The business of ophthalmology: trends, opportunities, issues

Part two of this 2-part series looks at ways you can respond to emerging trends in ophthalmology.

Issue: April 15, 2005

ByJohn B. Pinto

Part 1: [The business of ophthalmology: trends, opportunities, issues]

OSN Section Editor Summit [logo] In the April 1 column, I described a number of ophthalmic industry trends covered at the recent Ocular Surgery News Section Editor Summit. While a few of these emerging trends are positive, such as the boom in senior patients over the next 15 years, many trends are slated to have an adverse impact on all of us, according to my presentation given at the summit.

These trends include:

Health care payment and access reform. Fee reduction and service rationing is almost inevitable over the intermediate and long term.

Ancillary profit limitations. ASCs and optical development have forestalled profit drops and even boosted some surgeon incomes for the past decade. But there are few new opportunities on this scale coming over the horizon.

Surgeon manpower crunch looms. America’s baby boom is echoed in the age distribution of American ophthalmologists. Opportunity may loom for the under-55 generation of ophthalmologists.

Destiny of the dollar. Fueled by unbridled federal deficit spending and trade imbalances, the U.S. dollar continues to fall sharply. Well-placed and conservative analysts — not just the “chicken little” crowd — are now discussing the possibility of at least another 20% drop in the dollar’s value, if not a frank currency collapse.

Medicare fee reductions. Ophthalmology is a Medicare-dependent specialty, with 60% or more of typical practice revenues flowing from this one payer. In 2006, absent an act of Congress, there is a statutory obligation to impose Medicare fee cuts of 4% to 5% per year for 6 years. With a simultaneous 3% practice expense inflation rate, typical annual profits could fall more than 60%.

Energy access and cost. Our wealth as a nation and the affordability of superior medical care are due in part to the fact that we are less than 5% of the world’s population using about 25% of the world’s energy. Any adverse change in this disproportionality will have a direct impact on your practice.

A continued erosion of the “ophthalmic middle class.” It seems there was once a large bulge of ophthalmologists in the economic middle ground of the profession, with a majority cohort clustered around median personal incomes. A clear sense emerges from my client data that a divide is continuing to open in this “ophthalmic middle class” and that many ophthalmologists are slipping backward while few surgeons are pulling ahead.

Techno-medico-ethical economics. Medical technology has become a kind of sorcerer’s apprentice, generating a flood of potential benefits and an unsustainable escalation of costs.

Electronic medical records a mixed blessing? President Bush has proposed $125 million in the federal budget to begin developing a national standard for electronic medical records. He wants to have a common system in your practice within 10 years. Federal support for an agreed global standard sounds like a winner on the surface, but what about the downsides? What happens when an automated review of 100% of your records and comparison to preferred practice patterns become feasible? Will you be ready for the monthly equivalent of having your board exams rescored?

Responding to trends

This time I would like to provide a few answers to the obvious question: “What should I do as an ophthalmologist or administrator to respond to these trends?” While waiting for the figurative tidal flood of these macro-issues to arrive (most of which are beyond your control), there are a number of practical coping tactics that continue to be available to you.

First, get to the high ground. In an oceanic tsunami, you climb up the hill to stay safe. In an economic tsunami, you need a financial hill: some combination of diversified personal savings, practice operating reserves and a sufficient margin between your costs and your revenue. If you are not yet financially independent and not yet able to support your lifestyle costs through the passive income of your investments, establish a plan so that you are less dependent on active practice income within the next 10 years, by which time the net effective profits in ophthalmology will likely sag deeply.

Keep your ear to the ground nationally, locally and from the evidence available within your own practice. Get the earliest possible warnings regarding changes in national economic policies, professional fee trends, opportunities for alliances and access to patients, along with the profitability of each segment of your practice. And be sure to act on what you learn. If you have overstepped your natural geographic service area, it may be time to withdraw to the profitable core territory of your practice, divesting of faltering units. If your LASIK or elective plastics segments are faltering today during a relative peak in national consumer confidence, it may be time to contract to general/geriatric eye care and leave expensive, marketing-driven segments of the business to the most sophisticated and risk-tolerant providers.

Work hard to reduce the cost of transiting a single patient encounter. You can do this partially by further containment of costs, but largely by driving incremental patient volumes through your current practice infrastructure with only minimal incremental costs. As a general ophthalmologist, excluding the cost of optical goods and contacts sold, you should aim to get your cost per patient visit well below $95.

If you are feeling entrepreneurial, working at 100% of your personal capacity, and you desire a higher income, maneuver your practice to supply you with more passive income provided by ancillary services (special testing, dispensing, an ASC) and the output of employee providers.

Make fewer business mistakes. In the world that is coming, it will become harder and more expensive to recover from errors such as poor staff choices, unnecessary equipment purchases, ill-conceived satellite offices and marketing snafus. Do not hold back from realistic opportunities, but be sure to diligently review every important decision that is proportional to the adverse impact of a potential error.

Finally, continue to follow “Pinto’s Ten Commandments.”

Hire the best people you can afford. Treat them right.
Provide staff with 1 hour of education for every 79 hours of work.
Keep tomorrow’s appointment book 100% full.
Treat every patient as though they were your only customer.
Ask every patient to refer a friend.
Know your numbers cold.
Find a surgeon more competent than you and copy what they do.
Sweat every detail, even the ones that bore you.
Remember: Financial success is measured in profit per hour, not cases per month.
Live on less than 80% of your after-tax income. Invest the rest intelligently.

As I wrote last time, the gathering challenges for eye care providers and their support staff are not new. Health care reform efforts in the early and mid-90s looked scary in their time, but they were pushed back by a robust economy. We may scrape through this time, too. But just in case, start your climb now to higher ground.

Part 1: [The business of ophthalmology: trends, opportunities, issues]

For Your 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 and the new book The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees. He can be reached at 619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.