John Pinto is president of J. Pinto and Associates, Inc., an ophthalmic management-consulting firm. Mr. Pinto gives talks around the world and is one of the most widely published authors on
The following article is based on one of John Pinto's talks and will discuss ten years of ophthalmic practice megatrends from 2010 – 2020. Many of the points are verbatim from his talk so that you get the true sense of his thoughts on practice trends.
1. Health Care's Bubble Market Must Burst
America accounts for roughly 4% of the world's population and generates about 25% of the world's economy. This allows us to spend about 17% of our total national output on health care. US health care costs should ideally come down to the ±12% of the gross domestic product seen in most other industrial nations, which equates to a 30% drop from today’s spending levels.
2. Today is the "New Normal"
CEO of Microsoft, Steve Ballmer, once said, "The economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage in the economy". People will be holding onto their discretionary dollars and no longer using their homes to withdraw money. Household savings rates will continue to increase. Patients will spend less on out-of-pocket expenses.
3. A Dearth of Ophthalmic Provider-Equivalents
In the last 10 years, the US population has grown by 11%. The number of residency slots has dropped by 11%. 50% of the residents are women, which may affect the amount of hours spent per week at work if balance of family and career is a goal. At the same time, demand for care is rising because the population of patients age 65+ will grow by 50% in the next 15 years. The 5% annual rise in demand is colliding with a 1% or lower annual gain in ophthalmologists. Needless to say, there will be plenty of work for ophthalmologists to do and optometrists may find their way into ophthalmology practices.
4. Succession Planning Getting Harder
A generation ago, ophthalmologists found an abundance of potential physicians willing to pay a goodwill premium to take over their practices. Now, there are more jobs than applicants. This supply vs. demand imbalance tends to soften practice buy-ins, buy-outs and divestiture terms. Many practices are now being sold for little more than adjusted book value or are even closing down for lack of a willing buyer.
5. Practice Ownership Ever More Complex
New legal and regulatory demands are around every corner. There are higher penalties for error. We must stay current with abundant new clinical procedures. Payer contracting nuances rise. Technology upgrades are getting more costly to keep up with. Patient demands are rising. We can count on more of the same for many years, all leveraged by health reform.
6. Refractive Surgery Limping Along
Previously, there was a low barrier for entry into refractive surgery, RK in particular. There was an even distribution of low-, medium- and high-volume surgeons. With the advent of LASIK, capital and marketing costs have been elevated, separating the committed from the less so. In the new era in which consumers are reluctant to accrue new debt and with a shifting demographic, the high-volume, well-run centers will struggle and the diminishing number of low-volume “boutiques” will be snuffed out one by one.
7. Integrated MD-OD Delivery Systems
The best compensated eye surgeons in America work closely with optometry. They do so either through co-management relationships or through traditional employment arrangements. In both situations, control over access to surgical cases is improved. The surgeon’s workday is narrowed to high-value, high-satisfaction surgical care. Because ophthalmology is expanding beyond its former geriatric bias to full-service patient care at the same time that optometric practice scope is widening, there is a rising trend toward combined OD-MD practices. Relatively conservative one-to-one or lower OD-to-MD ratios will yield to 2, 3, and 4-to-1 ratios in the future. Most such practices will be owned by MDs and a small but growing number of ODs. By 2020, group ophthalmology practices without optometric staffing will be rare.
8. Fewer Than Expected New Services and Products to Sell
Ophthalmology has always been vanguard in the hunt for new benefits to provide to patients. Not all of these have worked out well, economically or clinically. The next decade will see many additional efforts. Most of these that stray from the core ophthalmic mission will fail.
9. Electronic medical records are inevitable.
There is now an industry-wide sense of inevitability about going paperless, which was not present a few years ago. Adoption of electronic medical and health records is still moving at a very slow pace in ophthalmology. Only about 10% of practices have made a full conversion. By 2020, more than 75% will have converted, based on current sentiments. Doctor and staff satisfaction will slowly rise from today’s grudging approval, as software and systems slowly improve and competition between vendors spurs better customer care.
10. Could We See a PPMC Resurgence?
Physician Practice Management Companies (PPMCs) were launched in the early 1990s concurrent with the same conditions seen today: a soft economy, fast-rising health costs and fear of top-down federal reform. An economic resurgence tabled reform efforts 16 years ago, and this, combined with severe flaws in the enterprise model of most PPMCs in the ophthalmic space, extinguished such firms. However, with a cohort of peri-retirement providers trying to divest their practices and with renewed health reform jitters, the ground for a new generation of PPMCs is fertile.
11. The Energy, Economy and Ophthalmology Nexus
Most major petroleum fields of the world have passed their peak production and are rapidly depleting. As post-recession oil demand rises, reserve capacity will be stretched thin, and barrel prices will be briskly leveraged back upward into triple digits, snuffing out the nascent global economic recovery. A US economy that falls backward or only grows anemically will have several knock-on effects for eye care providers: (1) a longer period of high unemployment, constraining the rolls of insured patients, (2) depressed consumer confidence, retarding the purchase of elective services, (3) a stronger pretext for health care reform and/or draconian Medicare fee reductions, (4) sustained challenges for others in the eye care community, including manufacturers of ophthalmic equipment and products.
12. Our Post-Recession Trajectory
The consensus of economists is that we have emerged and will continue to steadily emerge from the recession. An important countercurrent opinion holds that our country’s return to positive growth, and a hoped-for resurgence in optical, elective care, cosmetic and related eye care categories will rise in lock step, is a false dawn brought on by unsustainable federal stimulus. If these contrarians are correct, we will experience a broad, U-shaped recovery with a much longer trough than we have had thus far, or even a multi-dip W-shaped recovery. Such ups and downs will be dispiriting for providers and problematic for any owners and managers who rush their development efforts ahead of a more lasting economic resurgence.
13. Resurgent Inflation and Dollar Devaluation
The toughest scenario for a largely price-fixed profession such as ophthalmology: dollar-denominated fees are stagnant or falling while dollar-denominated practice costs are rising with inflation. Many are worried about the unsustainable federal deficit, the growing debt, the rising prospects for inflation and a drop in the dollar’s value. Key practice cost drivers such as staffing, facilities and technology could climb sharply as a percentage of fixed revenue, shrinking profits.
14. Pareto Was Right
The well known “80-20 rule” is being played out in the steady redistribution of surgical cases and overall ophthalmic market share. This rule alludes to the fact that 80% of the effects come from 20% of the causes. A small percentage of high-volume surgeons and surgical institutions are harboring a slowly growing majority percentage of patient care. This is happy news for the larger institutions, not so much for smaller players.
15. Value-Based Healthcare Purchasing
The vast majority of health care provided in America is paid for on a fee-for-service basis. If the provider serves the patient, he or she is paid irrespective of outcomes or cost-effectiveness. Ophthalmologists have been paid this way since the invention of the profession. Based on government and private payer planning, fee-for-service could be supplanted in ways that could reward highly efficient and high-quality providers, and punish others. With value-based health care, “buyers should hold providers of health care accountable not just for units of service, but for both the cost and quality of care”. Value-based purchasing brings together information on the quality of health care, including patient outcomes and health status, with data on the dollar outlays going towards health. It focuses on managing the use of the health care system to reduce inappropriate care and to reward the “best-performing” providers. This nascent and potentially disruptive strategy stands in stark contrast to long-standing efforts to apply unit price discounts, which can reduce costs, but which can lead to higher utilization rates and no net increase in favorable health outcomes.
16. Solo/Small Practices Will Continue to Thrive
The death knell for solo practices was rung loudly, starting a little more than 30 years ago. Today, a new generation of worrywarts assumes that the end of boutique, mom-and-pop practice is upon us. Small, nimble outfits can, with effort and intelligence, often deliver a unit of patient care for less cost than their mega-competitors, in which there can be a frustrating diseconomy of scale.
17. Custom Surgical Care Proliferates
The typical client of John Pinto is now implanting well over 10% of cataract cases with custom IOLs. 50% rates are not unheard of. This trend is being accompanied by a secondary trend, “change fatigue,” on the part of some surgeons, who, with everything else in their world changing rapidly, have reached personal limits on their ability to adopt and adapt.
18. Patient Expectations and Frustrations Will Continue to Rise
Baby boomer expectations for Lexus service at Chevrolet pricing will be a growing fact of practice life. Expectations will be for spotless facilities, snappy service and one-stop cures at a time when you and your management team are trying to pack the masses and trim the fat. You and your staff will continue to bear the brunt of patient frustrations, which in a fairer world, would be borne not by you but by their employer, their insurance company and their elected government officials.
19. Profit Margins Continue to Taper
Depending on the trajectory of reform and fee adjustments, surgeons will keep adjusting to higher cost margins and lower profits. Gross mitigation, in the form of optical shops, ASCs and related ancillary development, is largely behind us. Most practices that can develop such entities already have, which means that raw efficiency and marginal output gains (seeing 60+ patients, when you once maxed out at 45) are the easiest strategies still under your direct control. Adding optometrists as durable associates, although harder and riskier, remains the most under-utilized mitigation opportunity at present.
20. “Bunts and Base Hits” Prevails as a Business Plan
The day-to-day pursuit of marginal revenue, cost control and profit gains can still materially plump up economic performance in the average practice setting. Even the best-run practices in America waste dollars and miss out on profits daily. In the typical practice, seeing just three more patients per day can result in a $100k+ net annual profit gain. For successful practices, the next 10 years will be an era of redoubled vigilance, the energetic pursuit of missing profits, both small and large, and a ceaseless dissatisfaction with the status quo.
21. Smaller Nest Eggs…Later Retirement Dates
Surgeons in their last years of practice, along with most workers who saw their 401(k) plans melt to a 201 (k), are hitting the reset button on retirement. Doctors who were chronically behind and hoping to catch up eventually may never have the funds they need to retire comfortable. Even doctors who were well past their economic finish lines are having to recalibrate their desired post-retirement lifestyles. At a practice level, the new uncertainties, lower capital appreciation rates and eviscerated portfolios create tough decisions about whether practice profits should be reinvested back into the company or used to top up the owner’s retirement plan.
John Pinto is president of J. Pinto & Associates, Inc., an ophthalmic practice management consulting firm established in 1979. John is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice, The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees, The Women of Ophthalmology and a new book, Legal Issues in Ophthalmology: A Review for Surgeons and Administrators. He can be reached at 619-223-2233, e-mailed at [email protected] or found on the web at www.pintoinc.com.
J. Pinto & Associates, Inc.
1576 Willow Street
San Diego, CA 92106