Every business is different.  Yet, every business has many, many similar components.  Serving as the CEO for jewelry manufacturing venture is different from serving as the CEO for a dialysis clinic- and different still from being the managing director for a law firm.  Right now, I am considering whether I wish to help start- and then manage a new health care clinic- one with a business model that will be radically different than what is normally seen.

Which means I must consider the viability of the concept, the capitalization of the partners, as well as the parameters (Key Performance Indicators and design milestones) of the venture.  I’m actually sold on the concept, and will leave the discussion of capitalization and fungibility to another post.  Instead, I will share with you the considerations of the operation of the venture- things that can help you determine how to better analyze and run yours.

I’ve told you that I’ve always been drawn to renal medicine.  From the time I was eight years old and was going to invent an artificial kidney.  Well, running a dialysis clinic is a good place to start when considering this new health venture.

Starting with regulatory affairs.  Most of your businesses don’t have to address the plethora of issues that surround dialysis clinics or even a dialysate manufacturing venture.  I remember my COO once said something like, “The next time we start a business, lets pick one that does not excite the interest of every alphabetic combination of federal and state regulators…”

A dialysis clinic is regulated by Medicare (actually, the Centers for Medicare and Medicaid Services), a state Department of Health, Occupational Safety (both state and federal), Labor (while both state and federal, it’s usually the state that is more “lethal”), among others.  Oh, and the ESRD (End Stage Renal Disease) Network, which is an intermediary for Medicare oversight.  As if the other groups don’t, the Network “oversees” the quality of care you provide, patient grievances (you won’t escape this, no matter how well you run your facility), and data management (CROWNWeb, which compares your performance to that of others and provides data on the quality of care proffered).

I’m guessing your business avoids many- if not most- of these regulatory bodies.  (Be thankful!) This new venture won’t.  It will even need to obtain a “Certificate of Need“, supposedly to keep health care costs low and insure there is a need (which is clearly different from the demand ☺) for such services.

But, we all have financial considerations.  Starting with revenue and expenses- which governs how much profit (Profit?  You want profit?) the venture accumulates.  For dialysis- and this new venture- it comes down to revenue per treatment and costs per treatment.  It lets one compare one’s venture to that of another.  It is almost size independent.  (There are economies of scale in every business.)  And, using cost and revenue per treatment (you know it as cost and revenue per unit sold) lets one budget and discern what constitutes breakeven.  (The goal is to exceed breakeven and avoid losses!)

Another area of financial concern is controlling inventory.  You don’t want to order enough raw materials to have stock on hand for a year- because that ties up your money, even if it is much cheaper on a per unit basis.  (The costs of inventory versus the saving per unit cost is a never-ending balancing act.)  So, we track usage per treatment (or raw materials needed per unit sale).  You can- and should-  find areas where “slippage” (breakage, theft, bad quality) is costing you money.

Productivity can be considered a financial or personnel issue.  Me, being who I am (a financial, engineering type) consider it a money matter.  In a dialysis clinic, the key performance indicator is hours per treatment.  (No, not the three or four hours each patient undergoes treatment- the personnel time needed to effect each treatment- those are vital, expensive variable costs.) Let’s say my clinic has 20 stations. With five technicians and three nurses, it means I have:

8 FTE[full-time equivalents] X 12 hours per shift = 96 labor hours a day.

A dialysis clinic typically has three shifts of patients a day; the one I am looking at has 20 patients on the first shift, 17 on the second, and 19 on the third, for a daily census of 56 patients-  assuming every one shows up 🙂 ).  It would be best to have 20 patients for each shift, which is called the target (60 patients a day).

Labor/treatment=   96 hours / 56 patients =  1.7 hours of Labor per Rx
Target Labor/Rx =  96 hours/60 patients = 1.6 hours of Labor per Rx

To be honest, these numbers were a little higher than our competitors, which seems to average about 1.5.  I really couldn’t guarantee that our numbers provided a significant increase in patient treatment quality.  And, it was something we were working on…  (That’s what you should be doing with your KPI, too!)

Another area of concern are maintenance costs.  Sure, you can save money by not maintaining your equipment.  Until you have a disaster- and then you either have no sales or need to spend a fortune to obtain a replacement- yesterday.  So, in dialysis (and in this new health venture), we maintain each piece of expensive equipment.  For dialysis, the maintenance costs per treatment run between $ 1.25 and $ 2.00- where the larger, better run facilities tend towards the lower end of the scale.

You should know the range for your business.  If you are out of that range, it either means it’s time for you to replace your equipment, your maintenance program is suspect, or you are skipping vital maintenance (if the costs are too low).

We can’t forget personnel.  If we don’t pay well enough, if we overwork our staff, if our working conditions are poor- then,  our turnover rate is high.  For most of the mid-sized to larger businesses with which I have been involved, the turnover rate is 1 to 1.2%.  The smaller the business the higher the turnover rate- but, for smaller business, that value can range in any given year from 0 to 100%.  (If you have one employee and s/he quits- you have a 100% turnover rate!).

Dealing with (perpetually) sick [not really, of course] and late employees is a drain.  But, it is normal- unless you have clearly delineated policies and routine administrative responses.  Determining the proper penalty for tardiness and absences must be discerned- and one to which you adhere religiously.

Turnover in dialysis clinics range from 5 to 8%, if they are of reasonable quality.  Higher rates can be the result of poor management- either lousy attitudes or working conditions, or management fails to see the dynamics of rewarding certain folks with overtime, failure to train, etc.  The trick is to nurture your veterans and evangelize your newbies.  (That’s true for every business!)

So, you can see that as the manager or leader, you have a slew of balls to keep in the air.  Depending upon the type and size of the venture, it can be three or four- or about 25 or so.  You should know the key performance indicators (KPI) for each of those balls, delegate management if you have more than 5 to monitor daily, and make sure the results are on par- or better- for your specific business.