Spend your money more wisely, inside and outside your practice

“Every time I am tempted to buy some dopey thing, I hear my late father’s voice, ‘Do you really need that?’”
– Bill O’Reilly

“Man is the most intelligent of the animals — and the most silly.”
– Diogenes

Ophthalmology conveys many blessings on its hard-working practitioners. Among these is the ability to earn a significant income. Along with this comes an opportunity to spend that income wisely or foolishly, both inside and outside the practice.

This month, let’s roll through a few ordinary and exotic spending decisions that eye surgeons are faced with.

You spend more on support staff than any other practice cost, and your administrator’s salary is at the top of that list. This is an area where we see a lot of false economizing and underinvesting. Let’s consider the baseline of a three-MD private practice with $7 million in combined clinic, optical and ASC collections.

We find some practices at this scale getting by with less experienced administrators who are early in their career and barely making six figures. They may be well educated, but in business, prior experience counts for a lot more than education, and front-line experience in this business commands a salary premium. A $7 million practice should typically be led by an administrator whose services are worth $150,000 to $200,000 or so on the open market. In the context of a $7 million organization, that extra $50,000 to $100,000 spent on business talent can be returned many times:

• by keeping staffing lean and efficient;
• by negotiating more effectively with vendors;
• by reducing the need for outside advisory support;
• by coaching providers to higher levels of productivity;
• by discovering coding, utilization and related billing gaps; and
• by heading off expensive interpersonal conflicts.

Let’s turn to equipment purchases. Every aspiring LASIK surgeon needs access to about half a million dollars in laser technology. You have three basic options:

• Use a local open-access center and pay on a per-case basis.
• Contract with a roll-on/roll-off (“roro”) vendor to bring the laser and staff to your office only when needed.
• Staff up, buy a laser and run your own facility.

The first two options are incremental, generate costs directly proportionate to emerging case volumes and are easily reversible. The last option — starting your own in-house laser center — has high fixed costs irrespective of your volumes. And yet, new and reconditioned lasers are purchased all the time by aspiring LASIK surgeons whose volumes will never break even with their high fixed capital costs. Try to avoid locking in fixed, enduring costs until there are clear assurances of a supporting cash flow.

Next up is something mundane but important for doctors who are developing their own office facilities. Among the hundreds of decisions to make about location and size and design is a simple question: What nonclinical personal office facilities should we provide the doctors? At one extreme, we see clinics with essentially no personal office space, not even study carrels — just a few stand-up dictation stations. At the other extreme, we see a large private office for each provider, inclusive of an en suite toilet and shower. In the latter case as compared with the former, the doctors each have an extra 200 square feet that they may only use a few minutes a day. At typical facility carrying costs, the practice ends up spending about $7,000 a year per doctor for their lavish quarters, a roughly two percentage point headwind against company profit margins. The best option is accommodations somewhere in between these extremes, such as an open bullpen office with small workstations and a shared doctor’s lavatory.

Let’s turn to a doctor’s purchases outside the practice. As the old adage goes, “If it floats, flies or eats hay, it is better to rent than own.” Truer words were never spoken.

Let’s cover the hay eaters first. In my early 30s, I had a romantic notion to move from California to Colorado and mess around with horses. Our setup was a 1925 vintage cabin up at 10,000 feet with a couple of acres and a small, fenced paddock. As city slickers, we turned to a local cowgirl named Linda for advice. Linda got us all set up: horses, saddles and lots of how-to advice. It was a great couple of years, until we did the math. Dividing the cost of a barn and vet bills and hay and oats and a backhoe to bury one of the horses that died by the time spent actually in the saddle, the cost to ride horses came to $500 per hour. Was there another way? Of course. As it turns out, Linda also ran a string of rental horses that would have cost us just $50 per hour. Lesson learned. We moved back to California.

Moving on to a different kind of pony, how about your personal transportation? Here there are nearly infinite options, from Uber cars if you are a city dweller to a Hummer in the suburbs. Let’s pick something in the middle, a nice, new, safe, conservative Mercedes sedan, at about $70,000. You could drive it for 3 years, then trade it in for a new model. This option, inclusive of tax and license, fuel and insurance, the promotional free oil changes and depreciation (the killer cost component), means that you will have paid about $20,000 a year to drive — or you could buy the same class of car that is 10 years old (and probably looks better and is better built than the new one). Who cares if it has 80,000 miles on the odometer? These cars are engineered to purr for 500,000 miles. Your annual cost with the $15,000 used model for 3 years of ownership might come to about $6,000.

What about the yachting life? Surgeons work hard, and along with that, if you are so inclined, should come the pleasure of owning a boat. Here is a handy rule of thumb: It costs around 15% of a boat’s original cost each year to pay for the privilege of ownership. For a modest family boat costing $100,000, that is $15,000 per year. The thing is you could rent the same boat for about $300 a day. So, unless you are going to use the boat more than 50 days a year, it is better to rent than own.

Luxury timepieces are another discretionary purchase popular with some doctors. What better way to show how far you are running behind in clinic while also looking your best? A Rolex, of course! Which is why I bought a used Submariner for $5,000 40 years ago. The same watch is still running precisely on time and is now worth about $10,000 — which feels pretty good until I consider what could have been a much better investment. The same $5,000 invested in the U.S. stock market in 1984 would be worth at least $100,000 today, before adjusting for inflation. I should have stuck with my plastic Casio watch.

Just for fun, let’s end by considering the purchase of a holiday pied-à-terre in the south of France. You could polish up your high school French and spend a few blissful weeks each year soaking up the sun on the deck of your very own seaside flat. Nothing crazy. Let’s say you found the perfect spot (like we once did) in Villefranche-sur-Mer, overlooking the water, for $500,000. Thankfully, before buying, we did the math and determined that the net carrying cost of ownership, including France’s confiscatory taxes, offset a bit by appreciation and renting out to fellow tourists, came to around $30,000 a year. Year after year. This is a bargain if you wanted to live on the Riviera full time. But even when used for 2 months a year, that comes to $500 a night, more than twice the cost of renting an even better property by the week (with loads more flexibility and convenience).

The bottom line is that a lot of the material lifestyle perks we dream of when we become successful are more costly than we think. I have never kept a client from buying a horse or a Ferrari, but I sure do urge them to consider if the emotional kick of ownership will be worth the price.

• For more information:
• John B. Pinto is president of J. Pinto & Associates, Inc., an ophthalmic practice management consulting firm established in 1979. He is the country’s most published author on ophthalmology management topics, including John Pinto’s Little Green Book of Ophthalmology: Strategies, Tips, and Pearls to Help You Grow and Manage a Practice of Distinction, UP: Taking Ophthalmic Administrators and Their Management Teams to the Next Level of Skill, Performance, and Career Satisfaction (with Corinne Wohl), Simple: The Inner Game of Ophthalmic Practice Success, and Ophthalmic Leadership: A Practical Guide for Physicians, Administrators, and Teams. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.

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