Management Essentials

Is Bigger Truly Better?

By Farrell “Toby” Tyson, MD, FACS

All ophthalmic practices wonder if size equates with success. After all, there does tend to be a correlation between high earners and large practices, so it's a natural instinct for us to pursue continuous growth. In reality, “super-sizing” your practice is not always prudent or cost effective—it is better to learn how to “right-size” your practice.

Not Too Big, Not Too Small

When starting out as a small solo practice, there are very few economies of scale. Rather, the benefit of being small is that you can change your practice on a dime and react quickly to ever-changing market forces. Also, efficiency is easier to achieve at smaller practices—without a sea of employees to look after, less time is spent resolving human resource issues.

If you run your small practice efficiently and provide good patient care, you will quickly grow into a medium-sized practice and begin to benefit from leverage in bargaining with vendors. However, your overhead is not dropping considerably, since growth requires more staff. Now you need more techs, billing staff and administration. More profit is made, but at a thinner margin.

The feeling that bigger must be better can, in some respects, be true. All the financial weight of the practice is not riding on one doctor's shoulders. Managed care contracting is a little easier. Cost of goods can be negotiated lower and marketing costs can be spread out. However, once two or three partners are in place, a consensus is very hard to come by. Economies of scale start to break down as you strive for growth because more staff and equipment are required to handle the load.

Vertical Horizons

We have seen that size does matter in the manufacturing and retail worlds. US Steel and Microsoft have shown that with size comes dominance and profits. Both companies have been good examples of vertical integration leading to cost reduction, which allowed them to lower their prices to corner the market and obtain almost total monopolies. In medicine, most administrators and physicians think that this model can be followed on a smaller scale. The fatal flaw, however: we cannot control price, since it is dictated by Medicare.

Vertical integration can be beneficial in ophthalmology if a practice is of sufficient size to afford it. An in-house billing staff can bring in a higher collection rate with quicker payment turnaround than outsourced billing. However, if you are going to spend more than 6% of your collections on billing salaries/benefits and infrastructure, then outsourcing your billing makes better financial sense.

The emergence of practice management software, electronic medical records and electronic prescribing has forced all practices to embrace computerization. Most practices have multiple computers and at least one server. While most of us are fairly computer literate, staying on top of network management and troubleshooting can be a time-consuming and expensive proposition, so many practices have brought IT specialists into their offices. Keep in mind that only 5% or less of collections should be spent by a practice on their computer, software, data services, phone system and service/support.

Size here is not necessarily a benefit. Most software companies charge for the initial sale and a yearly service fee based on the number of providers using the system. This penalizes offices that have multiple moderate-volume providers versus a practice with a high-volume solo provider. As technology improves, many software companies are able to host the software on their own servers in “the cloud” so the practice doesn't need to invest in servers or IT professionals.

Other areas to consider for right-sizing or outsourcing include: human resources and payroll, bookkeeping and accounting, and operating room staffing. We constantly reiterate to our managers that their pride and worth is not derived by the number of staff beneath them, but by the efficiency and quality of their departments.

The Goldilocks view of “just the right size” is difficult to obtain and surely surrounded with “bears” that threaten your survival, but if you can find the balance, your effort will be met with just rewards. OM

Farrell C. Tyson, MD, FACS, is a refractive cataract/glaucoma eye surgeon at the Cape Coral Eye Center in Florida. He may be reached at tysonfc@hotmail.com.