Key concepts for enhancing profit growth
Working longer, harder, smarter will increase profitability.
“Companies should not have a singular view of profitability. There needs to be a balance between commerce and social responsibility. The companies that are authentic about it will wind up as the companies that make more money.”
– Howard Schultz
“I think the only way to maintain profitability is to meet the needs of the customers.”
– Ofra Strauss
Recently, we have received an increase in the number of doctors calling with one simple plea: “Boost our profits.” Some of this is anticipatory. A looming recession and slated fee reductions are reason enough to want to fight fire with fire.
There are a lot of sensible motivations to increase profitability:
- The most common motivation is that a doctor or doctors in the group simply want to increase their personal incomes. Nothing wrong with that — it is the American way.
- Acutely sagging profits can inspire any owner or practice manager to reverse course.
- Some practices combine a business mission with a professional or community health mission. They want incremental profits to buy more technology or provide more charity care.
- In some high-cost, competitive, urban settings, a search for higher profits is essential simply to keep your head above water.
- Grooming a practice for a future sale, whether to a larger private practice, a health system or a private equity (PE) firm, is an increasingly common motivation for boosting profits because practice value is directly related to profitability.
- Physicians in the last few years of practice often want to top up their retirement savings.
- A practice that is already partnered with a PE firm has a high motivation to sustain and increase profits.
- And finally, profitability in business is a handy — and fun — game score to track, and ophthalmologists are famously competitive.
Here are three key practical things you can do to increase profitability — and one way that works, but less well than you might imagine:
1. Work longer. Based on our client statistics, the average general ophthalmologist works 13.5 clinic days per month, sees their first patient at 8:30 a.m., takes a short lunch break and is commuting back home by 5:30 p.m. Putting even 30 more minutes into your workday by booking early or staying a bit late will allow you to see about three more patients a day. And because most practice costs are fixed, that comes to about $100,000 more in profits per year. And as it turns out, your mostly senior patient base loves early appointments.
2. Work harder. As Hawaiian surgeon and icon John Corboy was fond of saying during his practice heyday, “If you’re not smarter than those other guys, you have to work harder than they do to get ahead.” Intensity is a funny thing. Seen through a medical lens, it is perhaps your native physiology times your motivation to be productive. Try to channel hard-working people you have observed. This could be far-afield of medicine. The gardener who whips around your home and “mows, blows and goes” faster than you could pull a few weeds. The hairdresser who has you in and out in less than the appointed hour. The math of working harder is the same as the math of working longer: Anyone can fit in three more patients on a given day, and that yields a $100,000 profit gain annually. And if you work harder and longer, you could be $200,000 ahead.
3. Sell more per patient visit. This opens a bit of controversy. How hard should services and products be pushed? Most readers would probably respond, “To the reasonable limits of contemporary ophthalmic practice, within the bounds of what is in the patient’s best interest.” So, let’s go with that and assume the practice in question is selling less than average. Less testing. Less elective cosmetic and dry eye care. Fewer premium IOLs. Less optical. The average general ophthalmologist in private practice generates $150 to $225 or more in net professional revenue collections per patient visit. Do your own revenue per visit calculation, compare it to these figures, and decide for yourself if you are leaving too much on the table. Based on client experience, if you are a general ophthalmologist in the typical setting, you are losing an average of at least $15 in potential revenue per visit; added up over a year in just one busy doctor’s practice, that comes to about — you guessed it — $100,000 in lost profits. Here are the most common components of that $15 in lost revenue:
- As banal as it seems, the most common revenue gap is the refraction fee — charging it out too infrequently, failing to collect it at the time of service and charging too little (anything under $45 in most settings is too little).
- Next up is special testing. In the typical general practice, 10+% of patient visits generate an OCT and 5% of visits generate a visual field exam.
- Surgical assertiveness gaps come in third in our data — surgeons who see 30 or 35 visits for every cataract surgery when 20 or fewer is more typical.
- YAG rates deserve honorable mention. The typical rate is ±35%. If you are under that because of continuity of care gaps or a loss to follow-up in an OD-comanagement-oriented practice, steps can be taken to boost your numbers up to the norms of your peers.
4. Cut costs. Why is this last? Because cost cutting is a blunt instrument for profit boosting. Increasing profits in a largely fixed-cost service business such as ophthalmology is more a matter of revenue enhancement than cost containment. Consider a simple example. Imagine a solo doctor with $1 million in collections, $700,000 in expenses, $300,000 in profits and the typical seven or so support staff. Staffing costs (always the largest expense) are appropriate at 30% of cash flow. Facility costs are baked into a long-term lease. This doctor wants to achieve a $100,000 profit gain. If he sees three more patients per day (by working longer or more intense hours), this goal can be readily achieved. How about doing it through cost cutting? Not so much. He would have to fire nearly a third of his work force to achieve the same profit result, which would not last for long because, with fewer staff, practice revenue and profits would quickly sink.
- For more information:
- John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. John is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice, The Efficient Ophthalmologist, The Women of Ophthalmology, Legal Issues in Ophthalmology, Ophthalmic Leadership: A Practical Guide for Physicians, Administrators and Teams, Simple: The Inner Game of Ophthalmic Practice Success and a new book, UP: Taking Ophthalmic Administrators and Management Teams to the Next Level of Skill, Performance and Career Satisfaction. He can be reached at 619-223-2233; email: firstname.lastname@example.org; website: www.pintoinc.com.