Riding high as the Great Recession rolls on

For practices affected the most by the economy, these 10 tips may help to survive the financial roller coaster.

John B. Pinto

As this column goes to press, America’s raw economic figures for the year through April have been out long enough for analysts to weigh in and for federal policy commentators to correlate the data with the latest vibes from Washington. The results are not pretty.

• According to the Wachovia Economics Group, “Suddenly many of the ‘green shoots’ that gathered so much attention appear to be losing their bloom.” There was a larger than expected retreat in retail sales in April, and earlier figures for March were corrected downward. Grocery purchases alone were down 5% year-over-year. Layoffs and rising jobless figures are expected to prevail as General Motors joins Chrysler in shuttering production, with deeper knock-on effects looming for suppliers and dealers alike.
• JPMorgan estimates that America’s baseline “natural” rate of unemployment may have risen from 4.8% to 6%.
• Over the past 3 years, new housing construction has fallen by three-quarters, from more than 2 million building starts per year to only about 500,000.
• With a federal budget deficit now at $1.8 trillion, the U.S. government is, for the moment, borrowing $1 for every $2 it spends. (That would be like your family earning $100,000 a year and spending $200,000 — obviously not sustainable, and eventually crippling to pay back.)
• America’s gross domestic product growth rate is expected to slow because of an aging population, a leveling off of the number of women in the workforce and a remarkable drop in the rate at which the overall workforce is growing, from a historic 1.1% increase in new workers every year to just 0.6% over the next 10 years, according to the Congressional Budget Office.
• According to New York Times columnist David Brooks, “Health care costs are now the crucial issue of [Barack Obama’s] whole presidency. The president has held headline-grabbing summits … he emphasizes cost control as much as expanding health coverage.” But if you talk to enough experts, Mr. Brooks said, you come away with a stark conclusion: “There are deep structural forces, both in Medicare and the private insurance market, that have driven the explosion in health costs. Without serious health cost cuts, this burst of activism will hasten fiscal suicide.”
• The more lingering and deep this recession, the more odds will rise for abrupt, “fire, aim, ready” health care reform from the Obama administration.

How should you apply these macroscopic impressions of America’s economic landscape in your practice?

Three types of practices

By now, most of you have had more than a year to observe firsthand the impact of the recession on your practice. You probably fall into one of three categories, based on client statistics:

1. About one-quarter of you are sailing through this recession in fine shape. Heck, a few of you have even over-shot and are up double digits this year because you either saw the storm coming and worked hard or were fortunate enough to be based in a sheltered community.

2. Another half of you are comfortably treading water, watching your business closely — with more vigilance than ever before, and that is a good thing — but now confident you will weather the continued economic and health reform storm just fine.

3. A less fortunate one-quarter of the ophthalmologists and managers I talk with are experiencing firsthand the old maxim about how recessions harshly reveal every flaw in your business model and every ounce of fat in its execution.

If you are a Category 1 practice, keep up the hard work. You have probably more than earned a reprieve from this recession through your efforts. If you fit into Category 2, preserve your vigilance. Do not let stray bits of cheery economic news encourage you to open the floodgates.

It is the Category 3 practices that keep me up at night. Without steady efforts to paddle back from the brink, many such practices are destined to be flung over the falls. Here is the “short list” of turnaround tactics for this third, vulnerable group.

Ten turnaround tactics

1. Get serious about rightsizing lay staffing levels. You should be driving $120,000 or more per year in revenue per lay staff full-time equivalent. Dividing total payroll hours in a year by the number of patient visits should yield a figure of 3 hours or less per patient visit. Lay staff should cost less than 35% of annual collections. If you are off on any of these and other common norms, make changes now.

2. Review output by provider. General/comprehensive ophthalmologists and optometrists should be able to see no fewer than 450 patient visits per month; 550 or more is the new “normal” and 650 or more is the new “push goal” for the era that lies ahead. If you are over-staffed with associate providers, reduce hours, reduce professional wages or terminate employment.

3. As much as it may seem impossible to achieve as we move toward higher patient volumes, treat every patient as though he were a VIP member of your inner circle of friends.

4. Halt capital outlays. Until the trajectory of the current recession is clear, table all non-essential purchases. Ask: “Will this purchase enhance our profitability in the next 3 months?” If the answer is “No,” hold back.

5. Stay focused on the top line. Most practices are already careful about expenses. Profit gains have to be largely driven by incremental revenue gains. Serving three more patients a day can result in a six-figure annual net profit boost. Boost refraction fees to $45 or more. Perform all needed testing now, not on a future visit.

6. As the physician-owner of an on-the-ropes practice, spend 50 or more hours per week in your company. Spend every hour of every day on only one of three activities:

• Direct patient care that pays the bills.
• Getting more patients.
• Basic housekeeping and management chores.

7. Eliminate faltering satellites. Calculate the average monthly profit per office location (applying the best allocations of revenue and expenses you can) and divide this figure by the average number of MD hours (including travel time) per location.

8. Fake yourself out, if that is what it takes to double-down on your survival efforts. Brace yourself for a prolonged recession and massive health care reform. Be ready for the worst-case scenario and delighted if it does not come to pass.

9. Review personal financial plans with your accountant or other professional, and examine all the what-if scenarios. Get and stay liquid. Examine your balance sheet for a quick ratio (current assets divided by current liabilities) that materially exceeds 1.0.

10. Be very wary of relying on transient, hopeful news about the state of the economy to re-invest heavily in refractive surgery. Unless the U.S. consumer reverses course with the current brisk deleveraging now under way and is willing to take on more debt, I believe that annual LASIK market penetration will continue for many year to float along at about 60% of historic peaks, influenced not only by the economy but by the aging patient’s shift to lens-based options.

In summary

For many quarters to come, we will be riding an undulating roller coaster along the bottom of a slow, U-shaped recovery. Try to be, to the best of your ability and resources, the kind of surgeon who makes exceptional efforts and responds smartly to the spur of current events. Be the kind of business owner who pulls ahead of those using the lingering gloom as an excuse to stop trying.

The pace of our economic slide has abated (the much-welcomed “second derivative” effect) and each hopeful bounce on Wall Street is cause for celebration, but my crystal ball is still veering to the defensive. Remember that even when we finally touch the lowest macroeconomic floorboards as a country and start to climb back out, we are still going to be holding our breath for the impact of what is likely to be many years of health care payment reform.

Keep your wits about you. Keep your powder dry. Keep your party hats in storage. We all have a bit longer to go to get through this together. And the future is still going to be splendid on the far side of the Great Recession.

• John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. Mr. Pinto 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: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees, The Women of Ophthalmology and the 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; Web site: www.pintoinc.com.