Insights From Our Editors

The 2 Most Important Levers to Increase (or decrease) the Value of Your Practice

By Mark Wright, OD, FCOVD,
and Carole Burns, OD, FCOVD

Feb. 17, 2021

The value of your practice can be impacted by factors you may not have considered. Here are two of the most important variables to manage in your practice.

DOCTOR EFFECTIVENESS
Doctor Effectiveness is measured two ways:
1) Divide the practice Gross Revenue Collected by the Number of Full-Time Equivalent (FTE) ODs in the practice. Here’s how to do that:

a) To calculate the number of full-time equivalent ODs in the practice, take the total number of average hours worked by all ODs in the practice and divide that by 40 hours.
i) Example: 80 hours worked by all ODs in an average week divided by 40 hours equals 2 full-time equivalent ODs.

b) For a practice with gross revenue collected of $1 million and two full-time equivalent ODs, calculate Doctor Effectiveness by dividing $1 million by 2 FTE ODs. That equals $500,000 per full-time equivalent OD.

c) Discussion: The median number for Doctor Effectiveness is $700,000. The top 10 percent of ODs in the country have a Doctor Effectiveness of $1.4 million.

d) Action Plan: If your Doctor Effectiveness is less than $700,000, then your first goal is to get to $700,000. After that your goal is to get to $1 million. And after that your goal is to get the $1.4 million.

Here are the steps to increase your gross revenue collected, which will increase your Doctor Effectiveness:
1) Make sure your products and services fees are appropriate. You can ask your laboratory representatives for help with this.
2) The doctor must prescribe in the exam room.
3) The doctor must prescribe everything patients need to improve their quality of life.
4) Doctors and staff must be trained how to handle patient objections and how to “close the deal.”
5) The practice must have mechanisms in place to make it easy for patients to pay.

2) The second way to calculate Doctor Effectiveness is to calculate the percentage of Treatment Plans Completed. Because of the nature of people, you will probably never see 100 percent Treatment Plans Completed. If you do see 100 percent, our first thought is that you are not prescribing everything that would improve the patient’s quality of life. Your goal is to have 90 percent of your Treatment Plans Completed.

3) Action Plan: Here are the steps to increase your Treatment Plans Completed:
i) Since there is not an infinite number of conditions that an OD will see, start by brainstorming the treatment plans for the top 10 most common.
As an example, a healthy, presbyopic female has had a change in her near add power. What are the possible treatment plans you should consider prescribing? At the very least the list should contain:
• New dress glasses
• New sunglasses
• Contact lenses
• Computer glasses

If you prescribed all four of these for the patient in the exam room, but when the patient left the practice they had only gotten three of them, then your Doctor Effectiveness calculation would be three completed treatment plans divided by four treatment plans prescribed, which equals 75 percent.

If you are consistently below 90 percent Treatment Plans Completed, then you need to review your practice systems from the exam room to the patient leaving the office. This would include at least the doctor learning how to better present the treatment plan in order to get acceptance from the patient in the exam room and the optician learning the best order to present the treatment plan to the patient (i.e.: new dress glasses are always presented last).

ii) Review your intra-office systems to make sure that you have the necessary tools, models and pictures necessary to help patients accept treatment plans. Your laboratory representatives should be able to help you with this.

PRACTICE OPERATIONAL EFFICIENCY
Here is one of the best definitions of business operational efficiency: Operational efficiency is defined as the ability of a business entity to deliver products and services cost-effectively while ensuring its high quality.

We can measure Practice Operational Efficiency by first subtracting the practice Total Expenses minus any doctor wage, bonus, or benefit, then dividing that remainder by the Total Gross Revenue Collected. As an example, when the doctor expense is $200,000 and the total practice expenses are $950,000 (including the doctor expense) and the total gross revenue collected is $1 million, the calculation would be:

(($1,000,000 – ($950,000 – $200,000)) / $1,000,000) x 100% = 25%

The current average for the country for Practice Operational Efficiency is 29 percent. Your goal is to get this number as high as possible without negatively impacting high-quality care for patients. The higher this number is, the more valuable your practice is. The lower this number is, the lower the value of your practice. In fact, the number can go so low that your practice is only worth the value of its equipment.

There are two problems we commonly see with Practice Operational Efficiency:
1) Owners often rationalize a low Practice Operational Efficiency number by saying that level of expense is necessary to ensure patient care quality. There are plenty of examples of practices with a Practice Operational Efficiency of 40 percent or higher that show us what can be done. For the practice that has a Practice Operational Efficiency below 29 percent, that practice is simply being run inefficiently.

2) The second problem we commonly see with Practice Operational Efficiency is that the owner only looks at this number historically and makes no action plan for changing the trend of this number. The absence of an action plan for changing the trend of the Practice Operational Efficiency number means there is no active management of this number. The practice is simply waiting to see what happened. This is a terrible way to manage any business.

Here is your Action Plan to improve your Practice Operational Efficiency:
1) Calculate Practice Operational Efficiency at least monthly.
2) Actively manage this number by actively managing your practice expenses. Do this by meeting with your team at least quarterly to review the historic numbers and trends as well as plan for the next quarter and year. If this number is in trouble, then you need to meet more frequently such as monthly or weekly.

The practice that actively manages these two levers (Doctor Effectiveness and Practice Operational Efficiency) will find that the practice is increasing in value over time. The practice that does not actively manage these two levers will find its value to be far less than the practice that actively manages these two levers.

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