November 2016

 

OPHTHALMOLOGY BUSINESS

 

To the point: Simple practice tune-ups for complex times
Seven critical numbers


by John B. Pinto and Corinne Wohl, MHSA, COE

 
 

 
Imagine we erased from ophthalmology textbooks and training programs just a few critical numbers. Let’s say, refractive error, intraocular pressure, and cup-to-disk ratio. Poof—gone. This isn’t much information compared to the thousands of factoids you had to master to become a physician, right? Way less than 1% of what you’ve learned. And yet, the absence of just these three metrics would send you back 99%, to the ranks of a 19th century ophthalmologist.

These three numbers are so central to the profession that we could stop you as you exited Room 3 on any clinic day, and you’d be able to rattle off these three numbers on the last patient seen. The same is true in the business of ophthalmology, where there is just one “patient,” the practice, itself. Competent managers and owners commit to memory the norms for numerous key performance indicators, and know by rote what the values are for their practice at any one time. Here are seven metrics that are as critical to evaluating the economic health of your practice as IOP is to evaluating eye health. As a practice owner or administrator, how many of these do you know off the top of your head without looking at reports? 1. Practice growth rate. Although the U.S. population is only growing at about 1% per year, the demand for ophthalmic services is growing at about 4% per year. This is because the population of seniors is growing at three times the pace of the overall population, and seniors (happily for us in eyecare) need a lot more of our services compared to younger patients. Growth rate, in revenue terms, is simple to calculate. A practice collecting $1 million per year that grows in 12 months by $50,000 is growing at a 5% pace. A practice growing faster than 4% per year is likely gaining market share. Not only should you know your current growth rate, but you should have an agreed growth rate target.

2. Patient visits per doctor per month. This is simply the total average monthly visits (including postop patients) for each provider in your practice. Typical figures are 500+ in a hard-working general ophthalmologist’s office, 400+ in most subspecialty settings. This benchmark is vital because in a fixed-cost business like ophthalmology, profit enhancement is more often a matter of revenue enhancement than cost containment. In a solo practice, seeing just three extra patients per clinic day can boost annual collections by $100,000 or more. You would have to terminate more than two lay staff to achieve the same profit result, which would then likely harm the practice due to understaffing. 3. Average collections per patient visit. This is also called the “average ticket,” which varies widely from setting to setting and across the subspecialties. Simply divide total annual collections (net of drug collections if you have a retinal practice) by annual patient visits (including postop visits). This measurement can be taken for the overall practice or for each individual provider. In a general/cataract practice, the typical range is $150 to $225 or slightly more. There are several factors influencing this metric. The most important are the underlying nature of the practice and the clinical and surgical assertiveness of the providers. Practices serving an older/sicker patient population will have a higher average ticket. Practices with a high primary care component will have a lower average ticket. 4. Surgical density. Various advisors measure this in different ways, but the convention we use is to divide average monthly patient visits (including postop visits) by average monthly surgical cases. In the typical, middle-of-the-road anterior segment practice, we would find a practice with 500 visits and 20 to 40 cataracts a month, thus the typical surgical density range of 10 to 25 visits per case. A young surgeon just getting started may only have a mild surgical density of 50 visits per case and be perfectly normal. 5. Profit margin. While there are several useful conventions for measuring profitability, the most common for a medical practice is to divide total MD or DO annual profits (including wages, taxes, benefits, dividends, and the like) by total practice collections (again, net of drug collections). The typical range today in a general practice is 30% to 45%. A generation ago, this was 35% to 50+%, so margins are falling. Aside from the obvious benefit to practice owners, a higher profit margined practice is a safer practice, with better odds of survival in the event of deeper fee cuts, provider loss, or competitor encroachment.

6. Staffing costs as a percent of cash flow. The highest cost center in virtually every practice is lay staffing. Add up all employment costs (wages, taxes, benefits), and divide by net practice collections. A $1 million practice spending $300,000 per year on staff would have a 30% staffing cost. Norms are 28% to 32% in general practices, slightly less in retinal practices, and somewhat more in urban practices where wages are generally higher. If you are 35% or higher, the most likely reasons are overstaffing or excessive wages. Just like a patient’s medical condition, you will have to judge if you should treat the problem or live with it. 7. Established patient growth rate. This is one of the most overlooked opportunities discovered in the typical new client practice. In a general ophthalmology practice, the number of established patients (total patients minus new patients) should be growing by about 5% per year. A practice with established patient growth rates below 5% (or worse, a negative growth rate) commonly has one of two chief problems: a flawed recall system or customer service gaps. If some of these key performance indicators stumped you, it’s time to make up some flash cards and go back to school.

About the authors


Mr. Pinto
is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979, with offices in San Diego. His latest ASCRS•ASOA book, Simple: The Inner Game of Ophthalmic Practice Success, is now available at www.asoa.org. Mr. Pinto can be contacted at pintoinc@aol.com or 619-223-2233.


Ms. Wohl
is president of C. Wohl & Associates Inc., a practice management consulting firm. She earned her Masters of Health Services Administration degree at George Washington University and has 30 years of hospital and physician practice management expertise. Ms. Wohl can be contacted at at czwohl@gmail.com  or 609-410-2932.

Seven critical numbers Seven critical numbers
Ophthalmology News - EyeWorld Magazine
283 110
220 146
,
2016-10-31T15:22:57Z
True, 11