Finance is a language. But even more to the point for radiologists—or, at least, the ones who wish to help future-proof their practices and, along the way, advance the profession as a whole—it’s the language of leadership.
Radiologists who fail to learn this language are likely to fall short of attaining those goals, in the process impeding careers as well as practices.
So maintains Richard Bliss, PhD, MBA, a finance professor at Babson College who has worked in corporate and entrepreneurial finance since 1987.
Bliss offered his insights while teaming with Geoffrey Rubin, MD, MBA, of Duke Health to lead a daylong discussion of money matters at the 2018 leadership summit of the ACR’s Radiology Leadership Institute (RLI).
This year’s meeting drew around 110 radiology leaders and leaders-to-be to Babson’s executive conference center in Wellesley, Massachusetts, from Sept. 7 to 9.
“Yes, finance and accounting is numbers. It’s financial statements,” Bliss said. “But what all those financial statements represent is the story of business. And if you can’t tell a story that aligns with those numbers, you’re going to be dead in the water” when it comes to procuring resources for capital and operational projects.
“I don’t want to use the word fight,” Bliss added, “but there always needs to be a business case or a rationale for getting resources. And resources may not be financial. Getting resources can mean getting people or getting space within your organization.”
At the same time, leveraging influence to obtain resources is only one activity that can be geared toward helping create value for an organization, Bliss noted. From there, the gist of his talk analyzed ways successful organizations create, sustain and measure value.
After considering the strengths of the 10 most admired companies in the U.S. as identified by Fortune (top five: Apple, Amazon, Starbucks, Berkshire Hathaway, Walt Disney), Bliss singled out the DuPont analysis as the one business-performance metric among “an almost infinite supply” that he recommends to his MBA candidates for the proverbial desert-island selection.
At its most boiled down, he said, the DuPont formula is Return on Equity = Net Income ÷ Owner’s Equity.
Margins vs. volumes
Bliss led the group through an interactive application of DuPont principles to various companies from whose market strategies and competitive advantages radiology leaders might draw.
For example, comparing the jewelry retailers Blue Nile (mainly online sales), Signet (owner of Kay, Jared and Zales) and Tiffany (high-end stores), Bliss pointed out that the latter has the biggest gross profit margins.
“That’s the good news for Tiffany,” he said. “If they sell something for $100, [their numbers] say they have $59 of gross profit.”
What’s the bad news? “They sell less and have the highest rental cost and the highest wage cost, and all the [expense] that comes below the gross profit is going to be far more for them than for the other two.”
Asked by an attendee about the place of business valuation in the discussion, Bliss suggested that was a topic deserving of its own dedicated dialogue.
“Anyone who’s in a radiology practice knows that valuation is critical because of what’s gone on over the last five to eight years, which is [the injection of] private equity,” Bliss said. “Whether it’s private equity or figuring out how you’re going to monetize the history of the work and all the resources that you’ve put into your practice, valuation is critical.”
The end goal of the DuPont exercise as well as the RLI finance session as a whole, he said, was to help attendees consider their role within the practice or department with an eye on figuring out how they’re adding value.
“No one is indispensable to an organization, but what can make you less dispensable is creating value for your organization,” he said. “What are you doing to create value?”
Diversity + predictability = profitability
Rubin, a member of the RLI board and of the summit faculty, drilled down into ways the DuPont model might apply to radiology. One of his first points: Not all revenue is created equal.
High-value revenue streams, he said, have two distinctions in common. One, they’re diversified. And two, they’re predictable.
Rubin pointed to the maintaining of both professional and technical revenue streams as an obvious example of ensuring some level of diversification, at least for practices that operate imaging centers. Other factors buttressing revenue diversification include providing interpretations for multiple service lines, maintaining a broad mix of payers and sharing risk management with client hospitals.
As for predictability, fee-for-service billing, for example, is only “as predictable as the contracts that we have with our payers. And that can change whenever payers change their reimbursement policies.” By comparison, capitated contracts yield a fixed amount per member per month, offering a more predictable and thus more reliable source of income.
The salient takeaway from all of the above, he said, is thinking about revenue “in terms of its quality and not just its quantity.”
Rubin also took up the topic of assets in light of DuPont-style analysis. Breaking these down into two categories on a balance sheet—current and long-term—he defined current assets as those that are held for a year or less. These include cash, accounts receivable and inventory.
Long-term assets, by contrast, are those that are held for more than a year. Examples include property, plant and equipment; intangible assets such as goodwill, franchising, patents and copyrights; and investments in arrangements such as joint ventures.
Looking up from the bottom line
Turning to radiology’s intangible assets, Rubin asked how radiology leaders’ sensibilities around value—including revenue generation, assets and asset turnover—might “translate into value that each and every one of us can bring to a radiology practice on a daily basis.”
Could there be creative ways to think about value-associated categories, such as assets, beyond the generally accepted accounting principles (GAAP) that appear on publicly mandated financial statements?
“The patients we serve and the patient relationships that we establish—that’s an informal intangible asset, and it’s one that we might consider a creator of informal goodwill,” Rubin said.
Such informal goodwill, he added, should not be confused with goodwill in the GAAP sense of the term, which on a balance sheet typically refers to the difference between the market value and price paid for a business that’s been acquired.
Also considered key intangible assets in the informal sense are relationships with referrers and with the community of which the practice is a part.
“The relationships we have with the community give us a certain stickiness or a switching cost, if you will,” Rubin said.
“Think about how that informal goodwill maybe can be translated into truly tangible assets or revenue in the course of the activities that you’re undertaking,” Rubin said, citing as examples expertise and capabilities among the radiologists, including skills, knowledge and “absorptive capacity.”
This latter term he defined as the basic principle of an organization’s ability to incorporate new knowledge into its activities.
Here an attendee raised a question about the increasing value of imaging data.
“That’s a terrific point,” Rubin said. “The imaging data that we have has value currently to some AI companies, in particular, that are looking to use it for training and for the development of software solutions.”
The essential idea of considering radiology in light of modern finance—and, by extension, of learning to speak finance as the language of leadership—is to “think about a business model,” Rubin said. “How does this company operate? Who is its customer? What’s happening in terms of asset turnover? Then we can see how all of that ultimately manifests itself” in the business of radiology.
Dave P. has worked in journalism, marketing and public relations for more than 30 years, frequently concentrating on hospitals, healthcare technology and Catholic communications. He has also specialized in fundraising communications, ghostwriting for CEOs of local, national and global charities, nonprofits and foundations.