Move beyond benchmarking to improve your practice

Don't just generate benchmarks - use them to make better decisions.

Issue: April 10, 2018

ByJohn B. Pinto

“Work smart. Get things done.”
– Susan Wojcicki

“It is the mark of a truly intelligent person to be moved by statistics.”
– George Bernard Shaw

Benchmarks. Yardsticks. Key performance indicators. Statistics. Push goals. We business consultants, analysts and practice managers in ophthalmology have been harping on these for the last several decades.

It started with primitive, broad metrics such as “profit margin” and “patient visits per hour” and surfaces today with more granular measures such as “technician payroll hours per patient visit” and the “third next available patient appointment.”

These statistics are interesting enough taken individually. But they are incomplete and relatively weak until they are combined to frame up a kind of “differential diagnosis.” Like a trained internist, who examines altogether a patient’s multiple lab findings to arrive at a diagnosis and treatment plan, effective practice owners and their staff need to develop a nuanced, memorized, interactive command of how various business metrics intersect.

Layers of practice data need to be examined together to yield a more complete diagnosis of a practice’s status and to derive a reasonable corrective action plan for problem areas.

We need to go beyond mere benchmarking, adopting what could perhaps be better termed “applied analytics.”

Here are two examples, from two different spheres of your practice, to illustrate the point.

Example one: Lay staff efficiency

Support staffing costs devour one-quarter to one-third of every dollar your practice collects, so these costs deserve especially close investigation. Imagine a practice with the following statistics:

Located in a suburb of Philadelphia.
One surgeon, 8.0 staff full-time equivalents (FTEs).
3.0 technician FTEs (including scribing and testing).
3.0 receptionist FTEs (including phone duties and medical records clerking).
A chief of staff/executive assistant reporting to the MD-CEO; no administrator, per se.
600 visits per month inclusive of postops.
120 cataracts per month.
$1.6 million in annual net collections.
$720,000 in annual profits (a 45% profit margin).
18.5% lay labor costs.
A 35% turnover rate (ie, 35% of support staff leave every year).

Applied analysis:

The surgical density of the practice is very high, with just five visits per surgical case, when the typical figure is 15 to 25. One can assume from these stats that the practice is largely supported by referring ODs in the community, which requires great customer care and constant outreach attention to sustain.
Suburban practices have neither the highest nor lowest labor costs, but in this setting labor costs are very low as a percent of collections (norms would be around 30%) in part because of the high revenue per patient visit ($1.6 million divided by 7,200 annual visits is $222), which in turn is driven by the high surgical density of the practice.
The practice is spending $296,000 on lay labor, which, divided by 8.0 FTEs is just $37,000 per staffer per year (wages, taxes, benefits), when the typical figure is closer to $42,000 in a suburban market.
Based on practice volumes and surgical density, this practice needs about 2.7 lay staff payroll hours per patient visit, or about 9.5 full-time workers. It is 17% understaffed.
The surgeon is working at about 110% or more of normal visit capacity and generating about 40% more revenue than the average peer.
The profit margin is high, but the numbers indicate that these profits are probably not sustainable. Too-lean staffing, high turnover, lack of administrative oversight and a surgeon working flat-out would typically lead to faltering performance.

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Some recommended actions in this setting:

Accept a mild, transient reduction in profits to achieve a more sustainable and profitable company in the years ahead.
Add a full-time optometrist to help absorb excess clinical volume and conduct peer-to-peer outreach with the referral community. The incremental revenue from this doctor’s clinical production (combined with low incremental fixed overhead) would be expected to increase the surgeon’s net income within 12 to 18 months.
Hire an orthodox practice administrator, relieving the surgeon of most of the daily business and supervisory duties (and thereby increasing the training and support available to each worker, which will help reduce the turnover rate). The cost of an administrator of appropriate background and education ($75,000+) is not significantly more than the typical high-functioning executive assistant ($45,000+).
Conduct a community salary survey, and likely raise wages to market rates.
Add 1.5 to 2.0 lay staff.
Revise lay labor apportionment between reception and tech cohorts; this practice (on paper) needs two reception staff and just over four technicians.

Example two: Facility utilization

Facility costs (rent or mortgage, taxes, repairs, utilities) are typically the second largest expense after lay staffing. In the average practice, about 4 to 6 cents out of every dollar collected goes back out to pay for your office quarters, so you want to make sure you are extracting as much value as possible out of these facilities. Imagine a practice with the following statistics:

Two mid-career general ophthalmologist partners in a slow-growing rural practice.
A 2% average annual growth rate over the last decade, and no desire to grow at a faster rate.
An 8,000-square-foot rented office building with 10 exam rooms.
A year-to-year lease, costing 6% of net revenue.
1,100 visits per month, including postops.
No optical dispensary.
Only modest optometrist referral; most new patients are referred by existing patients.
850 cataracts per year, performed in the local hospital’s day surgery center.

Applied analysis:

The practice’s current patient volumes only require six or seven exam rooms; said another way, the practice is only at about 65% of nominal physical plant capacity.
In the next 15 years, the practice may only grow to about 1,500 monthly visits, which can be readily handled with nine or 10 exam rooms.
The practice is missing out on more than $100,000 in annual optical profits; developing an optical is not going to harm the scant optometrist referrals coming into this practice.
The practice is missing out on $200,000 or more in annual ASC ownership profits.

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Some recommended actions in this setting:

These surgeons should consider building their own facilities inclusive of a clinic, an optical and an ASC. The time for this is ripe: The practice is mature enough for the owners to know their likely future facility needs, rural building costs are low compared with suburban and urban markets, and the owners of this practice still have a long career span left, so owning will be much more profitable than leasing.
The new facility probably need not be built with the capacity for any more than 10 to 12 exam rooms, but should be designed to accommodate building a pop-out annex should growth rates increase.
An 8,000-square-foot clinic and dispensary and a one-room 2,500-square-foot ASC should be designed. Land, design and building costs will be in the range of ±$2.7 million. Annual facility carrying costs will be just more than 7% of combined ASC and clinic cash flow at the outset, but will settle in at 6% or less within a few years, or much less if practice growth rates rise to a more typical 4% annually.
While waiting for their new facility to be completely filled with patients, the partners should bring in guest subspecialists (especially retina and plastics).
By the end of their careers, factoring in ASC and optical profits, and capital gains on the eventual sale of the building and the ASC, these two surgeons will each withdraw from practice with perhaps $2 million or more in augmented retirement funding for just a bit of front-end work and risk.

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.