Ophthalmology’s greatest lessons from the Great Recession

Heeding lessons from the latest economic downturn can help surgeons prepare for the next one.

John B. Pinto

The government has no special abilities to forecast or predict a darned thing. … Act as if the worst could happen again at any time. It can and it will. Let us pray a recovery is happening — but let us also tighten our helmet straps.

— Lawyer, actor and economic pundit Ben Stein

Is the Great Recession over? Raw economic growth trends seem to say yes. Stubbornly high unemployment and slumping consumer confidence say, “Not so much, not yet.”

The economists of the world are still debating what constitutes a technical turning point. But let us assume — at least for the purpose of this column — that we are out of the darkest part of the woods, even if we are still stumbling around in the shade. What have we learned of practical value to the profession of running an ophthalmology practice?

As they are now printing on T-shirts and coffee mugs, experience is something you do not get until just after you need it. This applies as much to your personal and business life as your experience in the OR. So let us condense what we have learned into 12 key points that we all can hopefully memorize for the next time around.

1. Predicting the complex meanderings of the economy is ranked somewhere between hard and impossible. While a few investment savants saw 5 years ago that which in hindsight is now so obvious to all of us, the majority of the academic and governmental gurus we lean on were asleep at the wheel. If they cannot predict, then neither can we as individuals. So the core lesson is this: Stock up. Gather reserves. It is an uncertain world out there. You are just asking for trouble living paycheck to paycheck. Or putting all of your assets in one financial class. Or depending solely on one procedure or payer.

2. The game has potentially changed. An old and ominous curse goes, “May you live in interesting times.” And these times we are living through are certainly interesting — and a sharp break from our personal experience of living in a dominant and steadily growing nation over the past 60 years. Some observers believe that the Great Recession was not really a recession per se, but a resettling to a new and durably lower level of economic activity. In their view, the past couple of generations have enjoyed the fruits of America’s post-World War II industrial dominance, combined with cheap and abundant energy. (That is what has allowed us until recently to spend 50% more than the rest of the industrial world on health care.) If these analysts are correct, the health care spending bubble will burst soon, and we will settle back down into health outlays on parity with Europe — around 12% of GDP rather than our current 18%. Kind of makes the threatened 21% Medicare cuts seem benign, yes?

3. Diversification is a core survival strategy. Our Pleistocene and earlier forebears’ favorite foods were the so-called mega-fauna — giant bison, mammoths and the like. Once changing climate conditions and overhunting wiped out these abundant calorie sources, our ancestors had to shift gears to smaller prey and a more plant-based diet. We have had to do the same in ophthalmology. The era of $2,500 cataract fees is over. Now the typical practice makes fully 10% of its profit on refraction fees and another 10% selling glasses. Have you installed vending machines yet? You will one day.

4. Do not be overly emotional on the upside or the downside. As the Dow was plummeting, and right along with it LASIK volumes, I received panicky calls every week asking, “What’s happening? When is it going to stop?” Whether business is up or down, fees are up or down, it is easier to think clearly if you remain calm. I still remember surgeons in the last half of the 1990s, when refractive surgery was surging, who bought extravagant second and third homes, assuming the bottom would never drop. The mirror image of this has been seen in the past 2 years, when surgeons and managers in a panic have dumped perfectly good staff, facilities and business plans, assuming the end was nigh. Remember: It is never going to be as good or as bad as they say.

5. In good times, practice-performance benchmarking is important. In bad times, benchmarking is essential. This is not just for the obvious, practical business reasons, but also for reasons of owner psychology and peace of mind. In good times, you have an immediate feedback loop — your bank account — informing you that all is well. In bad times, you need a lot more data to answer a myriad of supplemental questions:

• Is our utilization satisfactory and in line with that of peers?
• Which of our expenses are too high?
• How much might we trim these without harming the underlying practice?
• How fast is our business declining?
• Have we reached bottom yet?
• Has our practice begun to recover?

6. Do not let your sentiments about people bring your practice to the brink of disaster. When I ask older, experienced businesspeople what they have learned after seeing many recessions come and go, their typical answer is, “I learned with each successive recession to get faster at making spending and staffing cuts. Early in my career, I felt awful about reducing pay or benefits, cutting hours, or letting people go. As a result, I put my entire company in harm’s way and risked a lot more people in the end as compared with selective, early pruning.” This recession may be over. Unless you are on the brink of retirement, it is certain that you will have to manage your practice through another one. Remember: They do not give out any prizes for going broke slowly. Take early, sufficient but not excessive action the next time around.

7. The best and smartest managers and doctors do not make fewer mistakes; they make them more quickly. This relates to No. 6 above. In fat times, you can dawdle making decisions about economically floundering providers, nonperforming satellite offices or hiring errors. In lean times, you have to think and act more quickly. Apply this simple two-step algorithm to any decision you are stuck with today:

• Is the action I am contemplating ethical and legal?
• Will the action increase the profitability of our practice?

Whenever the answers to these two questions come up yes, plunge in and do not look back.

8. Eye care profit enhancement is largely a top-line exercise. For all the discussion of cost cutting, remember that profit enhancement is much more often a matter of revenue enhancement than cost containment. Consider this simple example:

• You run a practice with $1 million in annual collections.
• You employ eight staff to help you serve 500 patients each month.
• You collect about $167 per patient visit.
• You have a 40% profit margin and earn $400,000 per year.
• You would like a $100,000 pay raise.

In this scenario, you could (simplifying a bit for the sake of illustration) cut $100,000 in expenses, let us say, by firing about three staff members. Or you could see an additional 50 patients per month (just three per clinic day). Which of these two approaches would be easier for you to execute?

9. It pays to sustain promotional efforts, even in a downturn. LASIK leads, consults and cases are now starting to rebound ever so slightly in a fragile recovery for refractive surgery. My impression is that the practices seeing this recovery first are those that have sustained their marketing levels through good times and bad. This observation is in line with historic branding studies in major consumer companies, showing that brand equity and market share on the far side of each recession builds for those firms in which advertising efforts and budgets are largely preserved.

10. The most financially successful eye surgeons adopt the principles and steps of old-fashioned capitalism:

Step 1: Launch a business.

Step 2: Rather than personally consuming 100% of the profits from the business, set aside some profits for growth and development.

Step 3: Use this marginal free cash flow to pay for equipment that allows you to provide better, faster and more efficient care. Use the funds to hire staff who allow you to see more patients. Hire employee doctors to generate passive income for you as an owner. Build ancillary units, such as ASCs and optical dispensaries.

Step 4: Spend liberally on effective marketing to broaden your reach and feed the machine you have created.

Step 5: Repeat as necessary until you either: a) reach your goals, or b) reach the limits of your personal talents and risk tolerance.

A critically important note here: It is not essential that you strive for being the most financially successful surgeon. It is perfectly honorable to create — by active design — a boutique practice.

11. Cash flow and access to capital rank just behind love, food, shelter and clothing in the hierarchy of human needs. Most surgeons were caught flat-footed by the Great Recession. Those with superior patient accounting systems and deep capital reserves sailed right through those first few shocking quarters. Surgeons with wobbly collections work and no meaningful line of credit lost a lot of sleep. Wherever you are today, improve your position — starting right now. Nail down any loose protocols in revenue cycle management. Negotiate a bank line of credit equal to at least 3 months of practice operating expenses. Live on less than 80% of your after-tax income and invest the rest intelligently.

12. It is so easy to forget that patients value your services more than you think. The typical client practice grew revenue and profits straight through the recession, while most other businesses shrank and many went out of business entirely. Repeat after me: “There are 610 million eyeballs in America, about 40,000 per ophthalmologist, and there is an unlimited market demand for not going blind.”

The next recession could arrive this September. Or it could be 10 years off. But it will come. Learn and apply the lessons. Do not make the same old mistakes. At the very least, strive to make new ones.

• John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. He is the author of John Pinto’s Little Green Book of Ophthalmology; Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement; Cash Flow: The Practical Art of Earning More From Your Ophthalmology Practice; The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees; The Women of Ophthalmology; and his new book, Legal Issues in Ophthalmology: A Review for Surgeons and Administrators. He can be reached at 619-223-2233; e-mail: pintoinc@aol.com; website: www.pintoinc.com.