Practice Management
Winter 2024
by John Pinto and Corinne Wohl, MHSA, COE
After decades of consolidation and retirement in eyecare, a high percentage of ophthalmologists are still in solo practice, most of them happily.
Solo practice provides the self-satisfaction and peace of absolute control. Soloists don’t have to consult with a colleague or confront peers on difficult business or medical issues; they need only direct subordinates. Soloists work and spend as they see fit.
Still, the economic and professional advantages of group practice are compelling and may outweigh the desire for lean independence.
- High fixed overhead and expensive technology upgrades can be shared.
- Patients can be better served if subspecialists are present; a patient’s needs can be addressed in a single organization.
- It’s easier to afford management and advisory talent when their cost is borne by two or more doctors working together.
- The quality of care may be higher in group practices for two reasons—first because each surgeon learns from his or her peers and second because two or more surgeons working together affords a kind of “sentry effect” oversight, even if there is no formal quality assurance review process.
- There is greater practice security. When a solo surgeon falls ill, the practice grinds to an immediate halt. A second or third surgeon can keep the company going.
- Call coverage is shared. Part-time surgeons can even job share.
Many soloists we advise can be unsure about the timing of adding the second or third doctor to the practice. It’s critical to forecast the almost inevitable cash flow crunch that occurs early on as you take on a new associate and to have cash reserves allowing you to take a personal pay cut for several quarters or longer.
Let’s imagine a solo surgeon with $1.2 million in revenue and a 40% profit margin who adds a partner-track colleague. Near term, especially if there are credentialing delays, the new associate will represent a financial headwind. It’s typical for a new doctor’s first-year costs (including recruitment, wages, taxes, benefits, relocation costs, insurance, staffing, and other professional support) to reach $400,000 or more. In the early months, there will be sharp drops in practice profit, and the senior doctor has no recourse except to reduce their salary or draw on loan proceeds to preserve income. Table 1 shows a typical, if markedly simplified and accelerated, cash flow in the first several months.
As you can see from the stylized example in Table 1, if the new doctor’s productivity can be accelerated (as by a brisk credentialing tempo and strong outreach efforts), the senior doctor has only a short-term drop in personal income, followed by a nice income boost. Obviously, you don’t want to stretch out the process. A senior doctor making $40,000 in the base month before their new hire’s arrival is going to resent their young colleague getting stuck at a “month 2” level of productivity, which would result in a significant income drop for the senior doctor.
For the same reason, you also don’t want to bring a new doctor on prematurely. Here are a few rules of thumb:
- Have a clear need for the new doctor’s labor. Before you bring on a new doctor to form a two-doctor general ophthalmology practice, you should be personally seeing at least 20% more patients per month than you can comfortably fit into your schedule. This typically translates to 600 or more patient visits per month for a general ophthalmologist (inclusive of paid as well as postop visits). Alternately, you should have reached (but not yet exceeded) your comfortable personal patient volumes, be growing total patient volumes at least 10% a year, and have a high level of confidence that this growth rate will continue.
- Plan well ahead. This level of excess productivity (or superior growth rate) should have been in place for at least the last 6 months before you make a hiring commitment. From this, you can see that it’s occasionally appropriate to begin the doctor search process well before you think you actually might need additional help, especially if you work in a less desirable market. It may take 2 years or longer to find an acceptable candidate.
- Have advance capital reserves in place. Make sure you have significant financial reserves in place to carry yourself through the first few soft quarters after your new doctor arrives. Whether these reserves are held as retained earnings of the practice, personal savings, or a line of credit, you should have access to the equivalent of at least six times your monthly salary and draws. Also, be prepared to curtail personal lifestyle costs temporarily if your new doctor takes a little longer than expected to build his or her practice.
| Base month pre-hire | Month 1 | Month 2 | Month 3 | Month 4 | Month 5 | Month 6 | |
|---|---|---|---|---|---|---|---|
| Number of MDs | 1 | 2 | 2 | 2 | 2 | 2 | 2 |
| Base, pre-hire collections | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| New doctor collections | 0 | 8,000 | 15,000 | 25,000 | 30,000 | 35,000 | 40,000 |
| Total collections | 100,000 | 108,000 | 115,000 | 125,000 | 130,000 | 135,000 | 140,000 |
| Base practice expenses | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 |
| New doctor expenses, including salary | 0 | 35,000 | 30,000 | 25,000 | 25,000 | 25,000 | 25,000 |
| Total expenses | 60,000 | 95,000 | 90,000 | 85,000 | 85,000 | 85,000 | 85,000 |
| Profit for senior doctor | 40,000 | 13,000 | 25,000 | 40,000 | 45,000 | 50,000 | 55,000 |
Source: John Pinto and Corinne Wohl, MHSA, COE
New associate success factors
You should accept in advance that bringing on a fellow doctor and becoming a small group practice will involve more than just near-term financial adjustments. Longer term, and especially if your associate becomes a partner, there will be other adjustments. Chief among these, additional meeting time is essential. Decisions often have to slow down to allow for more communication.
In the vast majority of cases, as you make the transition from solo to group practice, your new doctor will spend two or three preliminary years as a partner-track associate. During this trial period, they should receive their personal monthly production figures (patient visits, surgical cases, collections, and average revenue yield per patient visit). Ideally, these are graphed to make it easier to spot trends.
In addition, we think that partner-track associates in good standing should receive financial and volumetric performance statistics for the overall practice. Some senior doctors elect to keep practice business data a secret until the associate is just about to become a partner. This results in an associate who is untrusting, disengaged from the details of the practice, and unfit to assume the fiduciary role of a partner.
As the senior doctor, you should foster an environment of strategic intimacy. You and your new doctor should openly discuss where you want to take the practice in the future.
- The geographic span of the practice
- The agreed growth rate and scope of practice services
- The provider mix and perhaps the ratio between MDs and ODs
- Your relationships with local health systems
- Succession strategies
Every new doctor, even durable associates who are not on a partner track, should have a few hours per month that they devote to staff education, outreach in the community, outcomes research, protocol writing, and the like.
There can be compelling financial, quality care, and lifestyle motivations for a solo surgeon to take on one or more associates. At the same time, there are often deeply personal motivations to remain in solo practice. Adding doctors is not an automatic path to a senior doctor’s financial success. As many larger groups have found, moderate diseconomies of scale can arise when a practice exceeds around five partners.
About the authors
John Pinto
President
J. Pinto & Associates
San Diego, California
Corinne Wohl, MHSA, COE
President
C. Wohl & Associates
San Diego, California
Contact
Pinto: pintoinc@aol.com, 619-223-2233
Wohl: czwohl@gmail.com, 609-410-2932
