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PRACTICE MANAGEMENT

Selling Your Practice Part II

Last month we looked at the basics of valuing an independent eye care practice for sale in the near future.

In this second of two parts, we examine the steps a business owner can take to increase the value of an eye care practice over the long term. Unfortunately, many business owners do not consider an exit strategy or value of their practice until they are nearing retirement. By then it�s usually too late to significantly increase practice equity in a short time span.

As we noted in the first article, independent eye care doctors are slowly increasing market share compared to optical chains and big-box retailers. One effect of managed care has been to weed out the poor-performing eye care practices. The days of simply hanging out a shingle and coming to work every day are long gone as working smart is far more important than working hard. For the independent doctor willing to engage in long-term planning, reinvest in their practice, and continually monitor certain practice metrics, the future can look very bright indeed. Let�s examine the opportunities:

Opportunities

1. Expand medical eye care services
Expanding the scope of an optometric practice is a great way to increase gross profits and create a sense of loyalty to the practice. Let�s face it, the reimbursements for the traditional refractions and optical services have been steadily declining for the past twenty years. An experienced OD may need additional training for medical services; or they may need to hire a younger associate. Currently, medical eye care only accounts for 15-20% of revenue, but the potential for growth is very high as an increasing numbers of states have granted more medical privileges to optometrists. At the same time, many practices do not even have office processes in place to bill and collect for many procedures that fall under medical eye care. Currently your patients are being educated by consumer advertising done for ophthalmic prescriptions�wouldn�t it be better for you to control that marketing by providing it as part of the patient experience in your practice? Here are the numbers as they currently stand:

Medical Eye Care in Independent Optometry Practices
Median % of annual patient visits 18%
Median % of practice revenue 15%
Medical eye care visits per 1,000 active patients 73
Pharmaceutical Rx's per 1,000 active patients 53

Consultants estimate that a revenue number of around 30% is attainable for most optometric practices. In other words, a practice grossing $500,000 annually which increased its medical revenue from 15% to 30% would see annual revenue grow by $75,000 with virtually the same patient base.

2. Adopt electronic medical records
Optometry continues to lag behind many other medical disciplines in adopting new technology. Aside from the government incentives, electronic medical records improves the monitoring of patient data, streamlines the patient flow in the practice, and assists in patient retention

3. Increase revenue per patient
Easier said than done, but in almost every practice there is a niche market that is not being filled for their patients. Every practice should keep a patient profile of each patient, where they list their occupation as well as non-work activities they participate in. A good dispenser will match unfilled patient needs with products available in the practice. A good example is Plano sunwear. Most independent ODs gave up on that market years ago because they were available cheaper at other outlets. We are all familiar with the Bausch & Lomb survey from 15 years ago where 90% of new contact lens patients purchase Plano sunwear in the first 48 hours after being fit with contact lenses for the first time. But how many doctors have bothered to place an affordable Plano sun wear display in the contact lens fitting area? Back in the last century (1989 or so) a very smart optometrist in the Snow Belt, south of Buffalo, proudly showed me his new sunwear display, which took up a close to a third of his board space. Outside, it was a very dark and dreary January day with snow falling about a foot every 2 hours. The doctors� reasoning? His patients visited the practice for maybe an hour per year, and it was his goal for his patients to understand that there was nowhere else they ever needed to go for any eye care need!

4. Increase the frequency of patient eye exams
While almost all practices recommend yearly eye exams, in reality 75% of patients only return every two years. This is due partly from patients seeing no change in their vision, partly from token efforts to recall patients, and partly from increasing demands on household budgets. Obviously, you can control only one of these factors. Lately I have seen many practices scheduling the next patient appointment at the time of checkout this year. There is little or no resistance to this (who can predict they are going to be busy that certain day in 12 months?), and it creates an obligation in the patient�s mind to keep that appointment. As always, follow up, follow up, and follow up until that patient walks in your door. Notice how many of these opportunities work with each other�increased medical eye care services creates another reason to keep that appointment, if only for monitoring of eye health.

5. Increase contact lens penetration
Soft contact lenses may dominate the market, but specialty RGP lens fittings are steadily increasing. Topography-guided lenses can provide highly refined vision on otherwise hard-to-fit patients. New software can improve initial lens fittings by predicting fit characteristics and allowing the doctor to make changes in lens design before the lens is ever placed in the eye. Professional fees for topography-guided RGP lens fittings are appropriately higher than those for soft contacts. In addition, contact lens patients as a rule generate more income per patient because they have more frequent exams and pay higher exam fees.

6. Electronic patient communications
A good practice management software system will allow increased patient communication via email. Not only recalls can be processed this way, but you may wish to inform all of your glaucoma patients of a new drug therapy, or you may wish to remind patients with a plus Rx about the increased availability of aspheric lenses, or you may wish to send out a patient newsletter in Adobe Acrobat form to advertise a trunk show for a frame manufacturer. Keep your patients informed about what�s new the eleven months out of the year they don�t visit your office.

7. Keep your technology current
This is pretty self-explanatory, and an important part of any practice valuation. Two or three year-old equipment is much more valuable than equipment in lanes outfitted during the Nixon administration (don�t laugh, they are out there).

8. Measure your key practice metrics monthly
Surveys and papers with recommendations for practice metric are widely available on the web and from consultants. There are some universal metrics which apply to any practice; just be sure that some of the other numbers available actually apply to your practice. For example, a store like Target or Wal-Mart pays close attention to numbers like profit per square foot; whereas the same number does not mean much to an OD renting space in a strip mall. Let�s take a look at the most important metrics, followed by others helpful to most doctors.

1 Gross Receipts � otherwise known as production, deposits, collections, or receipts. Just be sure that you accurately measure revenue deposited.

2 Net Income � the best sign that a practice is operating efficiently.

3 Doctor Hours Worked � a number needed to figure profit per doctor hour. Also a great example of how the metrics affect each other. If you increase patient recalls and capture rate you will most likely increase hours worked. If so, be sure that gross receipts show a comparable increase.

4 Percentage of New Patients to Established Patients � a key metric if you are actively seeking to increase your patient load. There are no accepted recommendations here as all practices are different, but a ratio of 75% established to 25% new is excellent for growth.

5 Recall Percentage � 70% patient return from the same month the previous year is a good goal.

6 Capture Rate � the percentage of Rx�s written who fill their prescriptions in your practice. There is a wide variation between OD and MD practices in this number. 60% is acceptable for an MD practice while anything below 85% in an OD practice is an indicator of problems in the practice.

7 Accounts Receivable � a good goal is to have 90% of the AR less than 30 days old. Practices with continuing AR problems should consider outsourcing their insurance filing and billing procedures.

8 Inventory Management � a good rule of thumb is that your frame inventory should turnover three times per year. Train your sales reps to work for you � they start out with a certain number of frame slots and make them responsible for placing only products which sell on your boards. Let them know that they will lose those slots if their product does not sell.

9 Percentage of Contact Lens Patients � contact lens patients tend to visit the practice more often and have higher exam fees. Plus, they also need at least one pair of glasses (and sunwear!)

10 Patient Flow � the best way to measure this is to examine how long patients wait � how long they wait to see the doctor, how long to see an optician, to check out, and the turnaround time of glasses from your lab.

11 Optical Percentages � the best indicators of a well-trained office. The higher the % of proprietary products sold, the higher profit per patient. Look for comparisons such as % of anti-reflective lenses, % of poly/hi-index lenses, and % of second pair sales.

12 Established Community Outreach - usually by the doctor but can be provided by the staff. This can range from speaking to seniors about monitoring their glaucoma to the local health club recommending your practice for sport goggles to sponsoring and providing sports eye wear for a Little League team.

First, set goals on a monthly and annual basis for each of these metrics and measure performance monthly. Share both the goals and ongoing performance with your staff and hold them responsible for working with you towards meeting the goals.

Remember � sustainable practice net cash flow is the biggest factor in determining practice value. Cash flow pays bills, services your debts, and provides your personal income. Long range planning and performance monitoring can go a long way in ensuring that when the time does come for you to sell, you get the best possible price for your practice.

Cliff Capriola, Practice Management Consultant

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