Watch for flashing warning lights in your practice
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“The euphoria around economic booms often obscures the possibility for a bust, which explains why leaders typically miss the warning signs.”
– Andrew Ross Sorkin
“The world is getting to be such a dangerous place, a person is lucky to get out of it alive.”
– W. C. Fields
It would be helpful if, like your car’s dashboard, your practice had gauges that flashed out a warning.
Instead of low fuel or deflated tires, practice warning lights would call an alarm for imminent financial softening or operational risk. “Surgical Volumes Below Practice Trend!” “Customer Service Gaps Detected in Room Three!” “Retinal Drug Mark-ups Falling!”
Until recently, you rarely heard of an ophthalmic practice going under. But in my experience as a practice consultant around the country, the pace of failure is increasing and can be expected to accelerate in the present environment of falling fees, rising business complexity and higher operating costs.
Even if your practice is solid today, it is time to be more vigilant. Here are 12 warning signs.
1. The leader is withdrawing
Successful practices pulse with urgency, provided in many cases by just a single physician or manager. When that person backs off due to personal problems, practice divestiture or imminent retirement, the practice slows almost immediately. The resulting profit drop is often disproportionately larger than the degree of withdrawal by the practice’s champion. A leader’s 10% let-up results in a 20% profit collapse. Getting your leader back in the game — or choosing a new leader — is critical to restoring success.
2. The owners do not understand how their practice measures up
Take this simple quiz, filling in these blanks from memory:
- I currently see ____ total patient encounters per month and have a goal of ____.
- I currently see ____new patients per month and have a goal of ____.
- I currently perform ____major surgical cases per month and have a goal of ____.
- My monthly average collections are $____ and I have a goal of $ ____.
- Our current profit margin is ____% and we have a goal of ____%.
Now compare your answers with your actual performance and your written business goals. Failing practitioners often fail this quiz. The simple, powerful act of declaring your goals in writing is the start of most practice turnarounds.
3. Staffing levels and patient volumes are out of balance
We are just now emerging (too slowly) from a post-pandemic staff retention crisis. In an effort to fill every position, some practices have overshot and are now overstaffed, which squeezes profitability. It is critical to strike a balance between over- and understaffing, which is always a challenge, especially in settings where patient volumes rise and fall throughout the year. There are numerous measures of support staff productivity, but here are three of the most useful ones:
- Annual practice collections per full-time staff member: In a general practice, this typically runs from $130,000 to $200,000 or more; the figure can be significantly higher in retinal and elective plastics practices and somewhat lower in a pediatric setting.
- The percentage of collections spent on staff payroll and benefits: 28% to 33% is the typical contemporary figure in general practices, a shade less in selected subspecialty practices.
- Staff payroll hours per patient visit: Add up all paid lay staff hours in a month and divide by the number of patients seen; the result should be about 2.5 hours per visit in a general practice and most subspecialties, a bit higher in retina.
4. Your market’s population-to-provider ratio is getting out of balance
If you work in a market with somewhat fewer than 20,000 people of a normal age distribution (about 16% senior in the U.S.) per ophthalmologist, you may be in danger. Until recently, this has been a purely big-city problem. Popular urban centers with great training programs (read: Los Angeles, San Francisco, Boston, etc) have more ophthalmic surgeons than can be fully employed. But with more urban doctors migrating to small-town America, I am seeing this problem spread to rural markets where one or two doctors can thrive, while three or four may starve.
5. Doctors count first, staff second, patients last
The most enlightened service businesses discovered long ago that the customer is king. Scheduling and seeing patients for maximal staff and doctor convenience rather than for patient convenience is a prescription for failure. Highly profitable practices are most often run with a strong service mission by doctors who subordinate their own needs to the needs of staff and patients.
6. The percentage of new patients is falling
Every practice develops its own natural patient mix pattern. In a general ophthalmology practice, it is normal for 10% to 20% of the monthly patient encounters to be with new patients entering the practice. A sustained falling ratio of new patients may mean you need to be more active with your promotion or more accessible. (On the flip side, note that a sustained trend toward more new patients as a percentage of total visits may point out inadequate follow-up and recall efforts.)
7. There are delays in accounts payable
A classic warning sign of imminent business failure is when you begin holding up vendor payments to stay afloat. This is too often done by managers without the knowledge of their employing physicians to keep their organizations afloat or to impress their bosses with high profits. When the end comes, the doctors are surprised by their financial state. As a doctor-owner, it is critical that you remain aware of the state of your cash flow. This problem is not limited to smaller practices or unsophisticated managers — I have seen more than one major client (and their accountants) struck down by MBA-level administrators. (Note: There is nothing at all wrong with stretching payments out to the limits of vendor-prescribed terms to facilitate cash flow and get the most from interest-bearing practice operating reserves.)
8. Receivables are rising even though charges are flat or falling
Make a graph of your monthly charges and month-ending unadjusted accounts receivable for the last 24 months. These two curves should roughly “ski track” each other, rising and falling together. If your receivables and charge lines are diverging (with charges flat and accounts receivable rising), it is a sign of neglect in your patient accounts department.
9. You lack frequent, effective communication
Your practice, irrespective of its size today, should have transitioned from the purely verbal culture that was common in the past to a mixed verbal and written environment. It is false economy to book wall-to-wall patient appointments and not leave adequate time throughout the month for individual staff, department, board and all-hands meetings. Hallmarks of the most successful practices we visit include interdisciplinary “task force” sessions to solve focused problems, staff meetings with guest speakers, staff flash polls on proposed policy changes, annual retreats, extensive operations manuals and weekly blast emails from management.
10. Revenue per patient encounter is falling while cost per encounter is rising
Do a little longhand division and plot on a 24-month graph what it costs you each month for the last 2 years to transit an average patient encounter and what you have collected from that average encounter (including net surgical fees collected). You will likely see that the two lines are converging modestly. That is unfortunately normal in the current environment. If the cost and collection lines are rapidly converging, it is urgent that you address the problem by reducing overhead, increasing patient volumes or increasing your net revenue yield per encounter.
11. You are starving the practice of needed investments
Underinvestment in your physical plant, new equipment, professional training, staff development or marketing will lead to the ophthalmic equivalent of a bonsai tree. This may be a desired endpoint if you are a solo practitioner nearing retirement or simply desire a quiet boutique practice.
12. There is no succession plan
Here is an all-too-typical multi-physician practice life span: An energetic solo founder in a market with little competition recruits one new associate every 3 years for 12 years. From years 13 to 25, this five-doctor practice thrives but does not get any larger because either the enterprise has reached market limits or it has achieved the founder’s ambitions. Now the market is heating up, just about the time the senior doctor is winding down. None of the junior doctors want the burdens of leadership, and none are inclined to invest in facility upgrades, promotion or doctor recruitment so close to their own retirement. For the next 5 years, the practice peels off retiring doctors. The youngest doctors are left by themselves to turn off the lights. Absent an extremely strong and influential lay manager, such practices are destined to fail. You should write and continuously update your succession plan.
- 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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