school viewpoint

Can You Afford a Young O.D.?

Structure contracts can be a win-win for employer and employee.

MICHAEL BACIGALUPI, O.D., M.S., F.A.A.O.

Just 2% of students entering optometry school plan to work in a commercial practice compared with a solo private practice (15%), a partnership with a group of O.D.s (30%) and a partnership with a group of O.D.s and ophthalmologists (19%), according to the 2012 ASCO survey of students entering optometry school. While naivety and inexperience may be a factor in these percentages, the heart of the matter remains — new O.D.s do not plan to work in commercial settings, yet find few opportunities to enter private practice.

What can be done? Here, I discuss ways to structure employment contracts for young O.D.s that can be a win-win for the employer and the employee.

Meeting the challenge

To arrive at a mutually beneficial contract, let’s work through some numbers, beginning with the young O.D.’s desired salary. A six-figure income holds a psychological advantage for most employees, so our goal for the young O.D. is to earn $100,000 annually. At such a salary, the established O.D. may envision this young optometrist as a parasite to his/her current income level.

For example, the established O.D.s who earn $200,000 would imagine that hiring this new doctor would cut their income in half. This is not the case. If the employer’s practice has a growing patient base, the young O.D. can pay his/her own way by generating gross income for the practice that a solo doctor could not. Let me explain: Most private practices have a net income of between 27% to 33% of gross annual sales. At a 30% net, the young O.D. needs to produce $333,333 of gross income to generate $100,000 of net income. Can he/she do this? Yes.

If the employer’s practice has a growing patient base, the young O.D. can generate gross income a solo doctor could not.

Here’s how: The national average gross-sale per patient is $265 per comprehensive exam. This figure represents the total exam fees and materials per comprehensive exam. An O.D. seeing 4.75 patients per day, at $265 each, generates $1,258.75, or $27,692.50 per 22-day month. Through 12 months, this arrangement adds up to $332,310. This production gets us to the goal: $332,310.00 } 30% = $99,093 net income. The money is paid by new business that is generated by the additional doctor.

How to develop the contract

To create an agreement that is mutually beneficial, I recommend a base salary plus production percentage. This format provides the young O.D. the security he/she needs to meet financial obligations (refer to the August “School Viewpoint” for information about student debt) and motivates him/her to work hard and grow the practice. Also, tying his/her pay to production helps the young O.D. develop an owner’s mentality.

An $80,000 base salary allows the young O.D. to manage student loan debt and living expenses. The established practice’s current gross income plus $266,750 covers this base (266,750 } 30% = $80,025). Then, on any gross income above this amount, each of the two O.D.s is paid a 15% bonus (remembering the 30% profit margin).

If the established practice is currently grossing $700,000 annually, any gross above $966,750 ($700,000 + $266,750) is shared at 15% for the young O.D. and 15% for the established O.D. If gross sales for the first year of combined production are $1,098,750, then the $135,000 produced above the goal ($966,750) nets $40,500. Each O.D. would then earn $20,250. In this scenario, the young O.D. earns $100,000; the established O.D. grows the practice dramatically and pockets an extra $20,250 of income.

If we go back to the first calculation, we can extrapolate that if a young O.D. desires $100,000 of total annual income with this type of base salary plus production bonus, then the young O.D. must see 5.75 patients per day at $265 each. This generates $1,523.75 per day, or $33,522.50 per 22- day month, or $402,270 annually ($33,522.50 } 12). With this production, the young O.D. achieves his/her salary goal, and the established O.D. gets tremendous practice growth and a $20,250 bonus.

Accepting the challenges

I expect feedback from this column contending that, with vision plans and third party reimbursement rates as they stand, $265 per patient gross is unrealistic. But, seeing 5.75 patients per day is also unrealistic — all of us can manage a much higher work load. So, with hard work and a growing practice, I still believe that adding a young O.D. to your practice can be mutually beneficial.

Take-home facts

Consider:

▶ Young O.D.s desire work in private practice settings.

▶ Student loan debt is high.

▶ Employers (established O.D.s) must recognize the financial burden of student loan debt and provide young O.D.s with some sense of financial security.

▶ Employers (established O.D.s) and employees (young O.D.s) can overcome challenges with performance-based pay structures.

And, growing your practice while collecting a little bonus is always a good thing. OM

DR. BACIGALUPI, A FREQUENT AUTHOR AND LECTURER IN THE AREAS OF PRACTICE MANAGEMENT AND STUDENT AFFAIRS, IS THE ASSISTANT DEAN FOR STUDENT AFFAIRS AT NOVA SOUTHEASTERN UNIVERSITY COLLEGE OF OPTOMETRY. FROM 1995 TO 2005, HE FOUNDED AND GREW A PRIVATE OPTOMETRIC PRACTICE IN RURAL TEXAS. SEND COMMENTS TO OPTOMETRICMANAGEMENT@GMAIL.COM.