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Using practice mergers as a tool for boosting profits
Running out of ideas in your practice management bag of tricks? Merging with another practice may be an option worth considering.
In most practices — large and small, urban, suburban and rural — crafty managers and physicians have learned how to ramp up productivity. They have learned how to find new sources of patients and to offer them new services, including optical boutiques and surgical centers, creating passive income for surgeon-owners. And they have learned to benchmark their resources to deliver each unit of service at the lowest possible cost. Still, at least in profit-per-surgeon-hour terms, the typical practice is just staying even or perhaps sliding backward a little each quarter — proving that just about the time you figure out how to make ends meet, they go and move the ends.
As a result, some practices are dusting off plans to consolidate with amenable local colleagues, plans that have not been looked at since the last serious drumbeats for health care reform first started sounding.
Motivations for merger
The potential motivations for a merger of independent practices remain the same now as then.
There are dozens of mechanical and due-diligence steps on the road to merger. At the front end of any prospective consolidation, none of these is more important than assessing the financial impact of the proposed transaction on the current partners.
When Wall Street weighs in on the viability of a corporate merger, one core question pointing to success or failure is: “Will this transaction be accretive to earnings per share?” That is just fancy business-speak for: “Will all of the owners of the company make more money with this deal than without it?”
You can translate and apply this merger viability question in your own practice setting: “Will the physicians on both sides of our proposed merger make more money?” Perhaps the units here should be dollars per hour rather than dollars per share, because the overwhelming majority of a surgeon’s paycheck is active income, not passive income.
Measure your productivity
The starting point is to first measure productivity for every doctor in your practice, and in every setting if you have multiple offices. There are numerous, meaningful ways to measure a doctor’s productivity:
Weeks worked per year. This is the grossest measure of a doctor’s output and does not really count much, except to ask, “Is the doctor showing up for work?” Most physician and optometrist employment contracts specify the maximum allowable number of vacation days or weeks permitted. For partner-level doctors, this usually tops out at about 13 weeks off per year before a partner has to revert to being an associate.
Hours worked per year. This metric is a bit more precise and constraining. I have seen doctors who did not like being boxed into 8 or 10 weeks of vacation per year by their partners, so they started working 6 hours a day to get even. Anything more than 2,000 hours a year is a reasonable target for a full-time doctor; hardworking practice owners often work more than 2,500 hours per year.
Patient visits per doctor per month. Now we are getting somewhere, measuring more than attendance. We are looking at raw throughput. For an energetic general ophthalmologist, I like to coach clients toward not less than 550 patient visits per average month. If you see patients in clinic 3.5 days per week, with 3.5 weeks in the typical month, that comes to about 45 patient visits per day, or about one patient every 10 minutes, not counting breaks and other time off the clinic floor.
Optometrists should be able to see 300-plus patient visits per month. Subspecialist ophthalmologists should fall between these two extremes, with roughly 450 or more patient visits per month.
Surgical and optical density. Of course, clinic time and volume is just part of the equation. Under many managed care fee schedules, the cost to transit a patient is barely covered by the basic exam fee. In most practices, profits flow from surgical procedures and optical products. Divide the number of patient visits you see in a month by the number of cataract, LASIK and other major surgical cases.
Unless you have a young practice, an especially conservative practice or work in a competitive market, the result should ideally be a number at or under 25. In other words, you should see about 25 patients or fewer before coming across each surgical case (a single eye). If you dispense, the optical density of your practice should mean that you sell about $200 in optical goods for every $1,000 in professional medical or surgical services you sell (omitting ASC fees, but including special testing fees).
Revenue per patient visit, or “average ticket.” Divide your annual collections by the total number of patients you see in a year (including unpaid postop visits). If you are a typical physician, the number should come close to $150. It will be higher if you dispense glasses and much higher if you include collections from an ASC. It might be lower than $150 if you are surgically conservative or are constrained by a market heavy on managed care.
Profit per doctor-hour. This is where the rubber truly hits the road and gets traction. In at least purely commercial if not especially professional-sounding terms, it is the gold standard for seeing how your productivity measures up against that of your peers.
Simply take the total annual profits before depreciation and doctor compensation and divide it by the number of hours your doctor(s) worked in the same year. The number may be as low as $60 or as high as $600 or more.
What counts is not so much how you stack up against your peers — inside or outside your practice — but how you are doing compared to yourself in each successive year of your career. As an aside, this is a great way to determine if your satellite office work is worth the time, trouble and travel compared to your main office.
Patient satisfaction counts, too. Raw productivity, without both the perception and reality of great caring, is a prescription for practice disaster. If you have recently turned up the heat and are now more highly productive in raw patient visit terms, but in your hurrying convey a sense of disregard or indifference, you are just going to do harm to your practice all the faster, not help the bottom line.
No magic
There is rarely anything magical about increasing your productivity. The most productive surgeons I know move through their clinic with an economy of motion, a sort of ophthalmic ballet that is probably as hard to master as the real thing.
Ultimately, as in so much of your professional life, it comes down to discipline. Have the discipline to examine thoroughly where you really stand and where the trends are taking you. Do not be an ostrich and assume you will somehow muddle through as you always have in the past. The last decade of Medicare fee reductions have been nibbles compared to the considerable “chomps” ahead of us. Have the discipline to admit to your soft points, and commit to their improvement.
John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. He can be reached at 619-223-2233; email: pintoinc@aol.com.