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The variations of private practice models, part 2
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 1]
This month’s discussion is a conclusion of the two-part column that started last month. We conclude with a list of five additional varieties of ophthalmic practice, laying out their similarities and differences and the advantages and disadvantages of each.
There are hundreds of variations on how you can practice ophthalmology. Large practices and small. Business-like practices and loosely run ones. Practices that offer only a narrow subspecialty niche or every conceivable eye care service and product.
The kind of practice you join or build is under your control. And yet few surgeons at any stage of their careers think deeply about where they would like to spend their 30 years in practice.
As I described last month, don’t be frustrated by the rather arbitrary categories of the five practice models I have abstracted below; 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 non-owner/associate and where control and entrepreneurial opportunities can be limited.
This set of five private practice models might serve as a useful map to you at several levels. This list may provide you with an organized way of inventorying some of your career options if you are looking for a job, either as a new grad or as a midcareer surgeon. If you are growing and developing your own practice, this list may suggest a target to aim for. You may even see a safe fallback position if you have overreached and need to downsize or convert your practice to a different enterprise model.
Multi-subspecialty practice
Description: In this relatively uncommon practice model, there are no general ophthalmologists and no primary eye care is provided. Instead, two or more subspecialists (eg, glaucoma and plastics) join under the same roof to serve the primary- and secondary-care referral community.
Strengths: These practices tend to be formed not by any overt business drivers but through the close personal relationships of compatible subspecialists. Such practices can stop at just two or three subspecialty domains or grow to become a full-service practice (see below.) By having a common audience to serve, mixed group practices such as this can efficiently share marketing and outreach resources, even if there is limited overlap on subspecialty-related medical equipment or supplies.
Weaknesses: Depending on the subspecialties involved, there may be little overlap in equipment needs. This practice model is not as efficient as a single subspecialty practice.
Annual income potential: Highly variable depending on the subspecialties involved. Profit margins and thus doctor personal income as a percentage of personal collections tend to be lower than in single subspecialty settings but higher than in full-service practices.
Consumer marketing-biased
Description: Irrespective of size, this is a practice that spends a higher-than-usual percentage of collections on consumer advertising — the source of a majority of its patients. In such practices, it is not unusual for 10% or more of every dollar collected to go back out for paid promotion. Being a marketing-biased practice can be an early stage in the development of a practice that eventually comes to rely more on patient-to-patient referrals, or this can be a durable practice model. In the latter case, this occurs for two common reasons: either local competition is so steep that a practice must chronically spend outsized sums on promotion, or the practice’s customer service, quality assurance or recall protocols are flawed.
Strengths: The upside of being a skilled and avid marketing practice is control over the financial destiny of your practice as well as the volume and mix of services you provide. Most surgical practices that advertise do so to promote surgical volumes, not routine care. Done ethically and truthfully, without impugning the skills of others and combined with appropriate utilization, case selection, patient orientation and surgeon skill, advertising is not only financially effective but also gratifying for those ophthalmologists who desire a more surgically oriented practice. And let’s be truthful. Marketing, when it works, can also be a lot of fun. I still get a kick seeing clients beam when they are recognized on the street by non-patients.
Weaknesses: The biggest disadvantage of this practice model is cost. This cost may be unavoidable with an elective practice such as refractive surgery or plastics. But if you are compelled to spend more than 10% of cash flow on marketing in your general/geriatric practice, you are spending three or four times what the typical practice spends and cutting profits by as much as a quarter. Being a highly visible promoter, especially if such promotion is disproportional to your practice’s scale or reputation, will expose you to peer jealousy or scorn. An excessive dependency on this one focused source of new patients can leave a practice exposed if media costs rise or competitors ramp up their own public visibility and blur your positioning.
Annual income potential: Practices that advertise prominently have much higher overhead costs in both absolute and percentile terms. But even with smaller profit margins, profits can be much higher in an ophthalmic practice that takes a business-like approach to advertising. As an approximate guideline, $1 spent intelligently on consumer advertising returns at least $3 to $5 directly and a lot more in spurring subsequent referrals.
Comanagement-biased practice
Description: Without really trying, most cataract surgeons, whether they comanage or not, will perform about 5% to 10% of their cases on patients referred by optometrists. With modest efforts at doctor-to-doctor relationship building (on the order of a few hours a month), this ratio can climb to 15% to 25%. With the right practice location, exceptional surgical skills and considerably more resources put into outreach, it is not unusual to achieve a practice with more than 35% of cases flowing from optometrists.
Strengths: A comanagement-oriented practice has a higher surgical density than any other model. It is not unusual for such practices to transit just five or 10 patient visits per major case when the typical visit-per-case ratio is 25. This markedly increases the revenue per patient encounter and the profit yield per surgeon-hour.
Weaknesses: This enterprise model, like the consumer marketing-biased practice, can lead to a practice overly dependent on one source of patients. Any future regulatory shift away from comanagement could have a dramatic impact on such practices.
Annual income potential: Pick almost any service region of the country. Identify the cataract practice with the highest case volumes. Chances are better than even that the practice comanages care with optometrists. This is a little less so with the highest-volume LASIK surgeons, who tend to market their way to success using direct-to-consumer advertising more than comanagement.
Larger, full-service practice
Description: You will find at least one of these practices in most major urban centers of the country. These are typically the practices with virtually all primary care, general ophthalmology and subspecialty services available under one roof, with ancillary ASC and optical coverage. A hub office with many spoke offices is typical. Most practices are more than 20 years old, many of them are multigenerational, and they arose either through the slow accretion of providers and facilities or abruptly through the merger-consolidation of practices in the region.
Strengths: These are the 800-pound gorillas of their markets. It is a relief to become an associate or partner in these larger organizations because, once developed, they are hard to dislodge from their primal position. Such practices will be first in line at the managed care trough if efforts to limit provider panels resurface with any vigor in the years ahead. These positives are potentially outweighed by the weaknesses.
Weaknesses: There is a tendency for practices on this scale to be elephantine in their decision making and execution. New doctors who join such behemoths often take some time to settle into a bureaucratic tempo that can be unaccustomed and frustrating. At the end of the day, with proper management and dancing lessons, even the largest practices can be made nimble enough to stay durably in the lead.
Annual income potential: Being a provider in such practices is often gratifying, with colleagues galore and a sense of secure tenure in the community, but this is not the most profitable setting. Figure, typically, on higher overhead levels and somewhat slower management decisions, which can allow smaller and more nimble competing providers to pull ahead, especially in refractive surgery. In the long run, the security of the income of doctors in this model can make up for the somewhat lower year-on-year earnings.
Multispecialty practice
Description: It is hard enough working with five or 10 fellow ophthalmologists in a midsized eye clinic. Imagine the complexities and conflicts that arise when a few ophthalmologists are just one department in a 50- or 500-doctor group. Despite the limited growth of multispecialty practices in most parts of the country since the wane of prepaid health care and the tendency for such practices to skip adding eye departments due to high costs and difficult recruitment, this opportunity is still open to you if you are looking for a job today.
Strengths: The chief advantage is access to contracts and a tendency in larger clinics for the doctors to be blissfully unengaged with the business details of their practices, which is great if you hate management burdens.
Weaknesses: As a provider in such settings, your voice is limited, and any policy you influence is influenced slowly. Your favorite saying has to become “I can live with that.”
Annual income potential: The greatest concern among specialty doctors in multispecialty clinics is high overhead and the almost inevitable subsidy that flows from specialists to primary-care providers. There can be a profound diseconomy of scale that leaves many general ophthalmologists and subspecialists in such settings taking home only 20% to 30% of their personal collections.
Using this informal guide, you can see that some practice models are more profitable while others are more secure — and for you, personally, others still may be more gratifying. If you are ready to build, join or re-engineer a practice, use the broad categories above and in the previous column 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.
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.