Article Date: 6/1/2010

The Real Cost of Doing Business
practice management

The Real Cost of Doing Business

How to calculate the cost of business in optometry and what to do about it.

SCOT MORRIS, O.D., F.A.A.O., Conifer, Colo.

I doubt I could find many optometrists who would disagree with the statement that it's more difficult to manage a successful business now than ever before. This article will focus on a key driver of success: the seldom talked about, rarely realized, real cost of doing business in an optometric practice.

We'll examine this cost in relation to the various challenges that you, the optometrist, face in today's business world. We have an ever-changing patient demographic. The population is getting older, has more disease, and due to the recent economic downturn, is more cost conscious than even a few years ago.

In addition, more people are working from home. They research your practice on the Web and are generally very tech savvy. They are over-merchandised and very good at picking out real deals from slick ads. In addition, they are very comfortable shopping, comparing products and purchasing items online from home. Online retailing is at an all-time high and only expected to continue to rise and gain marketshare. Furthermore, managed care has continued to reduce reimbursement at all levels in eye care. In fact, as I will show you, it's really difficult to make money if your practice is highly embedded with managed care patients, unless, that is, you're very savvy to the innuendos and intricacies of each and every managed care plan in which you participate. New governmental regulations — such as the "Red Flags Rule" for identity theft, H.I.P.A.A., pending requirements for electronic health records (EHR), e-prescribing and, on a larger scale, even the unknowns of healthcare reform — all pose threats to the way optometry does business. And they impact our cost structure.

The real costs of seeing a patient

Ever wonder what it really costs you to see each patient who walks through your door? We can break this process down by the practice's workflow, from the time a patient calls for an appointment, through the office visit, to the follow-up visit when we see the patient a year or more later. We will examine this process through the lens of a traditional paper practice office. I have followed the procedures at 12 "paper chart" practices with a stop watch and a spreadsheet as I assisted them in their migration to an electronic health record (EHR) system.

Let's put forward a few basic assumptions to average out the variability in office flow and various practice modalities to come up with the numbers. Here are the assumptions:

► A traditional two-doctor office with seven staff members.
► The receptionist earns $12 per hour, the technician $14 per hour and the optician $16 per hour.
► Each doctor sees 12 patients per day and works 245 days per year. The doctor is reimbursed at a rate of $73.03/hour, according to 2009 numbers from the Essilor/CIBA Vision Management & Business Academy.
► A total of 40% of patients wear contact lenses, and 40% buy a complete pair of eyewear.
► It takes three minutes to find each chart, though this is likely an underestimation based on experiences and questionnaires.

Reception

The process of check-in starts when the patient calls for an appointment and continues through the time that the technician actually brings the patient back for his exam. It includes scheduling, insurance verification, building the physical chart, patient check-in and the six times the chart actually has to be found, touched, and re-filed during this process.

The real cost: This time span averages 15.17 minutes and costs about $3.31 per patient.

Clinic

The clinic time is considered the time the tech takes the patient until the end of your examination, when the doctor escorts the patient to either the contact lens area, optical or the front desk. This portion of the exam includes:

1. The basic greeting and escort back to the exam room
2. Patient history
3. Visual acuity
4. Contact lens check and over-refraction
5. Pretest (extraocular muscles/motility, fields, pupils, autorefraction, aberrometry, topography, lensometry, etc.)

Your portion includes:

1. The refraction
2. Slit lamp exam
3. Intraocular pressure measurement
4. Dilation and fundus exam
5. Diagnosis and treatment plan discussion
6. Patient education time and super bill documentation.

The real cost: Totaling both the tech time and the doctor time, clinic costs amount to 43.60 minutes and $17.96.

Contact lenses

This part of the exam ranges from the time the staff member brings the patient to the contact lens room until check-out. This process typically includes:

1. Contact lens ordering
2. Verification and patient notifications
3. Posting charges
4. Dispensing the lenses
5. Solutions discussions
6. Chart documentation.

Note: This process doesn't include insertion and removal training.

The real cost: This process averages 27.10 minutes and costs $5.88 per patient. Remember, earlier we made the assumption that only 40% of our patients wear or order contact lenses, however.

Optical

This process starts with the patient transfer between you and the optician. It typically includes:

1. The transfer of lens prescription information and doctor recommendations
2. Insurance verification
3. Frame selection
4. Patient measurements
5. Sending the jobs to the lab
6. Order verification upon return from the lab
7. Patient notification
8. Eyewear dispensing

Note: This process doesn't include actual lab time or any inhouse production.

The real cost: This cost averages an astounding 52.13 minutes and costs $12.74 for the 40% of the patients that we assume purchase eye wear.

Check out

Check out covers the process in which your staff transfers the patient from the exam room to the front desk. It includes activities such as:

1. Scheduling the patient for a pre-appointed or return exam
2. Review and discussion of charges
3. Payment collection.

The real cost: This process averages 5.10 minutes and costs about $1.02 per patient.

Billing

The billing process starts with the check-out desk employee filing the chart and ends with the receival of the complete payment. It typically includes processes such as

1. Chart diagnosis and code review
2. Insurance submission
3. Explanation of benefits processing
4. Payment processing
5. Patient billing of remaining charges
6. Patient payment processing

The real cost: This process averages 11.66 minutes and costs $4.42.

Note: The billing process includes all mailing costs, which are not tabulated here. Also, absent from this calculation are the 12% of all submissions that are rejected with no payment and those submissions that require multiple filings to receive any reimbursement.

Totals

When we factor in each step of the process and remember that only 40% of our patients order contact lenses and 40% purchase glasses, we find that the total time for a patient to interact with your office (i.e., the total time you're paying yourself or a staff member to take care of this patient) is 107.16 minutes. All this occurs at a cost of $34.16 per patient encounter.

"Doing business" costs

The above total doesn't include operational costs, including rent, utilities, insurance, human resource (HR) benefits, equipment costs and marketing. Let's factor these costs into "doing business:"

Rent, utilities, insurance. Assuming a standard optometric practice of 2,000 square feet and $19 per square feet, it costs $8.16 to just cover rent per patient. When we add in utilities, property tax, property and liability insurance, this number jumps to $13.17 per patient.
HR benefits. Using the previous assumptions of nine people (seven staff plus two O.D.s), most practices spend an average of $3,386 a month total to cover health insurance, individual retirement accounts, matching taxes, etc. At 12 patients per day x 20 days a month with two providers, the total equals about $7.05 per patient.
New equipment and marketing costs. I didn't analyze these costs during the 12 practice visits, so I won't address those costs, but you need to consider them as part of the overall expenses of doing business as well.

So in summary, the typical costs to see a patient, not including expenses for marketing and new equipment, totals $54.38 ($34.16 + $13.17 + $7.05).

Note: To simplify the article, I also have left out credit card processing fees, continuing education for doctor and staff, physical property improvements, and general overhead expenses, such as office supplies.

Comparing this number with our usual-and-customary fees for private-pay patients and actual reimbursements from many third party plans, it begs the question: Are we really getting paid enough?

Adapting an optometric business model

It's imperative that you not only understand your costs, but adapt your business model to ensure the financial health of your practice. You can improve your practice's cost structure in a number of ways, including:

Increasing your professional fees. Many O.D.s are reluctant to increase their fees, yet practice after practice has demonstrated that it's one of the most effective methods of increasing top and bottom lines.
Limit managed care patient volume.We all hate to limit patient volume, but remember: If you don't run your business correctly, you won't have to worry about being a provider — at least not at your own choosing. Upon review, if the fee schedule set by a managed care plan is not sufficient to cover the costs of operating your practice, then you must consider limiting or dropping the plan.

Yes, it's possible to be successful and accept limited vision managed care plans. Here's one reason why: Looking at several typical managed care plans, I estimate that the fees and reimbursements from three managed care patients would equal the fees and reimbursements from one private-pay patient. Which brings us to the next item.

Focus on "the other 50%,"(i.e. those patients who are private pay and pay cash out of pocket.) When you drop a plan, the initial reduced patient volume isn't necessarily a losing proposition. It's been my experience that you now have time to pay extra attention to "the other 50%" of your patients, which typically results in increased profitability.
Increase patient volume. This sounds like a reasonable plan and may work for practices that see less than three patients per provider per hour. But we can probably not get above a volume per provider greater than 6,000 patients a year (three patients an hour) without sacrificing quality. And in all reality, it's very difficult to sustain that level of efficiency for most of us without a large, well-trained staff and advanced technology.
Improve efficiency. Through the increased utilization of staff, diagnostic technology, operational technology and EHR, as well as other improvements in operational workflow, you may be able to increase your efficiency and see more patients. But keep in mind that every practice has its physical limits.
Limit quality. This is an option many O.D.s have taken, consciously or not. These doctors have decreased the quality of their technology, personnel, operations, facilities, merchandise and ultimately their service to make ends meet — a risky move.
Stop discounting. Don't discount beyond what plans demand of you contractually. This high risk/high reward practice may cause patients to either leave their vision insurance plan or leave your practice.

This article has calculated the "real cost of doing business," or at least most of the significant components. Now, I challenge you, the reader, to think about how you proactively combat the mounting costs that may threaten your practice. You have two choices: Dictate the rules or have them dictated to you. OM

Dr. Morris is the director of Eye Consultants of Colorado, LLC, and Morris Education & Consulting Associates. E-mail him at smorris@eyeconsultantsofco.com.


Optometric Management, Issue: June 2010