Article Date: 7/1/2010

Understanding Your Return on Diagnostic Equipment

Understanding Your Return on Diagnostic Equipment

Make sure your analysis includes four critical numbers

Franklin Lakes, N.J.

It has all the makings of an economic perfect storm. Our patient population is aging, so there's a high likelihood they'll suffer from more pathologies. Through advanced technologies, we are able to detect pathologies sooner than ever before. Yet, when we detect and manage pathologies, we find that the reimbursements for our expertise are continually being reduced by the Centers for Medicare & Medicaid Services and other healthcare providers. The prices for the technology we need to diagnose these patients are escalating. So, what's the net, net, net?

While diagnostic technology has always been relatively expensive, it's rare to remember a piece of ophthalmic equipment that cost more than a luxury car. And yet, with the continual launch and upgrades of these highpriced technologies, our reimbursement is often less than what it would cost to fill a luxury car with a tank of gas.

As a result, calculating the return on investment (ROI) on technology before you make a purchase is no longer an option. In addition to having hard and fast numbers for today's ROI, a crystal ball is also now mandatory. After all, a procedure that an insurance company reimburses you $75 for today might be $48 next month, or not covered at all.

So, what's the solution? You could wait for the weather report, and see whether the storm cells coalesce and swallow up your practice, or you could make carefully educated and informed decisions, pull up your risk anchors and press ahead. I believe for your practice to thrive, the only choice is the latter.

"Does my insurance cover that?"

Yes, as optometry gets more into "medical eye care" (which is admittedly defined 100 different ways), the specter of insurance coverage becomes a bigger part of our practices. However, when properly presented and explained to patients, many fees for diagnostic tests will be paid out-of-pocket by patients who either don't have insurance, or who don't have insurance from plans in which you participate. The reason patients will pay out of pocket? Generally, the fees we charge, while expensive for some, are usually not financially devastating for most. Fees for retinal photographs, optical coherence tomography scans, topography, etc., are not on par with a three-week stay in a hospital, and, therefore, will not cause most patients continual, unending economic hardship.

Before you decide to e-mail me and write, "Gary: You don't know my patients," I can assure you I do. Paying $100 for a carefully explained and necessary test is certainly not something most patients want to do, but it's something most will do. And for most patients, the fees we charge for these services won't cause them to lose their house or life savings. Do they want to use their insurance coverage for our fees? Of course. But again, don't get sucked down the insurance boondoggle drain and believe that it has to be that way for all patients.

Once we get past the insurance hurdle (and remember, if you accept your patients' insurance, the above is a non-issue), we can now talk about ROI calculation. In general, ROI equals the reimbursement minus technology, staff time and patient marketing.

1 How much does the technology cost?

This is usually the easiest part of the ROI equation to figure out. If you're leasing an optowidget for $500 per month, you'd hope you make at least $501 per month. However, you must consider other things that, while easy to comprehend, make this not quite so straight forward to calculate.

First, consider the tax ramifications of the lease payment and equipment depreciation. Also, consider the possible tax savings you might enjoy by not leaving the dollars you'll pay for technology on your corporate books as profit. Talk to your tax professional about this, as well as the best time to buy new equipment for your practice.

In addition to the monthly payment and tax issues, consider the following two internal costs.

2 How much will it cost in staff time to operate the technology?

We rarely need to hire someone new when we acquire new technology, but we do have to pay a current staff member to operate the equipment. Calculate how much that will cost. Many doctors tell me:

"I have the staff person here anyway, so there isn't any incremental labor cost associated with technology."

The thing to consider here is that while your staff member is working with a patient on your new opto-widget, she is not doing what she did before you acquired the device. She is not answering your phones, not selling a second pair of glasses, etc. So, some lost-opportunity costs are associated with the acquisition of a new device or devices. If you feel you have no costs associated with this scenario because you or your staff has plenty of time for this new testing, odds are that you are over-staffed.

3 How much will it cost to market and introduce this technology?

First, determine your target audience. Will it be those in your current base of patients who might be in need of the testing? Will you market in the hopes of acquiring prospective patients who would benefit from the technology? Will you present this technology to area colleagues in the hopes of using the technology to diagnose their patients? Or, will you do some combination of the above? You'll need a well thought out and cogent marketing strategy — and budget — in place before you commit to buying the equipment.

4 How much will I charge the patient, or will their insurance company pay me?

I'm stunned by how many practitioners don't do this quick bit of homework before buying new equipment. Make sure you have a good sense of the fees you will charge — and the likelihood of being paid those fees by the insurance companies with which you work. Each company rarely reimburses the same amount. Therefore, you must have the range at hand before proceeding. From there, use your current patient demographic to determine how many patients are likely to need the services of the technology you're contemplating.

To calculate the number of patients who might need testing with the equipment, do a database search of appropriate diagnosis codes of your current patient base. Then, calculate a percentage of those patients who would actually have to use the technology.

Now for the crystal ball part: Insurance reimbursements are surely not going to increase as time marches on. So, determine various scenarios of decreasing reimbursements, and calculate how many more patients would need testing with the technology to cover the base costs of the equipment.

For example, when reimbursements decrease 20%, ask: With how many more patients will you need to use the technology to make it worth your while? What about a 30% decrease? Will these revised fees account for the three cost areas described earlier?

Your "tech wish list"

To help prioritize which technology you should buy — and in which order to buy it — start keeping a "tech wish list" in your exam room. Make a note on your list when you encounter a patient who has a particular disease state or set of symptoms and you say to yourself: "I wish I had X right now — this patient definitely would benefit from that test." Of course, in situations in which patients require immediate testing with equipment that's not available in your office, refer them immediately for the appropriate testing. Alternatively, if you're close to your decision about what to buy, and the patient's needs aren't urgent, tell the patient, "We'll have the technology you'll need in about 30 days. We'll call you when the equipment arrives to schedule a time for the test."

While economic conditions are certainly shaky, this article illustrates that you can still easily calculate and plan for the profitable placement of technology in your practice. OM

Dr. Gerber is the president of Power Practice, a company specializing in making optometrists more profitable. Learn more at or contact Dr. Gerber at, or call (800) 867-9303.

Optometric Management, Issue: July 2010