A Deep Dive into Financial Management for Optometric Practices

As an optometric private practice owner, understanding and managing your practice’s financials is as critical to your success as your proficiency in eye care. An effective way to enhance your cash flow is by analyzing, tracking, and controlling your expenses. This begins with an understanding of your profit-and-loss statement, which showcases three pivotal numbers: gross revenue, gross profit, and net operating income.

1. Gross Revenue: This is the total revenue generated by the practice, representing all payments received for services provided and products sold, before any deductions. An important distinction: this is gross collected, not gross billed. It makes no difference how much you billed, only what hits the bank account.

2. Gross Profit: This is derived by subtracting the Cost of Goods Sold (COGS) — the direct costs attributable to the production of the goods sold in your practice — from the Gross Revenue.

3. Net Operating Income: This is the practice’s income after operating expenses — including rent, staff salaries, utilities, equipment costs — have been deducted from the Gross Profit.

The two biggest expenses in the practice are staff expenses and COGS, which typically account for about 50% of total costs. Therefore, implementing strategies to reduce these expenses or boost staff efficiency can make a significant difference to your bottom line.

Reducing Staff Expenses and Maximizing Efficiency
1. Implement ongoing training programs: By investing in training, you can ensure that your staff are equipped to perform their tasks efficiently and to a high standard. Examples of this include ensuring they know how to review the explanation of benefits for all insurance plans to ensure that patients are maximizing their vision care plan (VCP) benefits, as well as sales training to help increase ophthalmic dispensing revenues.

2. Cross-training staff: Having staff members trained in multiple areas allows for more flexibility in scheduling and task allocation. This can reduce the need for additional staff and can provide a more streamlined patient experience.

3. Use technology wisely: Implementing practice management software can significantly reduce administrative tasks, allowing your team to focus more on patient care. Automating appointment reminders and updating changes to VCP benefits within your electronic health record (EHR) can all contribute to cost savings and allow your team to focus more of their time on the patient experience.

Other Ways to Reduce Expenses
Negotiate with vendors: Specifically within your COGS, one of the often-overlooked areas is the possibility of negotiating better terms with your suppliers. Be it frame suppliers or contact lenses, regularly review your agreements to ensure you’re getting the best deal. Periodically re-evaluate the buying group you are affiliated with to ensure you’re getting the best buying power for the type of practice you own and the care you provide. Focus on one contact lens manufacturer to maximize rebates and purchasing power.

Re-evaluate your fee schedules: This one is admittedly on the revenue side of the income (profit/loss) statement, but it’s still worth noting because of how important it is and how much revenue your practice could be leaving on the table. Review the fee schedules for each of the managed vision care plans you accept in your practice, and ensure that you’re capturing the totality of what you can be reimbursed for the variety of services you provide in your practice.

Review your accounts receivable (A/R) procedures: If you find that you’re A/R over 90 days is a sizable balance, it’s worth doing a root cause analysis in your practice to determine why this is happening. Is your billing process not clear to your team? Do you have a significant backlog of insurance reimbursements that are waiting to be resubmitted? If so, what’s causing them to get kicked back, and how can you mitigate the issue from the first submission? Consider incentivizing the team member(s) responsible for billing to keep your A/R below a certain dollar amount.

Cut down on waste: Assess your practice for inefficiencies such as overuse of supplies, excessive frame inventory, or underutilized space. Make sure that you’re managing your frame board inventory with intention.

Consolidate loans: If your practice has multiple loans, it may be beneficial to consolidate these into one loan. In today’s environment of high interest rates, be especially sensitive to loans that are an adjustable rate.

Leverage telemedicine: Integrating telemedicine can cut down on physical resources while enabling you to serve more patients, thus reducing costs and increasing revenue. This is admittedly a new and somewhat controversial topic, but as with all new innovations, it’s important to do your own due diligence, go into it with an open mind, and make an unemotional, business-based decision.

Frequency of Expense Review
While the frequency of reviewing expenses can vary based on the size and complexity of your practice, it’s advisable to do a thorough review at least quarterly. Regular reviews allow you to spot trends, identify areas of overspending, and adjust your budget as needed. Additionally, it’s crucial to conduct an annual review to align your financial goals with your practice’s strategic objectives. Focus your efforts on increasing your gross profit margins because the marginal cost of every new patient is largely attributed to COGS and OD compensation.

In conclusion, controlling costs and improving efficiency within an optometric private practice can be challenging, but by understanding your financials, focusing on key expense areas, and reviewing costs regularly, you can significantly enhance your practice’s cash flow. Remember, the financial health of your practice is as crucial as the ocular health of your patients.