October 01, 2004
4 min read

Careful attention to trends, opportunities crucial for practice planning

OSN’s Practice Management Section Editor looks at changes in the economic aspects of ophthalmology coming in the next 10 years and suggests how to survive them.

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There are several megatrends on the management side of the ophthalmic profession that I believe will affect the business and financial aspects of ophthalmology in coming years. The first part of this article lays out some of those trends as I see them. In the latter part, I present some core tactical activities that practices should be pursuing in order to be congruous with these future forecasts.

Health care reform

Pinto’s 10 commandments

  • Hire the best people you can afford. Treat them right.
  • Provide staff with 1 hour of education for every 79 hours of work.
  • Keep tomorrow’s appointment book 100% full.
  • Treat every patient as though they were your only customer.
  • Ask every patient to refer a friend.
  • Know your numbers. Cold.
  • Find a surgeon more competent than you, and copy what they do.
  • Sweat every detail. Even the ones that bore you.
  • Financial success is measured in profit per hour, not cases per month.
  • Live on less than 80% of your after-tax income. Invest the rest intelligently.

Source: Pinto JB

The body politic of the United States is rekindling the fires of the early 1990s when top-down health care reform was attempted. This time around, state budget deficits and the more aggressive bottom-up efforts by corporate America are fueling the potential pace and depth of reform, and these forces are leveraging the potential adverse impact on ophthalmic economics.

Depending upon the twin factors of the economic recovery — which put out the fire last time — and this year’s presidential election, the next 5 to 8 years could be far more challenging to the average provider. This could push marginal players toward early retirement, consolidation with strong local players who can rationalize down costs, or frank collapse.

The well of government dollars available for Medicare beneficiaries is only so deep. It can be expected that new drug entitlements and financial incentives to corporate managed care entities will place a real strain on the amount of money available for Part B fees. This may not occur in the resurgent economy immediately ahead of us, but we are likely to see it within the next 10 years. By 2013 or sooner I predict a harsh “actuarial perfect storm.”

It is going to be very bad, not in the next 5 years or even the next 8 years, but on the 9- to 10-year horizon it could be quite difficult.

Less low-hanging fruit

Over the past decade of fee reductions (about $1 per week for cataract alone), all but the most backward practices and practitioners have pursued some degree of benchmarking, service expansion, raw productivity enhancement and cost-containment. These efforts to pick the “low-hanging fruit” have, for the most fortunate practices, largely buffered fee cuts and regulatory burdens.

Over the next decade, even the most intelligent, heroic efforts by practitioners will have less of a buffering impact, and all practices will have a more directly proportional income hit from every fee reduction.

The low hanging fruit in this business, whether it is cost containment or revenue enhancement, has largely been plucked off the tree, and it is going to be increasingly more difficult to spot in the future.

The practices that have been successful in the past 10 years are probably going to be at the head of the pack again in the next decade. The practices that have been laggard in some of these areas, if they continue to lag, will go out of business. I am involved with more frank collapses and bankruptcies of ophthalmic practices today than I have ever been in my past 20 years in this industry.

Surgeon manpower crunch looms

America’s baby boom is echoed in the distribution curve of U.S. ophthalmologists. An increasing percentage of U.S. ophthalmic surgeons will enter their sixth decade and start retiring at the same time that the growing bulge of patients becomes eligible for Medicare.

Unless utilization controls are applied, a strong business opportunity looms for the under-55 generation of ophthalmologists today who can operate efficient, high-volume practices. They can potentially reap both professional and facility fees, along with passive income from nonpartner employee providers.

Opportunities left behind by ophthalmologists will be readily infiltrated by optometric providers, whose legally sanctioned scope of practice and ability to employ ophthalmologists is poised for continued expansion.

PPMC reincarnation?

Ophthalmic physician practice management companies that took a national, top-down, Wall-Street-capitalized approach to eye care consolidation — companies such as PRG, Vision 21 and NovoMed — failed in their original concept. Amid their rubble lie the seeds for any number of bottom-up opportunities to increase contracting security, broaden services, share fixed costs and brand effectively.

The unique pressures and opportunities emerging from the next stage of national health reform will mold the direction that any new models of consolidation take. Expect the scale of such consolidation to mirror the scale of reform.

The development of localized health-cost-containment pilots will stimulate local consolidation only; any unexpected move toward a single-payer system would stimulate a land-sale rush of ophthalmic surgeons consolidating with emerging vertical (payer/multispecialty/hospital) or horizontal (ophthalmic) national players.

Core tactical recommendations

Here are some tactical recommendations for your practice, for this year and 2005.

Keep your ear to the ground, locally and nationally. Get the earliest possible warnings regarding changes in fees, opportunities for alliances and access to premium dollars.

Work to reduce the cost of a single patient encounter. This can be done partially by further containment of costs, but more important may be driving incremental patient volume increases through your current practice infrastructure with only minimal incremental costs.

If you are not yet financially independent (and not yet able to support your lifestyle costs through the passive income of your investments) establish a plan so that you are only minimally dependent on active practice income within the next 10 years, after which average profits and incomes in ophthalmology will likely sag.

If you are entrepreneurial, working at near 100% of your personal capacity, and desire a higher income, maneuver your organization to supply you with more passive income provided by ancillary services (special testing, dispensing, ASC) and the work of employee providers.

Make fewer business mistakes. It is harder than ever to recover from misspent business investments (poor staff choices, unnecessary equipment purchases, marketing snafus).

Brant on the comprehensive ophthalmologist

The October 15 issue will feature Jeffrey R. Brant, MD, a member of the Ocular Surgery News Practice Management section, discussing the comprehensive ophthalmologist.

For Your Information:
  • John B. Pinto can be reached at J. Pinto & Associates; 1576 Willow St.; San Diego, CA 92106; 619-223-2233; fax: 619-223-2253; e-mail: pintoinc@aol.com.