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Business principles in dermatology practice


“Business literacy is an emerging competency that’s necessary for physicians,” says one dermatologist.

Medical school teaches medicine, but not the business of medicine.

“Business literacy is an emerging competency that’s necessary for physicians,” says Jeffrey J. Miller, M.D., M.B.A., chair, department of dermatology, Penn State Milton S. Hershey Medical Center. “Key business principles will help us take better care of patients, better manage our practices and will help us sleep better at night.”

Dr. Miller, who chaired a panel discussion at the March 2017 American Academy of Dermatology (AAD) Annual Meeting in Orlando, Fla., says that being good business people and good physicians are not mutually exclusive; rather, they’re intertwined. He offers four must-use business principles for dermatologists.

#1 Teaming

Among the most important business principles, according to Dr. Miller, is the art of teaming.

“In medical school, we don’t spend a lot of time on learning about how to create effective teams,” he says.

The dermatologist cites a New York Times’ article by Charles Duhigg as a reference for what M.B.A. students learn are key teaming elements.1

Two important principles for creating a successful team are: Give each team member a voice. And, recognize how others feel.

“What I’ve learned from working with many teams is that the best solution often comes from the person you least expect,” he says. “It’s often a frontline person, who might not have a leadership role or title in the practice organization, but they know what’s going on.”

A practice tip for giving team members a voice is to try “brain writing,” rather than brain storming. Instead of verbally communicating ideas at meetings, each team member first writes his or her thoughts; then the leader of the meeting asks individual team member to share his or her thoughts with the team, according to Dr. Miller. That way, no one person dominates the discussion and the introverts, who often need quiet time to gather thoughts, contribute.

Creating a successful team also requires that team members recognize how other team members feel. If a team member seems off, one would recognize the cues and ask if everything’s ok, or why that person seems uncomfortable with the meeting’s topic, for example. Recognizing other’s feelings also means detecting when things are going well and congratulating teammates.

“Seventy percent of communication is nonverbal. So, effective teams will be in tune with the nonverbal communication of their team members,” he says.

#2 The break-even analysis

Dermatologists who make investments in their practices, like buying a new laser, want to know if they’ll be getting a return on that investment. One of the easiest ways to calculate return on investment (ROI) is by doing a break-even analysis, according to Dr. Miller.

“With the break-even analysis you have to understand what your fixed and variable costs are. Your fixed costs stay constant despite the number of patients you see - your rent, personnel. Variable costs will change with the number of patients you see - for example, supplies. The technical definition of the break-even analysis is fixed costs over net revenue, which requires an understanding of your variable costs.”

A simple formula is: How much did this investment cost (numerator) and what is my return (denominator). An investment’s return is usually net revenue which factors in your costs.

“For example, we have a new excimer laser in our practice and we know that the monthly cost for this new laser is $2,000. So, I need to know what my net revenue is per treatment to at least break even. We have a net revenue of $140, so it was about 14 treatments per month that would allow us to almost break even,” Dr. Miller says.

The analysis lets dermatologists know if they’ll be able to cover the cost of an investment, in effect creating a “margin of safety.” The analysis also works on helping dermatologists decide whether to purchase advertising, add a new staff member or if it’s worthwhile to get a practice electronic medical record (EMR), he says. 

Next: Lead with a higher purpose


#3 Lead with a higher purpose

Dermatologists must lead their teams with a higher purpose, or their teams will get caught up in the daily grind, he says.

The dermatologist that starts the day waiting for 5 o’clock to arrive and dreading the backlog of patients and paperwork before the day’s end doesn’t have a higher purpose and isn’t inspiring his or her team. But the dermatologist who starts the day embracing the opportunity to make differences in in the lives of the patients cared for by the team sends a very different message as team leader, according to Dr. Miller.

“One of the things that we did in our department to create a sense of a higher purpose was we focused on developing our community health mission. We decided to create a sun protection program, where we outfit grounds crews throughout the region with sun protective gear. This year, we’re outfitting the entire full-time staff at the capitol building in Harrisburg,” he says. “Our goal is if we save one life from skin cancer, then we’re successful. It’s an example where the entire team has buy-in to a higher purpose.”

“Data shows companies that focus on a higher purpose outperform other companies that are not focused on a higher purpose,” he says. Having a higher purpose re-frames why dermatologists and their teams come to work each day.

#4 Avoid sunk costs

One of the most important economic business principles for all physicians to understand is avoiding sunk costs, according to Dr. Miller.

“Sunk costs are expenses that you’ve already incurred, and they should not affect your economic decisions. Do not cry over spilled milk,” he says.

A classic example of a sunk cost is a car that keeps breaking down, but the car’s owner doesn’t want to stop fixing it because he or she has already invested so much. In dermatology practice, it might be a laser that is always under repair.

“You need to make the best economic decision moving forward,” he says. “Is it worth it, or is it the best decision to invest in a new laser (and don’t forget to do a break-even analysis)?”

Knowing and using these and other business principles will determine which practices best navigate and thrive in the ever-changing healthcare environment, Dr. Miller says. ƒ

Disclosure: Dr. Miller reports no relevant disclosures.


1 Duhigg C. What Google Learned from Its Quest to Build the Perfect Team. New York Times. February 25, 2016. www.nytimes.com/2016/02/28/magazine/what-google-learned-from-its-quest-to-build-the-perfect-team.html.


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