Smaller practices can compete against larger ‘eye institutes’

Ophthalmologists must implement certain strategies to survive and thrive in a world of larger practices and institutions.

Issue: September 1, 2007

ByJohn B. Pinto

John B. Pinto

A note from the author:

This month’s column is dedicated to a kind reader, Dr. Devin Prabhakar, the administrator of a small eye center in India. Although he and his colleagues operate a completely different environment than OSN’s Western readers, Dr. Prabhakar’s recent correspondence to me about the challenges of running a modern, single-specialty eye center surrounded by giants is a reminder that the practice of ophthalmology the world over is in many ways exactly the same.

I field the same nervous questions every month: “Will small practices, even solo practices, survive? Is it still possible to open and run a modest practice in a world of ‘eye institutes?’”

In a word, “Yes.”

The trend toward ever-larger ophthalmic practices is now firmly entrenched, driven by managed care, selected economies of scale, marketing efficiency and an emerging new class of sophisticated professional practice managers. Practices in the $10 million-a-year-and-up class are increasingly common. But such practices, as swaggering and invulnerable as they may seem looking in from the outside, have significant challenges that counterbalance their institutional heft.

For example, large practice boards, often composed of competing subspecialists, are not always unified. It can be difficult for such boards to approve outlays for marketing or capital equipment that serve only a subset of the practice.

Strategic decisions of every kind can be slow in larger clinics. I have seen many examples of boards that have dawdled for years over a surgery center or satellite office development, losing millions, while their more nimble competitors plow ahead with such decisions.

And even once a decision has been reached in larger practices, implementation can be slow. For example, hiring a new doctor in an “eye institute” commonly involves economic analysis, winning buy-in from various internal camps and selecting a search committee. To achieve the same hire, a soloist need only form an educated hunch in the morning and call a search firm before lunch to get the ball rolling.

Factors for success

But these advantages aside, several other factors have to be aligned to allow you to thrive as a small player in an increasingly institutional environment. The best instincts and fastest follow-up in the world will not help a small practice located in an overly competitive market or a city where all the managed care contracts have been sewn up by bigger centers with multiple locations and a deep bench of subspecialists.

Here are some of the critical success factors that smaller-scaled practitioners have harnessed in recent years.

First and foremost, it is crucial to pick the right market. In the United States, there are about 20,000 people per actively practicing ophthalmologist. That sounds like a lot of patients to go around, until you read statistics from other parts of the world. European eye surgeons have about 40,000 people per ophthalmologist, and in India, there are more than 100,000 people per eye surgeon. If you are a small-scaled practitioner and your current market (or one you are considering) has more than 30,000 people per ophthalmologist, your odds of business survival go up strongly. Of course, adverse population-to-provider stats can be offset by at least three other factors:

How old are the other ophthalmologists in town? If you examine the age distribution of the current providers and find that this skews to older surgeons nearing retirement, you may find it easier to insinuate yourself into the market — if not now, then soon.
How old is the population? For most subspecialists and all general ophthalmologists, the older the population base, the better. America’s 65 and older population is 13% and growing rapidly. If, as is the case in some markets, the senior ratios are 15%, 20% or even 25%, this may sweep aside concerns about an excess number of established ophthalmologists. At the other end of the age spectrum, if you are a pediatric ophthalmologist, you should be looking for a market with an abundance of kids and fewer fellow subspecialists.
How affluent is the population? Affluence drives better practice economics along the entire age spectrum. Better-educated and better-employed citizens enjoy better insurance coverage and more disposable income for elective care.

Tying it all together

Successful solo and small-practice ophthalmology is the province of cheerful workaholics. You have to be ready to work long, hard and smart. If you do not have numerous partners to share the largely fixed costs of opening and running an eye center, you will be shouldering that burden alone. Fifty-hour work weeks are common, and longer weeks are in the offing as expensive new technology moves from the realm of “nice to have” to “standard of care.”

Of course, raw hours in the office are less important than how you spend that time. For generalists and most subspecialists in large and small practices, the days of 15-patient mornings and the afternoon off for golf are over. If you are not comfortable seeing more than 45 patients a day, consider being part of much larger group where economies of scale have the potential of allowing you to enjoy a more relaxed pace, shorter hours or both.

You must be scrupulous in containing costs. Although profit enhancement in medicine has always been much more a matter of revenue enhancement than cost containment, smaller practices have to keep an especially careful guard on the checkbook. I work with some small practices that routinely enjoy 50+% profit margins (in a world where 35% to 45% margins are normal). They achieve this favorable performance with small offices, outstanding patient service, which reduces external marketing costs, and a small crack team of dedicated workers who are more mission-driven than financially driven. But parsimony can be carried too far. Cutting reception staff hours to save a few hundred dollars a week can result in 10-fold larger losses through poor customer service, slipshod billing practices and low recall diligence.

If you are contemplating the development of a new practice of any size, large or small, in a community you do not already know well, due diligence is essential. Beware of potential problems in managed care provider contract access. One of the most powerful advantages of being a larger, multi-subspecialty practice is the ability to play toe-to-toe with the third-party payer and general medical forces in a community. As a smaller-scaled specialist in the years ahead, you are likely to face the increasing prospect of coalitions of more powerful players blocking your access to patients and plans.

‘Comprehensive ophthalmology’

The small-time operator has to develop diverse clinical skills. You need to be a know-it-all. So-called “comprehensive ophthalmology” is a counter-current to the rising trend of subspecialization and a practical necessity if you are going to survive in a small-scaled practice environment. Surgeons who prefer to do a little of everything are perfectly suited for working in compact practices, especially if they locate in more rural settings where both the lay and professional communities will appreciate a Jack or Jill of all trades.

The same diverse clinical interests should ideally be mirrored in your engagement with practice management. As a solo or small practice owner, you need to be familiar with the operating details of your enterprise. At the heart of this is your choice of — and working relationship with — an office manager.

The correct choice of a lay leader for your small practice is much more critical to survival than in a larger setting. Why? In a large practice, there is lots of built-in redundancy. It is common to have a cohort of strong middle managers, as well as an engaged managing partner. If the executive director or administrator of the practice is lost, operational integrity and group leadership can often be maintained at acceptable levels for many quarters — even years, if necessary. In contrast, the administrator or office manager of a solo or small group practice is typically the only person who possesses critical operational knowledge. The loss of this one key person is far more crippling to a modest practice. The skill set, tenure and commitment of your small practice’s business manager are critical to success.

The trend toward super-sized practices is not going away. But with some caution, you can operate successfully counter to this trend, preserving traditional practice scale, professional independence and the real pleasures that attend individual entrepreneurism.

For more information:

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 and a new book, The Women of Ophthalmology. He can be reached at 619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.

If you would like to contact Dr. Prabhakar, you may reach him at: Dr. Devin Prabhakar, MS, FRCS, Divya Prabha Eye Hospital, Kumarapuram, Thiruvananthapuram, Kerala State, Pin 695 011; e-mail: drdevin@gmail.com; Web site: http://www.divyaprabha.in.