Adding an Associate OD, Part 4: Increasing Production
August 27, 2014
In this final installment in my series on adding an associate, I will cover how to get the associate doctor to produce at a high level. We can measure production in various ways, but collected gross revenue and number of exams performed are the key indicators. I’ll also describe a few miscellaneous factors to consider when you bring on another doctor.
The main reason I would bring an associate doctor into a practice is for the potential to increase gross and net revenue. A secondary benefit is that the senior doctor may be able to reduce the amount of time spent on patient care, possibly allowing the owning OD to devote more time to practice management, but increasing profit is a highly desirable factor. If the practice has built up enough patient demand and if the senior doctor is seeing a strong number of patients per day with good delegation to staff, adding an associate doctor will cause a dramatic increase in gross and net income.
It does take time for a new associate to become busy enough with patients to first cover his or her own salary and benefits, and then to make a profit for the practice. That time table will depend on how actively the staff moves patients from the senior doctor to the associate (I covered this last week) and how busy the practice is in general. I would expect a new doctor to have roughly half of his appointment slots full after the first six months. At that level of activity, the practice should easily pay the doctor’s salary and benefits and make a small profit from the doctor’s work. As the appointment schedule is filled further, the profit level increases.
Absolute revenue metrics
It is important that the practice management software system can produce accurate reports that indicate the financial production for the practice as a whole and for each provider. Production reports can be produced on demand for any time period, such as daily, monthly, quarterly or yearly. Typically, all services and optical products sold to a patient are credited to the doctor who did the exam. If patients bring an outside prescription for glasses into the office, those sales are not assigned to a provider, but rather to the practice as a group.
When we look at gross revenue for a provider, we always should look at gross collected revenue after insurance adjustments. The usual and customary fees that were entered are really of very little consequence. All that matters is amount of payments that are collected and deposited. The practice management software should be able to show those adjusted revenue figures and that is what we use.
The median collected gross revenue for a full time OD who sees patients about 40 hours per week is around $680,000 according to the Management and Business Academy (MBA). That is a perfectly good guide to use as a comparison for your associate, but be aware that a very busy practice often has each full time equivalent OD producing about $1 million or more. I would look at the senior doctor’s production as a guide as well, after considering the amount of time the associate has been with the practice and the number of hours worked per week. In most cases, there is no reason the associate OD should not produce the same revenue as the senior doctor.
Variable revenue metrics
While the total dollar amount produced by the associate is of interest, we can tell much more if we calculate the total revenue produced per exam. This removes the factor that the senior doctor may be naturally busier than the associate. Calculate this metric by taking the total revenue produced by each provider from all sources and dividing by the number of comprehensive exams performed during that time period.
The national average according to the MBA is about $308 total collected gross revenue per comprehensive exam, but a more relevant guide would be the senior doctor’s production per exam figure. If the senior doc produced $498 per exam on average over the past 6 months and the associate produced $308 per exam for the same time period, I would want to know why there was such a big difference.
Consider the types of patients
A large difference can sometimes be explained if you look at the types of patients each doctor sees, so think about that. If one doctor sees a lot of Medicaid and the other does not, that makes a difference. Also, if one doctor sees a different age group or different types of insurance plans or practices a lucrative specialty; that can explain a lot. If those factors seem strong enough, you might conclude that the associate is producing at an acceptable rate. If not, you should meet with the associate and discuss the likely reasons for the difference.
You can also uncover more if you analyze other sources of revenue on a per exam basis. For example, are the optical sales lower for the associate doctor on a per patient basis?
What to do about low production
The most important thing to do if your associate has much lower production than other doctors in the practice is to have a meeting in private and discuss it. I would share the revenue per exam data and ask the doctor if he/she has any thoughts about why such a difference exists. I would conduct the talk in a very respectful way and I would look at it as an opportunity to train or mentor the associate doctor.
You may want to discuss if the doctor is rather conservative in prescribing eyeglasses or contact lenses. This may lead to a discussion about not prejudging patients and their ability to pay and how that is really not our concern. You may want to revisit the mission of the practice, which could revolve around providing the best care; not the cheapest. I often tell my associate doctors that all I ask of them is that they prescribe and recommend the best eye care for every patient and not worry about the cost. The patient will let us know about his budget. I’m also happy to discuss the business aspects of operating a practice and how we face many challenges, such as managed care, competition and increasing operational costs. We must find a way to increase practice revenue every year.
It may be helpful to have the associate doctor observe the senior doctor in clinical practice to gain insight into how to communicate and recommend products at chairside. Often, just letting the associate know that you track the production numbers and discussing this aspect is enough to increase the revenue per exam number. Continue to monitor that data point and consider it when it is time for an employment review and possible raise.
Here are few important details to consider when you employ an optometrist:
A new associate is not much good to the practice if he is not a provider for most medical insurance and vision plans. I would not try to bill for services by the associate under the senior doctor’s provider number; it is best to follow all regulations. You may want to make the start date for a new doctor after all licensing and credentialing is in effect.
I would have the associate sign a simple written employment agreement which includes a non-compete clause.
You will need more staff members as the practice sees more patients. That is not a concern because much more revenue will be generated.
Consider hiring a consultant who is experienced in recruiting and managing associate doctors. Many expensive mistakes can be avoided.
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Editor, Optometric Management Tip of the Week
Dr. Gailmard's new book, Practice Management in Optometry: A Blueprint for Success Based on the Optometric Management Tip of the Week, is now available on Amazon.