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For private practice surgeons, seven tips for changing times
Few workarounds to practice challenges remain; ophthalmologists need to focus on the basics to survive, thrive.
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“Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
– The Red Queen, from Lewis Carroll’s Through the Looking Glass
“The jig is up.” (Meaning the dance is over and the time has come to pay the fiddler.)
– Robert Hendrickson, Encyclopedia of Word and Phrase Origins
We are now approaching the land of the “Red Queen syndrome,” a scene from Lewis Carroll’s Through the Looking Glass, in which the Red Queen tells Alice that she must run as fast as she possibly can to stay where she is. Any slacking off, and Alice is bound to slip backward.
Carroll wrote a whimsical children’s story. But it is a lot less whimsical when you are Alice and you are already sprinting just as fast as you can.
As a reminder to younger surgeons with shorter memories, it has taken us 30 years or so to get here. For 3 decades, there has been one headwind after another thrown at the profession: Cataract and general fee cuts. Strictures on utilization. Sharply increased costs for regulatory compliance.
For the generation of surgeons now approaching retirement, there was always another workaround, another rabbit in the hat, that not only vanquished the latest challenge, but actually allowed you to move ahead both clinically and economically:
- Using techs more effectively as extenders
- Giving up your sacrosanct postoperative afternoon time off each week
- Building your own surgery center
- Adding optical dispensing
- Buying up local practices
- Hiring optometrists
- Adopting premium lens technology
This time, I am afraid, there are few remaining mitigating tactics. No more big rabbits in the hat. The jig is up.
Here is where we stand from a macro perspective. The total U.S. population is growing 1% per year. The velocity of eye care service growth is perhaps 4% or 5% per year due to a rapid rise in the growth of the 65+ senior cohort (abetted by the cross-infiltration of optometrists into ophthalmic care and ophthalmologists into primary care and dispensing, and rising utilization rates for special testing, retinal injections and other forms of commendably advanced patient care).
Unfortunately, health care services can only continue to expand and improve under one or more of four conditions, in roughly ascending order of probability:
1. If the national economy is sustainably restored to accustomed gross domestic product growth rates (this is unlikely to happen between now and the end of your career, even if you are a first-year resident).
2. If national priorities become such that dollars continue to be shifted from other priorities (defense, Social Security, deficit reduction) to Medicare, perhaps even to the point of creating a national health scheme along the lines of Britain or Canada, so that the transaction cost and profit margins imposed by private insurers are wrung out, and if the American public tolerates tax rates approximating those in the eurozone.
3. If individual patients, especially seniors, are willing to shift their spending priorities and pay more of their fixed income for out-of-pocket eye care.
4. If ophthalmologists are willing or compelled to accept lower payment per unit service but still have access to patients and premium dollars. (Things will get decidedly more frustrating if both payment levels and utilization rates are simultaneously reduced, as by more pre-paid/capitated health care.)
The first two options are off the table. Options three and four are the only reasonable wagers. And of course there are a few wild monsters in the closet we would rather not think about, such as failure to raise the U.S. debt ceiling.
Options for private practice surgeons
What’s to be done? Here is the short list, generally applicable to all private practice eye surgeons.
Clean up your balance sheet. Cash for a business is like altitude for a pilot. It buys time to figure out what to do when there is an emergency. Reduce debt. Do what you can to build up reserves of cash or cash equivalents. How much is enough? Your reserves should be not less than 3 months of practice expenses (before your personal salary and draws as an owner). These reserves include:
- One or more lines of credit at your commercial bank
- Your access to available personal funds
- Home equity credit lines that have not been tapped
- The practice’s accounts receivable, to the extent they might be used as collateral to borrow against in a pinch
Abolish old limits to your personal output. I have never met a reasonable, fit ophthalmologist who could not grit their teeth and see an extra three patients per day. When you do this consistently, annual profits rise about $100,000, which will materially buffer future cuts.
Frugally innovate. As I have shared in recent columns and national talks, economic enhancement is no longer just a matter of seeing more patients and generating more top-line revenue. You must also puzzle through better approaches to reducing practice expenses. This is best examined on a cost-per-patient visit basis. Add up your typical monthly costs, including everything except provider wages/taxes/benefits, depreciation/amortization, drug costs, and all optical/contact lens department costs. Divide the resulting average monthly expense by the average number of patient visits, including postop visits. The resulting figure in a general ophthalmology practice in the typical suburban setting is around $100. Use that as your new baseline per-patient cost, and work diligently to reduce this figure as far below $100 as you can, through a combination of reducing line-item costs and seeing more patients with the same or fewer resources. (Go to www.pintoinc.com for a white paper on frugal innovation.)
Moderately centralize authority. Corporate democracy and 100% consensus is a luxury reserved for fat times, whether you are a company or a country. Benign dictatorships work best in a clutch. Shift from consensus to majority rules. Give your administrator and mid-level managers the authority they need to run a leaner, tighter outfit. Reward them for successful efforts.
Have clear, collaborating practice leaders. Egalitarianism and informal governance is all well and dandy in good times. But in the environment ahead, you need the ability to make faster decisions and briskly rally the team around hard work and difficult decisions. Any practice with two or more owners should have a managing partner, who should work increasingly closely with a strong administrator. How strong? This depends on numerous factors:
- Your environment. An urban practice with narrow profit margins operating in a competitive market needs more talent at the top than a high-margin rural practice.
- Your scale. Large practices generally need a more talented administrator than small ones.
- The managing partner’s engagement as a leader. A very engaged MD-owner may not need a top-shelf administrator (and vice versa).
Cool off any simmering partner conflicts. The world of private practice is going to get stressful enough without simultaneously dealing with doctor-to-doctor conflicts. Get these behind you and clear the decks for the challenges ahead.
Review personal budgets and retirement assumptions. If you are in the thoughtful majority of surgeons, you live on less than you make and have professional advisors who have re-metered your retirement savings algorithm to fit current assumptions about the future rate of return on your investments. If you are less wise or less well-advised, you have comfortably settled into a family budget that is on a collision course with expected future practice profits. Shift to a more sustainable path, indexed to the new market realities.