understanding, support, and encouragement seem appropriate to the situation. One of the worst errors in dealing with angry or dissatisfied patients is to try to avoid them. Although this is an understandable reaction, it is easily the surest way to hasten the arrival of a summons and complaint. As difficult and stressful as it may be, the more you talk and listen to that patient, the more likely you are to avoid converting an incident into a claim. If you assume that at least 50 percent of the effort necessary for effective communication is your responsibility, you will successfully defuse the ticking time bomb. It is necessary to actively participate in the process rather than follow your natural instincts and run away or hide.

General Guidelines 1. The consequences of illegible handwriting can be costly. Be certain that your entries in all medical records are clear and readable. If possible, dictate, type, or enter into the patient’s computer file all long entries that require more than brief or routine annotations. 2. Never squeeze words into a line or leave blank spaces of any sort. Draw diagonal lines through all blank spaces after an entry.

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3. Never erase, overwrite, or try to ink out any entry. In case of error, draw a line across it and write “error” with the date, time, and your initials in the margin. 4. Never ever add anything at any time unless it is in a separately dated and signed note. Remember that the entry date or ink type can be accurately determined retrospectively. Also be aware that the plaintiff’s attorney may have a copy of the patient’s original records, and any alteration after the fact will seriously compromise the defense of your case. 5. The date and time of each entry may be critical. Be sure that each page is dated and bears the patient’s name, and that each progress note is accompanied by the date and time. 6. Avoid personal abbreviations, ditto marks, or initials. Use only standard and accepted medical abbreviations. 7. Retain your records for a minimum of seven years from the date of the last entry.

Common Errors of Commission and Omission It is imperative that you always: 1. Document when you are absent, with the name of the physician you have signed out to, along with the date and time. 2. Record pertinent observations and follow-up in any abnormal situation. 3. Ensure documentation of laboratory and radiologic examination results with a system which requires that all such reports will be seen, evaluated, and initialed by you or a colleague prior to filling in the patient’s chart. This is particularly important when dealing with laboratory or pathology reports, X-rays relating to fractures, or computed tomography (CT) scans. 4. Justify your failure to comply with, or rejection of, a consultant’s advice. 5. Document in detail your viewpoints and reasons for disagreement on patient care between you and a hospital utilization review committee or preferred provider organization (PPO). 6. Explain any delayed responses to nurse or house staff calls; enter the dates and times. 7. Respond to nurses’ pertinent observations of the patient and record the follow-up in your progress notes.

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8. Document the patient’s verbatim statements: Wrong: “Patient apparently fell.” Correct: “Patient states: ‘Tried to get up, tripped and hit head on the corner of the bed.’ ” 9. Record negative reaction to any treatment or medication. Remember, to always use objective, accurate, and specific language.

The Patient’s Records The following entries should appear in the office and/or hospital records of each patient: 1. History and physical, specifically noticing absence of abnormality. 2. Past history, with particular emphasis on current medications, allergies, drug sensitivities, or previous surgery. 3. Specific notation on the patient’s experience, if any, with smoking, drug or alcohol abuse, or previous surgeries. 4. Progress notes, entered after each office visit, on any change in status. If negative, your follow-up should be indicated. 5. Signed and witnessed consent forms for special procedures or surgery. 6. Medications, treatments, and specimens (where sent). 7. Patient’s response to medications or procedures. 8. Documentation of the patient’s failure to follow advice, refusal to cooperate, or failure to keep appointments. Missed appointments should be logged. Record your follow-up telephone calls and letters. 9. All significant laboratory, pathology, and X-ray reports, and the dates when ordered and read. 10. Copies or records of instructions of any kind (including diet) and directions to the family. 11. Consultations with other physicians and their written (or oral) responses, with the date and time recorded. 12. Thorough documentation of any patient’s grievance, including the date and time. 13. Preoperative and postoperative photographs. The critical importance of these cannot be overemphasized. They should be of the same pose, lighting conditions, and quality. In plastic surgical claims, these photographs

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can literally spell the difference between an attorney’s refusal to take the case and a substantial plaintiff’s verdict.

Instructions to Patients and Personnel 1. Always record your instructions in writing. Keep a copy in the patient’s record. 2. Review your instructions with the patient and family. 3. Ensure comprehension. Ask and record if there are any questions after instructions. 4. Include in your instructions (when applicable): a. b. c. d. e.

Specific wound care. Limitations of activity, position, or exercise. Dietary restrictions. Specific instructions on medications, including possible side effects. Follow-up appointments.

5. Document: a. Language limitations, attempts made to overcome them by translators, and your notation if comprehension appears to be questionable. b. Any literature provided to the patient and family, and/or video orientations. c. Copy of instructions given. d. Patient’s failure to comply with instructions, and that the patient was informed of risks of noncompliance. 6. Record patient noncompliance. A situation that requires special procedures and attention relates to a patient’s noncompliance or outright refusal to follow the doctor’s orders or recommendations. This problem may be more apparent to your staff than to you. The staff should record missed appointments in the chart and call them to your attention. If the patient’s noncompliance carries the potential for possible injury, a certified return-receipt letter expressing appropriate concerns for the patient’s welfare and (when indicated) warnings regarding the consequences should be sent. 7. Set up suspense files for all tests, procedures, and consultations. If the tests are not carried out, the staff should call this to your attention, and the patient should be reminded. Patient noncompliance and all callbacks

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to the patient should be recorded in the chart. Copies of all letters to the patient should be included. In case of continued noncompliance, and if circumstances warrant, a certified return-receipt letter should also indicate the withdrawal of your care. Notations of all actions and copies of all letters sent to the patient should become a permanent part of the patient’s record. 8. Use cautions and labels. Identify any drug allergies, and instruct the staff to display them prominently on a color-coded label placed in a specific location on the outside of the patient’s chart. Specials labels should also be used for identifying smokers and if the case is a medicolegal or compensation case. 9. Establish telephone routines with insurance companies and attorneys. The staff should not discuss the patient’s medical problems or records without a release signed by the patient (or legal guardian) and the approval of the appropriate person in your office. The date, time, and name of the person calling and the purpose of the call should be recorded in the patient’s chart. When requesting authorization from an insurance company to perform a treatment, tests, or other procedures, the staff must make sure that the patient has given a general release as a member of a plan. They should record the date, time, and name of the person authorizing the treatment, test, or procedure. 10. Enhance communication with patients in the office. Encourage your staff to initiate personal contact with patients by expressing warmth and individual attention. Impress on the staff that they may represent the first, last, and most durable impression that patients have of your office and therefore of you. The staff can make the impression a favorable one by their demeanor. When patients comment on your staff unfavorably, you should investigate; when the comment is favorable, be sure to convey that.

Conclusion It is simply not possible to summarize three decades of experience into a chapter, or even into a whole book for that matter. It is also unrealistic to say, “This is what I do; if you follow my advice, you too can stay troublefree.” Unfortunately, it is not that simple. I have, therefore, tried to limit myself to principles and specific recommendations applicable to everyone. In the last analysis, though, even strict adherence to my prescriptions is no guarantee of a cure, since I am dealing with intangible elements such

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as personality characteristics, ego structure, social conscience, and strong economic incentives. It is not likely that in the coming decades there will be any major changes in our legal system. For this to happen, American jurisprudence would have to undergo revolutionary changes, and public morality a renaissance. Therefore, the next generation of plastic surgeons is plainly going to have to learn to live with the existing system of adjudicating medical injury. We have to develop the ability to change the things that we can, the serenity to accept those things which cannot be changed, and the wisdom to know the difference.

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Use of the Internet by Patients: How It Affects Your Practice and What to Do About It Ronald P. Gruber, MD

he Internet is a place where some patients have chosen to defame their physician and vent their frustrations. Many, if not all, of their allegations may be false. However, the physician is virtually defenseless to counter allegations made by the patient on the web. Health Insurance Portability and Accountability Act (HIPAA) regulations prevent the doctor from revealing factual details about the patient. More importantly, general rebuttal only encourages further ranting by the patient and other Internet users, thereby expanding (not contracting) the problem. The net result is that many physicians’ reputations have been damaged, their practices have fallen off, and they have been emotionally abused. Legal redress has been a lengthy, energy-consuming, expensive, and often unsuccessful endeavor. In this chapter, options to remedy the situation are reviewed. The physician is encouraged to (1) proceed slowly and cautiously and in general not respond publicly, (2) consider communicating with the patient (either in person or through a surrogate) to discuss the problem and its solution rationally, and (3) consider resorting to legal action only when the rant is so outrageous that it is overtly damaging to your practice and your reputation. The best solution to the Internet problem is prevention. A pre-op agreement with the patient is the single most successful method to encourage patients to deal with their frustrations in a non-ranting, more constructive manner. Also, working with the system by encouraging patients to write positive reviews is beneficial. Finally, the doctor has to maintain the best possible

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relationship with his/her patients, recognizing how easy it is for anyone of them to inflict severe harm.

The Problem Doctors are being defamed by disgruntled patients on the Internet. Patients may have chosen this approach because it is easier and less energy-consuming than a malpractice lawsuit, or because they know that their legal recourse against the doctor is meritless or not likely to be successful. Patients create their own websites (blogs) to relate their experience with the doctor, or simply post a review on a reviewing or rating site. Damage to the physician can be extensive and far exceed any malpractice lawsuit. Some doctors who have been hit hard by a negative blog have reported a sudden drop in business and revenue by as much as 20–30 percent almost overnight. The fictitious examples given below are very similar to actual cases, but far enough removed so that both the doctor and the patient cannot be identified.

Example 1 A middle-aged male patient who had a history of one prior facelift developed skin necrosis of the left side of his face soon after the facelift. The area of involvement was 6 cm by 3 cm, and it was full thickness. The patient sought the help of another doctor who felt it was necessary to graft the area. Shortly after the graft was placed on his face, the patient created a blog and posted pictures of the wound before and immediately after the skin graft. He also demanded $250,000 from the first doctor, or he would wage an expanded public campaign against the doctor including any television shows he could get on. The doctor, who had an exemplary reputation in his own community, felt that there was nothing else he could have done to prevent the problem. The patient was a smoker and there were some questions as to whether or not he smoked. The doctor was so devastated by the personal attack and the extortion attempts that he hired an attorney. He was able to get a HIPAA release, and he posted his own blog including a video describing “the other side of the story”. In the end, the patient was not able to wage a successful campaign and the story died down. However, the time, energy, and money spent by the doctor were something he was not sure was worth it.

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Example 2 A patient who underwent an augmentation mammoplasty developed a postop cellulitis marked by moderate swelling and erythema. At the peak of her complication, the patient created a blog. She referred to the operation as a surgical nightmare and posted pictures of her enlarged inflamed breast. The text of the site was so damaging that the doctor himself received 15 hate emails. One of them said, “Is this the office that botched the surgery? I was considering your office but not after seeing the wretched pictures. I am sending this website link to everyone I know.” The doctor noticed a precipitous drop in new patients. The cellulitis promptly resolved, and at one year post-op the breasts were soft and normal. There was no capsular contracture or any stigmata. The result was beautiful. However, the doctor was not permitted to show it on the Internet. The blog containing pictures of the cellulitic breast remains to this day.

Who we are really dealing with on the web There are about 40+ sites that review and/or rate doctors. Most prominent of the group is Yelp.com (www.yelp.com). But others include: • • • •

Angie’s List (www.angieslist.com); AwfulPlasticSurgery.com (www.awfulplasticsurgery.com); SurgerySagas.com (www.surgerysagas.com); RateMDs.com (www.ratemds.com).

Sites against single doctors include MySurgeryNightmare.com (www. mysurgerynightmare.com). Third-party sites addressing all doctors include: • • • • • • • •

RateMDs.com (www.ratemds.com); Vitals.com (www.vitals.com); DrScore.com (www.drscore.com); DoctorScorecard.com (www.doctorscorecard.com); HealthGrades.com (www.healthgrades.com); Vimo.com (www.vimo.com); RevolutionHealth.com (www.revolutionhealth.com); and MDJunction.com (www.mdjunction.com.).

Health insurance carrier “Zagat” sites include Blue Cross and Blue Shield of Minnesota (www.bluecrossshield.com).

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One thing to note about all these sites is that no one site is perceived as a go-to credible site.

Why it is a problem • Reviews that appear on the Internet are anecdotal. Doctors see hundreds to thousands of patients every year. One review (positive or negative) is not an accurate reflection of the physician’s competence. Most sites have only one to three posts. Thus, the review can be defined by extremes. • Anonymous posts typically convey false information. Not all posts are from patients. Some are from a disgruntled employee, an ex-spouse, or competitors. Anonymity reduces civility and increases bravery. • Serious attackers (often patients) may try to acquire a domain name with your name in it. Therefore, it is more likely to come up on Google or Yahoo when the doctor’s name is made the search word. • Doctors cannot respond with medical facts because of HIPAA regulations. • A plumber does all the work. In surgical situations, however, patients participate by compliance in taking their medications correctly and in following their post-op instructions. They are therefore likely to be partly responsible for their own negative review. • Reviews often tell half a story, not the full story. A patient might write on a blog, “Two days after my surgery my wound opened.” The full story might be, “Two days after my surgery I went back to work digging ditches.” True outcomes may be revealed over time, sometimes years. • Medical care is often delivered by a team. Other members of the team, not the doctor, may be responsible for the patient’s complaint. • Complications are unavoidable; therefore, negative reviews are unavoidable. Complications are particularly likely to occur in some patients; for example, a 450-pound diabetic who smokes is much more likely to have a complication than a marathon runner. The doctor does not have full control over negative outcomes. • Unlike non-medical businesses, one negative review in the midst of other glowing reviews for a doctor is enough to drive patients away. Given a choice between two doctors, one of whom has no negative reviews and the other who has one, there is no good reason for a prospective patient to take a chance with the doctor with the one negative review. • Responding to a patient’s rant prompts the patient to write another rant and other viewers on the Internet will also add their own opinions, much

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of them directed negatively toward the doctor. The piling on of negative opinions on the Internet is referred to as “flaming”.

Reviewing site’s perspective According to Sonia Survanshi McFarland of Yelp.com, which is currently one of the best-known review sites, Yelp is merely trying to inform the public at large and on balance reviews can be beneficial to those running small businesses, including physicians. Yelp is a reviewing site that deals largely with non-health businesses, with entries that are 31 percent restaurant reviews, 23 percent shopping reviews, and 4 percent health-related reviews. Surprisingly, most reviews are good according to the Yelp representative: 32 percent are given a top five-star rating, and just 7 percent get a low one-star rating. Yelp considers it a plus to be able to find as much information as possible about a business with which a consumer is potentially going to engage. Yelp also considers it a plus for the reviewee (the business owner) to be able to keep track of the number of people looking at the reviews as well as learn from the types of comments made about their business. To allay the anxiety of doctors who are worried that negative reviews last forever, the Yelp representative notes that reviews do disappear over time, some because the posting individual decides to remove it and some because the content violates Yelp guidelines. These guidelines relate to egregious breach of morality and ethics, e.g., overtly prejudicial remarks such as referring to a doctor as Dr. Mengele from Nazi Germany. In addition, the Yelp site has an automated filter that removes some reviews. To encourage a more positive interaction between the rating site and small businesses, including physicians, a section of the reviewing site is devoted to paid advertising. In one instance, a patient who saw the doctor only once for a pre-op visit sent in a review alleging that the doctor was a racist because the physician would not operate on the patient. The doctor explained that the patient’s health status, particularly his high blood pressure, high body weight, and diabetes, precluded safe surgery. Nonetheless, the patient posted his negative “racist” review. On the grounds that the review was a racial lie, the plastic surgeon requested Yelp to remove the review, which coincidentally was posted at the top of all his positive reviews. Yelp indicated that the review did not meet their criteria for removal. However, if the doctor purchased advertising space with Yelp for approximately US$350 per month, they would be able to allow the doctor to put one of his favorable reviews at the top of the list of reviews to overshadow the negative comment. It is

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also not possible to ask patients to post a review at the time of their office visit using the office computer, as the rating site is concerned about fictitious reviews.

The Law and Its Relation to the Physician John W. Dozier, Jr., Esq. (author of Google Bomb) is a nationally recognized leader in Internet law (sometimes referred to as cyberlaw), particularly as it relates to physician problems on the Internet with blogging and complaining patients. During his career, he has handled 500 trials. Some of his cases have dealt directly with defamation of surgeons by their patients. He knows what a physician can and cannot do when unfairly attacked on the Internet; he also knows what the limitations are and what hurdles have to be overcome if one chooses to pursue legal action against a ranting patient.

Definitions Defamation is defined as a publication of a false statement of fact which causes damage. Libel refers to the written word, and slander refers to the spoken word. Damage is usually implied when the statement alleges criminal misconduct or professional incompetence. Defamation is particularly dangerous on the web since research on a plastic surgeon will be extensive. Also, one negative post will offset any number of positive posts and has a tendency to generate “followers”.

The legal hurdle The law makes it difficult for the doctor to seek legal redress against the patient. Previously, it was possible to deal with outrageous public attacks of defamation with a strategic lawsuit against public participation (SLAPP). It was intended to intimidate and silence critics by burdening them with the cost of a legal defense until they abandoned their criticism or opposition. However, an antiSLAPP law was passed which strongly protects public participation despite defamation. The statute operates to place onerous burdens on the plaintiff (the doctor, in this case) without any corresponding burdens on the defendant (the patient). The plaintiff is required to lay bare his/her proof at a preliminary stage of the litigation or else risk not only a dismissal of his/her claim, but

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assignment of responsibility for the defendant’s attorney’s fees and costs. Moreover, because most defamation defendants are often “judgment proof”, the chance of collecting such an award is dubious at best. This is a very strong law that discourages legal redress for defamation.

HIPAA regulations HIPAA rules make it impossible for the physician to counter the patient on the Internet. They specifically prohibit a health care provider from disclosing medical information regarding a patient of the provider without authorization. The law authorizes administrative fines (up to US$250,000) against any person or entity that negligently or willfully discloses medical information of the patient. “Medical information” means any individually identifiable information in possession of, or derived from, a provider of health care regarding a patient’s medical history, mental or physical condition, or treatment. “Individually identifiable” means that the medical information contains any element of personal identifying information sufficient to allow identification of the patient, including his/her address and telephone number.

Legal recourses If you as the doctor feel that the rant is so outrageous and damaging that you need to justify your actions to your colleagues and the public, you may want to place a responding blog on the web after getting a HIPAA release. Remember, however, that such legal action can be a long, drawn-out process, one that is costly and one that expands your exposure manyfold greater than when it began. In one case, following a cosmetic surgery procedure, a patient posted an exceptionally offensive blog. The surgeon, with the aid of his university employer (University of California, Davis), filed legal action, which promptly became part of a malpractice action by the patient. The case finally went to the appellate court before it was settled. The settlement required the patient to remove the Internet postings, but the doctor (through the malpractice company) was required to pay the legal fees of the patient. The legal process took time, money, and energy. If a physician is willing to generate the energy for such an undertaking and is willing to endure the ranting until the legal process completes itself, that is certainly one way to proceed. In one of Mr. Dozier’s cases, his strategy involved first getting a HIPAA release so that the facts of the case could be discussed. He used it to silence

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criticism of a renowned plastic surgeon undergoing a very public false attack. When the truth was published, the former patient lost all credibility and the incident subsided. The process was somewhat arduous and expensive, but absolutely necessary when the patient had such a stranglehold on the doctor.

Preventing Ranting by Agreement The medical justice agreement Medical Justice (www.medicaljustice.com) is an organization dedicated to protecting physicians against frivolous lawsuits. Medical Justice has developed a mechanism intended to increase control of potentially damaging content before it becomes a problem. It has developed proprietary template language aimed at contractually obligating the patient to follow certain rules should they wish to publicize information about the physician’s evaluation or treatment to the world at large. There is a small charge to the doctor for the agreement, but the company also helps the doctor deal with the patient who attempts to violate the agreement. Medical Justice also provides tools to address online attacks should they occur. The reason for choosing such a prophylactic approach is that getting the Internet service provider (ISP) to take down the defamatory site is a near impossibility. So, although ISPs have the ability to take down a disparaging website, there does not appear to be any penalty to them for sitting on the sidelines and doing nothing. More importantly, ISPs are given near immunity for allowing purely defamatory posts to litter their site. Threatening to sue such sites for defamation will often be followed by a letter stating that they have neither the time nor the resources to evaluate each and every claim. More importantly, Section 230 of the Communications Decency Act provides a safe harbor to allow them to post without legal accountability. The government is in effect saying that if you have a beef, take it up with the individual who posted the commentary. Another reason for pursuing a prophylactic approach is that the difficulties of dealing with the patient afterwards are formidable. With traditional print media, legal remedy is difficult but possible; the legal standard is the preponderance of evidence (>51 percent). With traditional print media, there are two targets: the author and the publisher. In the Internet world, however, the traditional legal remedy is virtually out of reach. Many posts are anonymous, and there is only one target: the author. The hosting website (distributor) is also generally immune. Moreover, the legal standard for MDs as determined by at least one appellate court is “clear and convincing evidence (>75 percent)”.

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Recently, a disgruntled patient launched a website discussing her so-called “surgery nightmare”. The California appellate court ruled in 2007 that the site could stay up. The surgeon was judged to be a public figure, and the standard for defamation in that case was clear and convincing evidence of a malicious intent. This threshold is tough to overcome in all but the most egregious of cases. Consequently, prophylaxis is the best approach. The mutual privacy agreement provided by Medical Justice is a one-page document and states in effect: • Patients shall not post online without the MD’s assent. • Patients are free to speak with friends, family, doctors, lawyers, licensing board members, peer reviewers, and specific reliable sites that have met minimum standards for fairness and balance. • As a benefit to the patient who signs the agreement, he/she receives privacy protections beyond that mandated by law (HIPAA). The form also has a built-in safety net which increases compliance. While the patient is not supposed to post onto the Internet without written authorization, if he/she does, the copyright of that commentary is assigned to the doctor, so the doctor has additional options to take damaging posts down. All elective patients are asked to sign this document. If an anonymous post appears, the assumption is that “John Doe” is covered by a signed agreement. Moreover, Medical Justice stands behind their agreement and helps the doctor deal with the unlikely patient who decides to break the agreement. It turns out that 99.9 percent of patients are willing to sign the agreement. When patients attempt to breach the agreement, Medical Justice helps the doctor locate an experienced cyber lawyer (paid for by the physician) to successfully pull down the review. In most cases, the sites have respected the agreement and taken down the disparaging post. No case has yet gone to the appellate level. Finally, the substantive language in the template has been reviewed by a staff attorney for the Office of Inspector General for the U.S. Department of Health and Human Services. The Office addresses issues related to the HIPAA and the HIPAA Privacy Rule. They have concluded that the template language does not clash with the provisions of the HIPAA.

Short pre-op agreements Below is an example of a short form used by some doctors. It was developed before Medical Justice agreements were available. I understand that the doctor-patient relationship is a bond of trust and mutual respect that ethically and legally precludes Dr. from disclosing information

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(positive or negative) about me without my permission. Therefore, I too agree not to disclose any information (positive or negative) regarding the care I received from him without his/her permission.

It should be made clear that a physician-generated agreement of this sort may be effective, but not nearly as powerful as that provided by Medical Justice. In the event a patient attempts to breach that agreement, the physician will have to get his/her own attorney to enforce it. However, those who have used this type of agreement during the short time it has been available have not had to do so.

What to Do With these options, what is a physician to do?

Initial response and what not to do • Think first and proceed with caution. Most importantly, the plastic surgeon should think first before jumping in to action. When you are bursting to respond to an attack, don’t. • Study the problem. Evaluate the patient, their true motivation, and the merits of the complaint, and then learn as much about the reviewing or rating site as possible. • Remember that responding even in general terms without referring to the medical history of the patient can open up the door for the patient to respond a second time, often with worse criticism than in the first rant. Other users of the Internet are also likely to follow with their opinions, most of them negative. An avalanche of defaming comments may thus result — a process known as “flaming”.

Consider contacting the patient Some surgeons have tried the following approaches: • Contact the patient and reason with them. One surgeon explained to the patient (who was willing to take his phone call) that he was terribly upset that the patient had a post-op infection. He had no idea how it occurred, and he reminded the patient that he took every appropriate step to eradicate it. He reminded the patient that the problem did resolve itself and that he was

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available to her at all times to deal with any residual issues she might have. The patient understood and pulled the review. If the rant indicates that the patient would only refuse your contact attempt, ask an associate of yours who was involved in the patient’s care (and whom the patient has no quarrel with) to contact the patient. The associate is much more likely to have a reasonable conversation with the patient and determine the underlying issues leading to the rant. • Return the patient’s fees. You can return the patient’s fees in return for the patient to sign an agreement that they will take down the negative blog and not post any negative comments on the Internet in the future. This agreement should be in addition to the standard legal release provided by the malpractice carrier. It should be made clear that talk of returning money may just as easily put the doctor in a position of being extorted by the patient. The patient may see the doctor’s offer as an opportunity to demand even more money. If the doctor does not agree to it, the patient can easily go online to announce that the doctor tried to “pay him/her off” and therefore must be guilty of the charges in the rant.

Play the reviewer game Offset a negative review with positive reviews. Ask patients who are extremely pleased with their surgical outcome to register with Yelp.com or other rating sites and post a brief summary of their positive experiences. They can do this anonymously. Virtually all patients will agree to do this, but no more than half may actually take the time and effort to follow through. However, all these positive reviews help. Do not expect your new positive review to be placed at the top of the list. Yelp admits to arranging the reviews in any fashion they choose. Often, the negative review is at the top to encourage you to purchase advertising space to move it down.

Legal choices • The single best solution to all future blogging and negative reviews is to prevent them via pre-op agreements. • An aggressive formal legal attack should be reserved for a situation that is unacceptable because of its potential massive impact on the financial health of the practice or on the doctor’s reputation.

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Maintain the best doctor-patient relationship Keeping in mind the potential disastrous damage that each and every patient can cause, it should be obvious that every patient should be kept as happy as possible. When a physician is confronted by a patient who is disrespectful, difficult, or nasty, it is tempting to respond disapprovingly or be dismissive. However, this approach is potentially disastrous. Every patient has to be treated with great care.

Future Actions That May Take Place Changes in the law Some state legislatures have been made aware of the inequity that currently exists because health care professionals are unable to properly respond to defamation in part due to HIPAA regulations.

Class action lawsuits It is possible that a single lawsuit or a class action lawsuit may be filed regarding questionable business practices that some reviewing sites are involved with. Requesting reviewees to pay for advertisements on their site so that an unfavorable review will be placed in a less conspicuous position has raised the question of extortion.

Ranting patients may be violating HIPAA regulations Some doctors and attorneys believe that the patient may, in certain situations, be precluded from publicly divulging information related to the medical treatment process for the same reason that the physician is. This reasoning is based upon three commonly unrecognized premises: • The doctor-patient relationship is a dual, interdependent (albeit asymmetric) relationship for a successful health care outcome. • The doctor, like the patient, may unwillingly become a patient (involving mental distress) in this asymmetric but symbiotic relationship. • All persons, patients included, are subject to HIPAA regulations — not just health care professionals. Therefore, neither the doctor nor the patient is entitled to disclose details of the medical events that have led to the patient’s complication or will lead to

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the doctor’s psychological condition emanating from the patient’s rant. Each of these premises will now be discussed in turn. A plumber does all the work for his customer. In contrast, patients participate in the outcome of their treatments. They are frequently responsible for the complications that they sustain. They may fail to notify the physician in a timely fashion when a problem occurs. They may fail to take their medication in the fashion prescribed. They may neglect proper care of their surgical wound. There is a lengthy list of responsibilities that patients have toward the successful outcome of their care. To a small or large extent, patients are contributors to the outcome and complication of their own medical problem. Ranting against a doctor who is unable to defend himself or herself is usually a painful, stressful process affecting the mental health of the health care provider. It takes little imagination to appreciate that calling the surgeon a butcher publicly over the Internet for thousands to read about can be devastating to the professional. The social stigma of castigation has caused anxiety and depression for many health care providers. Some of these victims of an unrelenting ranting and blogging campaign have had to see psychologists for support. This emotional condition has sometimes been called Internet distress syndrome (IDS). The doctor may, of necessity, become a patient. Ordinarily, HIPAA regulations apply to health care professionals, insurance companies, and pharmaceutical companies because understandably the patient population needs to be protected from the abuse of their private information. However, persons unrelated to the medical industry must also respect this privacy. California enacted Assembly Bill 211 to expand the usual HIPAA regulations to every individual in the entire state. The patient is not exempt from HIPAA regulations. The penalty can be severe: Any person or entity [emphasis added] who is not permitted to receive medical information … and who knowingly and willfully obtains, discloses, or uses medical information without written authorization from the patient shall be liable for a civil penalty not to exceed two hundred fifty thousand dollars ($250,000) per violation.

This legal case is based on California law. However, it is likely to be perceived as “persuasive” in other states, just as are other California state laws. Thus, if the patient discloses on the Internet information about his/her own complication (that he/she is partly or totally responsible for) along with the name of the doctor, the patient is disclosing protected medical information belonging to the doctor who had to seek counseling from a psychologist (as a result of the patient’s rant). After all, HIPAA regulations define health

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information as “any information, whether oral or recorded … , that is created or received by a health care provider … and relates to the past, present, or future physical or mental health or condition of an individual” (Public Law 104–191; emphasis added). If the physician believes that the patient has contributed to the complication of which they rant and if their diatribe is a truly stressful experience, consideration should be given to the following: • Tell a therapist how the patient’s rant impacts your life. • Contact the Department of Public Health. Below is as sample notification to the Department of Public Health. Dear Sir/Madam: I believe that Ms. Smith has violated my medical privacy. I have seen Dr. Jones, a psychologist, for stress caused by Ms. Smith. She is a former patient of mine who sustained a complication in part because of her own negligence and then proceeded to defame me on the Internet. She released protected health information — the nature of the complication — which is part of my medical history. HIPAA regulations define health information as “any information, whether oral or recorded … , that is created or received by a health care provider … and relates to the past, present, or future physical or mental health or condition of an individual” (Public Law 104–191; emphasis added). Yours truly,

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Recognizing and Dealing with Stress: A New Model of Resilience Stephen Sideroff, PhD

Introduction

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ver the last 30 years, I have addressed the consequences of the stressful lifestyles of high-level performers in business, health care, and sports. A number of factors conspire to mask these consequences. High performers have a natural tendency to minimize or ignore the effects of stress. Those with busy lives are easily distracted from such manifestations of stress as tension, an increase in heart rate, or irregular breathing patterns. This lack of awareness of the physical signs of stress is facilitated by a gradual adaptation to higher and higher levels of body activation. High performers perceive their higher body activation as normal, until finally the toll that it has taken cannot be ignored. Stress activation in many high-functioning individuals becomes addicting, making them feel more alive as the adrenaline gets pumped through the body. As one cartoon of an executive noted, “I save time by not unwinding.” My clients, whether executives or physicians, find that their underlying insecurities fuel the need to continually produce. Taking a break from productive activity actually creates anxiety. With this in mind, I set out to develop a method to help high-functioning professionals that would take into account their innate resistance to addressing the causes of stress. Below the reader will find my program of resilience, which is the result of this effort. As physicians, you are not immune to the consequences of the same stresses that bring many of your patients to your doorstep. In fact, numerous factors in physicians’ lives augment the level of stress-related problems beyond that seen in the general population. Whatever one’s profession or career, ignoring the impact of stress leaves one vulnerable to physical, emotional, cognitive, and behavioral symptoms. Disregarding symptoms and ignoring stress can impact the quality of life as well as professional performance. Those who are least aware of their stress and its consequences are at higher risk of suffering from 377

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its unpleasant results. In this chapter, you will learn about these potential consequences, what leads to them, as well as the specific characteristics of physicians and their medical practice that make them more vulnerable to stress-related problems. I will then develop a new model of resilience to give physicians some of the best strategies for optimal functioning. You will also note however, that success in this process has one initial requirement: your commitment to engage in the process! While we all know in the back of our minds what stress is, we rarely consider it as something to be concerned about until we feel overwhelmed or experience a physical symptom (such as headaches, insomnia, or elevated blood pressure). Even then, we may not make the association between these symptoms and stress. In fact, physicians are frequently the last to make this connection in themselves. They may focus on treating the symptoms or physical problems with medications and other clinical solutions. While focusing on their practices, physicians typically find no time to ponder the impact of their fast-paced lives. Even when they do, the most common response is simply, “Life is stressful,” or “Being a medical doctor is stressful.” This sense of helplessness makes physicians less capable of making the necessary changes to improve their quality of life. Following is a brief picture of stress as you likely experience as a physician, your stress response, and its insidiousness in your life.

What is Stress? Stress is an environmental-organismic interactive process. When an environmental event is interpreted as being dangerous or threatening, it triggers a stress response, readying us for “fight or flight”. In fact, any uncertainty can trigger this response, which mobilizes the body for danger. The stress response involves all systems in our bodies, activating some and shutting down others. Virtually all the body’s energy gets funneled into this fight-or-flight response. It is interesting to note that a surgeon’s heart rate often doubles during surgery. This reaction to stress is a survival adaptive response. No one, not even a successful physician, is immune to this activation process. Any perceived demand, uncertainty, threat, conflict, or danger can induce a stress response. Even a threat to one’s ego or self-esteem can elicit a stress response. Briefly, our stress response is the evolutionary adaptive mechanism that prepares us for any danger. Every physiological system in our body is affected. Our

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musculoskeletal system mobilizes, bracing and tensing muscles. Our nervous system activates, dilating our pupils and triggering a release of adrenaline and other hormones. These hormones mobilize energy sources and facilitate the speed of blood clotting in case of a wound (which is good for when we are in battle, but not very helpful if you have any sort of cardiovascular disease). Our pupils dilate, our blood pressure rises, our heart rate goes up, and our breathing becomes more rapid and shallow. While some systems are being activated to prepare for danger, other systems that are not of immediate use in the face of danger shut down, such as the digestive, reproductive, and immune systems. That’s right: the immune system will not help you during an immediate danger! Real 21st-century danger rarely requires the automatic mobilization that takes place in our bodies. Stress involves the engagement of an adaptive survival mechanism that has developed over the previous millenia. The problem is that we have not evolved beyond the stress response of our hunter-gatherer ancestors of 10,000 years ago. No matter what the source of the stress or danger, we are committed to a fight-or-flight response. Unlike our stress response, our civilization has moved light years during these past 10,000 years. The sources of our stress and the type of response they demand are now out of sync with our body’s adaptive mechanism. Most present-day stressful situations do not require a response that would allow our bodies to expend energy and release tension. So, for example, with a time pressure or financial crisis, our bodies will go into a hunter-gatherer stress response — the only one we have — and there is no mechanism to release the energy generated. Instead, more energy is directed toward constraining this mobilization. Furthermore, if a stressful situation does not immediately resolve, as is the case with most present-day stressful situations, the body will do the only thing it knows: it will up the ante and intensify muscle tension, increase cardiovascular output, etc. Over time we adapt to these physiologic changes, and we do not notice these higher levels of tension and activation. In an ideal healthy lifestyle, the stress response and its activation of the sympathetic nervous system would be balanced by its opposite response, the parasympathetic recovery and relaxation mechanism. The energy and resources used up in the stress response would then be replenished. The tension resulting from stress would be released during a period of relaxation. In fact, the organismic imperative is to maintain this balance, or homeostasis. The one thing that will take precedence over this optimal physiologic balance between the stress response and recovery is perceived danger. Danger elicits fear and a fight to survive.

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Life in the 21st century is stressful. Threats, worries, and pressures activate the stress response throughout the day. This is compounded by our tendency to scan our environment for problems. When we find a problem, the stress response is retriggered, even if a previous problem was solved. The result is an almost constant triggering of this mechanism without any downtime for recuperation. The term “stress” actually subsumes different components. The source of stress is the stressor or stress trigger. One’s reaction to the stressor, or mobilization, is the stress response. The stress response is different from the stressor, although the two terms are frequently confused or globalized to refer to the same process. The distinction, however, is important, as it is at the heart of our ability to manage stress, or what I prefer to call “resilience”. In our modern world, stress is a very subjective experience. We no longer live on the edge of survival, where the imminent danger of a tiger springing out of a bush triggered our instinctual stress response. Instead, we experience an external event or one conjured in our heads, and then we interpret it. The interpretation is usually instantaneous and unconscious: is this situation dangerous? An interpretation of danger, potential danger, or uncertain threat triggers our survival mechanism. Here is a simple example. Let’s say you are walking down the street and you see a colleague walking toward you. Just as she gets close and you are about to say hello, you see a frown on her face, and she passes without even an acknowledgment. One response is to think, “She didn’t say hello. Why did she ignore me? Did I say something in our last encounter that caused her to be upset with me? Is she angry with me? What’s going to happen next?” This encounter just triggered your stress response. In the same situation, another person might have a very different internal thought process: “Gee, I wonder what is upsetting Jane. Perhaps she woke up on the wrong side of the bed? Maybe she has a toothache?” This person, in the same situation, will walk away relaxed and not think any more about it. Now let’s add one additional element to this stress mix. If you come home to a peaceful house, and you begin thinking about some stressful event tomorrow, this thought process will also trigger the stress response. The activation of your stress response can then make it difficult for you to fall asleep, cause a distancing from family, or even make you irritable enough to trigger a fight, thus adding additional unnecessary stress to your already stressful life! Consider this caveat: a one-hour stressful event that you focus on intensely can turn into a 24-hour stressful experience.

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Stress as the X Factor in Health and Performance Hans Selye, the famous researcher who took the word “stress” from physics and applied it to human behavior, said, “Aging is simply the sum total of all the stresses we place on our bodies.” According to most estimates, over 70 percent of physician visits are for symptoms that are caused by or exacerbated by stress. Early childhood stress and trauma impact the functioning of the brain, leaving it sensitized and reactive to life events of all kinds. This sensitization increases the risk of both physical and emotional symptomatology. We now believe that many types of chronic pain result from the ongoing hypervigilance of the nervous system caused by excessive childhood stress and trauma. This is also true for anxiety and depression. The result of chronic stress takes its toll on performance and mental acuity. All stresses can trigger the survival mechanism, shifting brain activation to the lower survival centers. The prefrontal cortex, where decision-making takes place, can then short-circuit, potentially resulting in greater stereotypy in thinking and behavior. Stress results in strain, manifested as chronic arousal. This is not simple wakefulness, but persistent heightened mental and physical alertness, and it is exhausting. Research shows that doctors are chronically aroused.1 This stress can result in burnout, which is an emotional and physical exhaustion, resulting in poor self-image, negative attitude to work, and a drop in personal involvement.2 Success can be an illusion. When we are being productive, making money and otherwise fulfilling our roles, we automatically assume that everything is okay. Unfortunately, success only masks the disequilibrium we experience with chronic stress. The effects of stress we experience may be equally present, whether we are successful or whether we are failing.

Unique Stresses of the Physician Physicians are not immune to the effects of stress. Stress is an equal opportunity employer. In fact, there are a number of factors, including personality traits and the practice of medicine itself, that make physicians more susceptible to stress and its consequences.

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Several studies reveal that a growing number of physicians experience stress and burnout, and a large number are dissatisfied with their work life.3−8 According to a study carried out by the Canadian Medical Association, almost half of the responding physicians reported symptoms associated with advanced stages of burnout.9 The difficulty for physicians comes from two directions: the particular demands of a medical practice and the personality characteristics common to physicians. First, let’s review the contributing factors of a physician’s job. The medical profession holds a high premium on the physician’s being right. The physician is expected to be all-knowing, making the admission of mistakes fraught with implications of incompetence. The role of the physician can be idealized by a public that wants to believe in physicians’ infinite wisdom. This expectation of perfect knowledge clashes with any uncertainty that a physician experiences. Uncertainty in a physician’s career naturally arises out of the inadequate training for fundamental professional tasks including making financial decisions, running a business, and handling difficult patients. As private medical practices become more of a business, there is a struggle to maintain high standards of care with fewer resources. The stresses of doing more with less are intense. Frequently, physicians are presented with demands that cannot be reasonably met. Often those demands compete with the time necessary to remain current in one’s specialty, leading to more uncertainty and exacerbating concerns about litigation and complaints. Physicians deal with intensely emotional aspects of patients’ lives, which can have negative reverberations in their own lives. In summary, there is a high demand on physicians, diminishing resources, and frequently a perceived loss of control along with fewer rewards or support. Leaving those stresses at work at the end of the day is difficult, so most physicians carry their professional concerns and worries home. This round-the-clock preoccupation leads to consistently high levels of tension and stress, which can impact family relationships. Family time then becomes stressful, instead of being a source of comfort and release from the stresses of work.

Unique personality patterns of the physician Physicians’ job stress is further magnified by certain personality traits common to many physicians. These personality characteristics are part of the reason for success, but they also increase one’s vulnerability to stress. Physicians are

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typically exceedingly conscientious. They tend to be perfectionists who need to be in control. Their attention to detail and attempt to meet everyone’s needs take considerable time and energy. While trying to please everyone, they frequently feel they are pleasing no one. Physicians’ exaggerated sense of responsibility leads them to feel the need to fix things, even when they have no control over the problem. They often feel guilty when they are unable to meet these perceived responsibilities or expectations. This heightened conscientiousness takes an extraordinary amount of time and energy. The effort to do more, and to do it perfectly in less time, makes it difficult for the physician to relax, recuperate, and take care of himself or herself. Physicians constantly strive to do more, be better, and succeed at everything. Yet they have difficulty accepting positive feedback and recognizing their success. Praise is often dismissed or minimized, leading to self-doubt and insecurity. The need to be right and perfect makes it very difficult to acknowledge or express feelings. This leads to the bottling in of emotions, which is another source of stress and physical imbalance. Finally, these personality patterns that are common to most physicians make it difficult to shed this role of perfection at the end of the day. Physicians typically have difficulty being vulnerable and open at home with family. This stoicism prevents the necessary release and the accompanying intimate emotional state important for personal nourishment and recuperation.

The mismatch As if this situation were not bad enough, the struggle to be in better balance is further impacted by the mismatch between the environment in which our stress response evolved and our present environment. We still retain the same dominant survival mechanism that evolved from our ancestors, preparing us for the classic fight-or-flight response. If we analyze the range of stressful situations in the 21st century, we see that rarely is this fight-or-flight the appropriate response, but it is the only response we have, with the exception of the less dominant stereotypic freezing response. Anger, uncertainty, worry, and even today’s conflicts trigger the stress response, but we have no opportunity to take action. This inability to channel actions to fight the conflict results in the build-up of energy and tension. Furthermore, since this is our stereotypic response, when we are frustrated, we cope by intensifying this same response, even though it did not help in the first place. This ongoing and increasing tension creates even more stress.

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Resistance to Dealing with Stress Despite the significant array of problems caused by stress, from physical symptoms to burnout to impaired performance, most people have great resistance to managing their stress. Unless we address this resistance, establishing a healthy balance will always be just out of reach. What is the reason for this apparent incongruity? Those suffering from stress frequently complain: “I have no time,” “There is too much to do,” or “Life and work are simply stressful.” As soon as we place the source of the problem “out there”, we create our own helplessness to bring about any change. There are a number of reasons why most of us resist dealing with stress. Awareness of being too stressed and its probable organismic damage generally does not lead to a change in behavior. The harm to the body caused by the overuse of the stress response is, in fact, ignored. What is the source of this resistance? We can begin by recognizing that stress in and of itself is not bad. In fact, it is an important adaptive mechanism that, to a degree, serves us well. Stress makes us more alert, focused, and capable of responding to the demanding situations of our work and life. In the short term, it gives us a boost in energy. The relationship between stress and performance shows the classic inverted U-shaped curve. At low levels of stress, performance suffers from insufficient motivation or focus. As stress (or arousal) increases, there is an equivalent increase in performance upto a certain point. Beyond this point, however, with too much stress — either in intensity or duration — performance and health deteriorate. The typical unconscious expectation is that if some stress is good, more stress is better. Since there is no clear-cut signal telling us when we are at that optimal level of stress, we typically overshoot. Consequently, we can be the victims of our own success. Each time we engage in stressful behavior and are rewarded with success, that stressful behavior is actually reinforced. We are then more likely to repeat that same behavior, and the rewards drive us to maintain that high level of stress. So, you can see that it is difficult to modulate responses and behaviors which have such a compelling history. Frequently, I hear my clients voice their fear of becoming lazy and unproductive if they try to relax. Many believe there is a slippery slope: start relaxing a little and pretty soon they will find it difficult to do any work. For others, stress results from the fear that their lives will fall apart. Under these circumstances, they can only think of hanging on, even if it means maintaining high stress and tension levels. These people experience great discomfort

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with letting go and being vulnerable, but both are necessary components of recuperation. Resisting the release of stress is an understandable human phenomenon when we consider that the stress response is an adaptive survival mechanism that developed to prepare us for any threat to our lives or our perceived wellbeing. Survival is a basic instinct, so we are loath to turn off this response. For this reason, the sympathetic nervous system and the stress response that activates it hold dominance over the parasympathetic, or recuperative, part of our nervous system.

How personality patterns maintain high levels of stress I have already discussed some of the personality patterns of physicians that contribute to their stress problems. These personality traits not only exacerbate experienced stress, but also make it more difficult to treat. Where do perfectionistic tendencies come from? Typically, they arise out of a sense of inadequacy. Now, this generally does not really mean inadequate from an absolute perspective, but rather, no matter how good you are, it is not good enough. The complement of this is that all your energy goes into doing more and more, accomplishing and succeeding, in order to compensate for inner feelings of not being okay. The problem is that, no matter how much we do “out there”, the accomplishments never truly compensate or fill the emotional hole inside. This is the disconnect between what we do in the world versus how we feel about ourselves inside. This attempt to compensate for feelings of inadequacy drives our stressful behavior, our need for control, and our resistance to letting our guard down. We are all driven by long-standing, unmet needs from our childhoods as well as by the unmet needs of our current lives. I like to call this our “unfinished business” because a part of our psyche is constantly devoted to achieving resolution without our awareness. This is a common aspect of Type A behavior and perfectionism. Both are patterns that drive stress, as perfectionists and Type A individuals try harder and harder to gain the elusive love or acceptance they seek while allowing no time to rest. It is not possible to selectively and unconsciously suppress only our painful emotions or the emotions we are admonished not to express, such as anger or crying. The act of suppression involves physical holding patterns. These patterns are a major factor in depression. Wilhelm Reich referred to these patterns of emotional suppression as “psychic armoring”.10 They tend to

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numb and constrict the flow of energy. For a person stuck in this pattern, the adrenaline rush may be the only way to really feel alive. The resulting addiction to adrenaline is another source of resistance to modulating the stress response. High achievers often suppress emotions that are uncomfortable and increase feelings of vulnerability. Such people may not be used to expressing painful emotions or they have been taught to suppress them. This inability to express certain emotions not only contributes to insecurities and self-esteem issues, but can actually get in the way of relaxing. I was recently doing biofeedback with a physician client. As he was deepening his relaxation, he suddenly appeared to startle, which caused his autonomic nervous system to activate, resulting in the loss of the depth of his relaxation. As we continued with the process and he again relaxed, he suddenly exhibited the same startle response, triggering even greater activation. As we explored what happened just before the moment of activation, he noted a very brief experience of discomfort. Further exploration revealed that this discomfort was the beginning of the experience of an emotion. This brief emotional experience triggered the startle response and moved him away from his emotions. His discomfort with experiencing his emotions triggered the autonomic activation, resulting in a surge of adrenaline and an escape from the unwanted feeling. The relaxation process is a necessary aspect of recuperation, the recovery of our baseline, and the maintenance of homeostasis. For those suffering from stress, this relaxation process is frequently interrupted and even avoided as the person suffering from stress tries to avoid experiencing any uncomfortable feelings. So, how do we get around all these obstacles that lie in the path of achieving a healthy balance and managing a stressful life? My approach, after 30 years of addressing this issue, has been to reframe the goals and create a larger context for the process of dealing with stress. The result is a shifting to the concept of “resilience” and a new model that incorporates nine keys, or components, of resilience.

Making a Commitment Let me share an experience with a physician client of mine, Erica, whose presenting issue was insomnia. For a few years, she coped with this problem through an assortment of sleep medications, switching to another when one was no longer effective. This was a person with a very busy practice and a full

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life. She was also guarded and had difficulty noticing or being aware of her own feelings. Erica agreed to initial efforts to practice relaxation techniques, but there was little follow-through. While she expressed her desire to engage in the practice, something always got in the way. As we explored her resistance, two things became clear: (1) she was wedded to her long-standing behavioral patterns and remained unconvinced that doing anything different would make a difference, and (2) she was fearful of doing things differently. My first step with Erica was to face this resistance by getting a commitment from her to be open to the possibility that something good could come out of our work. She agreed that it just might be possible to change her life experience without moving to Montana. In addition to agreeing to a commitment to be open, she also made a commitment to her program with me that would deal with her resistance and engage her in the process of letting go. In this case, it is good to make a commitment to being open to new ideas. We all get stuck in our ways. Physicians can get boxed into a corner where they continue with failed behaviors. Making a commitment requires taking a calculated risk in trying something new while being willing to try new methods and strategies. That commitment also requires an acknowledgment that you want to be less tense and happier. For Erica, making a commitment — which started tentatively and later became a full commitment — meant that for a specific period of time she would listen, be open to new ideas, and do whatever it took to follow through with the plan we created. I would ask anyone battling with stress, including possibly you, the reader, to make a similar commitment.

Resilience: A Positive Approach to Stress As a result of my research into stress and the resistance to managing it, it was important to me to develop a model that was positively motivating and did not use the word “stress”! “Resilience” is a concept that developed out of research with children exposed to significant risk factors, such as trauma or major disasters, with resulting minimal developmental impairment. I wanted to shift the focus from any damage caused by stress to the positive outcome seen: renewal, enhanced capacity, and optimal functioning. The resilience research was an attempt to determine why these children thrived while others with the same experience barely survived. What qualities distinguished these children and what were the characteristics that fostered their resilience? I broadened

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this concept so that it has relevance to the life patterns of successful professionals, along with everyday life and everyday hassles. If we think of resilience as simply the ability to bounce back after any type of stress, including daily hassles, then this concept can be applied to all the stresses in our lives. Stresses are cumulative and can have a growing impact if not addressed, but if we learn to handle those stresses more effectively, we can achieve both good health and greater productivity. Out of this initial concept, I developed a nine-component model that organizes resilience into three general areas: (1) relationship; (2) organismic balance and mastery; and (3) process, which describes how we interact with the world. Each area in turn encompasses three components. In the remainder of this chapter, I will present this model along with strategies for improvement.

Relationship The first component is your relationship with yourself, which is at the heart of resilience. How do you treat yourself ? Are you judgmental or accepting? Supportive or undermining? It is easy to fall into the habit of self-critical behavior. As I worked with Erica, she began to recognize that she was particularly hard on herself. She spent very little time appreciating her successes. Instead, she quickly shifted her focus to what she did not do right, or she averted her attention to the next project or to looming deadlines. We know from research on healthy marriages that there must be a balance of five positive statements and behaviors for every negative one. When a marriage drops below this 5-to-1 ratio, the relationship is in trouble. Erica’s ratio, in her relationship with herself, was more like 1 to 5! How well you handle stress fundamentally depends on how well you treat yourself. Your internal voice, or self-parenting, is a critical component of this relationship. The key aspects include being supportive, accepting, and loving. It is never helpful to put yourself down, though you may unconsciously believe that you are helping yourself to do better. This is a myth. When you put yourself down, you undermine your capacity to meet the demands in your life. What Erica needed to learn was that accepting herself did not mean that she did not want to be or do better. In fact, “accepting”, as I use the term, simply means recognizing your present state: “This is where I’m at, at this moment. Just as the laws of physics state, I can’t be in two places at the same time.” Most

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of us get caught wishing we were better than we are, smarter, more effective, etc. But to get to where you want to be, you first must accept where you are. Otherwise, this discrepancy between reality and expectation will undermine your self-esteem and your trust in yourself. This internal contradiction can only interfere with your improvement. Component #1 Suggestion to Improve: Cultivate a healthy internal voice that is supportive, accepting, and caring. Find people who do this well, and use them as models. Start monitoring your positive and negative comments to yourself. See how close you can get to the magic 5:1 ratio. The second component is your relationship with others. The quality of your relationships is one factor determining how frequently you will be triggering your stress response. Does the quality of your relationships allow you to be relaxed and calm, or do you feel you need to be guarded? If your friends are critical, contact with them can be stressful instead of relaxing. Erica began to recognize that many of her daily encounters were adversarial, causing an adrenaline release, tensed muscles, and mental preoccupation at bedtime. She was triggering her fight-or-flight response, similar to our hunter-gatherer ancestors. The difference is that Erica had no outlet for that mobilization of energy. Erica’s stress response could be manageable if she was able to recognize what was going on and was able, immediately after a conflict, to let go and engage in recuperation to restore balance to her mind and body. Instead, three things occurred that impeded her recovery: (1) she incessantly reviewed the conflict in her head, maintaining heightened levels of stress; (2) she carried this negative energy into her other work relationships, resulting in abruptness with colleagues, annoyance at her secretary, and overreaction at others when her expectations were not met; and (3) when she got home after work, her general annoyance stressed her relationships with her husband and children, the very relationships that could help her recuperate. There were some relationships that Erica was stuck with, such as those with her patients, her business partners, and certain staff. But she also realized that she had some choices. First, she reduced the amount of time she spent with those whom she found to be negative or critical. Next, she made efforts to resolve conflicts as quickly as possible. Finally, she engaged in a conscious process to stop thinking about a conflict when it was no longer productive.

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Component #2 Suggestions to Improve: 1. After engaging in a conflictual encounter, notice the tension in your body and consciously let go. Identify and schedule what needs to be done next, delegate where appropriate, and then tell yourself that any further emotional energy devoted to this situation is only using up good energy. Take five breaths, and extend the exhalation while feeling your muscles letting go as you release the experience that just ended. 2. In your other work-related encounters, try to be as positive and cordial as you can. Make sure to smile at others. Come up with as many positive statements and actions as you can. 3. When you arrive home, before entering the house, think of how you can positively engage the members of your family. If you are single, make sure to contact a friend or family member and do the same. If you are carrying feelings from the day, identify someone with whom you can share those feelings to help you release the tension associated with them while also gaining support. Your goal is to increase the number of healthy, supportive relationships. Alternatively, during your car ride home, consciously express all the bottled-up feelings as if you were speaking with someone else. This can serve as a way of letting them go. The third component is your relationship with “something greater”. The “something greater” can be a spiritual belief, or it can be some purpose in your life that takes you beyond the here and now. It extends your horizon so that your daily hassles are placed in a larger perspective. For many, a spiritual belief serves to take “the load off one’s back” when there is a God who has much bigger shoulders. This belief in something greater or in some purpose in life is often expressed through volunteer work that brings the volunteers into contact with their community. Giving back is a way of expressing gratitude and can generate a sense of personal balance. Component #3 Suggestion to Improve: Identify your personal spiritual belief or your belief in some purpose to your life that goes beyond your immediate environment and social network. Take some action that puts you in contact with this aspect of your life. Then, when you can, take five minutes to focus on a sense of gratitude for what you have. Then, think of someone you love (even if it is your dog), breathe slowly, and connect with your heart and feel a sense of gratitude.

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Organismic balance and mastery There are three areas requiring balance and mastery in order to be more resilient: (1) in your physical responses, (2) in your emotional responses, and (3) in your thinking patterns. Let’s first discuss physical balance and mastery. As noted above, your stress response affects every system in your body by either activating it (heart rate, muscle tension, nervous system) or de-activating it (digestive, immune, and reproductive systems). The body’s resources are consumed and depleted if the body is not allowed to recuperate. The problem develops when you become addicted and conditioned to your stress response. Many people unconsciously believe that, if some stress is good, then more stress is better. The result is that we are always operating in the “red zone” of our personal engine. Over time, fatigue, impaired thinking, and compromised performance are just some of the consequences. Once we get used to high levels of tension, we can actually lose the ability to relax, as another physician client, Jim, discovered as he began experiencing headaches and fatigue. Jim would spend five minutes practicing a relaxation exercise; he would notice that he did not feel any more relaxed, and then he would give up. He concluded that he was helpless in this exercise because he was incapable of relaxing without help from some type of pill. For most of us, when we first focus on the process of relaxing, it may take more than five minutes to feel some change and sense of calmness. Restoring your ability to relax and then engaging in a regular practice is a key component of any resilience program. Improvement comes with patience and persistence. Even when I work with elite athletes, one of my main tasks is to help them achieve a state of calm focus and be able to control their tension. People who need to perform at the highest levels become keenly aware of how tension interferes with this process. Component #4 Suggestions to Improve: 1. Practice a simple relaxation technique for ten minutes each day. For those readers who are interested, I can send you an eight-minute practice if you email me at [email protected]. 2. Find some way to remind yourself to check in with your body once each hour to notice tension. Take about five slow, deep breaths, allowing your muscles to let go as you exhale. (Continued)

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(Continued) 3. Think of three variables in relationship to your stress response: frequency, intensity, and duration. Pay attention to how you can reduce all three during your day. In my work with Jim, each of these steps was difficult. He finally succeeded when he had his secretary enter into his schedule the ten minutes required for the resilience exercises. He also programmed his personal digital assistant (PDA) to click once each hour to remind him to check in with his body and to take five breaths. Interestingly, he was able to reduce the frequency of triggering his stress response by turning it into the challenge of counting the number of situations in which he did not have a stressful response. The fifth resilience component is emotional balance and mastery. Why are we perfectionists? Why do we keep pushing ourselves while focusing only on our mistakes? Our emotional insecurities drive our behavior, and unexpressed emotions are just waiting for a trigger to explode. Emotional issues consistently impair resilience, leaving us less in control of our lives. We try to compensate by using inappropriate ways of controlling — frequently by trying to control others. Hilary, another physician client, realized that she did not have effective or appropriate ways of releasing the emotions and tension of her work. She felt stressed both by unreasonable client expectations and also by the antagonistic communication styles of others at her office. As a result, emotions built up and then were triggered at inappropriate times. This in turn created new and unnecessary conflicts, simply adding to her “unfinished business”. Unfinished business refers to the emotional residue that we carry around when a conflict is unresolved. This pent-up emotion distracts us, adds stress, and drains our energy. We carry around unfinished business that goes back to our childhood. This emotional baggage causes many of our drives and tendencies, including Type A behavior, self-abusive behavior, and being a perfectionist, to name just a few. My plan with Hilary was to begin by addressing more current emotional conflicts. Component #5 Suggestions to Improve: 1. Remember that feelings are a normal part of life. You never have to justify a feeling, just as you do not have to justify being hungry. It is important (Continued)

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(Continued) to notice your feelings, find some way of expressing them, and then let go and move on. Expressing your feelings does not have to involve another person. Allow your body the opportunity to have a physical and an emotional release. You can yell or beat up a pillow, imagining it is someone who angers you. This serves to release the tension held in your body. 2. Separate the search for a resolution to a situation from your emotional response to the situation. Tensing your body is a natural response to a stressful situation, but it is not necessary and it does not make solving the problem any easier. Tension just tires you out faster. When engaging in a work-related problem, start by relaxing, and then keep reminding yourself to relax. The sixth resilience component is cognitive balance and mastery. You may have heard the expression “catastrophic expectations”, which refers to imagining the worst possible outcome. This is the opposite of cognitive balance. Catastrophic expectations unnecessarily and prematurely activate the stress response. As long as you are thinking of something negative, you will be triggering this response. Jim had the tendency to begin worrying about an encounter with a difficult client a day or more in advance. Because he expected the worst, his half-hour stressful meeting with a difficult client became a 24-hour stress response, which affected his ability to get a good night’s sleep. Planning is an important strategic cognitive function, but once planning is over, any additional thinking in the form of worrying or ruminating is not constructive and adds unnecessary stress. In the field of psychology, the term “locus of control” refers to whether we believe that outside events control us or whether we believe that we control ourselves. When we consider stress, many of us have an external locus of control. We believe that an event A causes our stress reaction B. This notion of an automatic process leaves us feeling helpless in doing much about our stressful life or profession. Event A does not, in fact, cause stress reaction B. What actually happens is a process in which an event A causes an internal, cognitive appraisal of the event A. The appraisal of danger is what then initiates the stress response B. We can write this sequence in shorthand: A (event) → I (internal, cognitive appraisal of A) → B (our stress reaction). Only when we appraise a situation to be a threat do we trigger the stress response. This internal assessment is very important because it shifts the process from one in which we are helpless

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victims of our environment (and, by extension, our medical practice) to one in which we determine whether an event should be experienced as stressful. How many of your daily situations require the elevation of your blood pressure or the tensing of muscles? This is a question for you to regularly query yourself. Component #6 Suggestions to Improve: 1. Focus on the most positive outcome for each upcoming event in your life, including your day in general. Prepare for all eventualities, but then focus on the most positive. Pay attention to where your mind drifts — is it a positive thought or a negative one? Notice how frequently you dwell on the negative or have a hostile, angry thought. Awareness is the first step in the change process. 2. Train yourself not to focus on the negative. Doing so is a habit pattern, and changing it involves retraining. Here is a three-step retraining process: (1) Make a commitment to notice when you are negative. (2) Engage in a cognitive “reframe”. Your internal monolog might go something like this: “My negative perspective does not serve me well and only makes me tense. Continuing to think about this also distracts me from being present, so I’m best served by letting go and focusing on more positive thoughts.” (3) Shift your focus to a more positive possibility or to other more positive thoughts.

Process: how we engage with the world These last three components have to do with our “process”, or how we engage with the world. The first of these components is presence. Some people attract us, whereas others seem to repel us just from the energy they give off. Presence can be explained as the sum of everything, including our unfinished business and our emotions, that we bring to the moment. This sum of our experiences results in a palpable “energy” that we carry with us and is perceived by others. The more we carry around our unfinished business and emotions, for example, the more we are distracted and less present. Optimal performance and optimal living are a function of how present we are. It determines our ability to focus and affects the quality of our relationships, and is considered to be an aspect of our emotional intelligence. For a physician, this optimal performance may be a key factor in determining the

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success of your medical practice. Fortunately, it is possible to train yourself to be more present. Component #7 Suggestion to Improve: Make a conscious effort to pause before entering all your meetings. Take a moment to breathe; notice how you feel, notice any thoughts going through your head, and then let them go. Straighten into a more erect posture that projects a sense of confidence, and make the commitment to yourself to project this image to each person you greet. Smile inside to yourself, and let that smile show. The eighth resilience component is flexibility. Do you adapt easily or do you get bent out of shape if circumstances are not the way you expected them to be? A resilient person is one who has the ability to make adjustments when life does what it always does and throws a curveball. The more you get attached to a position, even when it is not important, the more difficult it is to be flexible. Rigidity inevitably leads to dissatisfaction. Conversely, being flexible helps you minimize frustrations and emotional distress. Component #8 Suggestions to Improve: 1. If there is a topic on which you hold a strong position, explore and consider the opposite position. Fully place yourself in the shoes of the other side. 2. Do some of your daily routines differently. Use your opposite hand to comb your hair, brush your teeth, and handle utensils. Allow yourself to experience the discomfort with either amusement or fascination. The last of my nine components of resilience is power. In my model, power is the ability to get things done. Here, we get to the one area that most physicians feel competent in. Power hinges on the integration of persistence, courage, assertiveness, and good communication skills. In addition, power requires the ability to do appropriate strategic planning and identify appropriate incremental steps toward a goal. Perhaps surprisingly, one aspect of power that is often difficult for physicians is appropriately owning and accepting their success. This last component of resilience brings us full circle to your relationship with yourself. Resilience is strengthened by a good image of yourself and a positive assessment of your capabilities. To take full advantage of your success, you must integrate those experiences with success into your sense of self. I have

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found that physicians are hard on themselves and have difficulty fully owning their accomplishments. This acceptance of success is not about bragging or self-promotion, but rather is about appreciation and trust. Component #9 Suggestion to Improve: Take time to review some of the successes you have had. Consider your successes periodically or after a specific accomplishment. Identify all of your skills that contributed to achieving your particular goals. Make sure you do not dilute this by subtly shifting to mistakes or by noting that the success was not perfect. Breathe and fully take in and own these skills and abilities that you are identifying. Allow yourself to feel good about each quality, as if this recognition is your emotional and mental nourishment that you will metabolize, adding to your good feelings about yourself. This process does not minimize, justify, or take away your mistakes or problems. Instead, it can help you better address them. Ultimately, it will contribute to your resilience. The nine-component model of resilience that I have presented is a blueprint for addressing your stresses and developing a more effective approach to work and life. When carried out, this program will result in your being healthier, performing better, and ultimately enjoying life more. With the guidelines laid out in this chapter, you now have very specific actions that you can take to regularly and gradually enhance your resilience.

References 1. Celentano DD, Johns JV. Stress in healthcare workers. Occupational Medicine: State of the Art Reviews 2(3): 593–608, 1987. 2. Maslach C, Jackson SE. The measurement of experienced burnout. J Occup Behav 2: 99–113, 1981. 3. Spickard A, Gabbe S, Christensen J. Mid-career burnout in generalist and specialist physicians. JAMA 288: 1447–1450, 2002. 4. Murray A, Montgomery JE, Chang H et al. Doctor discontent: a comparison of physician satisfaction in different delivery system settings, 1986 and 1997. J Gen Intern Med 16: 451–459, 2001. 5. Linzer M, Konrad TR, Douglas J et al. Managed care, time pressure, and physician job satisfaction. J Gen Intern Med 15: 441–450, 2002. 6. Gundersen L. Physician burnout. Ann Intern Med 135: 145–148, 2001.

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7. Shanafelt TD, Bradley KA, Wipf JE, Back AC. Burnout and self-reported patient care in internal medicine residency programs. Ann Intern Med 136: 358–367, 2002. 8. Williams ES, Konrad TR, Scheckler DP. Understanding physicians’ intentions to withdraw from practice: the role of job satisfaction, job stress, mental and physical health. Health Care Manage Rev 26: 7–19, 2001. 9. Canadian Medical Association. Physician Resource Questionnaire. Unpublished. August 2003. 10. Reich W. Character Analysis, 3rd ed. Touchstone/Simon & Schuster, New York, 1948.

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The Challenges for Women in Plastic Surgery Debra J. Johnson, MD, FACS, Cissy Tan, MD, Cristina F. Keusch, MD, Sarah Troxel, MD and Heather J. Furnas, MD

omen and men have reached near parity in medical schools today,1 and by 2010 women will make up nearly a third of all physicians in the United States.2 Surgical specialties are the last bastion of change, but we have all seen the increase in colors and floral prints among the sea of plastic surgical meeting attendees. As more women enter the field, it is tempting to sit back complacently and say, “See, women can have it all!” But is that true? While childless women academic physicians become full professors at the same rate as men, the same is not true for women physicians with children; just 10 percent of senior medical school faculty positions are held by women.2 The mix of families and surgical careers presents challenges that we are still working out. We are currently at the prototype stage. With more women entering plastic surgery, changes will certainly come about to allow mothers to more comfortably permeate the various positions, posts, and professorships that have been manned primarily by fathers. Sorting out how to support women in surgical specialties will be important as their numbers increase from 10–15 percent to 30–40 percent. Because women have not long comprised a significant share of the field of plastic surgery, these are, to some degree, uncharted waters. In many ways, women are welcomed into our field with open arms. Many patients seek out a female plastic surgeon under the belief that they will be better listened to or better understood. On the other hand, the years of training are long, and the years to build a practice and perhaps beef up one’s curriculum vitae add huge pressures to the childbearing years. Some of the unspoken stresses women physicians face carry a high price. Among physicians in general, women commit suicide at a much greater rate (four times higher) than women in the general population.3

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Medical practice models still contain many elements based on traditional gender roles, whereby a male doctor worked long, long hours while his wife stayed at home and took on the role as primary parent and manager of the home. Call duties could be borne more easily under this model because the wife was always home with the young children (and compensation was greater). Now, families are increasingly likely to have both parents working, with perhaps one parent traveling frequently for work. Single working parents are much more common than when the infrastructure of medicine was developed. Emergency call in general is becoming a contentious issue, and the requirements particularly affect the parent who receives little remuneration for taking call and must cobble together backup childcare to meet emergency call requirements. Women plastic surgeons in their late 40s and 50s or older entered a field that was fairly untested for the woman who wanted to get married and have children. Open-minded program directors opened their doors to this new type of surgeon, but there were few female mentors who could show that the complex pieces of life and career could all fit together. Girls and young women interested in becoming physicians sometimes ask female doctors: Can women have a balance in their family lives as well as their professional lives? Are their marriages happy? Does parenting suffer? Does one’s career suffer? Can women hold their own professionally? Can being a woman with a family enhance one’s career? The rest of this chapter attempts, through anecdotes, to answer some of these questions. The following biographical sketches are written by women plastic surgeons with families. The professional-domestic balance clearly takes organization and planning, but it can be done. We are hopeful that our stories can help women aspiring to plastic surgery who also wish to have families. Perhaps this modest footpath will some day become a well-trodden road. The gains made by women in the balance of personal and professional aspects of life will surely help men, who also increasingly desire a similar balance. As a specialty in general, we should all strive to create working conditions that allow both family and practice to flourish.

Debra J. Johnson, MD, FACS, Sacramento, California I was the seventh woman resident in the Stanford combined plastic surgery program. When I was a fourth-year resident, we women actually made up 11

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of the 18 total slots in the program! I do not think we have had a majority since then, but Stanford’s Division of Plastic Surgery has been very accommodating to women. I got married during my two-year stint as a general practitioner (GP) for the National Health Service Corps (my service obligation began right after my internship). When I returned to Palo Alto for residency, we decided that my husband, Mario, would keep his home and job two hours away, since he would never see me anyway. Mario would come over on the weekends. It was a perfect marriage as every weekend was a honeymoon! We decided to start a family during my third year. We timed it and succeeded (being the Fertile Myrtle that I was). I never missed a day of work during my pregnancy. I was on cardiac surgery for the first trimester and with the burn unit for the second. The nurses would put a temperature strip on my neck during those hot burn cases, and if my temperature went above 100◦ F, they would make me walk out into the hallway to cool off. During my last trimester, I was at Kaiser with call every fifth night. I did extra call in advance of my delivery so that I would not be too much of a burden on my co-residents. After my daughter, Gabriela, was born, I was allowed 20 days off by Stanford (wow!) and then went back to Kaiser. My husband had moved in with me by then, so on call days he would come to the hospital with my daughter and sleep in the call room with me. I breastfed my daughter, so I would pump milk during the day at work. We hired a lovely young Salvadoran woman who would show up at our house at the crack of dawn when Mario and I had to leave (I to go make rounds, Mario to drive two hours to work), and she would take care of my baby until one of us got home. It was a crazy time, but my great husband and fabulous nanny made it all work. I promised my chief that I would not have a second child during my residency, but I did get pregnant in my last year. Again, I worked every day and had no problems with the pregnancy. When I graduated, I asked to continue my health insurance under COBRA until I started my new job. Stanford said they would only allow me to COBRA for one month! My due date was August 8, so I was up a creek. My husband called the U.S. Department of Labor to ask them how Stanford could get away with not allowing COBRA coverage for residents. The Labor Department took Stanford to task and not only made them cover their residents, but they also had to pay back any out-of-pocket medical expenses any residents had over the prior several years! Fortunately my son, Pablo, was born on July 27, so I was still covered. I have been in practice for 20 years now. I am in partnership with a group of five other plastic surgeons. We own our building and have an operating

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room (OR) surgicenter on site. My group practice allows me to have many free nights and weekends to be with my family. Our call duties are not too onerous anyway. My partners have been very supportive of my volunteer activities. I have spent four weeks a year throughout my career providing cleft surgery in developing countries. I have been active in our California Society of Plastic Surgeons, and, at the time of writing, serve as President. I am also active in the American Society of Plastic Surgeons with committee work. Mario and I are still married. Our kids have grown up. Gabriela just graduated from college, and Pablo is a sophomore. I had plenty of time to help with their homework, watch their soccer games, and attend school functions. My kids have grown into great adults. My husband and I are still madly in love. Now that we are “empty nesters”, we have the luxury of traveling outside of school holidays. We are seeing different places in the world and are working on fixing up our weekend home in Napa. We will retire there in a few more years. The vast majority of my patients are women. My patient waiting list is the longest in town, I think because women like to have a woman surgeon. Many patients say they come to me specifically because I am a woman. They have said, “You have breasts, you know what I’m talking about.” Plastic surgery was a great career choice for me, and I would not change a thing. I would recommend plastic surgery training to women interested in a great career that is flexible enough to allow time for family and outside interests.

Cissy Tan, MD, San Diego, California My personal story involves working full-time as a reconstructive surgeon in Southern California and being a single mother to my now 11-year-old son. I am chief of plastic surgery at Kaiser in San Diego, a role I have held for over 16 years. It is interesting managing a busy, full-time reconstructive surgery practice together with the administrative load of being chief, and now possibly also becoming the regional coordinating chief of plastic surgery. I feel I have been able to do all that without any compromise at being a mother. I managed to volunteer in my son’s classroom through most of his elementary school years, and I really felt I was more “there” than many stay-at-home mothers. I feel fortunate that Kaiser was very supportive in allowing me to achieve such balance. I had asked my medical director if I could reduce my work schedule to what they call 8/10 after I had my baby. This had not been done before for a chief of a department, but he readily said yes. I ended up not even taking him up on this, as I calculated that I could just use my vacation

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time in half-day segments to spend time with my son at home in the early childhood years or to volunteer at his school later on. I marveled that I was able to be among the minority of mothers who had a significant presence in the classroom and school, especially since most other mothers in my community were stay-at-home mothers. In addition to work and parenting, I have been able to pursue my recreational interests of travel, skiing, and real estate. Once my son turned five or six years old, I allowed myself the luxury of taking one fantastic trip per year, usually solo to Europe. I also take many trips throughout the year with my son for skiing in Park City, exploring Mexico, or walking the steep hills of San Francisco. He hates that I wear high heels “all the time” and has lodged his logic-based protest. He has turned into quite the professional traveler, always ready to go. I am also currently remodeling my house and managing my real estate investments as well. I am sure we all live by that old adage, “If you want something done, give it to a busy person.” Of course, there are moments of significant stress like when I had 30 leaks in my roof during the remodel, managing/negotiating with subcontractors, and researching the fine points of seller financing during the sale of an investment property, all at the same time. Luckily, it is rare that there are urgent crises in all quarters simultaneously. Some of the critical factors that have allowed me to maintain a healthy balance in my life are creating a support network and knowing when to say no. I have made some sacrifices in administrative advancements along the way. I have been asked several times to serve in higher leadership capacities, but that would have necessitated reducing my clinical work to 50 percent and I did not know how those demands would influence my parenting schedule, so I have passed those opportunities by. What I have is quite enough and I generally have had the wisdom not to be overloaded by the demands. My support network of family and friends has also been a tremendous help. They have helped in childcare issues on the rare occasions where I am unable to tend to things myself. As I plan to attend my 25-year medical school reunion this spring, I chuckle at some memories of the comments I received when finishing medical school. My husband at the time was a year ahead of me in school, and he was adamantly opposed to the pursuit of surgery as my career choice. His reason was that “they” were so brutal and vicious, that “they” would chew me up and spit me out. A classmate also said with grave concern when I told him my choice of specialty, “Oh, don’t ever let them change you, Cissy!” I quietly thought to myself, “How nice do you guys think I am, anyway?!!!”

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Although it was an extremely arduous path for me to achieve my career goals, the final outcome has been fantastic. Through a combination of fortunate circumstances and a hellacious, self-imposed workload, I finished my plastic surgery training at the age of 28, which allowed me additional time before having children. I was able to take a six-week trip around the world by myself right after my residency, leaving me with memories for a lifetime. Plastic surgery is an amazing choice of profession for a woman and I feel gratified every day in my work life. In addition to the professional rewards, I am able to live a life of balance and feel fortunate to be able to do all that I currently do. I would strongly recommend it to any woman.

Cristina F. Keusch, MD, Boca Raton, Florida As one of five female offspring of two generations of general surgeons, it was inevitable that one or more of us would continue the surgical tradition. Sure enough, my oldest sister pursued a career in oncologic general surgery and I, the middle child, pursued plastic surgery. Despite attending a heavily academic plastic surgery program in Boston, I knew that I was headed to a private practice in plastic surgery. My interest was always in taking care of patients and secondarily in running a business. I have always liked to do things my own way, and so a solo private practice was my destiny. I established my private practice in South Florida in 1990. I was (and continue to be) married to my medical school sweetheart, an anesthesiologist who practices locally. Being lucky enough to find an office-sharing opportunity with two more senior plastic surgeons, I dove into the practice headfirst. My association with this practice was a godsend. The two plastic surgeons were wonderful and honorable. We developed a mentoring-type relationship, which was priceless. The office included a full staff and a certified operating suite. We often assisted one another at surgery. Over the years, I ultimately inherited the entire practice, as the first plastic surgeon moved his practice further south and the second passed away unexpectedly in his sleep. The running of a household is very similar to the management of a private practice. Good help and a team spirit are vital. Luckily, I have live-in nannies who have stayed with us for very long periods of time. Similarly, I have longterm staff in the office. Early on, I quickly learned that my husband, having a very demanding work schedule himself, could not be relied upon for minuteto-minute assistance with the children. I knew that I needed round-the-clock care seven days a week. This required two live-in nannies who alternated

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workdays while the children were young. We continue to have one live-in nanny, and both she and her sister are available on the weekends as needed. My practice has evolved throughout the 20 years. Initially, I was primarily a reconstructive surgeon and I covered multiple emergency rooms (ERs), including a level 2 trauma center. I ultimately went off all ER call schedules and insurance plans, and have developed a nearly 100-percent cosmetic practice. On October 1, 2001, I went off Medicare. I was sure that I had just committed professional suicide. This did not prove to be so, however, as the loss of the Medicare cases never made a dent financially. I was free to develop other resources, and it freed up my staff significantly. There was no more worrying about coding correctly or being audited. My income increased, and a handful of Medicare patients continued to come to me for care. They were expected to sign a private contract and pay my usual fees out-of-pocket. Over time, I left all other insurance plans as well. Although this has worked well for many years, the financial downturn that this country is experiencing may tip the balance. I may be forced to consider insurance reimbursements in the future. As for raising a family, my husband and I are very hands-on. Developing a more elective cosmetic practice has allowed me the opportunity to manage my time more effectively. Both my children are heavily involved in sports, and I attend nearly all their games and tournaments. My husband continues to have a great deal of on-call responsibilities, which further emphasizes the need for me to be available after hours. I have always worked full-time, although I initially closed early on Fridays to have lunch with the children when they were preschoolers. I still coordinate my schedule with some of their days off so as to enjoy the precious time that we still have together. They are teenagers now and soon will be off to college. I believe that seeing their parents work hard has given them appreciation for a good work ethic and time management. Vacation time has also been a priority throughout my practice. My husband and I generally take eight weeks of vacation each year. I have been the sole plastic surgeon in my practice since 1997. Prior to that, my associates and I shared expenses. Since then, I have had the sole financial responsibility for maintaining the practice. When I am not there, the only income source has been through skin care procedures performed by the aesthetician in my practice. More recently, I hired a nurse practitioner who can provide treatments as well as patient care while I am out of town. I have always asked my staff to coordinate their vacations with mine, a very high-priority requirement which I would recommend for all solo practitioners. As for the next 20 years of practice, what changes do I see coming? I have considered office vacation closing for one to two weeks or even a

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month to reduce overhead expense during my absence. This is difficult, as no appointments could be scheduled and patients would have to be seen in other practices. For now, with the nurse practitioner’s coverage, that is not necessary. Taking on an associate is also a consideration. As bargain-basement practices run by businessmen are popping up in South Florida, many existing practices will need to consider merging to offset expenses, to increase purchasing power, and simply to survive. I look forward to these challenges with vigor, as I continue to feel that plastic surgery is a gift and a most honorable profession.

Sarah Troxel, MD, Anchorage, Alaska I am a single mother of three (ages 10–14) and a full-time plastic and reconstructive surgeon, in solo practice, in Anchorage, Alaska. This was certainly not the plan when I left the East Coast, where I was born and raised, to begin my plastic surgery training at Stanford. However, not long after I arrived at Stanford, I met my husband, John, who at the time was an ear, nose, and throat (ENT) resident. Shortly after I began my internship, we eloped, taking advantage of the first weekend off that coincided for the two of us, and we were back at work the following Monday. John eventually joined my year in the plastic surgery residency program. Planning carefully, so as not to inconvenience my fellow residents, I gave birth (at 31 years old) to our first child two weeks before we graduated. Our son’s delivery was very complicated but, after a few weeks’ stay at the neonatal intensive care unit (NICU), he was healthy enough to travel. We moved to Wasilla, Alaska, where John and I went into private practice together. Those who know me best, my family and close friends, are still amazed that I agreed to this “Green Acres” move. Love does make us do unexpected things, and I believed that I could and would be happy anywhere, as long as I was with John and had a job that I loved. John managed the business aspects of the practice, while I had two more children and managed our household. Because we both worked full-time, we had au pairs for a few years to help with the children. The au pairs were, for the most part, responsible and loving, but there were problems. They were all between the ages of 18 and 25 and had come to America not just to care for children, but also to experience American life and to meet young American men. In addition, the au pairs could only get visas to stay in the U.S. for 13 months, so every year I had to go through a new batch of prospective

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applicants to find a match for my family. The time limit of the visas also resulted in a lack of continuity of care for the children. After three au pairs, we decided to find a more long-term arrangement. Through our church minister, we found a young Russian woman with teenage children who could help with our kids and do some of the housework. She worked Monday through Friday, took the kids to day care, made the beds, did occasional errands, cleaned the house, and did the laundry, but she went home by 4 pm. This eased my domestic workload so that, when I got home from work, I could spend more quality time with my kids. It also alleviated the inevitable scheduling crises that arose when one of the kids got sick or when a surgery did not start on time or took longer than expected. In addition, we preferred this arrangement to having a live-in nanny. We were fortunate that our practice was busy almost immediately, as we were the only plastic surgeons in “the Valley” (Wasilla and Palmer). On the other hand, this meant that in addition to always being on call for our own patients, we were also the only plastic surgeons taking ER/trauma call for our hospital. In fact, one or the other of us took ER call virtually every day that we were in town for those first four years. Certainly, John took more than his fair share of this call, especially during my complicated pregnancies, which included multiple miscarriages, a ruptured tubal pregnancy, a placenta previa, and placental abruptions. When I was pregnant with my daughter, I spent three months in the hospital, on bed rest with a placenta previa, and she was born two months prematurely by emergency C-section and required a long NICU stay. I spent only one month in the hospital, on bed rest, for a placement abruption before the birth of my youngest, and he was virtually full-term. At these times, it was a comfort to know that my patients were being well cared for by my partner, my husband, but I also felt guilty that he was having to take all of the call and that he had to work so hard to keep our practice going. After five years in Wasilla, I was eventually able to convince John that we would be better off in the city, both professionally and personally, so we moved our home and our practice to Anchorage. While we both agreed that this was a good decision, it was not what we expected. At the time, ER call involved taking call for the city, which included two hospitals. As there were only five plastic surgeons, call was every five days. So, as a family, we were on ER/trauma call for the city two out of five days, while still providing continuous coverage for our own patients. Unfortunately, circumstances were such that we could not share our call with the other practices in town. John had the added burden of hand call, from which I was exempt, as I stopped doing hand surgery as soon

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as I passed my boards. Because the orthopedic hand surgeons shared the hand call, it was determined that coordinating all three call schedules (orthopedic surgery, plastic surgery, and hand surgery) was not possible. The result was that the phone rang in the middle of the night three out of five nights on a regular basis. Nonetheless, we built a busy, successful cosmetic and reconstructive plastic surgery practice; survived a Medicaid audit; and eventually managed to find a competent, loyal, and hardworking office staff. In Anchorage, we found a Russian couple (our pharmacist’s parents) to work for us at home: Lena to do housework, and Vlad to shuttle the kids to and from school and to various music and dance lessons or to soccer practices. Without this help, I most certainly would not have the career that I have (and my children would probably not be fluent in Russian). John and I were happy, successful, and blessed with three thriving children. On June 16, 2005, my world was turned upside down when my husband and partner (in life and in my practice) died suddenly and unexpectedly of a brain aneurysm. John’s death was devastating to me, both personally and professionally, and I made the mistake, initially, of not seeking appropriate grief counseling. I was too busy trying to figure out how to manage a business, how to become computer-literate, and how to manage my finances while continuing my surgical career and raising my three young children. Happily, after two very difficult years of hard work, a lot of help and business advice from my brothers, my staff’s support, extensive grief counseling, and another two years of further adjustments, I have found a balance that works for me and for my family. I have a very successful and fulfilling solo practice, and I am as busy as I want to be. I get a tremendous amount of personal satisfaction from my plastic surgery practice, which entails both cosmetic and reconstructive (mostly breast) surgery. I briefly considered, but soon rejected, the option of bringing in a partner, for a number of reasons, not the least of which was the many failed partnerships of my plastic surgery colleagues. Luckily, I have been fortunate to have strong relationships with a number of my general surgery colleagues (most of whom are women, as it happens). Over the last four years, they have graciously and consistently provided me with coverage for my patients when I go out of town for a holiday, to a karate or soccer tournament with my kids, or to a plastic surgery meeting. While I could be busier and make more money than I do, my children are my first priority. As a result, I schedule my clinics and surgeries around their school calendar and their extracurricular activities. It is vital to me that I attend their soccer, basketball, and football games to cheer them on, and

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that I am home in time to make their dinner and to go over homework with them. Equally important, I feel, is my ability to show them the rewards of hard work and the value of finding a career that makes them happy. When I reflect on my life, I feel blessed to have the skills that enable me to provide for my children doing work that I love.

Heather J. Furnas, MD, Santa Rosa, California When I was in medical school and considering a career in surgery, I had my antennae out for female surgeons who were happily married and had children. Back in the early 1980s, that was a very small club — so small, in fact, that I encountered none of its members. Despite the paltry evidence that family and surgery were compatible for a woman, I followed my heart and went into plastic surgery. The rest, I figured, would sort itself out; and with a measure of good luck and a good husband, it did. In my second year of surgical residency, I married another surgical resident, who later became my co-resident in plastic surgery. As a fifth-year resident, at the age of 30, I really wanted to start a family, but with both of us working crazy residents’ hours, we waited until after we finished our residencies. I was nearly 33 by that time. After several months, I still was not pregnant, so I started an infertility work-up before waiting the recommended year. I was stung by the small cruelty of being so responsible for so many years, putting professional responsibilities before personal desires, only to be punished for all the waiting. Fortunately, two days after we met with the infertility doctor, the pregnancy test strip turned blue. A few weeks later, I got food poisoning … or so I thought. As the days of illness wore on, I realized I had severe hyperemesis gravidarum. For 10 weeks, I was so sick that I needed intravenous fluids and was unable to work. I was extremely grateful to have finished my training before my pregnancy and also not to be in solo practice. My hardworking husband kept the practice going. Once the hyperemesis passed, I went back to work. After delivering my 9-pound 11-ounce son, I was dearly grateful for the luxury of having a three-month maternity leave. My body needed that time to recover. Two years later I was pregnant with my daughter, and again I was felled by hyperemesis, but less severely. As before, I took some time off while I was sick, and, after delivering, I took a four-month maternity leave. During my maternity leaves, I felt like I was in a cocoon, protected from the worries of the world while nesting with my baby. I discovered that the stresses of work definitely superseded the stresses of home, despite what some

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stay-at-home mothers had told me. It was hard to see my husband singlehandedly bearing the fights to be reimbursed by insurance companies, taking both his and my emergency call, and dealing with all the other stresses of running a practice while I had stayed home with the baby. While I delighted in both of my maternity leaves, I knew that being a stay-at-home mother would be frustrating in the long run. Staying home or working part-time was never a consideration for either my husband or me. The gender roles were, of course, rather faded in a household of two surgeons. In fact, my husband would have been overjoyed to have been able to stay home for three or four months on paternity leave. A break from the world to spend time with one’s new baby is a joyful thing for either mother or father. The decision to make our kids our number one priority served as the compass that guided our personal and professional decisions. Figuring out how to mix a two-parent surgical practice with having children was obvious: we split both office and home duties down the middle. Household duties, such as laundry, dishwashing, and floor mopping, have always fallen under the role of whoever has the time. I do the cooking, since we both like my cooking better, and my husband deals with emails and bills, which he minds less than I do. I confess that I have had to learn to tone down the criticism about sorting colors, folding laundry, and dishwashing. My husband frequently swung an imaginary golf club to show me that he, too, could be out golfing with the boys, leaving the rest of the family on weekends like in many other families. When our son was young and just learning to talk, he called us both “Mapa”, a blend of “Mama” and “Papa”. Both of my children favored me during their breastfeeding years, but I fell off the throne — as I predicted I would — around the time the tooth fairy started to visit. As a true co-parent, my husband was frequently the only father at birthday parties, he kept track of the kids’ clothing sizes, and he has always taken the kids shopping far more than I do. After our second child was born, we entertained the possibility of having a nanny to help us out. We live in a small city that often feels like a small town, and the choice of nannies was paltry. We interviewed two women sent to us by an agency, but we found no Mary Poppins — far from it. As we watched how each nanny candidate interacted with our children, we were shocked at how the kids were ignored, especially given that we were right there. We quickly dropped “Get nanny” from our to-do list. Besides, we thought, if we were tired after a long day at work, we would likely pawn off evening bath time and other duties to the nanny, and those duties were part of the quality time we wanted. We found a wonderful home daycare for our kids until the age of

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two, and then we moved them to a preschool. Had I been a physician with call duties with a husband who could not always be around, our arrangement would have been impossible. We were lucky to have the flexibility we had. The preschool we found for our children was fabulous. The teachers were educated in child development, and our kids loved their time there. Our teenage daughter still speaks fondly of her days at Bethlehem Children’s Center. The publicity the media gives to the guilt that working mothers reportedly feel underplays the value of excellent childcare. The teachers and the environment provided a rich offering of developmentally appropriate activities and social skills. In fact, when I was home just after my daughter was born, I took my son to his beloved preschool so that he could enjoy a much more interesting day than I could offer him at home. Some of our friends’ young children who stayed at home full-time were less able to share or play well with others. Just as daycare quality varies tremendously, so does stay-at-home-mother care. One is not necessarily always bad, nor is the other always good. Our children were happy, engaged in activities and field trips, and beloved by their friends and teachers. I never felt guilty leaving them. How could I, when they resisted leaving at the end of the day? Because we both worked and had other lives in the real world, having our kids around was an absolute joy. Unlike the stay-at-home mothers in my neighborhood, I never went to the grocery store “for a vacation away from the kids”. My heart broke the first time I heard my neighbor say that as she was tearing out of her driveway. Not having a nanny required strict scheduling rules for our practice. Since daycare centers, preschools, and schools have formal hours, we had to make sure our office staff scheduled accordingly. We made it clear that we turned into a pumpkin after a certain hour, and that there could be no exceptions. As much as possible we have always made a point of having both of us home with the kids so that we can all have dinner together. Much paperwork is done after-hours and weekends. Charts pile up, but we have always managed to be available to our kids. I often saw stay-at-home mothers who described their days while all of our kids were in school. In the time that they did their grocery shopping and did the laundry, I had done four cases. My life has definitely been more pressured than other mothers’ lives, but a surgical residency is the best training for a busy life. When you have to discharge several patients, pull two chest tubes, start a central venous line, write notes on 15 inpatients, cover the clinic, admit three patients from the ER, and pre-round, all before evening rounds, you learn organizational skills.

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Having our own in-office surgical suite has made an enormous difference in our control over our schedules. Before we built our OR, the inefficiency and unpredictability of a hospital OR contributed to a fair amount of stress. If we had a TRAM flap breast reconstruction scheduled to start at noon, the start time was inevitably pushed to 4 pm. With daycare closing at 6 pm, we waited until the very last second (5:52 pm) before springing the assistant surgeon to go pick up the kids. We did all our outpatient procedures at the local surgery center because, unlike the hospital, they were as motivated as we were to avoid delays and long turnaround times. Building our own OR added financial and staffing stresses, but our days are fairly predictable. While our lives have been extremely hectic at times, I think our children have benefited from seeing their mother gainfully employed with a high level of responsibility. Just as valuable is seeing their father participate in all domestic duties, from making a bed to helping choose a dress or shirt for an upcoming occasion. I also feel that being a professional in a demanding career has allowed me to grow and mature in ways that I would not have had I stayed at home or sought a less ambitious career. Participating in the world at large, dealing with difficult patients, overseeing employees, and working hard in surgery has, I believe, made me a better, more patient mother. It is far easier, having seen a slice of humanity, not to get mad when a two-year-old is having a tantrum or when a teenager is talking back. With my husband’s support, I have been able to participate in organized medicine, having served as the president of my county medical society, chairing several medical society committees, and serving as a delegate to the California Medical Association. Without such a supportive husband, I could not have afforded the time and energy these activities have taken. We both volunteer in our various capacities, and the kids have seen us fighting for causes we believe in. Mixing surgery and family has never been an easy road, but it has allowed for a rich life. I am fortunate to have had the privilege of being a plastic surgeon while also having a wonderful family. And my kids? They can write their own stories about their upbringing!

References 1. Batchelor S. Female physicians face higher suicide risk. Women’s eNews. Available at womensenews.org/article.cfm/dyn/aid/2167/. Jan 31, 2005.

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2. Prather E. Women doctors: increasing numbers have changed medicine. Texas Medicine. Available at www.texmed.org/Template.aspx?id=4197/. Sept 2005. 3. Miller NM, McGowen RK. The painful truth: physicians are not invincible. South Med J 93(10): 966–973, 2000. 4. Schernhammer ES, Colditz GA. Suicide rates among physicians: a quantitative and gender assessment (meta-analysis). Am J Psychiatry 161: 2295–2302, 2004.

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Physician Asset Protection Jay Adkisson, JD

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ear of a judgment in excess of the physician’s medical malpractice coverage can make the physician consider setting up an asset protection plan. This is a plan that is designed to take valuable assets out of the physician’s name, so that those assets will not be available to a claimant. It is not rare for a physician to be sued for malpractice. Yet most lawsuits are dismissed or settled before they reach trial, and the incidence of judgments which are in excess of the physician’s medical malpractice coverage limits is actually quite rare. Physicians do annually lose a great deal of wealth in lawsuits, but not to medical malpractice actions. Rather, physicians lose money in lawsuits to divorce actions, partnership disputes, and failed investment deals that the physician personally guaranteed. It is for these risks, in addition to the possibility of an excess malpractice judgment, that physicians should consider an asset protection plan.

Exemptions The legislatures of every state have identified certain assets, known as exempt assets, which creditors are not allowed to collect their judgment against. In other words, these are assets that are “hands off” to creditors.

Homestead Perhaps the best example of an exempt asset is that of homestead exemption, which is the statutory protection for one’s home. Most states provide some protection for homestead, but the level of such protection can vary greatly. Pennsylvania provides no protection at all, for instance, while Ohio protects a miserly US$5,000 in home equity. By contrast, a debtor with a US$20 million 417

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beach house in Florida can sleep at night knowing that the Sunshine State’s unlimited homestead exemption will keep creditors at bay. The limitations to homestead exemption are that one must actually reside in the home for the protection to apply, it does not apply to vacation homes, and it does not protect against tax liabilities. Furthermore, the 2005 changes to the federal bankruptcy code imposed a 40-month rule stating that only the equity that existed prior to 40 months before the filing of a bankruptcy petition would be protected in bankruptcy.

Life insurance and annuities In some states, life insurance or annuities (or both) is protected from creditors. The cash value of a life insurance policy is protected in Texas, for example. Physicians living in these protective states would do well to consider having their financial portfolios owned within life insurance or annuities, since the value of these products would be unavailable to creditors.

Tax-qualified accounts Certain accounts that are tax-qualified, such as individual retirement accounts (IRAs), Keogh plans, and 401(k) plans, are protected in whole or in part from creditors in many states. However, it is difficult to determine exactly what is protected in some states. California, for example, imposes a “means test” to determine what the physician will need to live on during retirement (measured at basically a poverty-level existence), such that any amount in excess of US$50,000 might ultimately be unprotected. In bankruptcy, up to US$1 million in qualified accounts can be protected from creditors, but the physician would have to file a bankruptcy petition to take advantage of that protection. Because filing for bankruptcy might work to undo other protections that the physician has in place for assets, it should not be presumed that the physician will automatically file for bankruptcy to protect the qualified accounts. Therefore, qualified accounts should only be funded to the level that is protected by state law.

Downsides to exemption planning What the legislatures giveth, the legislatures can taketh away. That is, the statutory creditor exemptions are not absolute. Exemptions do not apply to state or federal tax liability, for instance, nor will they protect against divorce liabilities. Some states also have fraudulent conversion laws that

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prevent a debtor from putting wealth into exempt assets just to stiff existing creditors. Another downside is that for exemption planning to work, the assets must be held in the physician’s name, which also traps them in the physician’s estate for estate tax planning purposes. It is for this latter reason that exemption planning is sometimes called the “poor man’s asset protection planning.”

Marital Planning Prenuptial agreements In any given year, physicians lose more money to ex-spouses in family court than to all the excess malpractice verdicts for the last 10 years. The ex-spouses would, of course, argue that half or more of the property was theirs all along, but the effect on the physician’s balance sheet is the same — very significant diminishment. The working spouse usually picks up all the attorney fees for both sides, too. The law provides a mechanism to protect wealth in a divorce, known as a prenuptial agreement, which is simply an agreement that certain assets will be divided in a certain way in the event of a divorce. Quite frankly, marriage is ultimately a partnership based on trust and understanding, and if a couple does not have enough trust and understanding to rationally discuss entering into a prenuptial agreement prior to marriage, then it is probably unlikely that the marriage will be successful anyway.

Transmutation agreements Marriage has its perils, even for happily married couples. In some states, the laws provide that the debts of either spouse can be satisfied from the community property of the marital estate, which basically refers to all property of the couple other than what they each brought into the marriage or inherited while married. The cure for community property is simple: the couple can enter into a transmutation agreement that converts all the existing community property into the separate property of either spouse. Thus, if one spouse suffers a judgment, then only that spouse’s assets will be available to the creditor and the assets of the non-debtor spouse will be completely protected. The catch is that the transmutation agreement, which is sometimes also referred to as a marital settlement agreement, needs to be entered into before any creditors appear, because by the time a creditor asserts a claim against either spouse it may be too late to do any good.

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With physicians, the idea is often to use the transmutation agreement to put all valuable assets with the physician’s spouse, and leave the physician with the junky assets that may not be attractive to creditors. But there are some obvious dangers to this strategy. The first danger is that after putting all the assets with the non-physician spouse, the marriage turns sour and the physician is left with the junky assets. But there is also the second danger that the non-physician spouse could suffer a judgment through bad luck, such as a bad automobile accident, in which case all of the good assets would be available to that spouse’s creditors.

Business Planning Professional entities The laws of all states permit the creation of a professional corporation (PC), a professional association (PA), a limited liability partnership (LLP), or some similar entity. These are similar to ordinary corporations and partnerships with one critical exception: their ownership can usually only be by licensed professionals of the same type, i.e., physicians, attorneys, architects, etc. The advantage to this is that it keeps non-professional partners (read: creditors and ex-spouses) from becoming co-owners of the entity. The benefit of any business entity such as a corporation or partnership is that the owners are shielded by statute from the liabilities of the entity, known as the inside liabilities of the entity. An example of an inside liability would be an office lease agreement that a professional corporation enters into. If the professional corporation defaults on the lease, then only the corporation would be liable to the building owner for damages, and the shareholders would not be responsible. However, there is one type of liability that a professional entity will never shield its owners from, and that is for malpractice. Neither a corporation nor a partnership will shield a physician from the consequences of their own professional negligence. But a professional entity will normally protect the other partners from the liability of the malpracticing partner.

LPs and LLCs vs. corporations Where the physician has made an investment in some asset that could generate liability to the physician, such as ownership of a strip mall, the use of a business entity to own the asset will normally act to shield the physician from liability

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arising from it. So if a group of tenants brings a class action lawsuit against the strip mall owner for failing to maintain the parking lot, that lawsuit will be brought against the corporate owner of the strip mall, and not against the physician investors who own the stock. Business entities provide the most asset protection to physicians not so much within the professional practice, but rather in protecting the physician’s investments against potential judgments of the physician. Where the assets of a business entity are put at risk for the liability of a member, this is known as an outside liability of the entity. With certain types of business entities, such as a limited partnership (LP) or a limited liability company (LLC), a creditor of a partner is by statute not entitled to the physician’s equity in the entity. Instead, the creditor must settle for a lien against any distributions or dividends that the physician might receive in the future from the partnership. If the other partners decide to make no distributions or dividends to the physician’s interest, then the creditor will not get anything. This is known as charging order protection, in reference to the type of order that the creditor is stuck with that limits the creditor’s rights. Note that while LPs and LLCs have charging order protection, corporations do not. If a shareholder of a corporation suffers a judgment, then the creditor can foreclose on the shares or otherwise force a sale of the debtor’s interest. But the creditor cannot do this with an LP or LLC, making those entities preferable for asset protection purposes.

Beware of single-member LLCs The underlying purpose of charging order protection is to shield the nondebtor members from being forced into a partnership with a creditor of the debtor member. Where the LLC has only one member, such protection is nonsensical since there are no non-debtor members whose interests need protecting. Thus, in a few court cases, the courts have invalidated charging order protection where the LLC had only a single member.

Family limited partnership A business entity that is formed to organize the family’s business is known as a family limited partnership (FLP). This is a marketing term; partnership law does not speak of a special “family” entity. FLPs are often sold to physicians for asset protection, and the physician is usually encouraged to load

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the partnership up with all sorts of personal assets, such as the family home, personal investment accounts, etc. Unfortunately, a rapidly increasing line of court opinions has invalidated the asset protection benefits of LPs which are primarily used for personal purposes. Again, partnerships are business entities and are thus meant to fulfill commercial purposes — they are not meant to be misused as a substitute for a proper trust, and the courts have rejected most attempts to do so. Since even calling an entity a “family” limited partnership belies any true commercial purpose, the physician should be wary of planners who attempt to sell FLPs for such reasons or include the family name in the entity’s title (unless the family’s name is commercially recognizable, such as “Williams Family Sausages” and the like).

Tax choice of business entities Basically, the tax code allows for business entities to be taxed in one of three ways: (1) as C corporations; (2) as S corporations; and (3) as partnerships. Often, the tax treatment desired by the owners will dictate what type of entity will be formed.

C corporations Corporations are by default C corporations, but may elect to be treated as S corporations. A C corporation is first taxed at the corporate level before dividends are paid to shareholders, and then the shareholders are also personally taxed on the dividends they receive. This is known as the double taxation of a corporation. Publicly traded companies must be taxed as C corporations, but it does not make sense for smaller businesses to suffer this type of taxation. Therefore, few smaller businesses are treated as C corporations (and those that are should probably consider changing tax planners).

S corporations To avoid this double taxation, most corporations will make the S election and be treated as an S corporation, which allows the business to enjoy passthrough taxation, i.e., the taxable activities of the business will be effectively treated as if they were the taxable activities of the individual owners. In other words, what happens within the business shows up on the business owners’ tax returns and is paid by them, not by the business. There are limits to S corporation taxation, however, the most common being that the shareholders

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are limited to natural persons or their legal surrogates. If, for instance, a bank forecloses on the stock of one of the members, the bank is a disqualified shareholder that blows the S corporation taxation and causes the entity to revert to a C corporation. If this occurs at the wrong time and in particular circumstances, this could have dramatic and negative tax consequences to the other owners. Thus, for asset protection purposes, S corporations are normally avoided.

Partnerships Partners by default enjoy their own form of pass-through taxation, known simply as partnership taxation, which means that the taxable activities of the partnership pass through to the individual partners in a manner similar to an S corporation but without the restrictions. For most small businesses, partnership taxation is the preferred type of taxation. Note that an LLC can uniquely be taxed as any of a C corporation, an S corporation, or a partnership, by making the appropriate elections. The default taxation of an LLC is as a partnership.

Misuse of entities Corporations, partnerships, and LLCs are all business entities, meaning that they have been authorized by the state legislatures for business purposes. When business entities are misused for personal purposes, the business risks are disregarded by the courts under various theories, the most predominant being the alter ego theory whereby the court holds that the entity and its owner is really just one and the same. Such theories have been successfully asserted where the business entity has been used to hold purely personal assets, such as a home or investment accounts. The basic rule of thumb is this: business entities are for business assets and business operations only; personal assets should be protected by personal exemptions or by trusts, as we will next explore.

Trust Planning A trust is simply an arrangement where one person holds an asset for the benefit of another person. If you say to your buddy Tom, “Please hold my watch while I go swimming and then give it back to me”, you have created a trust in Tom regarding the watch.

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Spendthrift trusts The assets of a trust are normally protected from the creditors of the beneficiaries. For example, if you leave a child $1 million in trust, and the child gets into a bad business deal and is successfully sued by his/her partners, the $1 million in the trust is not available to your child’s partners but is instead kept in the trust for your child’s health, education, and maintenance requirements. This feature of trusts is called spendthrift protection and is usually given by statute in most states, although, of course, the trust will want to have detailed language about how creditors should not be entitled to any distributions. Spendthrift protection usually only works, however, if the beneficiary’s interest is a completely discretionary interest, meaning that the beneficiary has no right to demand assets from the trust, but instead what (if anything) the beneficiary gets is left entirely to the discretion of the trustee. Protecting children from their creditors through the use of spendthrift trusts has very deep historical roots within U.S. law. Thomas Jefferson used a spendthrift trust to keep a part of his legacy away from the creditors of his daughter’s husband, by giving his assets to her in trust instead of outright (under Virginia law at that time, a wife’s assets were available to the creditors of her husband, unless held for her in a spendthrift trust). Because children will get into bad marriages, bad business deals, and accidents, it makes little sense to give children any valuable assets outside of trusts. By placing assets into a spendthrift trust, we have simply and quite effectively accomplished asset protection for our children.

Self-settled spendthrift trusts The other benefit of a trust is that the legal title is transferred to someone else — the trustee — and so the asset no longer shows up on the physician’s balance sheet when a plaintiff comes a-calling. When the plaintiff inquires where the assets went, the physician advises that the assets have been irrevocably moved into a trust for the physician’s benefit and, oh-by-the-way, the trust is a discretionary trust with spendthrift protections. An irrevocable trust that one creates for his or her own benefit is known as a self-settled spendthrift trust or more often by its being marketed as an asset protection trust (APT). So long as the physician did not create and fund the trust to stiff any existing creditors, the idea goes, the physician should be able to settle a trust for his or her own benefit and take at least those chips off the table against any future plaintiffs.

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Foreign asset protection trusts This concept sounds good — too good, in fact, which is exactly why at one time the legislatures of every state had enacted laws that rendered invalid the spendthrift protections for a self-settled trust. For a long time in American history, you simply could not create a trust for yourself and then stand behind it when your creditors came to collect. In the late 1980s and in order to attract trust business, the Cook Islands adopted legislation that uniquely allowed for spendthrift protections to be available even to self-settled trusts. Thus, the foreign asset protection trust (FAPT), also known simply as an offshore trust, was born. The problem with offshore trusts is that, while the laws of the Cook Islands (and the 30-plus other offshore jurisdictions that have adopted similarly permissive trust laws) allow for self-settled spendthrift trusts, the laws of most U.S. states still prohibit them. When faced with an offshore trust, the courts of those states will enter a repatriation order requiring the physician to bring the assets back to the U.S. so that those assets will be available to creditors. The physician will then be faced with three unpleasant choices: (1) bring the assets back and watch the creditors take them; (2) sit in jail for contempt of court for refusing to bring the assets back; or (3) flee the U.S. until the creditor problems are resolved. While the third choice — fleeing the country — might make sense for some physicians who are only temporarily in the U.S. or who are willing to practice medicine in some other country, it probably will not be an attractive option for most U.S.-based physicians. The prospect of jail time is also unpleasant, especially considering that in a recent case a federal judge ordered a debtor to be held in prison for over six years because the debtor refused to bring his trust assets back to the U.S. (eventually, the court let the debtor go free and he presumably is able to enjoy his trust assets abroad, but six years is a long time).

Domestic asset protection trusts Tired of losing trust business to the offshore havens and eager to develop their own trust business, some states (10 as of the date of this writing) have also abolished the prohibition against self-settled spendthrift trusts, thus creating what is known as the domestic asset protection trust (DAPT). DAPTs probably would provide a significant level of asset protection for physicians who are resident in a state that has authorized such trusts. By contrast, however, they probably do not work at all for physicians who do not

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live in such a state. For example, the courts of California, which does not have DAPT legislation, would not be required to recognize the spendthrift protection for a trust formed in a DAPT state to the extent that either the physician or the trust property is found in California.

Congress kills asset protection trusts The 2005 changes to the federal bankruptcy laws created what amounts to a 10-year “clawback” for transfers to self-settled trusts that occurred within 10 years of a bankruptcy filing. Thus, if a physician had to file for bankruptcy (to protect his/her IRA, for instance) or if a creditor forced the physician into an involuntary bankruptcy, then the bankruptcy trustee would be able to force the trust to regurgitate any assets that the physician transferred to it during the prior 10-year period. Some planners find the 2005 bankruptcy changes to be so onerous that they consider both FAPTs and DAPTs to be useless as asset protection tools in all but the most limited circumstances and for physicians residing in DAPT states.

The BETIR trust The 2005 changes to the bankruptcy laws were limited to self-settled trusts, i.e., trusts that people attempted to create for themselves for asset protection. These changes did not affect a modern variation of the more traditional parent-created trusts called the beneficiary-taxed irrevocable trust (BETIR trust, pronounced as “better trust”). The BETIR trust involves a parent of the physician creating a trust for the physician’s benefit, making the physician the beneficiary of the trust. Because the parent has created the trust, the trust is not considered to be a self-settled trust. The parent’s creation of the trust is irrevocable — meaning that the parent cannot later unwind it — and the parent’s involvement with the trust ceases immediately upon its creation. The BETIR trust is designed so that it is taxed to the physician for federal income tax purposes. In other words, for income tax purposes, the trust and the physician are one and the same, and interdealings between the two will not trigger any income tax consequences. After the trust is created, the idea is that the physician will then sell valuable assets to the trust, in exchange for which the physician will receive back long-term, unsecured promissory notes from the trust. The effect of this is that the physician has thus converted

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valuable assets which were readily available to creditors into long-term unsecured notes which will be much less attractive to creditors. With the physician’s valuable assets now being in the trust, they are protected from creditors and may safely grow for the future benefit of the physician. When the physician retires, he or she may take repayments on the notes or receive direct distributions from the trust. Because the BETIR trust is simply a common, irrevocable trust with slight modifications, it will draw no undue attention as might a DAPT and certainly would a FAPT. It is for these reasons that the BETIR trust has become a popular asset protection planning tool for some advanced-level planners.

Advanced Asset Protection Planning Combined business/trust planning Perhaps the best asset protection planning is accomplished by the use of business entities which conduct business with the physician that are owned by trusts for the physician’s benefit. The idea here is to use the business entities to essentially drain wealth away from the physician’s current income, but store it up for future access.

Equipment leasing company A common example of this strategy is the equipment leasing company (ELCO). The strategy begins with a trust that is created with the physician as the beneficiary (usually, the BETIR trust described above). The trust then creates an LLC that is owned by the trust to act as the ELCO. In the second stage, the physician’s existing equipment is transferred to the ELCO in a tax-free transaction. New equipment to be used in the physician’s practice will be purchased by the ELCO. The ELCO then leases the equipment to the physician, and the physician pays the ELCO a reasonable fee for the rental. The benefits of the ELCO are twofold First, the physician’s valuable equipment is no longer owned by the practice and thus is no longer available to plaintiffs. Second, the lease payments for the equipment that are made by the physician have the effect of continually reducing the cash that flows to the physician personally; instead, that cash accumulates within the trust for the physician’s benefit.

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Billing and collection company A similar mechanism that operates in an almost identical manner is the billing and collection company (BICOCO). This also involves an LLC that is set up by a trust for the physician’s benefit to which are transferred the physician’s accounts receivable. The BICOCO now takes on the contractual responsibility for collecting the receivables and remitting the physician a percentage of those receivables, with the BICOCO retaining a sizable percentage for its collection efforts. The idea here is that the BICOCO will skim off excess profits by way of its collection fees before those fees make their way to the practice. As with the ELCO, the profits of the BICOCO are ultimately held in the trust for the benefit of the physicians, well away from plaintiffs of both the physician and the practice. A caution must be given about so-called accounts receivable financing programs, which involve the physician obtaining a loan against his/her receivables that is then used to purchase an annuity product. Sold as an alternative to BICOCOs, the pitch of promoters of this scheme is that the physician obtains solid asset protection plus the ability to profit from leveraging his/her receivables; the real-world results are often that the physician obtains neither benefit. The real goal of the planner who pitches such a scheme is to reap the commissions from an annuity sale, and not to assist the physician. Suffice it to say that accounts receivable financing programs are a poor substitute, both legally and financially, for a property-constructed BICOCO arrangement.

Captive insurance company Most large corporations have at least one captive insurance company (“captive”), which is an actual, licensed insurance company that is used to underwrite the insurance needs of affiliated businesses. For instance, DuPont owns one captive that underwrites the company’s product liability, environmental exposure, and general liability policies, and another captive that underwrites its employee benefits and workers’ compensation insurance. Many hospitals and non-profit medical organizations now also have captives to keep the coverage of their insurance needs completely in-house. Captives are sometimes used by physician groups to cover their insurance exposure. For instance, a group of orthopedic surgeons may form a captive to cover the deductibles and excess exposures on their individual medical malpractice policies, and also to cover the liabilities of their jointly owned surgery center. While captives primarily have an insurance motivation, they can

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also provide significant asset protection since premiums paid to the captive are moneys that are no longer in the practice and available to creditors. Instead, those moneys are held within the captive for some time and then distributed to the captive’s owners — again, usually trusts set up for the benefit of the physicians. A secondary benefit of captive insurance companies is that they can also provide income tax benefit. Certain smallish captives, known as 831(b) captives, pay no tax on their premium income received so long as it does not exceed US$1.2 million in any given year. This gives a group of physicians the ability to, for instance, transfer up to US$1.2 million from their practice to their captive each year, and whatever moneys are not used to pay claims are kept as tax-free profits of the captive.

Private retirement plans Another “Back to the Future” solution involves the use of non-qualified trusts that are formed by the professional practice to provide for the physician in retirement. Such plans are often combined with an LLC for an added layer of protection. Before Congress passed laws allowing for pre-tax contributions to qualified accounts such as IRAs, businesses would create non-qualified plans to provide for the retirement needs of their owners, executives, and other key employees. Some states, such as California, passed laws that generously protected such plans from creditors. These plans were long forgotten by planners focused only on the tax benefits of qualified retirement plans, but have since come back into vogue as an asset protection planning tool. A private retirement plan is essentially a non-qualified trust that is set up by a practice for the benefit of the physician. Whatever is in the trust is protected from the creditors of both the practice and the physician. Contributions are made with post-tax dollars, and the business pays the taxes on whatever investment income is generated within the trust. While there is no tax benefit for getting into such a plan, there is also no tax penalty for getting out of it — the taxes have already been paid on the money, and there is no 10-percent penalty for early distributions.

Offshore Planning The traditional way of keeping assets from the reach of plaintiffs is to simply move it outside the country, usually into one of the 30-plus offshore

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havens that have laws which are best described as creditor-unfriendly. While this sounds simple enough, the reality is very different. Various court opinions, combined with increasingly onerous Internal Revenue Service (IRS) reporting requirements and penalties for non-reporting, have done much to throw a wet towel on offshore planning. A variety of circumstances have also conspired to give offshore planning a very bad smell to judges and juries. Because of all this, some asset protection planners will now counsel their physician clients to forego offshore planning altogether. The general rule of thumb is this: offshore planning can work for physicians who have substantial family or business contacts outside the U.S., but is probably counterproductive for the rest. If you can protect your assets just as well under U.S. laws, with proper planning, there is little reason to expose yourself to the possible taint of offshore havens.

Offshore bank accounts It is easy enough for a physician to create an offshore bank account: simply go to a bank in one of the offshore havens and open a checking account. It is not any more complicated than that, although the offshore banks will want a copy of your passport and a current utility bill to prove that you really are who you say you are, as part of their anti-money laundering due diligence. If you have an interest in or control over an offshore account (or an aggregate of accounts) that exceeds US$10,000 at any time during the year, then you will be required to report the existence of the account on your income tax return. You will also be required to annually file the Treasury Department Form TD F 90-22.1 to disclose the account. Failure to file this form can bring stiff penalties, and the failure to disclose the existence of your offshore accounts on your tax return can expose you to the felony charge of perjury. These forms, which are discoverable as part of post-judgment discovery, and the fact that you will be subjected to a debtor’s examination if you suffer a judgment, make offshore accounts all but worthless for asset protection. A creditor who finds out about an offshore account will simply get a repatriation order that will compel you under penalty of contempt to bring your money back to the U.S., or else go sit in jail until you do (a New York lawyer, Beatty Chatwick, once sat in jail for over a decade for refusing to bring his offshore funds back to satisfy a divorce judgment).

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Offshore trusts The idea behind an offshore trust, which is popularly marketed as a foreign asset protection trust (FAPT), is that if you do not own the offshore assets, the court cannot hold you in contempt for failing to bring your offshore assets back. Widely marketed to physicians, offshore trusts can sometimes serve a deterrence role that makes a plaintiff’s lawyer believe that the costs of collection will sometimes be prohibitively expensive, and thus he/she ought to accept the limits of the physician’s malpractice policy and drop or settle the case. The problem is not the plaintiff’s lawyer who settles, but the one who vigorously pursues the judgment. Against repatriation orders, the win-loss record of offshore trusts has been dismal, with only a few beneficiaries of offshore trusts avoiding the contempt charge that would land them in prison. In general, the court simply disbelieves that one who creates an offshore trust has no ability to unwind the trust or otherwise get control of the money, and orders the beneficiary to jail until the money is coughed up. The current record for the longest jail time for such a contemnor is 6.5 years. The bad thing about offshore trusts is that they have achieved a very negative image as a tool that is meant to stiff creditors, and this will never play well with U.S. judges who want to see their judgments enforced. The existence of such a trust could also make the difference with a jury, which might believe that honest people have no need for such devices and therefore the defendant who had one knew that he/she was liable.

Offshore corporation An offshore corporation is simply a corporation that is formed in one of the offshore havens. The idea here is that the offshore corporation is shown as the owner of the offshore bank account, which is thus hidden from creditors. But with an offshore corporation, there are even more IRS forms that must be filed each year, there are significant penalties for even innocently missing the filing of such forms, and in the end the creditor has a straightforward remedy: the creditor can simply take the stock in the offshore corporation in the U.S., and thereby take control over the offshore corporation’s assets abroad.

Offshore limited liability company A better but so-far-untested variant of either the offshore corporation or the offshore trust is the offshore limited liability company (OLLC), which is simply

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an LLC that is formed offshore. The idea here is that a creditor of an offshore LLC cannot get the assets of the company, but would be stuck with a charging order against the debtor’s membership interest, just like a domestic LLC. But then the question must be asked: if the offshore LLC works like a domestic LLC, then why not avoid the offshore headaches and just form a proper domestic LLC structure in the first place? Many top asset protection planners would argue that the question is rhetorical, although offshore LLCs can have their uses in particular circumstances.

Offshore for the international physician The above commentary may not fully apply to the physician who really is international in the sense of having significant family and business interests abroad. For such a physician, it makes sense to have an offshore trust to resolve succession planning across national borders, and an offshore corporation or OLLC to facilitate business activities abroad. Such vehicles can also play an important role in international immigration between countries. For such a physician, the concern about repatriation and contempt orders is substantially less for the simple reason that if a physician ever comes close to having such an order entered against him or her, he or she can be outside of the jurisdiction of the U.S. courts and thus not be amenable to a contempt citation. But this only works for physicians who are willing to spend a great deal of time away from the U.S. if necessary, and perhaps permanently if their situation in the U.S. becomes bad enough.

Summary By good planning and foresight, a physician can successfully protect assets from the claims of creditors, including malpractice plaintiffs and potential ex-spouses. The key is to start early and to have a well-thought-out plan that complies with existing law. So long as such a plan is in place before any claims arise, it will be very difficult for creditors to break the plan. A primary goal of asset protection is to deter lawsuits by lowering the financial profile of the physician. Another primary goal is to precipitate the early and reasonable settlement of a claim against the physician, within the limits of the physician’s insurance coverage. Claims against physicians are very much like diseases: they can be prevented by proper planning, and they can be cured if the physician starts the treatment early enough. However, the time

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to implement an asset protection plan is not after the summons and a copy of the complaint have been delivered to the physician’s door by the process server. For then, trying to create an asset protection against the plaintiff is much like taking antioxidants to treat cancer after it has been discovered; the remedy is way too late.

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Personal Financial Planning for Plastic Surgeons Lawrence B. Keller, CLU, ChFC, CFP®

s a plastic surgeon, you will earn substantially more than the average American during your working years. The old adage is correct that “it’s not what you earn, it’s what you keep.” This chapter will provide you with an overview of what steps you should take to protect your assets and accumulate wealth.

A

Purchase Adequate Insurance Coverage Purchasing adequate insurance protection is a fundamental component of a physician’s financial plan. The purpose of insurance is to protect against risks that would be financially devastating to you and/or your family. Here, the risks of many individuals and business entities are transferred to an insurance company or other large group in return for a premium. When it comes to insurance, unfortunately, most plastic surgeons do not pay much attention to details. They are more concerned about saving money on income taxes, investing in the stock market, or looking for new opportunities to increase their income beyond the practice of medicine. Unfortunately, this is equivalent to putting the roof on a house before its foundation has been laid.

Auto Insurance Auto insurance covers you for harm done to you and/or your property or to other people and/or their property. The coverage that you need depends on the health insurance you have, the car that you drive, the value of the assets that you need to protect in the event you are held responsible for an accident, and the rules of the state in which you reside. 435

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According to the Insurance Information Institute, the national leader in educating policyholders, below is a breakdown of the major components that should be included in an auto insurance policy.

Collision coverage Collision coverage in your policy will compensate you for damage to your vehicle, whether you collide with another vehicle or an object. Generally, you want to maximize your deductibles to lower the cost of your insurance premium. I typically suggest that my clients do not have deductibles lower than US$ 1,000. Additionally, if the car that they are driving is old and not worth much, they might want to forego collision coverage altogether.

Comprehensive coverage This component of your insurance covers damage to your vehicle that is either not the result of a collision or involves animals. Comprehensive insurance also usually includes flood damage, vandalism, and all manner of disasters — natural or otherwise. Windshield protection is often included with this coverage. I often suggest that my clients purchase “full glass” coverage if they are doing a lot of highway driving.

Property damage liability Property damage liability protects you from paying out-of-pocket for any collision damage you might have caused to another party’s property — whether it is a vehicle, personal property, or their home. You are also covered if another person is driving your vehicle, provided you had given them permission. When reviewing policies, I often see clients with liability limits of US$ 50,000 on their policy. I believe this is too small an amount, as there are many cars on the road whose cost is substantially higher.

Bodily injury liability Bodily injury liability covers payments resulting from harm caused to another party by yourself or anyone listed on your policy. Because we are in a litigious society with increasing medical costs, you should have coverage limits in excess of what your state considers the minimum to protect yourself in case of a serious accident.

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Medical payments/personal injury protection This component covers hospital or other medical treatments to yourself and anyone in your vehicle. Personal injury protection (PIP) can also include lost wages, funeral costs, and other personal expenses resulting from an accident.

Underinsured/Uninsured motorist coverage The last aspect of your insurance coverage would be necessary if you, or a family member, are injured by another party that either has no coverage or does not have enough coverage to compensate the sum of your losses, provided the other party was at fault. This insurance also serves as protection against hit-and-run incidents, and for you as a pedestrian.

Homeowners Insurance Homeowners insurance protects more than just the owner of the home, condominium, or other property. The policy’s declarations page summarizes the types of coverage and amounts. The declarations page also identifies the named insured (the individual who is primarily insured under the policy), usually the same person named on a deed or lease as the owner or tenant, respectively. You, as a named insured, receive the most extensive coverage under your homeowners policy, for you are covered by property insurance on your dwelling and other structures, in addition to personal property and liability insurance. The property insurance section of your homeowners policy protects more than just your actual home or dwelling. In most cases, the policy also covers your personal possessions and protects you against liability claims. The following coverages are typically included in a standard homeowners insurance policy.

Dwelling coverage Your policy covers your dwelling; any structures attached to the dwelling; and building materials and supplies that are stored near the dwelling and are used to construct, alter, or repair the dwelling or other structures on your property.

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Coverage for other structures The declarations page of your homeowners policy will usually identify your premises by its street address. In addition, the policy also covers structures on your premises that are not attached to the dwelling, such as a shed or pool cabana.

Personal property coverage Your homeowners policy also covers personal property, which includes property that you own other than land and buildings. Examples of personal property include furniture, clothing, audio equipment, as well as outdoor items like gardening tools. The standard basis that insurance companies use in determining how much to reimburse policyholders for their losses is known as actual cash value (ACV), or market value. ACV is equal to the replacement cost minus the depreciation. It represents the dollar amount you could expect to receive if you sold that item in the marketplace. The insurance company determines the depreciation based on a combination of objective criteria. The other option is to purchase replacement cost coverage for damaged or stolen property. This is generally more favorable, as it compensates you for the actual cost of replacing property without a reduction for depreciation.

Loss of use If you are unable to live in your home due to damage that is covered by the policy, you may receive reimbursement for living expenses while you wait for your dwelling to be repaired or you permanently relocate. There is a stated limit applied to loss-of-use coverage, but it can be increased by endorsement.

Liability coverage If you or another insured are found responsible for personal injury or property damage suffered by another person, your insurance company will cover the claim up to the limit stated in the policy. However, this is true only if carelessness or negligence, rather than intentional misconduct, caused the injury or damage. Your policy will also cover the cost of your legal defense if a lawsuit is filed.

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Medical payments to others If a nonresident requires medical assistance as a result of an injury suffered on or near your premises, your insurance will cover a portion of his or her medical expenses, up to the stated limit. Injuries that take place away from your premises are also covered, as long as you, another insured, a household employee, or your pet caused the injury.

Excess Liability (Umbrella) Insurance In today’s litigious society, no one is immune from potential lawsuits. Injured parties are commonly awarded judgments in excess of US$ 1,000,000. If your assets are insufficient to pay these claims, future earnings can be attached to satisfy the debt. The liability coverage under your homeowners and auto policies is your primary layer of protection. However, if you need additional protection, you will need to purchase an excess liability or “umbrella” policy. Personal umbrella liability protection is secondary coverage that works in conjunction with your primary policy. When the liability limit of your primary policy is exhausted, the umbrella policy will pay the balance of a liability claim against you up to the umbrella policy’s limit.

Disability Insurance Your health is your wealth Discussing one’s most valuable asset can be a challenge, especially when one typically thinks of their home(s), car(s), and other material possessions to be most valuable. However, for high-income-earning plastic surgeons, nothing could be further from the truth. If the time and money spent on medical training was viewed as an investment, the return on that investment would be the future income generated from your ability to perform plastic surgery. What is your income worth? Table 1 shows the potential earnings to age 65 with 3-percent compound increases. If you are a 35-year old plastic surgeon earning US$ 250,000, you will earn approximately US$ 11,893,853 over the next 30 years of your career.

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Table 1. Potential earnings for a plastic surgeon to age 65 with 3-percent compound increases (in USD). Age

$50,000

$75,000

$100,000

$150,000

$200,000

$250,000

30 35 40 45 50 55

$3,023,104 $2,378,771 $1,822,963 $1,343,519 $929,946 $573,194

$4,534,656 $3,568,156 $2,734,444 $2,015,278 $1,394,918 $859,790

$6,046,208 $4,757,541 $3,645,926 $2,687,037 $1,859,891 $1,146,387

$9,069,312 $7,136,312 $5,468,889 $4,030,556 $2,789,837 $1,719,581

$12,092,416 $9,515,083 $7,291,852 $5,374,074 $3,719,782 $2,292,775

$15,115,520 $11,893,853 $9,114,816 $6,717,593 $4,649,728 $2,865,969

So, what would happen if that ability was compromised due to an accident or illness? Where would the money come from and how long could you meet your financial obligations without a paycheck? Having a properly structured disability income insurance policy will make sure that you have the money you need in the event that you are too sick or too hurt to work.

The odds of becoming disabled Table 2. Probability of being disabled for 90 days or more before reaching age 65 (chances out of 1,000 individuals) for (a) men and (b) women. Age

# Disabled

Percentage

(a) Male 30 35 40 45 50 55 60

331 313 291 263 226 176 106

33.1% 31.3% 29.1% 26.3% 22.6% 17.6% 10.6%

(b) Female 30 35 40 45 50 55 60

566 517 452 375 293 210 119

Source: 1985 Commissioner’s Individual Disability Table A.

56.6% 51.7% 45.2% 37.5% 29.3% 21.0% 11.9%

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Duration of disability Table 3. Average duration of a long-term* disability at various ages (*lasting 90 days or more). Age 25 30 35 40 45 50 55

Duration 2 years, 2 months 2 years, 8 months 3 years, 1 month 3 years, 6 months 3 years, 11 months 4 years, 2 months 4 years, 5 months

Source: 1985 Commissioner’s Individual Disability Table A.

How policies are offered Disability insurance can be purchased on an individual or group basis. Group insurance is usually provided by an employer or purchased individually from a sponsoring medical association, such as the American Medical Association (AMA) or American College of Surgeons (ACS). Although initially low in cost, group policies have several limitations. The association or insurance company can cancel them, rates increase as you get older, and premiums are subject to adjustments based on the claims experience of the group. In addition, group and association contracts often contain restrictive definitions of disability as well as less generous contract provisions.

How much can you purchase? Disability insurance companies generally limit the amount of coverage that you can purchase to 60 percent of your earned income. However, there are special limits available to residents, fellows, and new-in-practice (generally, the first two years in practice) physicians. These beginning professional limits allow you to purchase coverage in excess of what your current earnings would normally warrant.

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Increased monthly benefits and beginning professional limits For many years, the maximum benefit available to physicians who performed invasive procedures was limited to US$10,000 or US$15,000 per month, regardless of their earned incomes. As a result, securing a reasonable amount of disability insurance protection had become a significant challenge for highly compensated physicians. However, several companies now issue policies with monthly benefits of up to US$15,000 for surgeons as well as participate with other carriers’ individual coverage of up to US$20,000. Additionally, monthly benefits available to residents, fellows, and beginning professionals have also increased substantially.

The cost of disability insurance Premium rates are based on several factors including the insured’s age, gender, and monthly benefit amount, the optional riders selected, the state in which the policy is issued, and the occupational classification assigned to your medical specialty by the insurance company. The younger you are when the purchase is made, the lower the cost of the insurance. Therefore, you should purchase a policy as early in your career as possible to lock in lower premium rates.

Watch out for Florida and California It is not unreasonable to think that most plastic surgeons would rather be at the beach then in the operating room (OR). Therefore, claims experience has been extremely poor in these states and policies are typically 10–20 percent more expensive with less liberal contract provisions. As a result, if you are not in Florida or California now but plan on moving or returning to either one of these states, you should purchase your policy before you get there. You will be able to lock into lower premium rates for your initial coverage as well as for any future additions that you make to your policy.

What to look for in a policy The renewability provision is one of the main features of an individual disability policy. This provision defines your rights when it comes to keeping your policy in force. If you purchase a policy that is non-cancelable and guaranteed renewable, the insurance company cannot cancel your policy, increase your premiums, or change any provisions of your policy — even if the issuing company no longer offers similar policies in the future.

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“Own-occupation” definition of disability “Own-occupation” is the most liberal definition of total disability. A policy with this definition pays benefits if you are disabled and “unable to perform the substantial and material duties of your regular occupation”. Therefore, if an accident or sickness prevents you from performing plastic and reconstructive surgery, you would be considered totally disabled and eligible to receive full disability benefits. Furthermore, any income earned while working in another occupation or medical specialty would not reduce your monthly disability benefits. Beware of the agent who tells you that this definition of disability is “no longer available” or that you “don’t need it”. They may be telling you this because their company no longer offers it and/or they do not have the ability to sell it to you!

Residual disability rider While “own-occupation” is the most liberal definition of disability, it is not the end-all. What happens if your physician says that you can still perform plastic and reconstructive surgery but he or she requires that you work fewer days per week, less hours per day, or limits the number of surgeries that you can perform? While the “own-occupation” definition of disability protects your specialty, it does not adequately protect your income. Therefore, a residual disability rider must be added to your policy. Generally, to qualify for residual disability benefits, you must experience an income loss of 20 percent or more compared to your pre-disability earnings. Additionally, if your loss of earnings is greater than 75 or 80 percent, then 100 percent of your monthly disability benefit will be paid. Unfortunately, without this rider, the policy will pay “all or nothing” depending upon your ability to perform your duties as a plastic surgeon. This rider is also extremely important if you are totally disabled first and then return to your practice with a limited schedule, or if you never meet the definition of “total” disability found in your policy but experience a substantial loss of income due to an accident or sickness.

Cost of living adjustment (COLA) rider A cost of living adjustment (COLA) rider is designed to help your benefits keep pace with inflation after your disability has lasted for 12 months.

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This adjustment can be a flat percentage or tied to the consumer price index. Although expensive, this rider can provide significant increases to your monthly benefit if you are disabled early in your career. However, if cutting the cost of coverage is an issue, this might be the first optional rider to consider excluding from your policy as it can add 15 percent or more to your premium.

Future purchase option rider This rider is a must for young physicians. It allows you to apply for additional disability coverage, regardless of your health, as your income rises. Essentially, you are paying for the right to increase your policy’s monthly benefit without doing another exam, blood test, or urine test, or answering any medical questions. This guarantees that any medical conditions that develop after your original policy’s purchase would be fully covered and not subject to new medical underwriting.

Reduce the tax burden Personal disability insurance benefits are generally received on an income taxfree basis. However, if your practice provides you with coverage and takes an income tax deduction for the premiums paid on your behalf, the benefits are taxable when received. This means that you could lose as much as 50 percent of your benefits at the time you need them most. A better alternative would be to forego the tax deduction or have your practice give you a bonus equal to the policy’s premium at the end of the year. You will owe taxes on the bonus, but the practice retains its tax deduction and your benefits remain income tax-free.

Other disability policies to consider Disability insurance for retirement contributions Group and individually owned disability insurance plans are traditionally designed to replace only a portion of your current income. They are not meant to replace monthly contributions into group, hospital, or individual defined contribution (DC) retirement plans. However, a few disability insurers have developed programs designed specifically to replace lost retirement savings. The most effective approach uses an individual disability insurance policy that pays benefits into a trust set up specifically for the benefit of the insured

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individual. If a disability occurs, monthly benefits from the policy are paid directly into the trust. The trustee, with input from the disabled individual, then invests the monies received into mutual funds or individual securities until the insured (the trust beneficiary) reaches the age of 65. At that point, the trust’s assets are distributed to the individual to provide supplemental income for retirement. Policy benefits and trust earnings are subject to the normal rules that govern the taxation of trusts and individual disability income insurance. Trust earnings are generally taxable to the insured as the beneficiary of the trust. As mentioned previously, disability insurance policy benefits are either taxable or tax-free, depending on who paid the premiums.

Disability overhead expense insurance If you are a plastic surgeon in private practice and are responsible for some or all of the monthly expenses to keep your office open, you should consider purchasing a business overhead expense (BOE) policy in addition to a personal disability policy. A BOE policy provides reimbursement for the expenses of operating your practice if you (or one of your partners) are sick or hurt and cannot work. These expenses may include staff salaries, office rent or mortgage payments, utilities, malpractice insurance premiums, and other fixed costs normal to the operation of your business. In addition, some policies may even provide benefits for you to hire another plastic surgeon to replace you or a colleague during a disability. This way, the practice’s expenses are covered until either you or the disabled partner returns to the practice, or your share or your disabled partner’s share in the practice can be sold. Premium payments for BOE insurance are tax-deductible as a reasonable and necessary business expense (Rev. Rul. 55-264, 1955-1 C.B. 11). As such, benefits received during disability, while taxable upon receipt, are used to pay practice-related expenses, which are tax-deductible. The net tax result is a “wash”.

Disability buy-out insurance Physicians who are partners in a group practice will also want to consider a policy known as disability buy-out (DBO) insurance. Due to the specific skills each surgeon brings to a medical practice, attorneys often recommend a buy–sell agreement which details what is to occur upon the death, disability, or retirement of a partner/owner. With a proper buy–sell agreement in place before disability occurs, hard feelings and conflicts of interest that can result from a partner’s disability can be avoided. The agreement should set forth the

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purchase price to be paid or should provide a formula for determining the price. Perhaps most importantly, the agreement must have a mechanism for providing the funds needed to make the purchase. DBO insurance is designed to help provide funds for the purchase of a disabled partner’s ownership interest when, due to a lengthy disability, he or she is no longer capable of being a productive member of the practice. Furthermore, in conjunction with the disabled partner’s individual disability income insurance and BOE insurance, a DBO policy will allow the practice to continue to generate an income for the healthy partner, while the disabled partner is supported by the benefits from his or her individual disability policy. Any continuing share of business expenses is reimbursed by the disabled partner’s BOE policy until the buy-out is in effect. Premiums paid for DBO policies are never tax-deductible, whether paid by corporations, partnerships, or individuals. Therefore, benefits would be received on a tax-free basis.

Life Insurance A life insurance policy is a contract with an insurance company that will pay your beneficiary a sum of money in the event of your death. Due to its potential to rapidly appreciate in value, along with its tax-favored status, it can be used to solve even the most complex financial planning challenges.

Types of life insurance There are many types of life insurance policies available in today’s market. However, most policies fall into one of four categories: term life, whole life, universal life, and variable universal life.

Term life Term life insurance is usually the most appropriate for resident physicians or plastic surgeons in the early stages of their careers. It allows you to purchase the largest death benefit while minimizing your (initial) premium outlay. Term insurance offers pure protection and does not build cash value. You should purchase a substantial amount of term insurance when you are young to protect your future insurability. You can always convert your policy to permanent insurance at a later date, regardless of your health, if your policy contains a conversion option.

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When you purchase a term policy, you are buying coverage for a specified period of time. If you die within the term of the policy, the insurance company will pay the death benefit to your beneficiary. The majority of term policies purchased today have fixed premium rates for 5, 10, 15, 20, 25, or even 30 years. A large number of term policies allow you to convert some or all of the death benefit of your term policy to other forms of permanent insurance, regardless of your future health. This is an extremely valuable feature for residents, fellows, and newly practicing plastic surgeons, whose incomes and financial situation will change dramatically. Ideally, if your goal is to convert to whole life insurance, you should only purchase your term policy from a company that has a reputation for offering a broad array of competitive whole life insurance policies.

Whole life In addition to providing a death benefit, Whole life policies build cash value. When you purchase a Whole life policy, you traditionally pay a fixed premium for the life of the policy. Part of your premiums go to the insurance company to cover the cost of the death benefit element of the policy, while the balance is invested in the insurance company’s general account. The cash value of a life insurance policy grows on a tax-deferred basis and can be accessed through policy loans or by surrendering the contract. The level premium structure, guaranteed rate of return, and guaranteed death benefit make whole life insurance an attractive choice for some buyers. Unlike the following policies below, the only “moving part” in a whole life insurance policy is its dividend. Whole life insurance offers the ability to provide value in excess of its guarantees through dividends. Dividends are paid to the policyholders if declared by the board of directors. When dividends are declared, they have three components: • The insurance company’s investment rate of return in excess of the guaranteed return promised in the policy; • Mortality experience which is better than that which is guaranteed in the policy; and • Expenses of policy administration which are less than the cost guaranteed in the policy.

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In addition, whole life insurance is considered an “exempt asset” in many states and is specifically protected from the claims of creditors, including malpractice claims. However, state laws vary widely when it comes to protecting whole life insurance. As a result, it is important to know whether or not your state exempts some, all, or none of the cash value in your policy. If you are in a state with an unlimited exemption, besides helping you accumulate wealth, it can play a vital role in your estate and asset protection plan. Another important aspect of a life insurance policy is the waiver of premium rider. This rider enables you to have the premiums of the policy paid for by the insurance company in the event of your disability. While most companies offer the waiver of premium on all types of life insurance, there is no more important application of this rider than with whole life insurance. In addition to providing for the continuation of life insurance protection, the savings component of the policy is also maintained as cash values continue to build. This characteristic provides a unique benefit to the policyholder that cannot be matched by even the best stocks, bonds, or mutual fund investments. Unfortunately, the advantages of whole life insurance have been minimized or often overlooked by the financial services industry. As a result, you may have read or been taught that you should “buy term and invest the difference”. This strategy calls for term insurance to be owned for a period of time and then canceled when your other assets are considered to be “adequate”, typically at the start of retirement. What you are not taught is that this strategy simply does not work! In fact, by properly coordinating and integrating whole life insurance with other assets, you can enjoy increased access, flexibility, and control over your wealth throughout your lifetime. This culminates with retirement options that may otherwise not be available. It is for these reasons that whole life insurance should be at the heart of a physician’s financial plan.

Universal life Universal life insurance was developed in the late 1970s to overcome some of the “disadvantages” of term and whole life insurance. When your premiums are paid, expense, insurance, and maintenance charges are deducted; and the remainder is invested in the insurance company’s general account. Most universal life policies contain a guaranteed minimum interest rate that will be applied to the cash value. Any returns above the guaranteed minimum will vary with the performance of the insurance company’s portfolio. Universal life insurance does not allow you to decide how your premiums are invested.

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However, as the policy owner, you have the ability to vary the amount and frequency of your premium payments. This type of policy is best suited for someone looking for the flexibility to change their premium payments if their financial situation changes. However, if interest rates decline or if the insurance company’s mortality or expenses increase, the crediting rate on the cash portion of the policy could decrease. This can lead to premium payments that are larger than expected to maintain the policy’s death benefit, thus causing you to reduce the policy’s death benefit to allow you to make the same premium payments or forcing you to borrow from your cash value to subsidize the premium payments you are making compared to the premium payments you should be making. Unfortunately, by coupling increasing insurance costs with a declining interest rate environment, policies can “blow up” or implode.

Universal life with a secondary no-lapse guarantee (SGUL) This policy is very similar to a traditional universal life policy; however, the insurance company guarantees that the death benefit on the policy will remain in effect even if the cash value goes to zero. This is known as a “secondary guarantee”. If the policy owner makes premium payments in a timely fashion, the policy’s death benefit is guaranteed to the age of 100 or longer. The advent of this policy can be attributed to a number of policies that did not perform as illustrated or “imploded”. Suddenly, what is old is new again. As a result of the poor state of the economy, some carriers are no longer offering this type of policy.

Variable universal life While whole life insurance provides the policy owner with guaranteed premiums, guaranteed cash values, and a guaranteed death benefit, this is not the case with a variable universal life insurance policy. Generally, premiums for a variable universal life insurance policy are only guaranteed for a limited period of time, there is no guaranteed death benefit, and there is no guaranteed cash value (as the policy owner decides how his or her cash value will be invested, retaining all investment risk).

Comparison of types of life insurance Should you consider an irrevocable life insurance trust? An irrevocable life insurance trust (ILIT) is a trust that is funded, at least in part, by life insurance policies or proceeds.

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Term Life Premium

Level

Flexible

Flexible

For life

For life

For life

Guaranteed

May be guaranteed, depending on policy Can be increased or decreased

May be guaranteed, depending on policy Can be increased or decreased; varies relative to cash value investment returns Not guaranteed

May increase with dividends

Cash value

None

Variable Universal Life

Guaranteed

Fluctuates with underlying investment performance (Continued)

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Universal Life

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Premiums start low, increase at each renewal Usually renewable until at least age 70; for some policies, up to age 95 Guaranteed

Whole Life

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Whole Life

Universal Life

Variable Universal Life

May be able to borrow up to 100% of total cash surrender value less annual loan interest rate

Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy) Yes

Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy) Yes

Insurance company determines cash value interest crediting rates based on current interest rate returns to the company

Cash value account growth depends upon the investment performance of the subaccounts you choose

Not applicable

No

No cash value account

Insurance company determines guaranteed cash value and declares dividends based on performance of its general investment portfolio

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Cash withdrawals allowed? Cash value account growth

Not applicable

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Generally, assets you own at death are subject to federal estate tax. This includes life insurance policies and proceeds. Estates in excess of the exemption amount (US$3.5 million in 2009) may have to pay estate tax at rates as high as 45 percent for estates of persons dying in 2009. As a result, your family may receive far less money from your life insurance than you anticipate. An ILIT can solve this problem, and may be especially beneficial if your estate would not have to pay estate taxes were it not for the inclusion of the policy proceeds.

How does it work? Because an ILIT is an irrevocable trust, policies and proceeds (and any other assets) held by the trust are considered to be owned by the trust and not by you or your spouse. Since you will not own the policy at your death, the proceeds will not be included in your estate. Typically, if you are considering the purchase of insurance, you (the grantor) create an ILIT by hiring an experienced estate planning attorney to draft the document and provide you with advice regarding complex legal issues. You then name the trustee(s) of the trust as well as the beneficiaries (usually, his or her spouse and/or children) of the trust. The trustee then applies for life insurance on your life and designates the ILIT as both owner and beneficiary of the policy.

Funding the ILIT The trustee opens a checking account in the name of the ILIT. The grantor gives the trustee funds for the initial premium, which the trustee deposits into the ILIT checking account. The trustee writes a check from the ILIT checking account, pays the premium to the insurance company, and then coverage becomes effective. As premiums come due, the grantor and trustee repeat the same procedure. Unfortunately, transfers of cash to an ILIT may be subjected to gift tax. However, you can minimize or eliminate your actual gift tax liability by structuring the transfer so that it qualifies for the annual gift tax exclusion. Generally, a gift must be a present interest gift in order to qualify for the exclusion, which allows you to gift US$13,000 (in 2009) per year per beneficiary tax-free. A present interest gift means that the recipient is able to immediately use, possess, or enjoy the gift. Gifts made to a trust are usually considered gifts of future interests and do not qualify for the exclusion unless they fall within an exception.

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One such exception is when the beneficiaries are given the right to demand, for a limited period of time, any amounts transferred to the trust. This is referred to as Crummey withdrawal rights or powers. The beneficiaries (or their parents/guardians) must also be given notice of their rights to withdraw whenever you transfer funds to the ILIT, and they must be given a reasonable time to exercise their rights. The trustee waits until this time frame passes before remitting the funds to the insurance company. This notice procedure serves to qualify the gift for the annual gift tax exclusion. At the grantor’s death, the ILIT trustee collects the total proceeds and distributes them to the beneficiaries according to the terms of the trust. Of course, so as not to defeat the purpose of the trust, your beneficiaries should not actually exercise their Crummey withdrawal rights, but should let their rights lapse. There are many reasons to use a trust rather than have an individual own your life insurance policy. For example, having your spouse own the policy may defeat the purpose of the ILIT, as the proceeds will be subject to estate taxes in his or her estate. Having an adult, child, or any other individual own the policy may expose the policy or proceeds to that individual’s creditors, or may create disharmony among family members. An ILIT can accomplish some or all of the following: • Avoid inclusion of the proceeds in your (and your spouse’s) estate; • Make the cash liquidity provided by the total proceeds available to the estate of the insured; • Insulate the proceeds from estate taxes over multiple generations; • Provide professional management of the proceeds; • Protect the policy and proceeds from future creditors and potential ex-spouses; and • Provide incentives to beneficiaries.

The three-year (“contemplation of death”) rule You may have existing life insurance policies you want to transfer to an ILIT. While this is possible, it is not advisable because transferring existing policies triggers the three-year rule. This rule states that, if you transfer a life insurance policy to an ILIT within the three years preceding your death, all the proceeds will be brought back into your estate (for estate tax purposes) as if you never made the transfer.

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Introduction to Investment Planning In order to begin to invest, you must be able to save money. While it may be tempting to spend all of your disposable income on luxury items, investing even a small amount of money consistently can produce significant returns over time. Whenever an individual takes cash and puts it to work in any form of investment, he or she does so with the anticipation of receiving a return on their money. The possibility that an investment will return less than expected is known as “investment risk”. For this reason, before you begin investing, you should do the following: • Establish an emergency fund — You should have 3–6 months of your expenses in an account such as a checking account, savings account, or money market account that can be easily accessed without penalty. • Pay off your debts — Generally, it makes more sense to pay off high-interestrate debts (such as credit card debt) than putting money into riskier investments. • Purchase proper insurance — This is the first line of defense against financial loss. Having the correct type and amount of insurance will allow your monies to remain invested. Therefore, before investing, you should review your automobile, homeowners, excess liability (umbrella), malpractice, health, disability, and life insurance policies before investing. • Consider individual retirement accounts (IRAs) and/or other employersponsored plans — Consider investing in these types of plans prior to investing outside of them, especially if there is an employer “match”. It may be helpful to think of investment planning as a seven-step process: 1. 2. 3. 4. 5. 6. 7.

Defining your investment goals and objectives; Understanding your investment personality; Designing an investment portfolio; Evaluating markets and investments; Selecting specific investments; Managing and monitoring the portfolio; and Rebalancing or redesigning the portfolio, if needed.

Defining your investment goals and objectives Prior to investing your money, you should spend some time defining your personal financial goals and objectives. First, what is the time period for you to accomplish your goals? Second, what is your investment risk tolerance?

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Third, what are your liquidity needs? Finally, what are the most appropriate investments available to help you achieve your goals? In addition to these questions, the following will also help you define your goals and objectives: • How much money do you have available to invest? • What is your source(s) of investment funds? • Do you have a lump sum, or will you be investing regularly and systematically? • What rate of return would you like your investments to generate? • What is your current income tax bracket? • What is your age? • What is your current income? • What do you expect your income to be in the future? • What are your current expenses? • Do you believe your expenses will remain the same, increase, or decrease in the future? • How do you feel about losing money?

Understanding your investment personality Risk is the biggest issue in the investment planning process and, therefore, is a key concept you need to understand. Do not proceed until you fully comprehend all of its ramifications and have determined your own risk tolerance. There is also more than one type of risk. An investor must understand each type of risk, and use that knowledge to create a portfolio of investments that balances the level of risk assumed with the desired investment return.

Designing an investment portfolio One of the most important decisions in building a successful investment portfolio is asset allocation. Asset allocation is not about picking individual securities. Rather, it focuses on combining different asset classes such as stocks, bonds, and cash equivalents, whose risk and return potentials complement each other to provide a steadier pattern of returns. This is because different types of investments tend to behave differently under the same market conditions (see Fig. 1). Using asset allocation, you identify the asset classes that are appropriate for you and decide the percentage of your investment dollars that should be allocated to each class (e.g., 70 percent to stocks, 20 percent to bonds, 10 percent to cash equivalents).

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Fig. 1.

Framework for designing an investment portfolio.

You can also diversify within a single asset class by blending styles. Stocks and bonds are not the only pairing that allows investors to exploit low correlations. Historically, investing in different equity styles (growth vs. value), capitalizations (large cap vs. small cap), and equity markets (U.S. vs. international) has provided opportunities to enhance returns while reducing risk.

Stocks Stocks are equity securities. When you buy shares of stock in a corporation, you become one of its owners. You can make money from stocks in one of two ways: • The issuing company shares its profits with you in the form of dividends; or • You sell your stock for a greater amount than you paid for it.

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Stocks can cost any amount. A stock’s price reflects its market value or what other investors are willing to pay for it. Many factors, such as general economic conditions, as well as the outlook for the specific company or industry can influence investors’ attitudes. A stock’s price can also increase or decrease in anticipation of future events that might affect the company, such as changes in management, changes in government regulations and/or laws, or new product developments. Although past performance is no guarantee of future results, stocks have historically provided a higher average annual rate of return than other investments, including bonds and cash equivalents. However, stocks are generally more volatile than bonds or cash equivalents. Investing in stocks may be appropriate if your investment goals are long-term goals.

Bonds Bonds are debt securities. Unlike stocks, which make you part owner of a company, buying bonds makes you a creditor. Bonds are loans that you make to corporations or governments. Bonds are called fixed income securities because they offer a steady stream of interest income. Bonds generally pay a higher income than short-term investments such as money market funds, certificates of deposit (CDs), and savings accounts. Historically less volatile than stocks, bonds do not provide as much opportunity for growth compared to stocks. They are sensitive to interest rate changes: when interest rates rise, bond values tend to fall; and when interest rates fall, bond values tend to rise. Because bonds offer fixed interest payments at regular intervals, they may be appropriate if you desire an income stream from your investments.

Cash equivalents Cash equivalents (or short-term instruments) such as money market funds offer a lower potential for growth than other types of assets, but are the least volatile. They provide easier access to funds than longer-term investments, and may be appropriate if your investment goals are short-term goals. The major categories of investments available for inclusion in an asset allocation strategy are shown in Table 5.

Evaluating markets and investments In step 3, you created an asset allocation strategy. Now, you need to learn about the costs, characteristics, and advantages and disadvantages of the types of

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Major categories of investments.

Investment Category Cash alternatives (liquid assets) Debt instruments Treasury securities Equity investments Insurance-based investment products Real estate Hard assets Other investments

Examples of Investment Bank CDs, U.S. savings bonds, Treasury bills Bonds, mortgage-related securities Issued by agencies of the U.S. government Stocks, mutual funds Annuities, cash value life insurance Direct investments and via trusts Metals, collectibles Commodities, warrants, options

investments in each category to see which ones will best meet your individual goals and objectives.

Selecting specific investments The next step is to choose investments for your portfolio that match your asset allocation strategy. If, like many other investors, you do not have the time, expertise, or capital to build a diversified portfolio of individual securities on your own, you may want to consider investing in mutual funds.

Managing and monitoring the portfolio Once your investment plan is set in motion, it needs continual managing and monitoring. You should review your plan to make sure that it is on track on a monthly, quarterly, semi-annual, or annual basis, depending on the types of investments you own.

Rebalancing or redesigning the portfolio, if needed A portfolio that is not performing as expected, or significant changes in the market or your personal situation, can trigger the need to analyze and/or change your existing investment plan. Rebalancing involves restoring your original asset allocation by shifting your funds among investment categories to regain the ratios you decided on when you first designed your portfolio. Disciplined rebalancing helps to keep your portfolio well positioned for the long run. If you ignore rebalancing, your portfolio allocations can shift in ways you never intended — and so can your risks.

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Retirement Planning: The Basics It is common to discuss desired annual retirement income as a percentage of your current income. Depending on who you are talking to, that percentage could be anywhere from 60 to 90 percent, or even more. The appeal of this approach lies in its simplicity. The problem, however, is that it does not account for your specific situation. To determine your specific needs, you may want to estimate your annual retirement expenses. Use your current expenses as a starting point, but note that your expenses may change dramatically by the time you retire. If you are nearing retirement, the gap between your current expenses and your retirement expenses may be small. If retirement is many years away, the gap may be significant, and projecting your future expenses may be more difficult. Remember to take inflation into account. According to the Consumer Price Index for All Urban Consumers (CPI-U) data published annually by the U.S. Department of Labor, the average annual rate of inflation over the past 20 years has been approximately 3 percent. Also keep in mind that your annual expenses may fluctuate throughout retirement. For instance, if you own a home and are paying a mortgage, your expenses will drop if the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses will tell you roughly how much yearly income you will need to live comfortably.

Calculate the gap Once you have estimated your retirement income needs, take stock of your estimated future assets and income. If estimates show that your future assets and income will fall short of what you need, the rest will have to come from additional personal retirement savings.

Figure out how much you will need to save By the time you retire, you will need a nest egg that will provide you with enough income to fill the gap left by your other income sources. But exactly how much is enough? The following questions may help you find the answer: • At what age do you plan to retire? The younger you retire, the longer your retirement will be, and the more money you will need to carry you through it.

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• What is your life expectancy? The longer you live, the more years of retirement you will have to fund. • What rate of growth can you expect from your savings now and during retirement? Be conservative when projecting rates of return. • Do you expect to dip into your principal? If so, you may deplete your savings faster than if you just live off investment earnings. Build in a cushion to guard against these risks.

Use the right savings tools Employer-sponsored retirement plans that allow employee deferrals are powerful savings tools. These plans often include employer-matching contributions and should be your first choice when it comes to saving for retirement. As these will be covered in the next chapter, we will not discuss employersponsored retirement plans in this section.

Common factors affecting retirement income When it comes to planning for your retirement income, it is easy to overlook some of the common factors that can affect how much you will have available to spend. If you do not consider how your retirement income can be impacted by investment risk, inflation risk, long-term care, catastrophic illness, and/or taxes, you may not be able to enjoy the retirement you envision.

Investment risk Different types of investments carry with them different risks. Sound retirement income planning involves understanding these risks and how they can influence your available income in retirement. Investment risk or market risk is the risk that fluctuations in the securities market may result in the reduction and/or depletion of the value of your retirement savings. If you need to withdraw from your investments to supplement your retirement income, two important factors in determining how long your investments will last are the amount of withdrawals you take and the growth and/or earnings your investments experience. You might base the anticipated rate of return of your investments on the presumption that market fluctuations will average out over time, and estimate how long your savings will last based on an anticipated average rate of return. Unfortunately, the market does not always generate positive returns. Sometimes, there are periods lasting for a few years or longer when the market

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provides negative returns. During these periods, constant withdrawals from your savings combined with prolonged negative market returns can result in the depletion of your savings far sooner than planned. Reinvestment risk is the risk that proceeds available for reinvestment must be reinvested at an interest rate that is lower than the rate of the instrument that generated the proceeds. This could mean that you have to reinvest at a lower rate of return, or take on additional risk to achieve the same level of return. This type of risk is often associated with fixed interest savings instruments such as bonds or bank CDs. When the instrument matures, comparable instruments may not be paying the same return or a better return as the matured investment. Interest rate risk occurs when interest rates rise and the prices of some existing investments drop. For example, during periods of rising interest rates, newer bond issues will likely yield higher coupon rates than older bonds issued during periods of lower interest rates, thus decreasing the market value of the older bonds. You might also see the market value of some stocks and mutual funds drop due to interest rate hikes because some investors will shift their money from these stocks and mutual funds to lower-risk fixed investments paying higher interest rates compared to prior years.

Inflation risk Inflation is the risk that the purchasing power of a dollar will decline over time, due to the rising cost of goods and services. If inflation runs at its historical average of about 3 percent, the purchasing power of a given sum of money will be cut in half in 23 years (see Table 6). Therefore, to outpace inflation, you should try to have some strategy in place that allows your income stream to grow throughout retirement.

Long-term care expenses Long-term care may be needed when physical or mental disabilities impair your capacity to perform everyday basic tasks, also known as activities of daily living (ADLs). As life expectancies increase, so does the potential need for long-term care. Moreover, according to 2007 data from the National Clearinghouse for Long-Term Care Information, the cost of care is growing at a rate faster than inflation. Paying for long-term care can have a significant impact on retirement income and savings, especially for the healthy spouse. While not everyone needs long-term care during their lives, ignoring the possibility of such care

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Effect of inflation (in USD).

Nominal Value

Inflation-Adjusted Value

Difference

$50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000

$48,544 $47,130 $45,757 $44,424 $43,130 $41,874 $40,655 $39,470 $38,321 $37,205 $36,121 $35,069 $34,048 $33,056 $32,093 $31,158 $30,251 $29,370 $28,514 $27,684 $26,877 $26,095 $25,335

$1,456 $2,870 $4,243 $5,576 $6,870 $8,126 $9,345 $10,530 $11,679 $12,795 $13,879 $14,931 $15,952 $16,944 $17,907 $18,842 $19,749 $20,630 $21,486 $22,316 $23,123 $23,905 $24,665

and failing to plan for it can leave you or your spouse with little or no income or savings if such care is needed. Even if you decide to buy long-term care insurance, do not forget to factor the premiums for the coverage into your retirement income needs.

Costs of catastrophic care As the number of employers providing retirement health care benefits dwindles and the cost of medical care continues to spiral upward, planning for catastrophic health care costs in retirement is becoming more important. If you recently retired from a job that provided health insurance, you may not fully appreciate how much health care really costs. Despite the availability of Medicare coverage, you will likely have to pay for additional health-related expenses out-of-pocket. You may have to pay the rising premium costs of Medicare optional Part B coverage (which helps

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pay for outpatient services) and/or Part D prescription drug coverage. You may also want to buy supplemental Medigap insurance, which is used to pay for Medicare deductibles and copayments and to provide protection against catastrophic expenses that either exceed Medicare benefits or are not covered by Medicare at all. Otherwise, you may need to cover Medicare deductibles, copayments, and other costs out-of-pocket.

Taxes The effect of taxes on your retirement savings and income is an often overlooked but significant aspect of retirement income planning. Taxes can eat into your income, significantly reducing the amount you have available to spend in retirement. It is important to understand how your investments are taxed. Some types of income, like interest, are taxed at ordinary income tax rates. Other types of income, like long-term capital gains and qualifying dividends, currently benefit from special (generally lower) maximum tax rates. Some specific investments, like certain municipal bonds, generate income that is exempt from federal income tax. You should understand how the income generated by your investments is taxed, so that you can factor the tax into your overall projection. Taxes can impact your available retirement income, especially if a significant portion of your savings and/or income comes from tax-qualified accounts such as pensions, 401(k) plans, and Traditional IRAs, since most (if not all) of the income from these accounts is subject to income taxes. Understanding the tax consequences of these investments is vital when making retirement income projections.

Have you planned for these factors? When planning for your retirement, consider these common factors that can affect your income and savings. While many of these same issues can affect your income during your working years, you may not notice their influence because you are not depending on your savings as a major source of income. However, investment risk, inflation, health-related expenses, and taxes can greatly affect your retirement income.

The Roth IRA: The Government’s Gift to Residents and Fellows Although it has been around since 1998, and is one of the best financial tools available to (most) plastic surgery residents and fellows, the Roth IRA

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continues to be underutilized. Unfortunately, all too often, it is not until after plastic surgeons complete their training — and no longer qualify — do they desire to try to take advantage of the benefits that a Roth IRA provides.

What is a Traditional IRA? A Traditional IRA is an individual retirement account that allows you and your spouse to save for retirement by sheltering funds from taxation until they are withdrawn. The maximum amount that may be deducted is restricted, however, if you or your spouse are participating in an employer-sponsored retirement plan. If this is the case, depending on the level of modified adjusted gross income (MAGI), a deduction may be allowed for all, none, or only a portion of an IRA contribution. If you are covered by an employer-sponsored retirement plan and your MAGI exceeds certain established thresholds, your deduction for your Traditional IRA contribution is reduced or eliminated as shown in Table 7.

What is a Roth IRA? A Roth IRA is an individual retirement account, named after the late Senator William V. Roth, Jr. (R-Delaware), that allows you and your spouse to make non-deductible contributions to save for retirement. However, rather than growing on a tax-deferred basis, all “qualified” distributions are made on an income tax-free basis. Contributions may be made to both Traditional and Roth IRAs in the same year, but are subject to the total annual limits. A Roth IRA, like a Traditional IRA, is not itself an investment, but a taxadvantaged vehicle in which you can hold some of your investments including (but not limited to) mutual funds, stocks, bonds, futures, options, CDs, or even money market funds . You need to decide how to invest your Roth IRA dollars based on your own tolerance for risk and investment philosophy. How Table 7.

Traditional IRA tax deduction limits (in USD).

If your 2009 federal income tax filing status is: Single or head of household Married filing jointly or qualifying widow(er) Married filing separately

Your IRA deduction is reduced if your MAGI is between: $55,000–$65,000 $89,000–$109,000 (combined) $0–$10,000

Your IRA deduction is eliminated if your MAGI is: $65,000 or more $109,000 or more (combined) $10,000 or more

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fast your Roth IRA dollars grow is largely a function of the investments you choose to fund the IRA. For 2009, an individual may contribute the lesser of US$5,000 or 100 percent of compensation for the year to a Traditional and/or Roth IRA. For a married couple, an additional US$5,000 may be contributed on behalf of a lesser-earning (or nonworking) spouse, using a spousal account. Additionally, if an IRA owner is age 50 or older, he or she may contribute an additional US$1,000 (US$2,000, if your spouse is also age 50 or older). As with many tools that offer tax advantages, Congress has limited who can contribute to a Roth IRA based upon income. A taxpayer can only contribute the maximum amount if their MAGI is below a certain level. Otherwise, a phase-out of allowed contributions runs throughout the MAGI ranges as shown in Table 8. Once the MAGI hits the top of the range, no contribution is allowed at all. However, once a Roth IRA is established, the balance in the account remains tax-sheltered, even if the taxpayer’s income rises above the threshold. The thresholds are just for annual eligibility to contribute, not for eligibility to maintain an account.

When and to which IRA should you contribute? If you want to make a Traditional or Roth IRA contribution for the year, you have until the due date of that year’s federal income tax return to do so. For most people, this is April 15 of the following year. However, if you contribute to your Traditional or Roth IRA after December 31, you should tell the IRA trustee or custodian for which year the contribution is being made. For example, if you make a contribution in February 2010 for the 2009 tax year, you should clearly identify the contribution as being made for the “prior year”, Table 8. If your 2009 federal income tax filing status is: Single or head of household Married filing jointly or qualifying widow(er) Married filing separately

Roth IRA contribution limits (in USD). Your Roth IRA contribution is reduced if your MAGI is: More than $105,000 but less than $120,000 More than $166,000 but less than $176,000 More than $0 but less than $10,000

You cannot contribute to a Roth IRA if your MAGI is: $120,000 or more $176,000 or more $10,000 or more

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in this case 2009. Otherwise, the trustee or custodian may assume that the contribution is for 2010 (the year in which it is received) and report it as such. Also note that the contribution deadline is not extended by any extension you may receive to file your income tax return. Therefore, if you obtain an automatic four-month extension, while you may have additional time to file your tax return, you do not have any additional time to make a Traditional or Roth IRA contribution. If you are like me and believe taxes will be higher in the future compared to where they are now, you should probably consider a Roth IRA instead of a Traditional IRA. If we look at the history of income taxes from 1913 to 2006, the average highest marginal individual income tax rate is 60.3 percent (see Fig. 2). With the ongoing “war on terror”, aging “baby boomers” drawing on Social Security benefits, endless bailout plans, an increasing budget deficit, and a host of other factors, what do you think is going to happen to tax rates in the future? If you are a skeptic like me, you would probably rather pay taxes today so as to have the ability to pay less in taxes during your retirement. So why defer income when your tax bracket is low to pay taxes when your bracket is high? Isn’t that “reverse tax planning”? Therefore, plastic surgery residents, fellows, and others who qualify should look to take advantage of the Roth IRA while it is available to them based on their incomes.

Fig. 2.

Top U.S. Federal marginal income tax rate from 1913 to 2009.

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Withdrawing your money A withdrawal from a Roth IRA (including both contributions and investment earnings) is completely tax-free (and penalty-free) if (1) it is made at least five years after you first establish any Roth IRA, and (2) one of the following also applies: • You have reached age 59 1/2 by the time of the withdrawal. • The withdrawal is made due to qualifying disability. • The withdrawal is made for first-time homebuyer expenses (US$10,000 lifetime limit). • The withdrawal is made by your beneficiary or estate after your death. Withdrawals that meet these conditions are referred to as “qualified distributions”. If the above conditions are not met, any portion of a withdrawal that represents investment earnings will be subject to federal income tax and may also be subject to a 10-percent premature distribution tax if you are under age 59 1/2.

Roth IRA strengths Unlike Traditional IRAs, you can contribute to a Roth IRA for every year that you have taxable compensation, including the year in which you reach age 70 1/2 and every year thereafter. The Internal Revenue Service (IRS) requires you to take annual required minimum distributions from Traditional IRAs beginning from when you reach age 70 1/2. These withdrawals are calculated to dispose of all the money in the Traditional IRA over a given period of time. In contrasts, Roth IRAs are not subject to the required minimum distribution (RMD) rule. In fact, you are not required to take a single distribution from a Roth IRA during your life (although distributions are generally required after your death). This can be a significant advantage in terms of your estate planning. You can even contribute to a Roth IRA if you are covered by an employer-sponsored retirement plan. Unlike a Traditional IRA where you make deductible contributions, your ability to contribute to a Roth IRA (or to make non-deductible contributions to a Traditional IRA) does not depend on whether you or your spouse is covered by an employer-sponsored retirement plan. The fact that one of you is covered by such a plan has no bearing on your allowable contribution to a Roth IRA. Finally, like a Traditional IRA, you do not have to make a contribution to your Roth IRA for any year unless you choose to. Within the limits on

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the amount that you can contribute each year, you can exercise complete discretion in deciding how much and when to save.

Summary As Roth IRAs tend to favor younger taxpayers who have a long period until retirement and those who expect to be in a higher tax bracket in the future, when funds are withdrawn, they should be one of the first financial planning strategies implemented by plastic surgeons. Remember that an IRA is not itself an investment, but a tax-advantaged vehicle in which you can hold some of your investments. Choosing specific investments to fund your IRA is an important decision, and should be an overall part of an integrated and coordinated financial plan. If you do not have the time, energy, or inclination to do this yourself, retain a qualified financial services professional. He or she will analyze your situation and help you select investments that are appropriate for your goals, risk tolerance, and time horizon.

Roth IRA Conversions — Planning for New Opportunities Regardless of whether you contribute directly to a Roth IRA, if your MAGI is US$100,000 or less, and you are single or married filing jointly, you can convert an existing Traditional IRA to a Roth IRA (you will have to pay income tax on the taxable portion of your Traditional IRA at the time of conversion). But if you are married filing separately or your MAGI exceeds US$100,000, you are currently are not allowed to convert a Traditional IRA to a Roth IRA.

What is changing? In 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) into law. The TIPRA repeals the US$100,000 income limit for conversions, and also allows conversions by taxpayers who are married filing separately. What this means is that, regardless of your filing status or how much income you earn, you will be able to convert a Traditional IRA to a Roth IRA. Although your ability to make deductible contributions to a Traditional IRA may be limited if you (or your spouse) are covered by an employer retirement plan and your income exceeds certain limits, any taxpayer, regardless

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of income level or retirement plan participation, can make non-deductible contributions to a Traditional IRA until age 70 1/2. If you are not doing so already, you can simply start making the maximum annual contribution to a non-deductible Traditional IRA. Starting in 2010, the rules changed to allow converting your Traditional IRA to a Roth IRA after making your non-deductible IRA contribution for that year. Keep in mind that you will only be taxed by the amount that the value of the account exceeds the non-deductible contributions you made over the years.

Is a Roth conversion right for you? The answer to this question depends on many factors, including your income tax rate, the length of time you can leave the funds in the Roth IRA without taking withdrawals, your state’s tax laws, and how you will pay the income taxes due at the time of conversion. A financial professional can help you decide whether a Roth conversion is right for you, and help you plan for this exciting new retirement savings opportunity.

Annuities An annuity is a contract between you (the purchaser or owner) and the issuer (usually an insurance company). Annuities are generally funded with aftertax dollars, but their earnings are tax-deferred (you pay tax on the portion of distributions that represents earnings). There is generally no annual limit on contributions to an annuity. A typical annuity provides income payments beginning at some future time, usually retirement. The payments may last for your life, for the joint life of you and a beneficiary, or for a specified number of years.

Fixed annuities Historically, fixed annuities were the only type of annuities that companies issued. A fixed annuity pays a fixed rate of interest, which could change periodically, on the money invested in the annuity. In many cases, the annuity issuer will pay a guaranteed minimum rate of interest on the annuity, but also hold out the possibility that it will pay a higher rate of interest if market conditions permit. To induce people to purchase fixed annuities, many issuers will also pay a much higher “bonus” interest rate for an initial period of time,

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typically for a year. Fixed annuities are conservative investments for individuals who prefer fixed rates of return on their investments.

Variable annuities Instead of receiving interest on the money invested in your annuity, you may choose a variable annuity that allows you to invest your annuity money in one or more investment subaccounts. The subaccounts invest in stocks, bonds, money market instruments, and other types of investments. Many variable annuity issuers may offer 6 to 10 different subaccounts. The annuity issuer will allow you to allocate your money among the different subaccounts in any way that you desire. Furthermore, most annuity issuers allow you to move money from one subaccount to another without incurring costs. With a variable annuity, the amount of earnings that will be credited to your annuity account will depend on the performance of the underlying subaccounts. Unlike a fixed annuity, you assume the investment risk. Table 9 shows the differences between fixed and variable annuities.

Equity-indexed annuities A third broad type of annuity is an equity-indexed annuity. This type of annuity is sort of a hybrid between a fixed annuity and a variable annuity. When you purchase an equity-indexed annuity, the issuer agrees to pay a return on your account that is tied to a stock market index — usually the S&P 500. However, the issuer also guarantees to pay you no less than a certain return in a given period if the return on that stock market index falls below that minimum percentage. Thus, if stocks do well, you earn above-average returns on your annuity; and if stocks fall in value, you will not lose money. One of the tradeoffs to an equity-indexed annuity is that the issuer will typically not pay you the full return on the equity index. Many equity-indexed Table 9.

Fixed vs. variable annuities. Fixed annuities

Variable annuities

Yes Yes No

Noa Yes Yes

No

Yes

Minimum guaranteed interest paid Minimum death benefit Possibility of losing principal due to fluctuation in investment values Multiple investment options a Unless fixed account option is available and elected.

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annuities have caps (e.g., the most the issuer will pay you is 12 percent per year even if the equity index does much better than that). Furthermore, many issuers will pay you only a certain percentage of any given return in the equity index; this is called the participation rate. Assuming a 75-percent participation rate, if the equity index goes up 10 percent in a year, then the issuer may only credit your account with 7.5 percent for that period. Thus, with an equityindexed annuity, you give up some of the upside potential for some protection on the downside.

Advantages and disadvantages of tax-deferred annuities An annuity can often be a great addition to your retirement portfolio. Here are some reasons to consider investing in an annuity: • Your investment earnings are tax-deferred as long as they remain in the annuity. • You do not pay income tax on those earnings until they are paid out to you. • An annuity is free from the claims of your creditors in most states. • If you die with an annuity, the accumulated value will pass to your beneficiary without having to go through probate. • Your annuity can be a reliable source of retirement income, and you have some freedom to decide how you will receive that income. • You do not have to meet income tests or other criteria to invest in an annuity. • You are not subject to an annual contribution limit, unlike IRAs and employer-sponsored plans. You can contribute as much or as little as you like in any given year. • You are not required to start taking distributions from an annuity at age 70 1/2. You can typically postpone payments until you need the income. However, annuities are not for everyone. Here are some potential drawbacks: • Contributions to nonqualified annuities are made with after-tax dollars and are not tax-deductible. • Once you have elected to annuitize (receive) payments, you are locked in. There is no flexibility to change your payment amount or to make discretionary withdrawals over and above the payment amount. • You can take your money from an annuity before you start receiving payments, but your annuity issuer may impose a surrender charge if you withdraw your money within a certain number of years after your original investment.

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• You may have to pay other out-of-pocket costs when you invest in an annuity (e.g., annual fees, investment management fees, insurance expenses). • You may be subject to a 10-percent federal penalty tax (in addition to any regular income tax) if you withdraw your money from an annuity before age 59 1/2, unless you meet one of the exceptions to this rule. • Investment gains are taxed at ordinary income tax rates, not at the lower capital gains tax rate. The bottom line is that, though tax considerations should not be your only investing concern, by putting your money in tax-advantaged savings vehicles and investments when appropriate, you will keep more money in your own pocket and put less in Uncle Sam’s.

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Qualified Retirement Plans∗ Richard A. Pope, CAP, RFC

R

etirement is sometimes referred to as the “golden years”. However, retirement is not very golden for those without enough money to retire comfortably. Longer life spans and growing concerns over the future of Social Security retirement benefits are just two reasons to be interested in sound retirement planning. For many Americans, qualified retirement plans are the keystone of retirement planning. Physicians study and train for years, but none of that training prepares them for retirement. Such ignorance can have serious repercussions at the end of a long career. Since retirement plan options can be overwhelming, this chapter will attempt to demystify the various terms and plans. The most important advice is to start investing in a retirement plan as early as possible. Even as a resident, you can open up an individual retirement account (IRA) and get some tax-deferred money compounding interest over the years.

Beyond Social Security The Social Security system provides significant retirement benefits for the vast majority of American workers. However, this program was never intended to be an individual’s sole means of support after the working years have ended. Recognizing the importance of retirement planning, the U.S. government has provided tax incentives for the creation of employer-sponsored retirement plans which qualify for favorable federal income tax treatment — hence, the name “qualified retirement plans”. Besides Social Security, qualified ∗ IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

473

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retirement plans are the only retirement plans available to small business owners like those in private practice. Those in residency training should start with an IRA or a Roth IRA, as these plans are the only things available for residents (no retirement plans are available for those waiting under sweatshop conditions).

Requirements of Qualified Retirement Plans Before a plan can qualify for tax-favored treatment, some basic requirements must be met. The plan must: • • • • •

be established by the employer in writing. be communicated to the employees. be for the exclusive benefit of employees and their beneficiaries. be permanent. prohibit the assignment or alienation of benefits, which refers to using retirement plan assets as collateral for a loan. This is prohibited. • meet certain minimum participation (for defined benefit plans only as of January 1, 1997), coverage, vesting, and funding standards. • not be discriminatory in favor of “highly compensated employees”. • adhere to rules regarding contribution and benefit limits. Certain qualified retirement plans must also provide for a qualified joint and survivor annuity (QJSA) as a benefit option for married plan participants. Let’s examine a few of these points in more detail.

Minimum participation requirements Certain employees may be excluded. Those who do not meet the plan’s minimum age and service requirements, non-resident aliens who receive no U.S.-source income, and union members whose retirement benefits have been the subject of good faith bargaining with the employer may be omitted in applying the minimum participation requirements.

Minimum vesting requirements To qualify, an employer-sponsored retirement plan must meet minimum vesting standards, which means that the participant’s accrued benefits or accrued allocations in the plan must become non-forfeitable within the time frames prescribed by federal income tax law. Employer matching contributions are currently subject to a more rapid vesting schedule than before.

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Maximum contribution limits Section 415 of the Internal Revenue Code (IRC) prescribes ceilings on: • the annual additions that may be made to a participant’s account in a defined contribution plan (such as a 401(k) plan, profit-sharing plan, or moneypurchase pension plan, terms which will be defined below); and • the annual benefit that may be provided by a defined benefit pension plan (explained later in detail).

Nondiscrimination requirements An employer retirement plan must pass nondiscrimination tests to qualify for federal income tax benefits. In broad terms, these are very technical and vary with the type of retirement plan. A detailed discussion is beyond the scope of this chapter.

Highly compensated employee A highly compensated employee (in whose favor a qualified retirement plan may not discriminate) is defined as someone who: • owns more than 5 percent of the employer’s business; or • received compensation of more than US$110,000 (2009, as indexed) in the preceding year and, if the employer so elects, is a member of the top-paid 20 percent group of employees. Top-Heavy Plans A retirement plan is considered “top-heavy” if more than 60 percent of the present value of the accrued benefits under the plan is for “key employees”, who are the same as highly compensated employees. Top-heavy defined contribution plans must make a minimum annual contribution on behalf of all non-key employees of the lesser of (1) 3 percent of compensation; or (2) the percentage of compensation at which contributions were made for key employees, including employer matching contributions and employee elective deferrals (specifically, 401(k) deferrals) that are treated as employer contributions. Top-heavy defined benefit plans must provide a minimum annual benefit to all non-key employees of the lesser of (1) 20 percent of compensation, or (2) 2 percent of compensation multiplied by the employee’s years of service.

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Minimum funding requirements Defined benefit pension plans, money-purchase pension plans, and target benefit plans must satisfy minimum funding requirements. Defined benefit plans must be set up on an actuarially sound basis which assures that past service liabilities are adequately funded and that experience investment gains and losses and/or any changes in actuarial assumptions are factored into the calculation of the employer’s contributions. Calculating investment gains and losses are beyond the scope of this chapter, but physicians can seek the expertise through a combination of actuaries, financial advisors, and third-party administrators.

Qualified plans can have IRA feature Effective for plan years beginning on or after January 1, 2003, certain employer retirement plans that permit voluntary employee contributions may elect to set up Traditional or Roth IRA accounts or annuities, to which employees may contribute under the plan.

Benefits for Employers For employers, reasons for implementing a qualified retirement plan go far beyond securing federal income tax benefits for the business and its employees. Qualified retirement plans can help businesses to: • recruit high-quality employees; • retain their services; and • enhance good employer-employee relationships. When it comes to attracting and keeping good employees, firms without qualified retirement plans may be at a competitive disadvantage to those with these plans in place. Any disadvantages to offering qualified retirement plans will depend on each individual business and on the results of feasibility studies.

Federal income tax benefits of qualified retirement plans Let’s take a closer look at the specific federal income tax benefits of qualified retirement plans to see why these plans are so popular among employers and employees in all types of businesses.

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Contributions Employer contributions to a qualified retirement plan are generally immediately tax-deductible by the employer within prescribed limits. Employer contributions are not currently taxable to the employee. If an employer makes a contribution to a qualified plan on behalf of an employee, that contribution is not subject to current federal income tax until the money is distributed.

Tax-deferred growth As funds grow through interest earnings and investment returns, no taxes are payable on these earnings until they are taken as plan distributions. This means that more money is left to accumulate, thus potentially accelerating the growth of these funds when compared to a currently taxable funding vehicle. Qualified retirement plans provide the best of both worlds for the participant — no current taxes on contributions (up to specified limits), and no current taxes on earnings. If life insurance is included in the qualified retirement plan, the participant must report the taxable economic benefit as income each year.

Defined Benefit Plans A defined benefit plan promises either a stated benefit at retirement or provides a benefit which is determined according to a fixed formula. As the name implies, a defined benefit plan focuses on providing a specified benefit at retirement. The employer bears the responsibility of providing an adequate retirement income based on the benefit promised or the benefit formula utilized. Defined benefit plans often appeal to smaller firms with older, higher-paid employees who are owners or shareholders. Defined benefit plans appeal to these firms because the benefit formula can be based on recent compensation levels, largely ignoring time-of-service requirements for accumulating a sizable pension benefit, subject to Internal Revenue Service (IRS) limits. If there is not much time to build a substantial retirement fund for key employees (including owners) and the company has the financial ability based on consistent cash flow from the practice to fund the plan, a defined benefit plan is often a good choice.

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Benefit limits There are limits to the benefit amounts that can be provided under a defined benefit plan. The highest annual benefit that can be paid for any limitation year ending in 2009 is the lesser of: • 100 percent of the participant’s average compensation for the three highest consecutive calendar years during which the employee plan had the greatest aggregate compensation from the employer; or • US$195,000 (2009 limits). In order to obtain the full maximum benefit, ten years of participation are required. Only the first US$245,000 (for 2009) of an employee’s annual compensation may be taken into account in determining benefits.

Cash-balance pension plans A cash-balance pension plan is a special type of defined benefit plan that has features of both a defined benefit plan and a defined contribution plan. A cash-balance pension plan generally credits participants with a percentage of their pay each year, along with interest on these amounts. When participants become entitled to receive benefits under the plan, benefits are normally paid as an annuity. However, cash-balance plans typically also allow lump-sum payments. This permits benefit portability and faster accruals for certain employees, while also resolving some employers’ funding concerns.

Defined Contribution Plans A defined contribution plan provides that the employer can make an annual contribution to the plan. The amount of each employee’s retirement benefit ultimately depends on the amount of contributions and the investment performance of that particular employee’s account, rather than on the employer’s promise as in the defined benefit plan. The employer’s annual contribution is frequently based on a percentage of compensation. The employer’s only obligation is to make these contributions if required; the employee generally bears the risk of investment performance. In fact, defined contribution plans often permit participants to direct the investment of their plan accounts. Defined contribution plans are popular today for several reasons, including easier administration and more easily determined employer costs. These plans are also often easier for participants to understand.

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Money-purchase pension plans Under this type of defined contribution plan, employer contributions are based on a set percentage of each employee’s compensation. The employer is required to make annual contributions; and an employee’s ultimate pension benefit is equal to the total employer contributions made plus the earnings (or minus any investment losses) on those contributions, and minus any administrative expenses. Under a money-purchase plan, an employer is obligated to make annual contributions.

Profit-sharing plans These defined contribution plans, sometimes also called discretionary plans, are similar to money-purchase pension plans in that the amount of an employee’s retirement benefit depends on the amount in an individual employee’s account at retirement. The distinguishing feature of this plan, however, is that the employer is not obligated to make contributions each year, but there must be recurring and substantial contributions. When designing a profit-sharing plan, the employer has great flexibility in determining how and when contributions will be made. In addition to identifying a method for determining contribution amounts, the plan must also have a method for allocating funds. Many employers like profit-sharing plans for the following reasons: • Costs can be managed through a contribution formula that is based on profitability or the discretion of the board of directors. • Employees are often motivated when they share in company profits. Generally, profit-sharing plans are often implemented by: • companies with relatively young owners or shareholders; • those with widely fluctuating profits; and • those that want to utilize the concept of defined contributions without being obligated to a specific contribution in lean income years.

Savings or thrift plans Employee savings or thrift plans are a form of defined contribution plan that may require mandatory employee contributions as a condition of plan participation. The employer matches such employee contributions under a formula specified in the plan. Savings or thrift plans are typically set up by employers

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who want to provide a retirement plan for employees, but they want a plan that will be at a modest cost to the employer. Such plans can be set up as a money-purchase pension plan or a profit-sharing plan. Sometimes, a thrift plan supplements another retirement plan of the employer. Because the employee contributions are made with after-tax dollars, thrift plans have largely been supplanted in recent years by 401(k) plans, which allow employees to make before-tax contributions.

Employee stock ownership plans (ESOPs) An employee stock ownership plan (ESOP) is a special type of defined contribution plan in which the plan assets are invested primarily in employer securities. The employer’s contribution deduction is generally limited to 25 percent of covered annual compensation. When an employee leaves the company, he or she receives the vested interest in the ESOP. Depending on the plan terms, the distribution may be made in cash or the employee may demand employer securities.

Target benefit plans While it is classified as a defined contribution plan for federal income tax purposes, a target benefit plan is really a hybrid between a defined benefit plan and a money-purchase pension plan. It is similar to a defined benefit plan because the annual employer contribution is based on the amount required to accumulate a fund that will pay a target benefit at the employee’s normal retirement age utilizing an assumed interest rate. Target benefit plans are popular among many types of companies, but they are especially attractive when a company has not had a plan in place and wants to provide retirement benefits for older, well-paid employees. The structure of the target benefit plan allows the employer to make higher contributions for these employees in order to provide the desired retirement benefit within a relatively short period of time, subject to IRS limits.

Contribution limits for defined contribution plans The three defined contribution plans — money-purchase pension, profitsharing, and target benefit — have the same general limitations regarding annual additions on behalf of individual employees. The annual additions may not exceed, for the limitation year beginning in 2009, the lesser of US$49,000

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or 100 percent of compensation. The dollar limitation is indexed to inflation in US$1,000 increments, rounded down to the next lowest multiple of US$1,000.

Defined Benefit vs. Defined Contribution Since both defined benefit and defined contribution plans fall under the umbrella of qualified retirement plans, they have the same ultimate objective: providing retirement funds for employees. Defined benefit plans are often more costly to the employer, since they require regular administrative attention and the employer bears the investment risk. If investments do not perform well, the employer is obligated to increase contributions in order to reach the defined benefit objective. Defined contribution plans are often simpler and more economical. One of the employer’s obligations is to make the annual contribution under the terms specified in the plan. As a plan fiduciary, the employer has other obligations. The employer bears the investment risk and generally has control over the investment account. Defined contribution plans do not require actuarial attention on a regular basis. While there are no hard and fast rules for determining which type of plan is best for a business, you should be aware of these distinctions. In addition, keep in mind that a defined benefit plan is usually the best tool for developing a substantial retirement benefit in a short period of time. Finally, you should be aware that employers providing defined benefit plans must be insured by the Pension Benefit Guaranty Corporation (PBGC), a wholly owned government corporation which oversees pension funds. Thus, most defined benefit plans have insurance to protect or guarantee certain employee benefits. Defined contribution plans are not insured by the PBGC.

Fully Insured Plans — Section 412(e)(3) Plans A Section 412(e)(3) plan is generally a defined benefit plan in which plan benefits are funded entirely by individual annuity contracts or a combination of annuity and life insurance contracts issued by an insurance company (i.e., a fully insured plan).

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The appeal of Section 412(e)(3) plans Some of the reasons Section 412(e)(3) plans are attractive are the following: • There is no full funding limitation or current liability test to limit the employer’s deduction, thus making larger contribution deductions possible. • Due to the insurer’s rates used in 412(e)(3) plans, the contributions (and, therefore, tax deductions) available for older owner-employees can be significantly higher. • With increased funding, larger benefit payouts are likely at retirement, subject to IRS limits. • If death occurs before retirement, a portion of the beneficiaries’ death benefit is income tax-free rather than fully taxable as is the account value typical in other retirement plans. • Individuals whose personal portfolios and defined contribution accounts were hurt by the general market downturn in 2000–2002 may find the guaranteed values and safety of principal in a 412(e)(3) plan attractive. • Plan assumptions are not subject to attack, since they coincide with the guarantees in the insurance contracts. • These plans are exempt from the minimum funding standards.

Section 401(k) Plans A Section 401(k) plan is a special type of defined contribution, qualified retirement plan. Because of the plan’s popularity, we cover it separately here. A participant in a 401(k) plan is allowed to defer a portion of his or her compensation, and the employer contributes this elective deferral to a profitsharing or stock bonus plan. Sole proprietors and partners with employees may also sponsor and participate in 401(k) plans.

The appeal of 401(k) plans Here are some of the reasons for the popularity of 401(k) plans: • Elective deferrals (except Roth deferrals) are not included in the employee’s taxable income, which means that contributions are made with before-tax dollars. • Funds accumulate income tax-deferred. • Distributions from the plan may be income-taxed under the annuity rules or as a lump-sum distribution.

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• Employer contributions (if any) are tax-deductible up to the prescribed limits.

Elective salary deferral limits The annual limits on elective salary deferrals into a 401(k) plan, and the additional “catch-up” contributions permitted for participants aged 50 and over, phase in in accordance with Table 1. A plan is not required to allow additional “catch-up” contributions by participants aged 50 and over; it is merely permitted to do so. A participant is deemed to be aged 50 for a particular year if he or she turns 50 years old during that year. Many employers elect to match all or a portion of the amount deferred by each employee. Thus, the amount actually deposited on behalf of an employee can exceed the dollar limit mentioned above. However, the combination of elective deferrals, employer matching contributions, additional employer profit-sharing contributions, and forfeitures for any employee cannot exceed the Section 415 limit for defined contribution plans. Matching contributions to 401(k) plans made on behalf of self-employed individuals are not treated as elective contributions.

Roth deferrals (2006 and after) For plan years beginning in 2006 or after, employer 401(k) plans may (but are not required to) include a provision that allows participants to designate all or part of their elective salary deferrals as Roth contributions. The IRS issued final regulations on 401(k) Roth deferrals effective for plan years after 2005. Roth deferrals will be taxed immediately to the participant, but the deferral amounts and the earnings on them generally may be distributed federal income Table 1.

Elective deferral limits for a 401(k) plan (in USD).

Year

Deferral Limit Under Age 50

Deferral Limit Age 50 and Over

2005 2006 2007 2008 2009

$14,000 $15,000 $15,500 $15,500 $16,500

$18,000 $20,000 $20,500 $20,500 $22,000

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tax-free, provided the distribution: • occurs at least five years after the participant began making Roth deferrals to the plan; and • is made after the participant reaches age 59 1/2, or following the participant’s death or disability.

How 401(k) plans work When a 401(k) plan is in place, the employee elects the compensation amount he or she would like to contribute to the plan (subject to the limitations already discussed). The employer contribution (if the employer provides matching funds) is also made. In effect, three significant things happen: • By deferring income, the employee is investing with before-tax dollars. • The employer receives a tax deduction for employer contributions made to the plan — both the deferred amount and any matching contributions, within prescribed limits. • Funds accumulate income tax-deferred, often allowing a potentially greater accumulation than may be possible under currently taxable investments.

Nondiscrimination rules A 401(k) plan must meet the requirements of all qualified plans along with certain other nondiscrimination requirements: • Distributions cannot be made based on the completion of a stated period of plan participation or a fixed period of time. • The employee’s rights to elective deferrals must be fully vested at all times. • Contributions on behalf of highly compensated employees may not exceed specified limitations based on the contributions made on behalf of non-highly compensated employees. Deferrals by highly compensated employees are limited by the average deferrals of non-highly compensated employees, and employer matching contribution rules must apply uniformly to all employees.

Individual 401(k) Plan An individual 401(k) plan permits a business owner without eligible employees to create and operate a 401(k) plan solely for his or her own benefit (or for a spouse).

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What are the advantages? An individual 401(k) plan gives a business owner an opportunity to save for retirement at higher contribution levels than other defined contribution plans currently available. An individual 401(k) plan permits owner-only businesses to save up to 25 percent of their annual compensation as a discretionary, taxdeductible employer contribution. An individual 401(k) plan also allows small business owners to make pre-tax salary deferral contributions as an employee of the business subject to the limitations in Table 1. A self-employed business owner may roll over existing 401(k), Traditional IRA, SEP-IRA, SIMPLE IRA, qualified plans as well as Keogh, 403(b), and governmental 457 assets into an individual 401(k) plan. The management of retirement savings may be easier when all assets are under one plan (and distributions can be less complicated).

Keogh Plans A qualified retirement plan maintained by a sole proprietor or partnership is often referred to as a Keogh or HR 10 plan. In the case of partnerships, the Keogh plan must be established by the partnership entity, not by the individual partners.

Requirements In general, Keogh plans are subject to the same requirements and limitations as any other qualified retirement plan, and they also receive the same favorable federal income tax treatment. However, self-employed individuals who are owner-employees cannot participate in a Keogh plan unless they provide coverage for essentially all full-time employees. An owner-employee is either: • a sole proprietor; or • a partner who owns more than a 10-percent capital or profit interest in a partnership.

Summary of the Different Qualified Retirement Plans For comparison and review purposes, here is a brief summary of qualified plans.

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Defined benefit plan The purpose is to provide a specified retirement benefit. Employers bear the investment risk. Annual employer contributions can sometimes fluctuate widely and generally must be determined by an actuary or other financial administrator.

Defined contribution plan The purpose of the defined contribution plan is to set aside funds for the individual accounts of participants based on an established contribution formula. Employers are generally committed only to making annual contributions. Plans are often easier to administer than defined benefit plans, and the employees bear all investment risk.

Money-purchase pension plan A money-purchase pension plan is a defined contribution plan under which employer contributions are made annually and based on a set percentage of the employee’s compensation.

Profit-sharing plan A profit-sharing plan is a defined contribution plan under which employer contributions are based on profits or income, or otherwise determined by the board of directors. The employer is not necessarily obligated to make annual contributions, but contributions must be recurring and substantial.

Employee stock ownership plan (ESOP) An ESOP is a special type of defined contribution plan in which plan assets are invested primarily in securities of the employer corporation.

Target benefit plan A target benefit plan is a cross between a defined benefit plan and a moneypurchase pension plan. Employer contributions are based on a target benefit formula established at the plan’s inception, which includes an assumed earnings rate.

Fully insured plans — Section 412(e)(3) plan The Section 412(e)(3) plan is a special type of defined benefit pension plan that is funded entirely by annuity contracts or a combination of annuity and life insurance contracts.

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Section 401(k) plan A Section 401(k) plan is a special defined contribution plan that allows employees or self-employed individuals to make elective deferrals to the plan. Employers may make matching contributions.

Individual 401(k) plan An individual 401(k) plan permits a business owner without eligible employees to create and operate a 401(k) plan solely for his or her own benefit (or for a spouse).

Keogh plan A Keogh plan is any qualified retirement plan maintained by a self-employed person or partnership. Keogh plans may be either defined benefit or defined contribution plans. In this “inventory” of plans, it is important to also mention two types of plans that are technically not qualified retirement plans, but alternatives to qualified retirement plans:

Simplified employee pension (SEP)-IRA A SEP-IRA plan is a special type of employer retirement plan under which employer contributions are made to separate individual retirement accounts established for the participants. Plan administration, record keeping, and reporting are reduced.

Savings incentive match plan for employees (SIMPLE) IRA A SIMPLE IRA is allowable for employers with 100 or fewer employees, and is eligible for simplified nondiscrimination rules.

Life Insurance and Qualified Retirement Plans Where life insurance fits Life insurance fits into the qualified retirement planning picture as a funding vehicle in one of two ways. First, annuity contracts alone or a combination of life insurance and annuity contracts can be used exclusively to fund 412(e)(3) defined benefit plans. Plan contributions are used to purchase a combination

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of life insurance policies and annuity contracts for the express purpose of accumulating retirement funds and maintaining pre-retirement death benefits. The second and most typical way life insurance is used is in split-funded plans. With a split-funded plan, part of the retirement benefits is funded through life insurance, while the other part is funded through an investment account which is managed by the plan trustee. Split-funded plans can be in the form of defined contribution plans (i.e., profit-sharing plans) or defined benefit plans. In either case, including life insurance as a benefit in a qualified plan has the following benefits: • Pre-retirement death benefit — It assures that the retirement account balance will go to heirs in the event of a premature death. • Asset allocation tool — Most quality life insurance policies contain a guaranteed cash value (usually based on a 4-percent guaranteed interest rate). Used in combination with other invested assets, the life insurance cash value can be viewed as the “conservative” portion of an asset allocation model. • Possible elimination of non-retirement plan term insurance — If adequate face amounts of life insurance can be purchased inside a qualified retirement plan, the need for external term insurance might be eliminated. • Positioning for distribution and estate tax liquidity at plan or participant termination — Life insurance that is inside a qualified retirement plan can be removed from the plana and maintained either in a trust or by personally creating liquidity for various taxation reasons. Split-funded plans are more common than fully insured plans because they provide two distinct benefits: life insurance protection and a flexible investment fund. However, it is worth noting that a fully insured 412(e)(3) defined benefit plan may be exempt from funding standards and regulations applicable to other qualified plans; this plan is attractive to some employers for this very reason.

Incidental tests There are limits to the amount of life insurance which can be purchased by a qualified retirement plan on behalf of a participant. Under a defined benefit plan, the face amount of insurance generally cannot exceed 100 times the participant’s projected monthly retirement benefit or the IRS Section 74-307 a There are various methods of removing life insurance policies from a qualified retirement plan.

Each method should be explored depending on the participant’s individual circumstance.

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formulas. An actuary performs the function of calculating this information. Under a defined contribution plan (including 401(k) and Keogh plans), life insurance coverage can be purchased if less than 50 percent of the employer’s contribution on behalf of the participant is used to purchase whole life insurance, or if no more than 25 percent of the employer contribution is used to purchase term or universal life insurance.

Taxable economic benefit When insurance is purchased inside a qualified plan, the covered participant must report as income the taxable cost of the coverage. The value of current life insurance protection provided under a qualified plan generally must be determined using Table 2001 (not shown). If the insurance company’s published one-year term insurance rates are lower than the Table 2001 rates, the company’s own rates can be used to determine the employee’s taxable income amount each year, provided the insurer makes the availability of such rates known and regularly sells term insurance policies at such rates.

Transfer of policies from qualified plans The Employee Retirement Income Security Act of 1974 (ERISA) generally prohibits the sale of qualified plan assets to a “party in interest”. Any employee of the sponsoring employer, not just the owner-employee, is a party in interest. In the absence of a special exemption, any sale of a life insurance policy by the plan to an employee would trigger the prohibited transaction penalty. Prohibited Transaction Exemption (PTE) 92–6 specifically permits sales of life insurance and annuity contracts between ERISA-covered plans and (1) plan participants, (2) certain relatives, (3) employers, or (4) other plans, provided certain conditions are met. The U.S. Department of Labor has expanded this exemption to include sales to life insurance trusts and certain other personal trusts of participating employees.

Exit strategies for life insurance from qualified plans There are numerous methods for removing life insurance from qualified retirement plans. Employing a strategy depends on the individual participant’s circumstances. The basic strategies for policy removal are as follows: • Income tax-free purchase method — The plan participant has the plan trustee ascertain the policy’s interpolated terminal reserve (cash value) at the date of distribution, and then the participant writes a check to his/her

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plan account for that amount “purchasing” the policy. The policy is thus transferred to individual ownership. • Minimal-taxation “loan” method — Inside the retirement plan, the trustee would affect a loan against the life insurance policy, thus reducing the cash value of the policy prior to transfer. Once the loan has been completed, the policy would be transferred from the retirement plan to the individual participant directly. Any cash value that remains in the policy would be considered a distribution of a retirement asset and would be subject to reduced taxation. • Zero-taxation method — The participant informs the trustee that he/she wishes to remove their life insurance from the retirement plan. The participant or trustee ascertains what the current cash value (interpolated terminal reserve) and total death benefit of the policy are at a given date. Depending on the particular policy, the trustee then exercises a policy separation “feature” allowing the cash value of the policy to remain in the retirement plan as any other cash asset. The net death benefit (total death benefit minus the separated cash value) is transferred out of the retirement plan. The remaining policy can then be transferred to an irrevocable life insurance trust or maintained personally. Note that caution should be taken in all transfers of life insurance from qualified retirement plans to avoid “transfer for value” and three-year “incidents of ownership” rules. It is important to note that life insurance polices can be transferred from one qualified retirement plan to another qualified retirement plan (e.g., from a defined benefit plan to a profit-sharing plan) without distribution penalty, subject to various code limitations.

Taxation of Qualified Plan Distributions As a general rule, distributions from a qualified plan can be included in the participant’s gross income and are taxed as such. Depending on the plan terms, distributions can be received as annuity payments, as periodic installments, as a lump-sum distribution, or as partial distributions. It should be noted that if the participant has a basis in the distribution (which generally means that he or she has made after-tax contributions to the plan), the portion of any distribution attributable to that basis is not taxed. Any costs paid by a common-law employee toward the taxable economic benefit of life insurance

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coverage provided by the plan can be recovered income tax-free from benefits paid under the policy [Reg. Sec. 1.72–16(b)(4)]. However, self-employed individuals with life insurance in their Keogh plans cannot use the taxable economic benefit to add to their basis.

Long-term capital gains treatment People born before January 1, 1936, may elect to treat a portion of their lumpsum distribution as capital gains subject to treatment, as capital gains were taxed in 1986 — essentially, at a flat 20-percent (or currently applicable) rate.

10-percent federal income tax on early distributions Distributions from a qualified retirement plan are subject not only to the regular federal income tax, but also to a premature distribution tax if the distribution is made before the employee reaches age 59 1/2, unless an IRC Section 72(t) exception applies. The tax is a flat 10 percent of the taxable amount distributed. In addition to the age 59 1/2 safe harbor, the 10-percent tax does not apply to the following: • Distributions that are made to a beneficiary (or to the estate of the employee) following the death of the employee; • Distributions that occur following the disability of the participant (but not a spouse’s or child’s disability), “disability” defined for this purpose as the owner’s inability to “engage in any substantial gainful activity by reason of a medically determined physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration” [IRC Sec. 72(m)(7)]; • Distributions that are part of a series of substantially equal periodic payments made not less frequently than annually, for the life (or life expectancy) of the employee or for the joint lives (or joint life expectancies) of the employee and his/her designated beneficiary; • Distributions that are transferred directly or properly rolled over within the 60-day rollover period, so that the distribution is not subject to the regular income tax; • Distributions that represent a non-taxable return of the employee’s nondeductible contributions; • Distributions that are made following the employee’s separation from the service of the employer maintaining the plan after reaching age 55 (for qualified plans only; this does not apply to IRAs);

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• Distributions that are taken to pay deductible medical expenses of the participant or a family member and do not exceed the amount deductible under IRC Section 213, (i.e., only those medical expenses paid out-of-pocket and not covered by insurance that exceed 7.5 percent of adjusted gross income); • Distributions that are made pursuant to a qualified domestic relations order from the employer retirement plan of one divorcing or separating spouse to the other spouse; and • Individuals who receive a “qualified reservist distribution”, which is a distribution from an individual retirement plan or from amounts attributable to pre-tax salary deferrals from a qualified plan or 403(b) annuity if the individual receiving the distribution was called to active duty for a period in excess of 179 days. The individual must be called to active duty after September 11, 2001.

Required Minimum Distributions These required minimum distribution (RMD) rules apply to Traditional IRAs and qualified defined contribution plans including profit-sharing, moneypurchase, 401(k), and 403(b) plans. For convenience, we will use “account owner” or simply “owner” to refer to both individual account owners in qualified defined contribution plans and owners of Traditional IRAs.

The age 70 1/2 requirement Participants in qualified retirement plans, SEP-IRAs, SIMPLE IRAs, and Traditional IRAs (but not Roth IRAs) may not accumulate tax-deferred earnings indefinitely. Eventually, they must begin to take required minimum distributions (RMDs) or suffer a heavy penalty tax. RMDs are included in the recipient’s gross income (with tax-free recovery of basis, if any) as paid out.

Required beginning date The required beginning date (RBD) is April 1 of the year following the year in which the account owner attains age 70 1/2. This is the latest date that the owner has to take the first RMD from the account without a penalty tax. For example, assume the owner reaches age 70 1/2 on August 20, 2008. The latest date for the 2008 distribution is April 1, 2009. By waiting until the RBD, the owner has two distributions in 2009 because the 2009 distribution must be made by December 31, 2009. Depending on

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the situation, it may be better tax planning to take the 2008 distribution by December 31, 2008. Future RMDs will need to be made by December 31 of each new tax year to avoid the excise tax. However, employees who own 5 percent or less of the company that maintains the plan can delay their RBD until April 1 of the year following the year they actually retire. This postponement is not available to IRA owners (including SEP-IRAs and SIMPLE IRAs) or to employees who own more than 5 percent of the company. An account owner’s RBD may be delayed until actual retirement (if later than age 70 1/2) provided that (1) the distribution is from a qualified retirement plan and not an IRA, and (2) the account owner is a 5-percent (or less) owner of the employer that maintains the plan.

50-percent excise tax The penalty tax for taxpayers who fail to comply with the RMD rules is severe: a 50-percent excise tax is levied on the difference between the RMD (that is, the amount that should have been distributed) and the amount that was actually distributed. Note that, for the calendar year 2009, RMDs have been suspended. This ruling will lapse on December 31, 2009.

First-year distribution RMDs must begin when the account owner attains age 70 1/2. However, the first RMD may be delayed until April 1 of the following year.

Second-year distribution The RMD for the first-distribution calendar year is the only one which can be distributed after December 31 of that year without penalty. For any subsequent-distribution calendar year, the RMD must be distributed by December 31 of that year.

The inherited IRA and distributions following an account owner’s death Until now, we have discussed the RMD rules as they apply to distributions made during the owner’s life. The rules that follow apply to beneficiaries of the owner after the owner’s death. These rules apply to Traditional IRAs, qualified defined contribution plans, and 403(b) plans. We will continue to

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use “account owner” and “owner” to refer to both qualified plan account owners and owners of Traditional IRAs.

Determining the designated beneficiary The “designated beneficiary” for tax purposes is the beneficiary of record as of September 30 of the year following the year of the owner’s death. Thus, qualified disclaimers and lump-sum distributions can be used after the owner’s death (and before the September 30 deadline) to narrow down the designated beneficiary, but only from among the group of beneficiaries named by the owner. Only an individual can be a designated beneficiary. If a non-individual (such as a charity) is named as a beneficiary of a plan account, the account will not have a designated beneficiary unless the non-individual is no longer a beneficiary on September 30 of the year following the year of the owner’s death. The deceased owner’s estate cannot be a designated beneficiary, and there are no provisions to allow for a “look through” to the individual beneficiaries of the estate. However, if the owner names a trust as the beneficiary of his/her plan or IRA, the beneficiaries of the trust can qualify as designated beneficiaries when certain requirements are met. The beneficiaries of a trust will be treated as designated beneficiaries if all of the following are true: • The trust is a valid trust under state law, or would be but for the fact that there is no corpus. • The trust is irrevocable or will, by its terms, become irrevocable upon the death of the owner. • The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the owner’s benefit are identifiable from the trust instrument. • The trustee must be provided a copy of the trust with an agreement that, if the trust is amended, the plan administrator will be provided a copy of the amendment. Trusts can provide numerous advantages including creditor protection, divorce protection, special needs, and investment management. There can be other advantages to using trusts as beneficiaries where, for example, you have young beneficiaries and large dollar amounts. Using trusts can be complicated, and clients should be advised to seek legal counsel before making such decisions.

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When the owner dies before reaching the RBD If the owner dies before reaching his or her RBD, there are two options for distributing the owner’s account. The first option is the life expectancy method, which requires that any portion of the owner’s account payable to a designated beneficiary be paid at least annually starting on or before the end of the calendar year following the calendar year in which the owner died. The second method is called the five-year rule. It requires that the account owner’s entire interest be paid out by the end of the calendar year coinciding with the fifth anniversary of the owner’s death. Absent a plan provision to the contrary, distributions must be made as follows: • If the owner has a designated beneficiary, distributions are to be made in accordance with the life expectancy rule. • If there is no designated beneficiary, distributions are to be made in accordance with the five-year rule. Since the owner did not reach age 70 1/2, the age at which RMDs must begin, no distribution is required in the year of death. However, if the sole designated beneficiary is the decedent’s surviving spouse, distributions must commence on or before the later of the calendar year following the calendar year in which the participant died, or the end of the calendar year in which the participant would have attained age 70 1/2.

When the owner dies after reaching the RBD Minimum distributions after the owner’s death (for all years after the year in which death occurs) are available based on the remaining life expectancy of the designated beneficiary. The beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the owner’s death, minus one for each subsequent year. However, the distribution period will never be shorter than the owner’s life expectancy in the year of death. An RMD must also be taken for the year of the owner’s death using the owner’s age/life expectancy from the Uniform Lifetime Table (not shown). If not withdrawn prior to the owner’s death, this payment would generally be paid to the beneficiary as income in respect of a decedent.

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If the account owner dies after the RBD, the designated beneficiary can use his/her own life expectancy or the deceased owner’s remaining life expectancy at death, whichever is longer, to calculate RMDs.

Election by surviving spouse If the deceased owner designated the surviving spouse as beneficiary of the account, the spouse may elect to treat the account as his/her own IRA. The spouse accomplishes this by having himself/herself designated as the new account owner. To roll an account over into the spouse’s name, the surviving spouse must be the sole beneficiary of the account and must have an unlimited right of withdrawal. Before the IRA can be rolled, the RMD for the year of death must be distributed. When a spouse is the sole designated beneficiary and decides not to roll over the IRA into his/her own name, and the owner dies before reaching his/her RBD, then the spouse may defer payments until the year the deceased owner would have reached age 70 1/2. Thereafter, RMDs are calculated based upon the spouse’s life expectancy as measured by the new Single Life Expectancy Table (not shown).

When no designated beneficiary is named If the owner dies before the RBD, and if there is no designated beneficiary as of the date of death, the entire account balance must be distributed no later than December 31 of the fifth anniversary year of the owner’s death. If there is a named beneficiary but no “designated beneficiary” (e.g., a charity is named as beneficiary), the account balance is distributed to the named beneficiary. If no beneficiary is named under the plan, state law will govern to whom the account balance will ultimately be paid. Generally, the recipients would be the beneficiaries named in the participant’s will or identified under state intestacy laws. If the owner dies after reaching the RBD, and if there is no designated beneficiary, the distribution period available is the owner’s life expectancy based on the age in the year of death, minus one for each year thereafter. Note that the life expectancy of the estate beneficiary may not be used in this situation. It is no longer required that the entire amount be distributed in the year after the owner’s death. An RMD must be taken for the year of death based on the owner’s age in the year of death using the Uniform Lifetime Table.

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When multiple beneficiaries are named The general rule when the account owner names multiple beneficiaries for post-death distributions (e.g., “I designate my spouse and child as beneficiaries of my IRA in equal shares”) is that RMDs have to be based on the life expectancy of the oldest beneficiary. However, if the owner’s account is split into separate accounts for each beneficiary, then each beneficiary can use his or her own life expectancy to compute RMDs.

Designated beneficiaries may use new rules Under the final regulations, a designated beneficiary who is stuck with a fiveyear payout under the old RMD rules, or with a less favorable life expectancy method, could change to the life expectancy approach under the new tables provided that: • the beneficiary was named by the deceased owner as of his or her death; • the beneficiary takes any unpaid distributions for past years; and • the election was made by December 31, 2003. Making this election can extend the life of inherited accounts and reduce current taxes. As noted IRA authority Natalie Choate has pointed out on her website (www.ataxplan.com): This is a valuable planning opportunity for beneficiaries of any decedent who dies (i) in the years 1997–2001 and (ii) before the RBD [required beginning date], where the beneficiaries may not have qualified (or may not have known they qualified) for the life expectancy payout method, so did not take distributions in the early post-death years to get back on track with a life expectancy payout.

Section 72(t) payments Persons who are using the “minimum distribution method” to calculate their “substantially equal periodic payments” under IRC Section 72(t) can switch to the new tables to calculate their payments. The IRS will not consider this change an impermissible “modification” that disqualifies the payments for Section 72(t) treatment.

Roth IRA beneficiaries The RMD rules do not apply to lifetime distributions from Roth IRAs, but do apply after the owner’s death. However, the tax code inadvertently failed

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to extend the 50-percent excise tax to Roth IRA beneficiaries. The final regulations indicate that Roth IRA beneficiaries must pay the 50-percent excise tax for failure to comply with the RMD rules, but the tax code itself still needs to be amended by a technical correction.

When RMD exceeds account balance Suppose this year’s RMD, based on last year’s account balance, exceeds the current value of the account due to a precipitous decline in value of the underlying investments. How can the owner or beneficiary withdraw more than the account’s current value? The final regulations allow the owner or beneficiary to avoid the 50-percent excise tax in this situation by withdrawing the entire account balance.

Reporting requirements IRA issuers, custodians, and trustees must notify IRA owners (but not the IRS) that a distribution is required under the RMD rules, and either report the amount of the required distribution or offer to compute the amount for them. For the time being, IRA issuers, custodians, and trustees do not have to report to beneficiaries of deceased owners. IRA issuers, custodians, and trustees must identify (using IRS Form 5498) each IRA for which a minimum distribution is required, but are not required to report the amount of the RMD (under IRS Notice 2002–27, 2002–18 I.R.B. 814).

Rules Relating to Prohibited Transactions and Fiduciary Liability Investment advice Effective for investments provided after December 31, 2006, the Pension Protection Act of 2006 (PPA) has established a set of rules that allows plan fiduciaries to furnish investment advice to plan participants.

Prohibited transaction rules relating to financial investments Effective for certain transactions occurring after August 17, 2006, the PPA provides exemptions from the prohibited transaction rules between a plan

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and a plan fiduciary or other party in interest relating to complex types of financial transactions, such as block trades, foreign exchange transactions, and transactions executed over an electronic communications network.

Correction period for prohibited transactions Prohibited transactions are subject to an immediate 15-percent excise tax of the amount involved in the transaction. As of August 17, 2006, a 14-day correction period is allowed with respect to transactions involving the purchase, holding, or sale of any commodity or security (but not employer securities) before the excise tax becomes applicable.

Increase in penalties for coercive interference As of August 17, 2006, the penalty for coercive interference with ERISA rights has been increased to a maximum fine of US$100,000 and a maximum prison term of 10 years.

Defined Contribution Plan Changes Diversification requirements The PPA amends both the IRC and ERISA to provide that defined contribution plans which invest in publicly traded employer securities must provide participants with new rights to diversify their accounts. Participants have the right to immediately diversify out of employer securities for the portion of their accounts attributable to employee contributions and elective deferrals. Amounts attributable to employer contributions can be diversified out of employer securities after the participant has completed three years of service. These provisions do not apply to ESOPs, which do not accept any employee after-tax or elective deferral contributions. The effective date is December 31, 2006, and includes plans with plan years beginning after December 31, 2006. Participants must be informed of their right to divest under new notice requirements.

Faster vesting For contributions made after December 31, 2006, the PPA applies the current vesting schedule for matching contributions to all employer contributions to a defined contribution plan. Thus, contributions must vest under a

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three-year cliff schedule (0 percent prior to three years of service, and 100percent thereafter) or under a six-year graded schedule (20 percent after a year of service, increasing by 20 percent per year until 100 percent vested after six years of service).

Automatic enrollment Effective for plan years beginning after December 31, 2007, the PPA has added a new safe mechanism to satisfy the actual deferral percentage (ADP) or actual contribution percentage (ACP) tests: automatic enrollment. Under the automatic enrollment provision, unless employees opt out, the employer will automatically reduce their compensation by 3 percent of pay for the first year, increasing at the rate of 1 percent for each year thereafter to a minimum automatic deferral rate of 6 percent. Certain other important conditions apply, including notice requirements and a preemption provision that overrides any state law concerning payroll deduction arrangements. An employer does not have to adopt an automatic enrollment feature as part of its 401(k) plan.

Other PPA Provisions Spousal pension protection Effective for plan years beginning after December 31, 2007, the PPA requires pension plans to offer a qualified optional survivor annuity (QOSA) as an optional form of benefit. If the survivor annuity provided by the qualified joint and survivor annuity (QJSA) under the plan is less than 75 percent of the annuity payable during the joint lives of the participant and spouse, the survivor annuity percentage is 75 percent. If the survivor annuity provided by the QJSA under the plan is greater than or equal to 75 percent of the annuity payable during the joint lives of the participant and spouse, the survivor annuity percentage is 50 percent.

Combined defined benefit and cash or deferred arrangement (CODA) Under current law, a cash or deferred arrangement (CODA) feature — typically referred to as a 401(k) plan — may not be added to a defined benefit plan; the CODA must be part of a profit-sharing or stock bonus plan. The PPA provides for a new category of plan in plan years beginning after December 31, 2009, that is referred to as an “eligible combined plan”. An eligible combined

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plan is one (1) that is maintained by a “small employer” (2–500 employees) at the time the plan is established; (2) that consists of a defined benefit plan and an “applicable” defined contribution plan; (3) the assets of which are held in a single trust forming part of the plan, and are clearly identified and allocated to the defined benefit plan and the applicable defined contribution plan; and (4) that meets certain benefit, contribution, vesting, and nondiscrimination requirements.

Tax-free distributions from IRAs for charitable purposes The PPA provides a limited period (i.e., distributions made in taxable years beginning after December 31, 2005, and those beginning before January 1, 2008) in which “qualified charitable distributions” from a Traditional or Roth IRA may be excluded from gross income. The exclusion may not exceed US$100,000 per taxpayer per year. A “qualified charitable distribution” is any distribution from an IRA directly to a charitable organization described in IRC Section 170(b)(1)(A).

Conclusion The implementation of a retirement plan, or a combination of retirement plans working in conjunction with each other, is an important step in the establishment of a well-rounded program of benefits serving to attract, retain, and motivate high-quality employees. Equally important is the assurance that the plan has been designed to adequately and properly reflect the employer’s needs relative to affordability, flexibility, and workforce stability and employee participation. The various qualified retirement plans available today are undergoing an ever-changing landscape annually. New rules, new laws, and the availability of advanced plan designs for employers have created opportunities for employers to save larger sums of retirement dollars for themselves as well as their employees. However, those very same rules and laws have also created the absolute need to have a knowledgeable and experienced retirement planning team involved with the planning and maintenance of any plan. The importance of working with highly trained qualified retirement plan specialists cannot be overemphasized in today’s complex world.

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Index

401(k) plan, 475, 480, 482–485, 487, 500 412(e)(3) plan, 481, 482, 486 AAAASF, 230–232, 234, 235, 238, 240, 242, 250, 252 AAAHC, 230–232, 234–236, 238, 239, 252 Academic career, 29–31, 34, 35 Academic practice, 10–12 Accreditation, 229, 230, 233, 234, 238, 239, 241–244, 249–252, 254–256 Accreditation agency, 229, 230 Adkisson, Jay, 417 Administrator, 104, 105 Advertising, 111, 113, 115, 129–133, 140, 141, 143 Agreements, 419 Marital settlement, 419 Partnership, 324–326, 417, 419–423 Transmutation, 419, 420 AIA, 234, 237 Air-conditioning requirements, 241 Ambulatory surgery centers, 328 Angel investors, 310 Annuities, 418, 458, 469–471 Anti-Kickback Law, 324, 329, 330, 335, 336, 342, 343 Appointment templates, 203 Architect, 235, 237, 246–254

Asset protection, 417, 419, 421, 422, 424–427, 429–433 Assets, 101, 102 Auto insurance, 435, 436 Backup power, 233, 242, 250, 254 Bank loan, 46, 310, 323 Basic science research, 33 Bautista, Marilyn, 323 Benchmarking, 170, 180, 185, 195, 197 Best practice, 183–185, 187, 190, 197 Billing (surgery suite), 47, 55, 61, 71, 74, 75, 83, 84, 86–88, 230, 233, 254, 255 Blogs, 166 Bonds, 448, 455–458, 461, 463, 464, 470 Branding, 111, 124, 125 Burnout, avoiding, 68 Business plan, 46, 48 Buy-in agreement, 101, 108 Call, 43–45, 47, 97, 99, 105 Canales, Francisco, 277 Capture rate, 182, 184 Carve-outs, 80 Cash-balance pension plan, 478 Cash or deferred arrangement (CODA), 500 Centers for Medicare and Medicaid Services (CMS), 87 503

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Certificate of need (CON), 237 Certification, 230, 233–235, 238, 239, 244, 245, 249, 250, 252, 254, 256, 257 Clean/Dirty utility area, 240 Clemens, Mark W., 3, 71 Code of Ethics, 304 Coding, 73, 83–86 Cohen, Anne, 111 Collateral, 111, 125–128 Collen, Dr. Morrie, 92 Communication, 345, 350, 352–354, 356, 360 Compensation, 324, 325, 329, 330, 332, 334–336, 342, 343 Consult, 203–209 Consultant (accreditation or certification of surgery suite), 237, 249, 250, 251, 254 Contractor, 235, 237, 248–250, 253, 254 Contracts, 11, 21, 97, 99, 323, 329, 335, 337–339, 341, 343 Conversion rate, 181, 182, 187–190 Copays, 83 Cosmetic surgery, 51, 53, 61, 65, 71–73, 75, 88 Covenants not to compete, 327, 328 CPT, 83, 84, 86 Cross-channel affiliates (CCAs), 138 Customer relationship life cycle (CRL), 175 Customer relationship management, 170, 174, 197 Davison, Steven P., 3, 71 DEA, 233 Defamation, 368–371, 374 Defined benefit plans, 474, 475, 477, 481, 487, 488 Defined contribution plan, 475, 478–481, 483, 486–489, 492, 493, 499, 501 Designated beneficiary, 491, 494–497 Disability insurance, 439, 441, 442, 444, 445

Dispute resolution, 330, 331, 339 Domain name, 156, 157 E/M services, 75, 79 EBITDA, 326, 328 Electronic Medical Record (EMR), 94 Emergency room call, 53 Emergency room coverage, 67 Employee manual, 218, 219 Employee Retirement Income Security Act of 1974 (ERISA), 489 Employee stock ownership plan (ESOP), 480, 486 Employees, 289, 293, 296–298 EMTALA, 8, 43, 53, 67, 81 Engineer, 242, 249, 253 Entrepreneur, 40 Equipment, 232, 247, 254, 277–279, 284, 286, 287, 289, 292–294, 297–300 ER coverage, 81 Essential electrical system, 236 Evidence-based medicine, 261, 270, 273 Expenses, 99–101, 105, 107, 289, 292, 293 Explanation of Benefits (EOB), 80 External marketing, 111, 123, 137 Family, 45 Financial controls, 210 Financial planning, 435, 446, 468 Flow of money, 213 Food and Drug Administration (FDA), 306 Franklin, G. Marshall, 199 Fraud, avoiding, 62 Free-standing building, 245 Fully insured plan, 481, 486, 488 Furnas, Heather J., 39, 399 Garfield, Dr. Sidney, 90 General anesthesia, 236, 240 Generator, 236, 242, 243, 254 Goodwill, 102 Gorney, Mark, 345

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Index Government practice, 9, 10 Grant money, 310 Group practice, 97–99, 101–103, 105 Gruber, Ronald, 363 Gupta, Deepak M., 259 Gurtner, Geoffrey C., 29, 259 Headhunters, 98 Health Insurance Portability and Accountability Act (HIPAA), 94, 160, 163, 363, 364, 366, 369, 371, 374–376 Health maintenance organizations (HMOs), 337 Heublein, Lynn, 289 Homeowners insurance, 437 Homestead, 417, 418 Hospital privileges, 42, 53, 67 Human Resource Systems, 215 HVAC, 247–250, 254 ICD-9, 84, 86 IMQ, 230–232 Income, 4, 10–17, 19, 21, 22, 25, 26, 74, 75, 77, 78 Independent contractor, 323, 329, 330, 332, 333 Inform&Enhance® , 183 Informed consent, 347, 355 Institutional Review Board (IRB), 92, 308 Insurance, 435–442, 444–454, 458, 462, 463, 469 Insurance carriers, 52, 53, 61–63, 65, 69 Insurance companies, 83 Insurance plan, 79 Internal marketing, 111, 122, 133 Inventory controls, 221, 222 Investigational Device Exemption (IDE), 307, 308 Investment planning, 454, 455 IRA, 473, 474, 476, 485, 487, 493, 494, 496–498, 501 Irrevocable life insurance trust (ILIT), 449, 452, 453

505

Janitor’s closet, 239, 240 Job search, 3–6, 19, 98 Johnson, Debra J., 97, 399 Joint Commission, 230, 234, 235, 238, 252 K-1 form (IRS), 102 Kaiser, 81 Kaiser Foundation Health Plan, 89, 90 Kaiser Permanente, 89–93, 95 Kaiser Permanente Division of Research, 92 Kaiser, Henry, 90 Keller, Lawrence B., 435 Keogh plan, 485, 487, 491 Keusch, Cristina F., 399 Key performance indicators (KPIs), 193, 196 Keyword, 154–156, 162 Korman, Joshua M., 39, 303 Licensure, 238 Life insurance, 418, 477, 481, 486–491 Loan, 40 Logo, 124–126, 128 Longaker, Michael T., 29, 259 Lucas, Carol K., 323 Mall boards, 130, 131 Malpractice, 345, 346, 352, 355 Malpractice insurance, 103 Managing, 41, 216 Marketing, 109, 111–116, 118, 120–124, 128–131, 133, 135, 137, 138, 148 Marketing bridges, 122–124 Marketing plan, 113–116, 122, 124 Marketing, online, 149–152, 156, 164, 165, 167, 168 Medicaid, 61 Medical gas, 242 Medical inventions, 303, 312 Medicare, 61, 73, 74, 81, 84, 86, 87, 229, 230, 233–236, 238–242, 244, 245, 249, 251, 252, 255, 257

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Medicare deemed status, 229, 230, 233, 238, 239 Medspa, 289–302 Mentor, 36 Merrick, G, 229 Meta-analysis, 270, 271 Metrics, 169–171, 175, 180, 181, 183–185, 187, 189–191, 195, 196 Miller, Ryan, 149 Mixed practice, 54, 58, 61 Mlakar, Joseph M., 51 Money-purchase pension plan, 475, 476, 479, 480, 486 Multispecialty group, 12 Net scheduling rate, 182, 184 Networking, 41 Newsletter, 114, 135, 138 Non-significant risk (NSR), 307 NPI, 233 Olesen, Marie B. V., 169 Operating room, 229, 239, 240 Optimization, 152–154 Overhead sharing agreements, 336 Panetta, Nicholas J., 259 Pareto principle, 191, 192 Partnership, 99, 101, 104 Patent, 303–306, 309, 311, 316 Patent attorney, 304 Patient relationship life cycle (PRL), 175 Pay per click (PPC), 165, 166 Pearl, Robert, 89 Peer review, 82, 261, 263–265, 267, 272 Pension Protection Act (PPA), 498 Permanente Medical Group, 90 Physician employment agreements, 329–332 Pipeline effect, 73 Pope, Richard A., 473 Practice capture rate, 182, 184 Pre-market Approval (PMA), 307, 308 Pre-market Notification 510(k), 307

Preauthorization, 82 Profit-sharing plan, 475, 479, 480, 486, 488, 490 Proof of principle, 306, 309, 311 Public relations, 111, 133, 140, 148 Publishing, 259–261, 265, 267–269, 273, 274 Qualified retirement plans, 473, 474, 476, 477, 481, 487, 490, 492, 501 Resource-Based Relative Value Scale (RBRVS), 73, 84 Realtor, 248 Reconstructive surgery, 61, 65, 69, 71, 72, 74, 75, 77, 79, 80, 85, 87, 88 Recovery room, 230, 232, 235, 236, 239–242 Recruitment firms, 7 Referral, 47, 72, 87, 202, 206, 207 Relative value unit (RVU), 73, 100 Rent, 100, 102 Required beginning date (RBD), 492, 493, 495–497 Retirement planning, 459 Revenue, 52, 54, 59–62, 67, 69, 78, 79 Revenue per (surgical) hour (RPH), 193 Revision policy, 210 Revolving door syndrome, 34 Roth IRA, 463–467, 474, 476, 497, 498, 501 Savings incentive match plan for employees (SIMPLE) IRA, 487 Schedule, 53–55, 58–60, 67 Scheduling, 82 Search engine optimization (SEO), 153–155 Seminars, 121, 137, 139 Shareholder, 323 Sideroff, Stephen, 377 Simplified employee pension (SEP)-IRA, 487 Single specialty group, 12, 13 Slander, 368

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507

Social media, 152, 166 Social security, 473 Society of Plastic Surgeons, 304 Solo plastic surgeon, 97, 102 Solo practice, 6, 8, 9, 13, 14, 21, 39–42, 45, 47, 48 Staff, 41, 43–46 Staffing, 296 Standard of care, 346 Standard practice, 183, 184 Stark Law, 324, 341–343 Stocks, 448, 455–458, 461, 464, 470 Storage, 240, 241 Stress, 377–389, 391–393 Surgery deposit, 209, 213 Surgical suite, 229, 231, 235, 236, 239, 244 Survey, 234, 238, 244, 249, 251, 252 SWOT, 117, 118, 122, 123

Tenant Improvements (TIs), 245 Tessier, Paul, 259 Third-party reimbursement, 230 Timeline (surgery suite), 251 Trademark, 303 Troxel, Sarah, 399 Trusts BETIR, 426, 427 Domestic asset protection, 425 Foreign asset protection, 425, 431 Private retirement plans, 429 Spendthrift, 424 TV interview, 143

Taglines, 126 Tan, Cissy, 399 Target benefit plan, 480, 486 Tax-qualified accounts, 418 Taxation, 490 Telephone intake record (TIR), 202

Waiting area, 236, 239–241 Web vendor, 151, 152, 155–159, 161, 167 Women, in plastic surgery, 399–412

Umbrella insurance, 439 Unique selling proposition (USP), 116 Venture capital, 309–311 Vistnes, Dean, 289

Zenios, Stefanos, 312, 313