The bottom-line value of incremental patient volumes
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“I really liked working hard. When I worked at Disneyland, I’d do 12 hours straight and go home thrilled.”
– Steve Martin
“I learned the value of hard work by working hard.”
– Margaret Mead
Perhaps you have heard of “Tax Freedom Day,” which was conceived in the 1940s to help people understand how much of their paycheck the government takes in taxes by asking a simple question: “If the average worker sent 100% of every paycheck to the government starting on Jan. 1, on what date would they start getting to keep their earnings for the rest of the year?” That date, when our wages become our own, is called Tax Freedom Day. This year it falls on April 16, according to the Tax Foundation, a Washington think tank.
Let’s rotate this idea a few degrees and make up a new concept, your “Freedom Hour” — that time of day each clinic session when you have covered all your operating expenses and are now generating a profit that you get to keep.
Although you may never have thought of things in these uncomfortable terms, your personal lifestyle costs — your home, retirement savings, groceries, vacations, the kids’ education and so on — are entirely supported by just the last few patients you serve each clinic day.
For the purpose of illustration, let’s make some reasonable assumptions:
- You are a hard-working general ophthalmologist, transiting 40 patients per day, 3.5 days per week (not including your surgery day, of course), 46 weeks out of the year. This means that you see about 6,440 patient visits per year.
- Combining paid clinical visits, associated surgical fees and unpaid postoperative visits, you generate a very typical $215 in net collections per average patient visit, for a total of about $1.38 million in collections per year.
- Roughly 33% of every dollar you take in is paid back out for staffing costs, inclusive of wages, taxes and benefits. Another 6% is spent on facilities; 4% goes out for marketing, and the same percent to cover debt service; 2% goes for malpractice and general liability insurance; 1% is spent on medical supplies; another 1% on professional fees; and a lot of smaller percents all adding up to a very normal 65% operating cost margin.
- Thus, you have a typical profit margin of 35%.
- Of the resulting $483,000 or so in pre-tax profits left after expenses, assume an aggregate of 32% is taken away by federal, state and local taxes, leaving you with a net after-tax profit of around $328,000.
So, let’s roll through a typical patient day. At what point in your busy day do you really start working for yourself?
A typical day
You are on the clinic floor by 8:30 a.m. After quick checks and postops, and a few completes, you are finished with the first 13 patients or so by around 10:45 a.m. Congratulations! You have just covered your largest single cost, lay staffing expenses.
The next two or three patients pay the rent. Three or four more patient encounters and you have covered the marketing and risk management budget for the day. And every one percentage point in practice cost obliges that you see not quite another half patient visit.
Added up, your practice’s operating overhead requires that you work until about 1:45 p.m. (assuming you skip lunch) and see about 26 patients.
Of course, that covers just the nominal business expenses of the practice and does not touch your personal tax obligation. Paying your taxes takes another four or five patient visits, which means that your after-tax take-home pay as a hard-working general ophthalmologist is derived from seeing just the last nine or 10 patients of the day. Said another way, you start work in the morning and labor until about 2:30 p.m. to pay for everyone who is ahead of you in line. The work you do in the last 2 or 3 hours of the day pays for what you and your family live on.
What is the key lesson of this simple, gruesome math? The immense bottom-line value of squeezing in those last few extra patients every clinic day.
For each of the first 40 patients of the day, you are netting only about $50. But how about patient No. 41? You still have to pay income taxes, obviously, but you do not need any extra staff or rent or utilities to see this one incremental patient. So, you get to keep about $140, not $50. And the same computation goes for patient No. 42 and 43 and 44. If you can serve these extra four patients per clinic day without incurring proportionately larger overhead costs, your net annual after-tax take-home pay under this simplified scenario might climb as much as 27% from $328,000 to about $418,000 — from doing just 10% more work personally.
About now you may be saying, “Well, that’s all well and good, but how can I possibly find another four patients a day to serve? After all, that’s a 10% boost in my patient volume.” The answer is easier and cheaper than you might think. Here are just a few of the low-cost ways to build your practice by 10%.
Build your practice
1. Audit each doctor’s return to clinic (RTC) orders: In the typical new client practice, the clerical staff make a 10% or greater error rate in translating the doctor’s RTC order into an appointment or recall notice. Audit for this in your practice. If you find anything like this kind of error rate, it may pay to monitor a permanent audit trail.
2. Adopt a zero-defects recall system: Even when the patient is appropriately entered as a recall at their last appointment, there is typically a 30% or higher rate of noncompliance with the first recall card sent. Amazingly, most practice staff will not follow up with such patients. The only thing separating you from a busier practice may be a few dozen phone calls each week to forgetful patients.
3. Ask your patients to refer their family and friends: In client studies we have conducted, doctors who feel comfortable ending each encounter by saying to the departing patient, “Please tell your friends about the importance of regular eye care,” and then handing out three business cards, will see a 20% jump in their number of new patients.
4. Welcome work-in patients: The otherwise innocent, protective efforts of your front desk staff to shield you from work-in patients can take an outsized toll on your personal bottom line.
5. Fix your excessive no-show rate: For the average urban and suburban general practice, no-show rates should not exceed 5%. Higher no-shows typically result from staff neglect or the use of excessively automated appointment reminder systems. Nonresponders to appointment reminders should receive a live call 24 hours before their scheduled appointment.
6. Get support from your reception team: Revise your template upward 10%. Then, on a limited trial basis, reward your front desk clerks financially for every day that they manage to fill the incremental slots, just to prove to them that they can do it. A transient trial period $20 daily cash bonus to book hundreds of thousands of dollars in permanent incremental business is inexpensive practice building.
7. Start your office day 15 to 30 minutes early: You do not need to bring your entire staff in early to open up another few appointment slots. Indeed, chances are great that your staff are already arriving well in advance of the first appointment of the day.
8. Arrive earlier yourself: Some providers fall into the bad habit of coming into the office at the last possible moment, often 30 minutes or more after their first appointed patient. Make a new habit of arriving in the office at least 10 minutes before the first appointed patient. This demonstrates your leadership as you strive to see 10% more patients and still keep the schedule running on time.
- 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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