Steps in opening my practice

[Kach]

Hi all,
Supposing I was interested in opening an ophthalmological practice. Would any of you be willing to offer some adivce? What are some of the costs i should expect? Is it best to buy in or start from scratch? What about personnell issues? Advertising? location? building a clientelle? Please do not limit your responses to these. I look forward to your responses!

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[Andrew_Doan]

I have an article that covers some of the above in the next Pearls in Ophthalmology and an article on contract negotiations:

http://www.medrounds.org/ophthalmology-pearls/

Also, there are articles in the YO Info that covers practice evaluation and benchmarks, both are good resources to help you address some of your questions:

http://www.aao.org/yo/newsletter/200710/index.cfm

Stay tuned because I'm in the process of recruiting an author that is writing a book covering the business of ophthalmology.

Good luck!

 

[PDT4CNV]

Hi all,
Supposing I was interested in opening an ophthalmological practice. Would any of you be willing to offer some adivce? What are some of the costs i should expect? Is it best to buy in or start from scratch? What about personnell issues? Advertising? location? building a clientelle? Please do not limit your responses to these. I look forward to your responses!

Depending on the type of practice, it can cost anywhere from 500,000 to 1 million dollars. This is if you are starting from scratch. Because of the size of the loan, most bankers will require you to have substantial life and disability insurance policies to cover the cost of the loan should something happen.

Location: You want to be next to or in a hospital. Patients perceive that as higher quality care than if your office is in some small office building or house on the side of town.

Personnell: It can be hard to find good trust worthy office personnel (techs, office manager, etc.). There are consultants who can help you find them. Karen Fallon is a business advisor with Allergan&BSM Consulting Group who I have spoken with. She helps physicians in this respect. [email protected]

I would recommend investing in EMR if you are starting out. NextGen makes good software to integrate an ophthalmology practice in terms of records, scheduling, billing, etc. This will likely become a requirement in upcoming years. May as well invest now as opposed to converting later.

If you will be associated with a hospital where eye surgery is not yet done, you will want to speak with the administration there ahead of time to make sure they are interested in that. Operating microscopes, phaco or vitrectomy machines, and ophthalmic instruments can be pricey. You may want to develop some financial projections for them to show that long term it would be profitable for them to do it. Find out what the hospital policy is on ER coverage and floor consults.

I would not recommend investing in an ASC when just starting out. If you decide to operate at one owned by other ophthalmologists in town, remember that you are padding their pockets.

If you are thinking of buying into a practice, remember that most physicians believe their practice is worth approximately 3 times what it actually is. It is perfectly reasonable to have a consultant appraise the practice. You can also ask to see the practice financials and tax sheets to see what the practice is "claiming" it is worth. All of this should be done BEFORE you sign the dotted line. Also, you should work out things such as on-call time, # of cases and types of cases you will be doing, vacation time etc. Your "partner" may get all the phacos and you see all the blepharitis. Also, look at the efficiency of the practice. Some practices have an 80% overhead while others have half that. You will want some power over practice management and what employees stay and who gos. Many times new physicians are salaried for the first year...after that how will you be reimbursed (what % of your collections). What about practice expenses and who pays them (is it based on productivity, equal for everybody, are there caps?). If your partner decided to work part-time, you dont want to be stuck with 90% of practice expenses. And what about buying out of the practice?

Good luck. I would recommend going to some business classes at the next academy meeting or contacting a business advisor such as Karen Fallon.

 

[Kach]

This is excellent, thanks for your expertise, everyone. Please keep it coming if possible.

 

[KHE]

Depending on the type of practice, it can cost anywhere from 500,000 to 1 million dollars. This is if you are starting from scratch. Because of the size of the loan, most bankers will require you to have substantial life and disability insurance policies to cover the cost of the loan should something happen.

.

$500 000 seems incredibly high for a start up. What exactly are you getting for that $500 000?

 

[Andrew_Doan]

$500 000 seems incredibly high for a start up. What exactly are you getting for that $500 000?

I have a friend who opened his practice with a $250,000, but a $500K loan is reasonable. It may cost $50,000+ to outfit a practice with the basic equipment and furnishings to start.

A good business plan should have 2-years worth of operating costs in reserve, which covers salaries and lease.

The office lease: ~$100,000/year
Your salary: $100,000/year or less (base pay)
Insurance: $20,000/year +/-
Office staff (2): $70,000 +/- (including benefits and health insurance)
=====================
about $290,000/year operating costs

$650,000 is a comfortable estimate to allow your business to grow and then take off. If you're lucky and the practice takes off like a rocket, pay the loan back early!

You can calculate the number of patients and surgeries you need based on RVUs (about $34 per RVU) for your practice to stay in business. On average, office visits can generate about 2-3 RVUs for new patients and 1-2 RVUs for return patients.

Let's assume 3 RVUs or $102 for a new patient and 2 RVUs for a return patient or $68. At first, all your patients will be new and then eventually have a mix. When your practice is up and running, let's say your goal is to see 30 patients a day with 20 return slots and 10 new slots. You'll generate on average, $1360 from seeing return patients and $1020 from seeing new patients. That' about $2380/day in billing. You'll be seeing patients 4 days a week and operating 1 day a week. Let's say you mainly do cataract surgeries. On average, you get $650 (varies by state) per surgery. You are doing 4 surgeries per week and generating $2600 in surgery billing. This will give you $12,120 per week in billing or $48,480 per month (can be less if your practice is not good at bill collection). Considering holidays and vacations, you'll work 11 months per year generating $533,280/year.

From this revenue, you'll invest in 1) growth of your practice, 2) expanding your billing/collection services, 3) marketing, 4) your staff salaries, and 5) your income.

The above is only a rough estimate, but gives you an idea what it takes to survive.

 

[orbitsurgMD]

I have a friend who opened his practice with a $250,000, but a $500K loan is reasonable. It may cost $50,000+ to outfit a practice with the basic equipment and furnishings to start.

A good business plan should have 2-years worth of operating costs in reserve, which covers salaries and lease.

The office lease: ~$100,000/year
Your salary: $100,000/year or less (base pay)
Insurance: $20,000/year +/-
Office staff (2): $70,000 +/- (including benefits and health insurance)
=====================
about $290,000/year operating costs

$650,000 is a comfortable estimate to allow your business to grow and then take off. If you're lucky and the practice takes off like a rocket, pay the loan back early!

You can calculate the number of patients and surgeries you need based on RVUs (about $34 per RVU) for your practice to stay in business. On average, office visits can generate about 2-3 RVUs for new patients and 1-2 RVUs for return patients.

Let's assume 3 RVUs or $102 for a new patient and 2 RVUs for a return patient or $68. At first, all your patients will be new and then eventually have a mix. When your practice is up and running, let's say your goal is to see 30 patients a day with 20 return slots and 10 new slots. You'll generate on average, $1360 from seeing return patients and $1020 from seeing new patients. That' about $2380/day in billing. You'll be seeing patients 4 days a week and operating 1 day a week. Let's say you mainly do cataract surgeries. On average, you get $650 (varies by state) per surgery. You are doing 4 surgeries per week and generating $2600 in surgery billing. This will give you $12,120 per week in billing or $48,480 per month (can be less if your practice is not good at bill collection). Considering holidays and vacations, you'll work 11 months per year generating $533,280/year.

From this revenue, you'll invest in 1) growth of your practice, 2) expanding your billing/collection services, 3) marketing, 4) your staff salaries, and 5) your income.

The above is only a rough estimate, but gives you an idea what it takes to survive.

You could borrow $500K but you can do it on a lot less.

Yes, you might need to estimate what the costs of a fully staffed small office might run, but no one says you have to bite off that big a chunk at once. Think about lower cost options. You can share office space with another doctor who has unutilized days, which can save you a lot in that you don't have to do buildout or take a lease all at once. If you have a subspecialty and need certain things like an OCT or a retinal photography suite, you might want to see whether someone in the community will provide those services at a set fee to you. Leasing higher-cost equipment may make sense at first so that you aren't having to use a large chunk of a line of credit when you aren't all that busy yet. If the hospital in the community is recruiting, they may also have startup funding. That isn't common in highly served and competitive cities, but it is common in smaller communities.

Staff is the biggest overhead expense for most small practices. Make do with as little as you can. When you aren't busy, try to have the employees you have do as many different things as they can: filing, appointments, reception, checkout and billing. Hire help only as you need it. As for billing, I have yet to meet anyone who was convinced that it didn't pay to bring practice billing in-house as soon as possible. You might need to start out by out-sourcing to an outside biller, but if your plans are paying adequately, you can have your own office do it better in most places.

You can save money in equipping an office in lots of ways. (If you want a good idea about what you don't need, check any lower drawer in any eye lane and you will see what never gets used by anyone.) Little-but-expensive items like prism sets, color plates and other stuff do not need to be duplicated in every lane, one set per doctor is enough.) Ditto for tonopens and pachymeters.

Buying lower-cost equipment like a water-bath A-scan instead of an IOL-Master is reasonable when starting out. You can always upgrade when you get busier and your cash flow improves. Don't buy expensive and poorly-made "ophthalmic" furniture; most "refraction" desks are outdated chipboard monstrosities anyway; a decent table or desk works better. Grossly overpriced items like small sterilizers can be bought used at less than half whan they cost new (the new ones break too, and their warranties are short). Consider using an LCD-screen computer based eye chart as opposed to an old-fashioned projector and mirror/screen. They cost a lot less and there are no bulbs to blow or replace.

Used gear can be a good way to get started. Slit lamps bought used can always be re-sold at close to what they are bought for if you are careful (new ones are seriously over-priced, IMO). A decent current-model Haag Streit BM-900 bought used can be had $4K less than new.

On the revenue side, you have to check what the major plans with the major employers are; knowing ahead of time whether there are obstacles to getting on those plans is important. It may pay to get your Medicare number as early as possible and before you open, as there can be a significant delay in your generating receivables. As for taking poorly-paying and troublesome plans like Medicaid, Medicaid-HMOs and Workman's Comp, don't. (I speak from frustrating and painful personal experience--it is worse to have to work for free than to be slow.)

 

[KHE]

You could borrow $500K but you can do it on a lot less.

Yes, you might need to estimate what the costs of a fully staffed small office might run, but no one says you have to bite off that big a chunk at once. Think about lower cost options. You can share office space with another doctor who has unutilized days, which can save you a lot in that you don't have to do buildout or take a lease all at once. If you have a subspecialty and need certain things like an OCT or a retinal photography suite, you might want to see whether someone in the community will provide those services at a set fee to you. Leasing higher-cost equipment may make sense at first so that you aren't having to use a large chunk of a line of credit when you aren't all that busy yet. If the hospital in the community is recruiting, they may also have startup funding. That isn't common in highly served and competitive cities, but it is common in smaller communities.

.)

That's much more along the lines of my experience. I helped a local young ophthalmologist set up a small office since the large group he works for a few days a week won't deal him in. I got him up and running for about $60000.

Of course, just about everything was leased and used, but he got up and running and is turning a profit after less than a year.

 

[jjwiiwi]

Very helpful advice, especially for someone who knows nothing about the business of running a practice. Are there any other resources that you would turn to for assistance on starting a practice? Andrew, the Pearls in Ophthalmology site has been very helpful, and I've been scouring the AAO website (AAOE, YO) for advice too.

Are there any books that you'd recommend on starting a practice?

What's the value of hiring a practice management consultant? Or is this something I can do myself?

 

[orbitsurgMD]

Very helpful advice, especially for someone who knows nothing about the business of running a practice. Are there any other resources that you would turn to for assistance on starting a practice? Andrew, the Pearls in Ophthalmology site has been very helpful, and I've been scouring the AAO website (AAOE, YO) for advice too.

Are there any books that you'd recommend on starting a practice?

What's the value of hiring a practice management consultant? Or is this something I can do myself?

Hiring a practice management consultant is expensive. Most of the successful ones charge large hourly rates to established doctors that have a revenue stream and are looking to expand or otherwise improve performance of an up and running practice. How much they are going to be offer you at this point in your practice development is debatable.

Check with the local hospital, if they are physician friendly, and see whether they have a consultant who can help you get a new office up and running. If you are just starting out, you need basic information like how to set up charting, charge sheets, billing, scheduling, credit card payments, bank deposits and payments posting.

NextGen and some other EMR-practice management software setups are expensive. You might look at the other products before choosing. While it may seem like a good idea to start with EMR when you are slow, it is also a big bite out of a startup budget. You might want to wait a little, maybe a few months when you have an idea what you need and can afford and make the conversion then. It will require some paper chart conversion, but not as much as with a practice with years of accumulated charts and busy schedules.

 

[orbitsurgMD]

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