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The variations of private practice models, part 1
These five models can help you plan out your career and practice development options.
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Related Article: [The variations of private practice models, part 2]
There are hundreds of variations on how you can practice ophthalmology. Large practices and small. Business-like practices and loosely run ones. Practices offering only a narrow subspecialty niche or ones offering every conceivable eye care service and product.
The kind of practice you join or build is under your control. And yet relatively few young surgeons I have met through the years think deeply about where they would like to spend their 30-year careers. Even fewer mid-career surgeons already in practice draw up plans to achieve one particular endpoint model.
Which got me to thinking, while everyone knows there are lots of potential practice models, no one has made an inventory of the varieties of practices and laid out their similarities and differences and the advantages and disadvantages of each. I would like to do that for you here, albeit in summary form and for just a few representative practice models. After all, a book could be written about the nuances of each of these practice types. This is part 1 of a two-part column that will conclude next month.
Don’t get too worked up about the rather arbitrary categories of the first five practice models I have abstracted below. There is a lot of overlap and mix-and-match potential among these alternatives, and the boundaries between one type and another can be blurred.
I have concentrated on the most common private practice models and their various scales and variations, omitting governmental, military, educational, staff-model HMO and similar institutional settings, where the ophthalmologist is a durable associate and where entrepreneurial opportunities can be limited.
This set of five private practice models this month, with five more to follow next month, might provide a useful map to you on several levels. This list may serve as an organized way of inventorying some of your career options if you are looking for a job, either as a new grad or a mid-career surgeon. If you are growing and developing your own practice, this list may suggest a target to aim for. You may even see in this list a safe fallback position if you have overreached and need to downsize or convert your practice to a different enterprise model.
Small solo practice
Description: For the sake of this discussion, let’s arbitrarily set this as a practice with less than $400,000 in annual collections. Such a practice may either be kept small intentionally for lifestyle, lifestage/peri-retirement or child-rearing reasons, or may be held back by marketplace or provider-related limitations.
Strengths: From a lifestyle perspective, nothing beats a small solo practice, unless you are in such a practice involuntarily. With just two or three loyal staff and a slow clinical pace, this model resonates back to a bygone era of longer exams and more intimate patient relationships. I have worked with surgeons in such practices who relish what they can do with their time off (sailing, mountaineering, home schooling, etc.) and who are perfectly comfortable with the accompanying income concessions.
Weaknesses: Given the high fixed costs of modern practice and the need for a minimum number of patients to cover these costs, the profit margins are much lower in this setting. This can be offset with expense sharing or job-sharing arrangements, whereby two independent, halftime surgeons share the same facilities and staff.
Annual income potential: May be as low as $35,000 to $75,000 or range to more than $200,000 with special efforts to contain or share costs.
Larger solo (or one-owner)
Description: You are on your own, or if you have other doctors, they are few in number, junior and enjoy no ownership position. You can hold your board meetings in the morning while looking in the mirror shaving or applying makeup. Some of the happiest surgeons I know are in this category, with no partners to report to and a comfortable resignation to a business that will never exceed a million or two in annual sales.
Strengths: The chief strength of this practice model is a seven-letter word — control. You have only your patients and third-party payers to report to, you can make management decisions on a whim, and you need not be completely hemmed-in with respect to scale. By adding employee ophthalmic and optometry providers, you can preserve control while still ramping scale.
Weaknesses: In addition to the unshared fixed costs of a solo practice of any scale, even the most robust solo practice can feel a little lonely. And beyond this subjective feeling, the objective reality is that as a soloist you are vulnerable not only to the encroachment of larger practices in your service area but also to the vagaries of your own health and continued enthusiasm to pull the sled all by yourself. Prolonged illness or just a little extra time away can be economically punishing. Being on call can become a burden.
Annual income potential: Pre-tax income typically lies between $200,000 and $500,000, but it can be much higher in practices with an ASC, optical dispensing and other sources of passive income.
Itinerant practice
Description: You need not have a single, physical presence to be in practice. A small number of subspecialists and even generalists practice largely, if not entirely, out of host clinics. Using the marketing, facility, staffing and patient accounts resources of such practices, you can avoid the complexity of business ownership and still enjoy the pleasure of independence. This career approach can be as unsettled as taking on serial locum tenen positions or as sessile as cycling between two or three local offices in your community for many years.
Strengths: Like a clever virus, such doctors move in and use the host’s resources to provide patients, staff, facilities, systems — basically everything.
Weaknesses: With this approach to practice, even after several years you will feel like a permanent visitor everywhere you work, except perhaps for your personal office at home. You will not be an employee, but not a free agent either. And since your host practice is likely able to change visiting providers on a whim, you are susceptible to losing an important part of your income overnight.
Annual income potential: As a locum tenens, a per-diem rate of $500 or more plus expenses is typical. It is also common to have a productivity bonus for surgical care or special testing. It is typical as a long-term visiting provider for many years in the same practice to either have you pay a fixed rent, to have an associate’s compensation methodology (a base plus a percentage of revenue above some multiple of your base salary but as an independent contractor) or to arrange your compensation to be a percentage of personal collections. As such, your income will be proportional to your personal ambitions. You will probably make significantly less than if you ran your own fixed-site practice, but you will have fewer headaches and the potential of lower fixed expenses, allowing you a little more freedom for prolonged vacations and sabbatical time.
Single subspecialty practice
Description: This is a practice with just retinal care or just glaucoma subspecialists or only pediatric ophthalmology. Unless in a large market, such practices usually top out at three to five surgeons and even in the largest markets are often most efficient at this scale.
Strengths: In a pure subspecialty practice — for example, a pure retinal or oculoplastics setting — there are fewer resource squabbles and less discord among the partners over compensation methodologies. This is unlike a multi-subspecialty practice, where the naturally higher profit margins of retinal care, as one example, are often not accounted for, resulting in a financial subsidy flowing from subspecialists to generalists.
Weaknesses: The most prominent weakness of this practice model can be access to patients. With multiple subspecialists to feed in a single group, it sometimes becomes necessary to stretch satellite locations hundreds of miles from the main office, reducing both efficiency and profits. In markets where generalist practices are coalescing into ever-larger multi-subspecialty or full-service groups, the gravest concern is that such super-groups will hire their own subspecialists. (It is best to be proactive and suggest jointly ventured departments, rather than letting such referral sources slip away entirely.)
Annual income potential: When it works and allows a sufficiency of patients to care for, this is hands-down the most profitable setting for any subspecialist ophthalmologist.
Refractive-surgery-only practice
Description: The shift from incisional to laser-based refractive surgery many years ago coincided with a strong economy in the late 1990s and an echo of managed care worries from the early ’90s. This led many mixed cataract-refractive surgeons to abandon cataract care and shift to a refractive surgery practice. A percentage of these doctors have been able to sustain a purely refractive business model.
Strengths: The advantages of a purely refractive practice are manifold — a younger, hipper patient base, patients who enjoy a 30-year benefit from your services and strong profits in the strong years.
Weaknesses: The chief weakness of this business model is extreme profit volatility. In my typical client setting, a good year can yield profit margins of more than 40% while a bad year falls to 5%. LASIK volumes are directly proportional to consumer confidence statistics, with figures provided by the conference board monthly. As this article goes to press, the Dow has dropped over 400 points in just a few weeks, and consumer confidence figures are at their lowest point in 18 months. If this trend continues, life is going to get difficult for dedicated refractive surgeons.
Annual income potential: On a profit-per-surgeon-hour basis, LASIK is disappointing in most settings when compared to general/geriatric eye care. This has always been the case with refractive surgery except for the first heady years of incisional RK, when a large backlog of candidates was in the pipeline and it cost only $5 to stimulate an advertised lead. Of course, everyone keeps going for the brass ring enjoyed by surgeons with old-line refractive surgery practices, well-established brand names and a large base of happy patients. For the rest, eschewing general care for a purely LASIK practice is foolhardy in today’s world.
Using this informal guide, you can see that some practice models are more profitable while others are more secure — and for you, personally, others may be more gratifying. If you are ready to build, join or re-engineer a practice, use the broad categories above to guide your thinking. Don’t settle unconsciously for whatever opportunity happens your way — plan and dream your way to the practice setting you deserve.
And check in the July 1, 2005 issue for the rest of the list.
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.