Appropriate Oversight by Owners

Episode #34: Appropriate Oversight by Owners

As an owner in your business, how much time and energy should you spend overseeing the operations? What constitutes too much oversight? What’s too little?

We see altogether too many groups who have too little oversight, which means too many of the owners aren’t really paying attention to the business itself. The unfortunate outcome of that in many cases is embezzlement. Or sometimes it is limited to a loss of control over important business functions, or a loss of data if someone in a key role leaves abruptly, without a handoff or any cross-training.

In many cases, following a poor outcome from having too little oversight, we see groups boomerang and wind up with way too much oversight. Physicians are way too involved in the day-to-day, not trusting, not delegating and with all good intention they wind up wasting a lot of time and effort.

In the vast majority of situations, instituting some simple internal controls and appropriate oversight would solve their problems.

In our last episode, we outlined the importance of developing a Decision Matrix or Authority Matrix. If created well and adhered to, it can keep everyone in their lane. Remember to call each other out (respectfully and firmly) if people are not staying in their lanes. If it happens repeatedly, go deeper with the questions to understand the underlying issue or insecurity with your business partner. In many cases, it may simply be that they don’t understand the business very well, and their over involvement is simply an overreaction to that. In many cases, some good systems and a little additional learning about the finances can help to bring a higher level of confidence and an appropriate amount of involvement and oversight.

Since we haven’t given you any training in business, the tendency can be to hold onto the reins too tightly, which is understandable.

First off, we’ve talked a lot in previous episodes about your administrative leadership.  Do you have the right people on your team who can assist you in maximizing your business’ efficiency? And do you trust them to safeguard your assets and run your business with integrity? If not or if you paused, it’s time to take a deeper look. Do you have the right person who just needs a bit more training? Or do you need to add someone to the team with stronger finance skills to support your group? Or have you outgrown your current leader and it’s time to seek a new one? Regardless of the answers to your questions, you should have full confidence in your leader to run your business well.

We see far too many groups who underinvest in their executive leadership, thinking that if they hire a manager for $60,000 – 80,000 per year, that person will be able to run their sophisticated business for them with no problem. The thought of spending $100,000 – 150,000 per year seems anathema, and yet, many times groups lose money or fail to execute on new opportunities or new revenue streams because they’ve underinvested in leadership.

In crafting your Decision Matrix, you’ll want to assure appropriate oversight of several things:

First off is spending! We always suggest that groups establish limits for spending. Which means, how much can any individual at any level of the company spend without authority from their boss or from one of the owners of the practice? In many cases, we see frontline leads or managers with sending authority up to $500 or $1,000. The manager or administrator may then have spending authority up to $5,000 and anything above that may need to go to the Executive Committee for approval. Perhaps the Executive Committee can spend up to $15,000 or $20,000 before the question needs to go to the board as a whole. As you can imagine, these limits are very individual to each practice depending upon its size and complexity.

Another important internal control to add to your system is giving only one or possibly two people the authority to add new vendors to your bill pay system. This allows you to avoid social engineering scams. One of our clients recently lost $120,000 to a social engineering scam, which took advantage of the fact that they had multiple people who could add a new vendor to the system, and there was no double check in the process. Suffice to say, you want to have control over how money leaves your business. We’ll have more about in an upcoming episode.

New service contracts are the next thing to have oversight of as an owner of the business. Again, this could follow the spending limits we discussed above along with the authority levels you granted there. In general, you want to have approval processes in place anytime your business is agreeing to a new service contract. This could include maintenance contracts on big pieces of equipment, janitorial contracts, or linen and laundry contracts. And I cannot stress this enough, make sure that someone is reading the fine print!

Budget establishment is the next area for owners to oversee, and by this, I don’t mean that the owners or the Board should write the budget – that is a task for your executive leader. And, if your executive leader has not created a budget in the past, time for some training for him or her. As we outlined in Episode 3, the budget is a basic building block for tracking the performance of the business. The owners should review financial performance against the budget with a variance analysis each month.

Additional areas for owner oversight include personnel decisions (adding, disciplining, terminating), and your Decision or Authority Matrix should call out who is involved (by name or by role) in the processes of adding or disciplining staff, executive leaders and physicians. This should be clearly delineated, so that there is no confusion about the roles and responsibilities we reviewed in Episode 32.

I’m guessing that all of you talk with your partners any time you want to make a change to your clinical quality standards. The question becomes, how do you disseminate that information, and who affects the change? The board should agree to the updated clinical standard, and the clinical and executive leaders should work together to see that the change gets pushed through the organization. This does not require that all owners be involved in managing the change, rather they can support it. Clinical leadership can work to assure that the change is communicated to staff and the necessary changes are made to the EMR templates for documentation.

You’ll want to follow a similar construct with changes that affect the patient experience, and the technology used in your practice – high level decisions being made at the board level, and research, analysis, and implementation being delegated to the executive and clinical leadership. This ensures that everyone is working at the highest and best use of their skills and we’re not getting confused about roles and responsibilities. We’ll have a future episode that covers our recommendations for financial oversight in more detail, as it’s such an important topic.

Join me for our next episode, when I interview national physician compensation expert Steve Franey about best practices for updating or redesigning your physician compensation system.