Practice management pop quiz for physician and administrator

This test may be directly predictive of future economic success.

Issue: July 10, 2017

ByJohn B. Pinto

“Education’s purpose is to replace an empty mind with an open one.”
– Malcolm Forbes

“Change is the end result of all true learning.”
– Leo Buscaglia

After 25 years of formal education, the last thing you probably want to take right now is another pop quiz. But this one is different — and perhaps more directly predictive of your future economic success than any other you have been obliged to take. So bear with me.

Here are five questions. About half of all ophthalmic administrators in America — and a somewhat lower percentage of eye surgeons — can nail this test.

Right below the question set is an answer key. Let’s be really lenient and call 60% a passing grade. But don’t cheat and look at the answers until you have completed the quiz.

1. A solo cataract surgery practice sees 500 patient visits per year, including postops. How many technicians, including working up patients, testing and scribing, does this practice need to employ?

a. 4.0
b. 2.9
c. 1.5
d. None of the above

2. This same practice performs an average of 60 cataract surgeries per month. Which of these statements best describes the surgical density of this practice?

a. About average. The typical eye surgeon seeing 500 visits per month is going to generate about 60 surgical cases per month.
b. Very low. This must be a very hesitant surgeon.
c. Quite good. This doctor has three times the surgical density of the average practice.
d. Extremely high. This surgeon’s surgical density suggests that he or she must be coercing patients into having unnecessary surgery.

3. A three-surgeon general suburban practice with $3.8 million in annual collections spends $1.4 million each year on lay staffing, excluding OD, MD and DO providers, and $300,000 on office facilities, including rent and utilities. Would you say that this practice’s staffing and facilities costs are:

a. High.
b. Low.
c. Typical — right around where they should be.

4. This same practice employs a total of 27 lay staff. Would you say that these support staffers on average are:

a. Overpaid.
b. Underpaid.

5. A five-partner mixed subspecialty practice, including pediatrics and retinal care, has a 40% profit margin. All of the doctors are paid with a simple formula: They receive 40% of their individual collections. How would you characterize their financial arrangement?

a. Just fine, no need to change.
b. Pretty close, but the board should hold back a slush fund of profits, such as by paying everyone 35% of their collections, and then distributing the balance at the end of the year to the partners who are most deserving of a bonus.
c. Way off. The pediatric ophthalmologist is probably overpaid and the retinal surgeon is probably underpaid.
d. All of the above, depending on the sentiments of the owners.

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Answers

1. b. In the typical general practice, one needs about 1.0 technician payroll hours per patient visit. With 500 visits per month, that is about 500 hours of tech time monthly. There are 173 payroll hours (including vacation time and sick leave) in the average month for a single full-time equivalent (FTE) worker. If we divide 500 hours of needed time by 173 hours per FTE, we get 2.9 FTEs — that is the number of techs a practice such as this needs to employ, at least on paper. The practice may be able to get by on slightly less if all the techs are seasoned pros, and they may need more back-off assistance if the practice sees a higher volume of pathology (with older, slower, sicker patients who need more testing and treatment).

2. c. The average ophthalmic practitioner in a general practice generates one cataract case (one operated eye) for every ±25 patient visits. This figure can be more than 40 visits per case in a young surgeon’s practice, and as low as five or less in a mature surgeon’s office or in a practice that comanages care with outside optometrists. In this case we have a surgical density of 500 visits, divided by 60 cases, for a surgical density of 8.3 visits per case, which is about three times the average figure seen.

3. a. Staffing and facilities costs are both much higher than the normal range in this practice. Let’s examine staffing costs first. The typical general practice spends 28% to 32% of cash flow on so-called “fully burdened” staffing, inclusive of wages, benefits and taxes. This practice is spending $1.4 million on staffing, divided by $3.8 million in collections, or about 37%. If staffing costs were brought into line with norms, let’s say 30% of collections, each of the three partners would receive a roughly $89,000 annual pay raise.

Turning to facility costs, the normal range is to spend 4% to 6% of cash flow on office quarters. This practice is spending $300,000 divided by $3.8 million in collections, or 7.9% of cash flow on office space and utilities, much higher than normal for a suburban practice. (This higher percentage would be acceptable if the practice were in the center of an expensive city or if a facility had just been built a little larger than current needs, taking a few years to grow into it.)

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4. a. Dividing this practice’s $1.4 million annual payroll by 27 staff means that the average lay worker here is making almost $52,000 per year. That figure might have to be lived with in a market such as Manhattan or San Francisco. But the average fully burdened cost per full-time staffer, averaging together everyone from file clerks to CEOs, in a suburban practice is closer to $45,000 per year. (It can be $35,000 in rural America.) So staff members in this practice are being overpaid by about 15%. This could be addressed in several ways, including:

by living with the problem and accepting the drag on profits;
by reducing wages and/or benefits to market levels;
by organizing the practice to generate more revenue and profit per patient visit, which will not bring down staffing costs but will reduce their cost as a percentage of cash flow; or
by reducing staff headcount and trimming hours here and there (eg, sending staff home early on quiet days).

5. d. “All of the above” is the correct answer. There are hundreds of potential partner compensation models. These are influenced by numerous factors: the difficulty of recruiting subspecialists, practice cost structures, capitated managed care payments and boardroom bullying. Even when you think you have devised the best possible formula and everyone is happy, something changes to throw it off: A contract is lost, a high-producing surgeon joins the group, or a senior partner slows down. For this reason, a larger practice such as this one should have a standing compensation committee of the board, ideally composed of a high producer, a low producer and the practice’s CPA. This committee meets annually and presents its recommendation to the board to preserve or revise the current formula.

Add up your correct answers. Did you hit 60+%? Study the answers you missed, and apply this same made-up pop quiz to the real world of your own practice.

For more information:
John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. John 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, The Efficient Ophthalmologist, The Women of Ophthalmology, Legal Issues in Ophthalmology, Ophthalmic Leadership: A Practical Guide for Physicians, Administrators and Teams and a new book, Simple: The Inner Game of Ophthalmic Practice Success. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.