By Ken Krivacic OD MBA
Creating new streams for revenue generation is key to profitably growing a practice. Here are one successful practice’s top five revenue generators from the last decade.
PROJECT FINANCIAL RATE OF RETURN. Need to be able to invest without compromising ability to pay rent cost of goods and your own and your staff’s salaries.
HOW WILL PATIENT EXPERIENCE BE IMPACTED? Determine whether the investment will improve the experience patients have with your office from the time they book their appointment to when they check out and purchase eyewear or contact lenses.
WILL CARE BE IMPROVED? Evaluate whether the investment will allow you to expand your ability to provide full-scope medical eyecare.
The lifeblood of profitability are revenue-generating investments. My practice takes the search and implementation for these investments seriously. Here are five from the last decade that have proven highly profitable.
In asking the question “What is the best investment you have made in your practice?” we study several factors. Obviously a financial rate of return needs to be evaluated. It would be nice to have every piece of equipment you wanted but if in doing so you risk not being able to pay rent or cost of goods or your own salary then how good of an investment is it?
We also always ask how the investment will impact the experience our patients receive during their contact with our practice. Will the investment help us make a better and faster diagnosis? Will the investment enable the patient to receive better care more efficiently?
Finally will the investment enable both our doctors and staff to find our work more enjoyable and satisfying?
Optos Retinal Camera
We have had several iterations of a retinal camera over the years and all have proved to be a valuable addition to the practice not only in terms of financial benefits but also in terms of better patient care education and documentation. We currently have an Optos unit.
Cost: Approx. $75000
Needed Doctor/Staff Work: There was training involved in getting the staff up to speed on presenting and using the instrument. We blocked off a half-day for the initial training session. It took us about a month to get comfortable with the instrument and how it can enhance the patients experience in our office. We have had the instrument for close to one year now and average about 225 screening photos per month between 2.5 full-time equivalent doctors or about 90 screening photos per doctor per month.
Break-Even Point: We decided to buy the instrument outright and finance the purchase. Due to the large cost we decided to spread the financing out over five years. Our monthly payout is close to $1500/mo. We charge $29 per screening photos and bill for medically necessary photos for which we are paid approximately $54. For purposes of this example let’s just use the screening income to analyze the break-even scenario:
Income: $29 x 225= $6526/mo
Break Even: $90000($1500 x 60 mo)/$5026 = 17.9 months
Do the math for your own office but my personal feeling is if you can either make a profit each month from the new equipment or break even within three years it’s a good investment.
We started implementing staff meetings for our three doctors and 21 full-time support staff over 10 years ago. We meet once a week for an hour at the beginning of the business day. The schedule is blocked off and we start seeing patients an hour later than we normally would. The staff is paid for their time during the meeting.
Cost: The only cost is loss of potential revenue. Depending on the size of your practice that number can vary widely. The average $600000 per year practice would lose close to $300 in revenue or close to $15,000 per year. Our practice being larger loses close to $1800 per hour or close to $90000 per year in potential revenue.
Needed Doctor/Staff Work: The time required is the hour a week we spend in the meeting and the time it takes to prepare an agenda. The agenda revolves around practice metrics–revenue costs number of patients seen etc. From there we move on to any current situations that need to be addressed such as a particular patient experience or a new piece of equipment that is going to be introduced to the practice. We also use that time to go over online reviews and how we can use those both good and bad to improve the patient experience in the office.
Break-Even Point: Trying to calculate a return on investment for staff meetings is rather difficult since there are so many factors that can affect the growth of a practice. We use these meetings to enhance the growth of the practice which has been a steady 4+ percent since we implemented the weekly meetings. That is not a big difference since we implemented the meetings but the other benefit is better communication from doctors and management to staff and better cohesion from all employees.
OD Lean was a consulting company that came to our office and evaluated our patient flow. The company was comprised of engineers who used flow analysis to smooth out our daily schedule by booking better and reducing the numbers of moves the patient made during their process through our exam routine.
Cost: With the help of one of our vendors our out-of-pocket expenses for the two-day in-office evaluation and training was $15000. There was also the downtime cost of not seeing patient in those two days and the subsequent loss of revenue which for us was an additional $10000.
Needed Doctor/Staff Work: We dedicated two days to the evaluation and training. Day one consisted of our normal schedule and the consultants monitoring our current flow and garnering feedback from patients. Day two consisted of establishing a new patient flow; in our case this meant eliminating certain moves for the patient from room to room. Prior to OD Lean we moved the patient on average of five times. This counted moving between pre-test rooms exams rooms and contact lens rooms. After the evaluation this was reduced to three moves.
Once everything was set we had a new patient schedule that allowed us to see two more patients per day per doctor (four total in our case) and not have overflow or the sense of squeezing in extra patients.
Income: $32,000/mt (($400 per pt revenue x 4) x 20 work days)
Net Income: $8960/mt ($32,000 revenue x 28% net)
Months to breakeven: Approx. 3 mo.
The real benefit for this investment is the long-term effect. This was a one-time change from which we will reach benefits for years afterward if we stick to the lessons learned from the original evaluation.
An auto-phoropter is basically a digital phoropter. We installed a first round of auto-phoropters about six years ago. We dipped our toes in the water by purchasing one unit per doctor (we had two full-time doctors at the time). Within six months we purchased another two units so we could have an auto-phoropter in each of the lanes each doctor used.
Cost: The cost of these units can vary depending on style and brand. Our units ran about $8000 each.
Needed Doctor/Staff Work: There was a small learning curve. Working with the new phoropters took about three days to get up to speed so we reduced our exam schedules for the first week.
Break-Even Point: The breakeven on this investment is difficult to know exactly. To do the break-even analysis we need to make several assumptions. The first assumption is that I believe the auto-phoropters helped us sell one more pair of glasses per doctor per day. Why do I say that? One advantage of the unit is it’s easy to show the patient a change in prescription even a small amount by merely pushing a button. I’ve received considerable feedback from patients every day when I present them with the comparisons.
So if we assume one extra spectacle sale per day we can estimate a break-even analysis.
Income: $7000 (ave spec sale $350x20days/mo)
Net Income: $2100 (($350 x 30% net) x 20 days/mo)
Breakeven: Approx 4 mo
We were apprehensive about the purchase of these instruments as it was not a groundbreaking new procedure or instrument. After using them for a short time we realized that besides the financial benefit to the practice there was also a larger patient experience that a majority of the patients voiced to me in the exam room.
For some investments you have to look beyond just the financial benefits but also look at what that investment can do to promote the practice. The auto-phoropter did this by showing patients we are a practice that embraces new technology. Most patients like to know that their practice and doctors are keeping up with new technologies. I also believe that there is a perception from patients that a refraction done with an auto-phoropter is a better and more reliable refraction. As optometrists most of us would say that is not the case in reality yet if the patient believes it then it’s a plus for the patient and the practice.
In 2010 we finally pulled the trigger on a decision we had contemplated for a few years and that was to move and expand our office. With two full-time doctors our 3600 sq. ft office had become cramped and we wanted a larger optical. We had also discussed adding a third doctor to the mix but there was no room at our old location to do so. Since moving we have been able to add that third OD.
The move also allowed us to go from renters to owners. We bought a building that had a larger footprint 5200 sq. ft. so we could expand the optical and add another doctor.
Cost: Between the purchase of the building and the finish of needed renovations and other needed expenditures like furnishings we spent just over $1.2 million.
Needed Doctor/Staff Work: There was a lot of planning and negotiations required. From the time we began looking for a new location and the time we moved in approximately two years had passed.
Break-Even Point: First let’s look at the breakeven in relation to what we paid for rent prior to the move. We were able to almost double our space and lower our rent by almost $1000 per month. From a cash flow perspective we were ahead of the game immediately.
In addition there are long-term benefits. Since we now “own” the building (or the bank does until we pay it off) we are investing in the equity of the building every time we pay rent. Once we pay that off in effect we will be paying ourselves in the form of us being landlords. To accomplish this we set up a separate company that collects rent from our practice and pays the note on the building. That company also pays the taxes owed and any repairs or maintenance required. We are paying a little extra per month to speed up paying the note off early 12 years instead of 30 and once that is done the amount of profit from rent will increase tremendously.
The other benefit is if I decide to retire or move again the building can be either sold or rented to someone else. In both of those cases there is a financial benefit.
Early on when debating purchasing the building I consulted with my accountant who is also a tax attorney. After he reviewed the numbers he said that if I planned on working another 10 years the purchase of the building was a “no-brainer.” How could that advise be ignored? So far it’s been a good move.