How to be an ophthalmic industrialist
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“The only mission worth pursuing in business is to make people’s lives better.”
– Richard Branson
“I would say that rather than taking lessons in how to become an entrepreneur, you should jump into the pool and start swimming.”
– Travis Kalanick
Almost every ophthalmologist is industrious. But very few rise to the level of being industrialists, which is to say, large-scale entrepreneurs enjoying commercial success. “Beyond the dreams of avarice,” as the old man used to say.
Of the 15,000 or so actively working eye surgeons, I would gauge that perhaps only 1% or so have built practices exceeding $50 million in annual collections, which, to be frank, is loose change in industry circles. So, let’s lower the bar a little to $10 million. It is safe to say that roughly the top 5% of ophthalmologists have been able to contribute to building a practice of this scale.
But of course, total practice revenue is only half of the picture. A $10 million practice with eight owners, each making $300,000 a year (less than many newly graduated residents make in their first year), could hardly be called an economic dynamo.
The better metric is owner income per hour worked. The average ophthalmologist in America makes about $190 per hour before taxes. Financially exceptional eye surgeons make $800 or more per hour.
So, how do they do it? There are just a few well-trodden pathways.
1. The co-management center
In the typical general ophthalmology practice, the surgeon sees about 500 visits and performs about 25 cataracts a month for a “surgical density” (an important benchmark) of 20 visits per surgical case. In such a practice, 10% or so of surgeries are referred in by community optometrists. In the co-managing practice, the surgical density can be eight or five or even just three visits per surgical case. As a result, the revenue and profit per average visit are higher. More cases typically beget more speed, OR efficiency and better results, which in turn stimulate more referrals in a virtuous cycle.
2. Employee providers
Let’s say you have a solo practice with 500 visits a month, generating $1.2 million in collections and $400,000 in pre-tax earnings. If you can add an employee optometrist, grow the practice by around 350 patients and manage the resulting complexity, you will get an annual pay raise. How much? In this scenario, about $75,000. Plus another $40,000 in optical profits. And a few extra internal cataract referrals each month. And more flexibility with your own time off.
3. The hyper-volumetric practice
Mere mortal general ophthalmologists typically top out at about 550 patient visits per month (inclusive of postoperative visits). Exceptional providers can breeze through 900 visits or more per month with a combination of longer hours and a faster pace. Because most practice expenses are fixed, the profit margin on the incremental 350+ visits is higher than on the first 550 visits. Profit can actually double even though workloads are only increased by two-thirds.
4. Ambulatory surgery centers
With the average cataract surgery now reimbursed at around $600, which boils down to about $200 under typical profit margin scenarios, it can be more profitable to stay on the clinic floor unless you own shares in an ASC. Doctors with their own well-run surgery center double or triple their profit per case. Year after year. And when it is time to sell the practice, the associated ASC’s shares can be worth $1,000 or more for every cataract procedure performed per year.
5. Emphasizing services directly paid for by patients
The average North American eye surgeon is now approaching 20% premium IOL rates (inclusive of toric, multifocal and related products). With modest efforts, surgeons commonly reach twice these averages and higher.
6. Optical dispensing
In the typical comprehensive ophthalmology practice with an optical shop, the practice collects an extra $35 per patient visit and books an extra $9 in net profit. On a per-doctor basis, that is about a $50,000 annual pay raise. It does not sound like much, but it adds up, and the gains can be twice these figures when the dispensary is well run and well supported by providers.
7. Large traditional group practices
For all the complexities and political intrigues of large-scale group practice, there are advantages. Ancillary patient services such as opticals and ASCs are easier to launch and support. Third-party payer contracts can be more generous. Administrative economies of scale can enhance profit margins. And internal cross-referral can float everyone’s boat. But it is key for the practice to be well governed and managed. Too often, there can be diseconomies of scale and settling for a lowest-common-denominator approach to business management.
8. Groom for private equity
For generations, a retiring doctor’s final payday was a check for little more than his share of the company bank account, the residual accounts receivable and salvage value of the equipment, with perhaps a token goodwill payment. All up, it typically came to about $500,000 and still does in MD-to-MD transactions. How times are changing. For the right practice, with a generous private equity buyer, the buyout can reach multiples of that low legacy figure. The time to start thinking about this opportunity is not when the oldest doctors in your practice are approaching retirement age but rather several years earlier, giving you time to boost earnings and groom the practice for a sale.
9. Any practice model, so long as your income exceeds your living costs
Success is a relative thing. There are lots of ways to thrive in this profession. My “poorest” client was perhaps at some levels my richest client. A bachelor, he and his two part-time staff worked just 2 days a week and took off 3 months a year, which netted him about $50,000 in annual income. He drove a 25-year-old Volvo, which he used to tow a small sailboat all over the Gulf Coast, one of his many hobbies. This is extreme, but you get the point. When your outgo exceeds your income, your upkeep becomes your downfall. Too many million-dollar earners in this field live anxiously because they pursue a $1.2 million lifestyle.
Of course, these pathways to financial success can be combined. The co-management practice with a surgery center. The solo surgeon with a cash-cow optical and a team of optometrist employees. The hyper-volumetric practice that is grooming for a PE takeover.
Despite falling fees, higher operating costs and regulatory burdens, the striving ophthalmologist today has as many opportunities as their forebears to enjoy financial results that match the great professional satisfaction of the profession.
- For more information:
- John B. Pinto is president of J. Pinto & Associates, Inc., an ophthalmic practice management consulting firm established in 1979. He is the country’s most published author on ophthalmology management topics, 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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