How to treat the most common practice flaws

Remedies are offered for six deficiencies frequently seen in ophthalmology practices.

Issue: April 10, 2012

ByJohn B. Pinto

John B. Pinto

Certain defects are necessary for the existence of individuality.

— Johann Wolfgang von Goethe, 1749-1832

Back at the dawn of time, perhaps many decades ago, when your ophthalmic practice was first born, it likely came to be with several innate “defects”— structural and functional impairments introduced by long-ago consultants, accountants, attorneys and the founders themselves.

Some of these in-born business defects were as easy to see and as benign as birthmarks or a funny left earlobe. In your practice, this could be the slightly quirky doctor-founder who is still hanging on or a penny-pinching philosophy that still impedes growth and retards innovation while slightly diminishing the quality of patient care, but not enough to cause alarm.

Other founding defects were more serious, perhaps even occult, the business equivalent of a baby’s heart anomaly — harmless now but potentially fatal in the years ahead if not properly treated.

As Goethe wrote, and without carrying the analogy too far, some of these defects lead to charming differences from one practice to the next and should be celebrated. Every practice has its own distinct personality, after all.

However, some of these defects, if still present in your practice today, are ripe for revision. Here are six common abnormalities, their origins, their potential for mischief and their treatment options. Perhaps one or more of these apply to you, your colleagues and your practice.

1. An aversion to nominating a doctor-leader

Bees do it. Wolves do it. Nations do it. So, why do so many group practices resist nominating an alpha leader? There are several drivers. In some practices, it is a simple misunderstanding about the role and real value of a managing partner. In other settings, nobody is willing to step up and commit their time and ego to the task.

But the most common reason is a misplaced desire for absolute equality and to avoid hurting the feelings of those who would not be selected.

Take out your old legacy partnership or shareholder agreement. It probably called for someone to be a figurehead president, gave them no specific authority, and rotated the owners in this position for no more than a year at a time. It probably set out no form of compensation for the managing partner. This is one of the most common and most disabling practice birth defects.

Revision is quite easy: Change your operating agreements, write a position description for a more enduring managing partner and hold an election. Managing partners should be in place for a minimum term of 2 years, and if they are doing a fine job, there need not be any obliged term limits. Depending on the size of your practice, they should receive a stipend of $1,000 to $3,000 per month in most settings, which, given the hours involved, is not much more than an honorarium.

2. Blindness, deafness and numbness to environmental change

Most practices operating today were launched in an era in which there was relatively little change — and what change there was, was mostly good. The advent of refractive surgery, doubling potential surgical caseloads. The development of free-standing surgery centers, allowing a surgeon to double his or her income per case performed. And the blooming of optical dispensaries, boosting typical ophthalmologist incomes about 10%.

In any case, because change came mostly slowly and positively, there was really no demand on practice leaders to sniff the wind often for adversity. Until recently, most practice leaders, doctors and administrators alike, were lulled and asleep at the wheel. No longer.

The happy days of only slow, positive change are over for the current generation. Yes, premium lens technology, the bloom of senior patients and a few other choice developments will take the edge off. But the prevailing winds will be those carrying fee reductions, intrusions into provider autonomy and a ballooning of complex regulations.

Your practice will need a figurative, if not literal, “chief change officer” to help your organization stay upright in the years ahead.

3. Obliging unanimous consent for every decision in the boardroom

In the ’60s, ’70s and ’80s, most new practices were launched as solo shops, often proprietorships, with no corporate structure to speak of. When the typical soloist added his or her first equal partner, the lawyers created a brief shareholder or partnership agreement. This sparse document often failed to include a tie-breaker mechanism, so every material decision was obliged to be unanimous. This is difficult enough to manage in a two-owner practice; it becomes impossible with a larger group.

Changing this is easy. Small decisions (for example, a partner buying a new laptop computer) should be at the individual partner’s, or even the administrator’s, discretion, obviously. Mid-size decisions (for example, equipping a new exam lane) should yield to a simple majority. Jumbo decisions (for example, hiring a new provider, terminating the administrator, opening a satellite) should in most settings require the approval of a supermajority, for example, four out of five partners.

If you still only have two equal owners, your documents should include a tie-breaker mechanism. This can be a “founder’s right” granted to the senior partner or a right of the higher producer or the doctor who has the most years left to practice. Quite commonly, residual ties are broken by having the partners agree on an outside tie-breaker, such as the practice accountant for financial questions or the practice attorney for legal ones.

4. Not spelling out the path to succession

I suppose it would be expected for a surgeon whose typical attention span ranges from a 5-minute clinic exam to a 13-minute cataract case to have a short attention span when it comes to long-range planning. And that is probably behind this observation: It is common in the numerous partnership agreements that I have read from otherwise terrific legacy practices that nothing is laid out regarding an orderly exit strategy.

This leads to abundant mischief and discord when the senior partner starts cuing up for his retirement. He expects that he should be getting a plump check from the board, and the board counters with “We’ll pay you your pro rata share of the salvage value of our equipment.”

Pull out your own documents and have a read. They should spell out:

What happens in the event of a partner’s death or disability, his removal at the board’s will or his voluntary withdrawal
Specifically, with examples, how the overall practice is valued in each case
What portion of the practice each partner owns
How a departing partner or his heirs are to be paid and over what time span
Whether the payments are to be reduced, for example, if a retiring partner gives insufficient notice

If these situations are not laid out, make an appointment with your attorney this week.

5. The bad habit of investing every profit dollar into physician compensation

Some practices are like my grandma’s muffins: “They squatted to rise, and baked in the squat.” In other words, they do not grow as businesses (and muffins) properly should. Why is this? Is the market too competitive? Are the doctors too lazy or unambitious? Usually not. The main reason is under-investment of profits back into the practice.

Every practice should have a written business plan. That plan should formally nominate an annual growth pace. And the desired growth pace should, in turn, suggest the level at which you reinvest in the company. It really helps when a board can have the discipline to formally set a minimum floor for such investments. For example, “Because we want to grow our revenue at 7% per year, a few percentage points higher than the organic growth in local demand for eye care, we realize that we have to withhold not less than 15% of partner income each year from distribution, placing these funds in marketing, practice acquisition, capital projects and contingency planning accounts.”

6. Not building a management team matched to practice scale and complexity

Many private practices operating today were set up at a time when pegboard systems, carbon paper and patient ledger cards were state of the art. Profit margins at the outset commonly exceeded 50%, and business errors were readily affordable and well-tolerated by a laissez faire board. The complexities of LASIK, EHRs, RAC audits, MSOs, PPOs, IPAs, and ROIs were as yet not invented. The office manager was often a family member. The head tech was the oldest staffer or the doctors’ pet. And management meetings? Practices could still rely on communications tools of the ’70s, meeting in the hallways and passing messages down the ranks one whisper or growl at a time.

In the best practices operating today, this legacy of informality has necessarily yielded to formality: An administrator with baccalaureate or better training and an eye for the numbers of the business is obliged in most offices today. Lead techs in larger practices need the title of director of clinical services and should enjoy hire-and-fire authority over their people. Billing clerks have yielded to revenue cycle managers. All of these lay leaders working in concert with the managing partner and the board of directors are needed to keep the complex wheels of modern eye care spinning.

For your information:

John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. He is the author of John Pinto’s Little Green Book of Ophthalmology; Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement; Cash Flow: 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; Legal Issues in Ophthalmology: A Review for Surgeons and Administrators; and Leadership: A Practical Guide for Physicians, Administrators and Teams. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.