Tactics in inflationary times to keep staffing costs in line
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“After I won the Oscar, my salary doubled, my friends tripled, my children became more popular at school, my butcher made a pass at me, and my maid hit me up for a raise.”
– Shirley Jones
“When your outgo exceeds your income, the upshot may be your downfall.”
– Paul Harvey
Source: Adobe Stock
Non-provider lay staffing expenses are the largest single line item of cost in the typical ophthalmology practice. It takes roughly until about 11 a.m. every workday to generate the revenue needed to compensate the support staff in your office.
Until recently, labor costs as a percent of cash flow were pretty static. Hourly rates slowly rose, to be sure, but practice owners were able to keep up by seeing a few more patients, offering a few more services.
Let’s examine some key benchmarks to help you know where you stand.
Total lay staffing cost ratios (payroll, benefits and taxes for non-providers divided by total practice collections) typically run around 30% to 32% in a general ophthalmology practice, with higher percentile costs in urban centers and lower costs in rural America. Costs can be 25% or less in retinal and plastics practices in which collections (the denominator) are generally much higher. All of these percents are on the rise with recent inflationary pressure.
We can also benchmark by individual departments. In your technical department, it is common to find about 1.0 tech payroll hour per patient visit (count all techs, scribes and special testing personnel when running this ratio in your practice). As an example, a solo general practice with three full-time equivalent (FTE) techs who are paid for the typical 173 hours in an average month and with 500 patient visits per month would have this simple math: (3 FTEs × 173 hours/FTE) / 500 visits = 1.0 hour per visit.
The same math holds for cornea, glaucoma and pediatric practices. Some plastics practices get by with 0.8 hours or less. In a retinal practice (with more work needed per patient visit), 1.3 hours are generally required.
In reception (inclusive of handling the phones, check-in, check-out, medical records and the like), we typically see 0.5 hours of paid staff time for every patient visit.
In your billing or “revenue cycle” department, staff should be able to drive $1 million or more in annual collections per FTE, requiring about 0.3 payroll hours of staff time per transaction.
Surgical counselors typically need about 2.0 hours of payroll time for every case they coordinate, depending on their scope of work. Counselors who also handle pretesting or lens calculations or who accompany the surgeon to the surgical facility may need more time than this.
Expect about $200,000 or more in annual optical collections per dispensing optician.
Each of these benchmarks should be looked at over longer time frames — a month or longer. For example, you cannot abstract the formulae to a single day or week.
If your practice is significantly — and adversely — off in any of these benchmarks, or if you aspire to reach “best of class” level performance in your practice’s labor productivity, here are several areas to consider targeting for improvement.
1. Do not overreact. The post-pandemic “Great Inflation” of 2022 is not yet over, but it will one day end. Some practices, responding to the very real reports of national wage inflation (and hiring challenges), have overshot the mark and passed out higher raises than might have been necessary to find and keep staff. Health care is no longer an industry in which we can exceed practical labor cost boundaries.
2. Know your local labor market. Your practice is competing with every other local eye care practice (and every hospital, restaurant and boutique) for competent staff. And although raw wage dollars per hour is just one dimension of employee compensation, you should know fairly closely how well you pay compared with fellow practices in your market — not in your state, region or nationally. The first step in any compensation review is to survey other local practices. Such survey calls to managers in other ophthalmic practices are generally well received by your peers and should be repeated periodically.
3. Simply hold the line. Many of the practices we consult with for the first time have fallen into the easy habit of granting flat, across-the-board pay raises each year in an effort to keep staff happy or respond to the “virtual union” mentality that can arise in some settings. A 5% raise annually may seem innocuous, but compounded over 5 years, it turns a $16-per-hour position into a staffer making $20.42 per hour. If your practice is growing at the same 5% rate, it may be perfectly reasonable to increase total staffing costs 5%, but this does not mean you can raise everyone’s wages 5% because you will need a larger head count to see more patients, and benefits costs are rising even faster than 5%. (Also, rather than a flat, across-the-board raise, it is more effective and fairer to give a little more to high performers and a little less or nothing to low-performing staff.)
4. Do not be afraid to say, “You have reached the top.” It may not be pleasant to hear, but in a fixed or falling fee environment, some of your longer-tenured staff are going to top out their hourly wage for the current job they hold. As much as you might like to, in the present environment, it is hard to make a business case for paying a receptionist $24 per hour when a staff member of sufficient skills can be had for $17 per hour. It helps to establish open books on your salary ranges for every position and to let everyone understand up front that there are limits to wage growth within each job category. (At the same time, you should encourage upward mobility for a receptionist who wants to train to be a tech or optician.)
5. Use bonuses in lieu of raises. Let’s go back to the example above in which a $16 clerk is taken to $20.42 in 5 years with a compounded annual raise of 5%. At 2,080 payroll hours per year, the total 5-year wage-only cost of such an employee would be about $193,000. If a 5% annual bonus were paid instead of a compounding raise, the total cost would be about $19,000 less. As an additional benefit to the practice, you gain much flexibility. If you have a soft year, you can decrease the bonus; if times are good, you can increase the bonus.
6. Increase provider output. Imagine a $1 million practice with one MD paying $340,000 in staffing costs each year, or 34% of cash flow, which is somewhat higher than optimal. Without changing total labor costs, the same practice can take its labor cost percent down to the normal 30% simply by raising revenue by about $133,000. Sound impossible? Hardly. At typical collections of $200 per average patient visit in a general practice, that is around four extra patients per clinic day, two in the morning and two in the afternoon, resulting in a six-figure pay raise for the owner.
7. Decrease staff hours. It may be time to change the culture in your practice from “We guarantee 40 hours per week” to “We guarantee 32 (or fewer) hours per week.” Few practices work with the same intensity and patient volumes throughout every hour of every week. While it is sensible to have office managers and billing staff working steadily throughout the week, it is probably not necessary nor is it most profitable to guarantee 40 hours of work to techs and reception staff with patient-dependent, variable workloads. Create a culture making it customary on slow days to have people clock out.
8. Staff for seasonal highs and lows. In the same vein, especially in the sun or snow belts, reduce the expectation among staff that the practice will have full staffing at all times of the year. As a Florida surgeon, you may need eight techs in the winter and just five in the summer. Either furlough the extra three staff during the slowest weeks of the year or divert them to seasonal projects such as recall or community screenings.
9. Increase the affection you show staff. People work mainly for money and love, and as the saying goes, “If you don’t love your staff, you’re going to end up paying them a lot.” Read the terrific short book Whale Done by Ken Blanchard for pearls on how to most effectively show your appreciation for staff, as well as subtly redirect poor performance.
10. Not every member of your staff needs to be a star. Some doctors set overly high standards for their people. It does not require an IQ of 140 to check patients in and out of the clinic. Not every tech has to be in a holding pattern for graduate school. If you aim for these standards, expect higher costs and a higher turnover. Sometimes the best worker is the person who catches on a little slower but who then performs consistently and without getting bored once they master something.
11. Increase the number of part-time staff. This can reduce benefits costs and increase the “freshness” of staff. I have visited practices through the years that have half or fewer of their staff in full-time positions, with everyone else working part time. Consider a “core” and “contingency” staffing approach, the latter being lower-level, lower-cost, less-trained staff who work at the direction of core staff members.
12. Remove benefits that do not motivate staff. Odds are you may offer staff some form of pension benefit. But if your practice is like most, your staff team is heavily weighted toward younger employees who measure their current compensation against a competing offer more in terms of raw wage dollars per hour than total compensation (wages, employer-contributed taxes, fringe benefits). Accordingly, if you have to hold the line on payroll costs, consider cutting fringe benefits before freezing or rolling back wages.
- For more information:
- John B. Pinto is the author of several books on ophthalmic practice management, including John Pinto’s Little Green Book of Ophthalmology: Strategies, Tips, and Pearls to Help You Grow and Manage a Practice of Distinction, UP: Taking Ophthalmic Administrators and Their Management Teams to the Next Level of Skill, Performance, and Career Satisfaction (with Corinne Wohl), Simple: The Inner Game of Ophthalmic Practice Success, and Ophthalmic Leadership: A Practical Guide for Physicians, Administrators, and Teams. Available now for purchase at slackbooks.com. Receive 20% off with promo code PINTO20. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.
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