Dr. Headington in his office. Dr. Headington has taken a deliberate approach to “inflation-proofing” his practice.
Inflation impact on your practice & what to do about it.
By Kenneth Headington OD, MS
June 26, 2024
So, what is inflation, how does it affect your practice and what can you do about it?
The great Nobel Prize economist Milton Friedman said it best: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
What is the Current State of Inflation?
In recent years the M2 money supply expanded by approximately 40 percent, decreasing dollar purchasing power in kind.
Additionally, the last time debt to GDP in the U.S. was at similar levels was after World War II when financial repression, inflation and illiquidity events took over 30 years to resolve.
As a small business owner, it is vital to understand the current economy we find ourselves in, the time frame it can potentially last and what our options are to navigate it.
What Works Best in an OD Practice to Offset Inflation?
Many practices have seen stagnation-to-reduction in insurance reimbursement while operating expenses, cost of goods and employment-related costs continue to rise.
The net profit margin of your practice needs to increase by at least 40 percent to keep up with the most recent levels of inflation.
Here are three broad based strategies to accomplish this:
3 Key Strategies to Offset Impact of Inflation
Increase in-network patients seen per hour between 50-100%
Example: If you currently schedule two annual eye exams per hour, increase to 3-4 patients per hour, dependent on front-office capture rates and staffing costs.
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Keep present in-network patient load, but renegotiate reimbursement rates
Successfully negotiate between 50-100 percent higher reimbursement for services and optical dependent on front-office capture rates and staffing costs.
Become a direct-care provider
Adopt a patient-centric versus insurance-centric model, efficiently focusing all resources on patient care while maximizing profits and minimizing expenses.
By using this approach, a provider is able to instantly and autonomously adjust to monetary expansions/contractions (i.e. provider becomes “anti-fragile”).
How We Became a Direct-Care Practice
In 2022, we began transitioning into a direct-care office. Doing so fundamentally changed how we practice.
I now employ only a fraction of previously needed staff while being able to pay well above industry standards for increased employee retention, work only three days a week with plenty of time for each patient, and have autonomy over optical and lab choices.
Becoming a direct-care provider can be scary, and ideally involves at least one year lead time to prepare for the transition, educate patients and get your books in order.
However, the pay off for making this bold move is great. I have owned and operated a full-scope independent optometry practice for around 10 years and have never been more satisfied as a provider/small business owner.
Prepare to potentially lose around 80 percent of your in-network patients once you are completely independent of managed care. Over time you should expect previous in-network patients to trickle back in and to acquire new patients through advertising campaigns.
Create Bundle Pricing
Our practice created bundle pricing according to best practices/standards for both services and optical, significantly improving staff efficiency and patient satisfaction.
We found patients tend to want to be part of a plan, so we created our own in-house Vision Membership Program to allow for a convenient one-stop shopping experience.
During our transition we are offering in-house complimentary out-of-network insurance billing assistance for two of the main benefit plans. We intend to no longer participate in any out-of-network billing once the transition process is complete.
Results in Our Practice of Making Changes to Inflation-Proof Our Business
In the last business cycle, our practice achieved peak inflation adjusted earnings in 2020-2021 operating within a five day work week (three full days between two half days).
Our practice began to experience the lag effects of the recent monetary expansion late 2021, which subsequently impacted our business significantly in 2022.
For perspective, if your business consistently kept up with inflation year over year, your net income needed to increase by around 25 percent in 2022 alone to maintain inflation-adjusted returns.
This, in addition to other inflationary impacts, inspired us to completely redesign our optometric business model from the ground up to become “anti-fragile” to monetary expansions/contractions (notwithstanding many mistakes along the way).
We are currently on a positive growth trajectory, which is projected to achieve inflation adjusted returns per hour worked by 2025-2026, if not sooner.
Adapting our practice to a direct-care model led to a newfound joy and appreciation for running an optometric business and increased patient care and personal quality of life.
* I refrained from using the CPI during this discussion as it is widely considered an extremely flawed statistic in which the CPI equation is regularly being changed with associated controversy and measure.
Learn More About the Impact of Inflation
I highly recommend the following:
David Hume’s essay, “On Public Credit”
Edward Chancellor’s book, “The Price of Time: The Real Story of Interest”
My personal favorite book on inflation: Jens O. Parsson’s “Dying of Money: Lessons from the Great German and American Inflations”
On how to benefit from chaotic economic changes, I recommend Nassim Nicholas Taleb’s book, “Antifragile: Things That Gain from Disorder”
Kenneth Headington OD, MS, is the owner of Northglenn Optometric Center in Northglenn, Colo. To contact him: admin@northglennoc.com
