As optometrists, we tend to be extremely knowledgeable with the most current standard of care, but this does not mean practice owners should invest in all the bells and whistles of the latest and greatest technology. A full analysis of your practice’s demographics, along with market and industry trends, will provide information to make decisions on where to invest and grow your practice.
As optometrists, we tend to be extremely knowledgeable with the most current standard of care, but this does not mean practice owners should invest in all the bells and whistles of the latest and greatest technology. A full analysis of your practice’s demographics, along with market and industry trends, will provide information to make decisions on where to invest and grow your practice. Knowing your most profitable products and services is key, and obtaining comprehensive data about your cost drivers will lead to lowering your financial risk. It is important to do your homework and research before investing and diversifying your practice.
How inflation affects your practice
Corporate entities have backing from banks and investors, as well as cash reserves, which gives a strong advantage with capital. For the individual practice, you must think like a businessperson by looking at how inflation affects your practice, and hedging is a must in your strategic planning. Inflation hedging is executing strategies to minimize future losses because of increased prices. Inflation affects the price of goods, as well as depreciates the value of money. Purchasing extra inventory when prices are low can be effective when it will be used or sold quickly. Buying groups are helpful for smaller practices due to the ability to negotiate long-term contracts with suppliers that lock pricing and get bigger discounts because of volume. This has a direct effect to your bottom line, as well as cash flow, and understanding your practice’s past sales history, cost drivers, and market trends will give your more perspective to avoid counterproductivity.
Diversifying while remaining competitive
For the past several years, market trends have focused on the aging baby-boomer demographic, reimbursement rates with managed vision care and health insurance plans, and legislative changes including the impact of the Affordable Care Act (ACA). There is a lot of information regarding each of these areas, but not all may affect your practice directly. The opportunity to engage with these trends and manage ocular disease has been embraced by many optometrists, but will the reimbursements from Medicare, Medicaid, and private insurance be profitable enough to stray away from your primary business model? Primary care and contact lenses have been the bread and butter of most optometric practices, and diversifying into other areas may not show a profit for years to come. Historically, as optometry has diversified into other arenas of medical ophthalmic care, it created market voids for certain services and products that have been and continue to be filled by other interests, such as retail/corporate and online entities. The challenge is how to remain competitive and focused while hedging your loses as you diversify your practice.
Now that the ophthalmic industry, Centers of Medicare and Medicaid Services (CMS), and the insurance industry have outlined demographic and market trends, which ones will affect your practice the most? What market drivers will cause the most losses that you should hedge against? Electronic health records (EHR) and practice management/scheduling software not only keeps your practice compliant for ACA changes for medical billing and future ICD-10 compliance, but good programs gives you insight about sales and diagnosis history, seasonality trends, and your practice’s demographics. Every other week there are updates regarding Meaningful Use Stages 1 and 2, the switch to ICD-10, and discussions of Accountable Care Organizations (ACOs).
Lawmakers and the insurance industry have indicated that fee-for-service reimbursement is unsustainable, and there is a push toward coordinated care. It is extremely important to stay focused with your current billing while preparing ICD-10 changes but also diversify your practice to accommodate coordinated care. Over the years, optometry has lagged behind other allied health professions in medical billing and just started to catch up; therefore, it is important to hedge against as insurers and other models move toward ACOs and coordinated patient care. When it comes down to investing in EHR and practice management software, it is important to research which system will be compliant with healthcare changes and give your practice the most productivity and efficiency.
Your practice strategy
Managerial accounting methods, such as activity-based cost accounting (ABC accounting), give insight of which activities and services your practice provides that creates a competitive edge, as well as assists making informed decisions regarding strategy for diversification. ABC accounting assigns specific costs to activities, and to end products and services, which reveals critical information about your practice’s resources and activities, and in turn, assigns a cost to perform them. Allocating fewer resources in your everyday operations can lead to loss of patients, employee turnover, loss of or less cash flow, increased chair time costs, and lost revenue. Expanding your office hours and hiring additional staff can hedge against the loss of patients and profitable services while your invest in other areas.
It is an exciting time for health care and optometry, and the American Optometric Association and state boards are pushing lawmakers to expand different avenues for the profession to grow while protecting our interests. Understanding what investments your practice needs to make to minimize market voids will be crucial to keep your losses low. When diversifying into other products and services, it is important to develop strategies that provide feedback mechanisms to keep your practice maximizing cash flow and profits.ODT