Management Myths
Four Practice Management Myths that Stifle Profitability and Practice Growth
BY BOB LEVOY, O.D., Rosyln, N.Y.

One dictionary definition of a myth is: "A notion based more on tradition or convenience than fact."

Myths abound about practice management and often start as "rules of thumb." They get repeated and before long, they become "conventional wisdom." Unfortunately, some of these management myths are outdated and counterproductive. Here are four examples:

You should limit staff compensation expenses to 18% to 20% of gross income.

Reality: If you're trying to build a high-performance practice, maximize patient satisfaction and generate referrals, then it's essential that your practice has a reputation for quality, efficiency and first-rate service. In this case, a high-caliber staff isn't an option -- it's a requirement.

Optometric Management's Chief Optometric Editor, Neil Gailmard, O.D., M.B.A., F.A.A.O., of Munster, Ind., says, "The traditional benchmark of keeping staff compensation to 18% of the practice gross is outdated today."

"In fact," he adds, "I advise doctors to try to exceed 18%. This is the only way to provide outstanding service and to effectively delegate office and clinical procedures. An excellent staff is one of the best investments you can make."

From The Success Files: Top-notch practitioners in related healthcare professions share this philosophy. Larry Rosenthal, D.D.S., of New York, N.Y., widely known for his celebrity clientele, has simple guidelines for his practice: "Five-Star Service. Five-Star Product." Robert T. Moore, D.V.M., of Wilson, N.C., explains, "We're staffed for the busiest times -- not for the slowest."

Hard-learned lesson: The key to greater profitability and practice growth isn't cost containment. It's revenue enhancement.

Yellow Page advertising is a good way to attract patients who are looking for an optometrist.

Reality: The consensus of optometrists I've surveyed at seminars throughout the country is that Yellow Page advertising is of limited value in attracting new patients.

Caring For The Eyes Of America 2002, published by the American Optometric Association, reported that in 2001, the percentage of consumers finding an eye doctor through the Yellow Pages was only 5.8%. Similar statistics are found in other healthcare professions. Edwin D. Secord, D.D.S., past president of the Detroit District Dental Society, writing in the Detroit Dental Bulletin, put it this way: "Where do my best patients come from? They come from present patients, referring dentists and personal friends. Where do my worst patients come from? The Yellow Pages. There are exceptions, but this generally holds true."

Optometrists who purchase bold listings and varying sized display ads in their local telephone Yellow Pages often discover (too late) that their ads are completely overshadowed by larger, more attention-getting ads of other optometric practices and/or optical chains -- greatly reducing the effectiveness of their ads.

In addition, optometrists who track the response to their Yellow Pages advertising report, in many cases, find that the low numbers of new patients simply don't warrant the cost of the ads.

As a result, many O.D.s have discontinued Yellow Page advertising with little, if any, drop in the number of new patients they're seeing.

The Park Avenue (New York City) office of Andrea Thau, O.D., president of the New York State Optometric Association, has no Yellow Page listing. And no "outdoor sign" except for a small brass plaque on the exterior of the building. Yet her primary care practice continues to grow (Three O.D.s, soon to be four). How? By word of mouth.

Action step: To determine if such advertising is a good investment for your practice, include the following question on the Patient Information Form that patients fill out on their first visit: "How did you first learn about our practice?" Then give them a choice such as: an outdoor sign, directory provided by an insurance company, phone book, physician or personal recommendation.

The answer to this question is critical. Some patients say they first learned about the practice from the phone book when, in fact, it was only where they obtained your address and telephone number.

With further probing, you or a staff member may learn they first heard about your practice from a friend, co-worker, physician, pharmacist or the emergency room at the local hospital. Then they looked in the phone book.

Survey new patients for the next 90 days. Then do the math. If the return on your advertising is worth it, take a bigger ad. If not, put those dollars to work in a way that achieves a better return on investment.

Discounted fees give a practice a strong, competitive advantage.

Reality: Discounted fees require a huge increase of patients just to maintain your previous level of profitability, let alone exceed it.

Assume a solo practitioner performs 2,500 eye examinations a year at an average fee of $100 and an overhead of 60 percent. (Your numbers may be higher or lower. The algorithm is the same). In this scenario, the gross income from examinations only is $250,000; the overhead is $150,000, leaving a net profit of $100,000 and a healthy profit margin of 40%.

If the average fee of $100 is now discounted by 20%, then the net profit drops to $50,000 -- half of what it was previously! (2,500 exams at $80 each = $200,000 less the same overhead of $150,000). Most significant, this now reduces the profit margin to just 25%.

To return the practice to its previous level of profitability of $100,000, it will require a minimum of 5,000 comprehensive exams (twice as many as before) at $80 each to now reach $400,000 -- assuming the profit margin remains at 25%. To make that happen, you'll need to work faster and most likely, longer hours than you did previously.

Hard-learned lesson: Patients attracted to your practice because of discounted fees will, by definition, leave your practice if they find lower fees elsewhere. (And there will always be someone willing to do what you do at a lower fee).

High-quality care is synonymous with patient satisfaction.

Reality: "The most important thing," says J.W. Marriott, founder of the Marriott Corporation, "is to serve the hot food hot and the cold food cold."

He's talking, of course, about the importance of basics -- and it's as true about an optometric practice as it is about food service. You may have sunk a fortune into the design and construction of your office, you may have the newest and best equipment on the market and you may provide high-quality care. But if you and your staff don't deliver on what patients consider the basics of good service, you've missed the boat, big time.

What are the basics? They're the fundamental things that decide whether or not patients pay their bills cheerfully and promptly. Remain loyal to your practice. Refer others to you.

Marriott identified its basics by analyzing the results of a comprehensive guest survey. They learned that guests' intent to return rests on five critical factors: everything is clean and works; check-in is hassle free; staff is friendly and helpful; problems are resolved quickly; breakfast is served on time.

When Marriott fails to deliver on these basic expectations, guests have an unsatisfactory stay at a Marriott hotel. And no amount of mints on the pillow will bring back a guest who had to wait 30 minutes to check in, whose bathroom was dirty and whose breakfast was overcooked and late in coming.

Action steps: Decide with your staff what basic services matter most to your patients. Use the following statement and fill in the blanks: "Nothing else matters if we don't ______ or aren't _______."

This is one of the exercises I've had seminar audiences do. Answers have included: readily available for emergencies, address a patient's chief complaint, on time for appointments, maintain a spotlessly clean office and have glasses ready when promised.

Be good on the basics and patients will tolerate almost anything else. Screw up on the basics and nothing else matters. Patients won't return. Period.

Summing up: Don't skimp on payroll. Do the math before discounting fees. Don't underestimate the power of word-of- mouth recommendations. And be good on the basics.

Bob Levoy's newest book, "201 Secrets of a High Performance Optometric Practice" will be published by Butterworth-Heinemann this Fall. Reach him at (516) 626-1353 or b.levoy@att.net