So, youve decided to add a new, high-tech device to your practice. Congratulations! We firmly believe that the best investment you can make in your practice is a technological upgrade, both through savvy high-tech instrument purchases and by maintaining a state-of-the-art quality within your entire practice.
But, before you sign on the dotted line, be certain that this purchase makes sense financially as well as professionally.
Heres how to determine your return on investment (ROI), and then track it on a daily basis. Use the calculations below to make certain that you can generate income on an instrument starting from day one.
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Do Better Than Break-Even
If you are seriously contemplating buying a certain instrument, then youve probably seen, or you perceive, a real need for a particular service in your practice. The next step is to determine how this instrument will pay for itself and generate revenue after the pay-off.
You can do this in one of two ways: either by charging a stand-alone fee for the procedure or by raising your general exam fee. Which method you choose is up to you; some instruments are probably better suited to one particular method. For instance, corneal topography is probably better suited to being incorporated into your regular exam or contact lens fitting fee, whereas digital imaging might be better as a stand-alone service.
In either case, you must multiply the price per patient by the number of patients you anticipate will undergo this procedure in order to determine the break-even point (the amount needed to service the loan or lease paymentin other words, the point at which income is equal to cost).
Lets say, for example, you are contemplating the purchase of a digital retinal imaging system for your office. The total purchase price is $20,640, and you are financing the instrument for a two-year period. Your monthly payment on the instrument is $860. You perform an average of 10 full exams per day, and you estimate that six of those 10 patients will opt for this procedure if the price is right and it is presented effectively. (More on the ethical and clinical implications of this later.) If you charge $30 for this service, you can anticipate generating $180 per day ($30 x six patients). If you see patients four days per week, that equals $720 per week or $2,880 per month.
Although $30 per patient seems like a reasonable fee, check the other practices in your area to find out what they charge for similar services. Also, keep in mind the general demographics of your own patient base. (We arrived at this $30 amount by asking many successful colleagues what they charge for such services. Medicare, for comparison, pays $68 for this test in our area, but we see mostly private pay patients or patients with vision plans that dont cover this ancillary testing.)
Now that you know how much income you can expect to generate with this instrument, compare that to the cost of owning the instrument. Realize that there may be other expenditures besides the monthly payment. For example, you need to train your staff to effectively present this new service to your patients.
In our office and in consulting with our clients, we have found that the best method to maximize utility of the service is to develop a bonus system that rewards employees for professionally and conscientiously presenting the service to each and every patient. We recommend $4 or $5 per procedure as a bonus payment to the tech performing digital retinal photography. (We came to this figure through a process of trial and error in rewarding staff members.) Factor this amount into your break-even analysis as additional money you will need to pay out to service the monthly debt.
Now, we realize that this is a controversial issue; many doctors may disagree with tying any kind of monetary motivation to a professional service. But, such a reward system ultimately works, and it works well if you develop and implement it correctly. Your patients receive the very best care, your staff is motivated to present well to every patient, and the instrument begins to generate net revenue beyond the break-even point.
(To guard against inappropriate utilization, we routinely listen in on how the techs present the procedure to the patients. Initially, of course, we did a lot of staff training on the importance of the procedure and how to present it before we implemented it on a daily basis. Our techs truly believe in the importance of the procedure, especially after seeing several cases in which we were better able to detect and monitor both serious eye health and general health conditions through the use of this technology. We truly believe that every patient should receive digital retinal imaging every year.)
In the example above, we have determined that we can probably generate $2,880 per month initially. The payment on the instrument is $860 per month, and you will need to pay your tech a $480 bonus ($5 x 96 procedures per month). So, all told, the monthly debt would be $1,340 ($860 + $480). This still leaves you with income of $1,540 per month. That amount may not sound like much, but it is significantly above the break-even point, and it will grow as your techs become more comfortable with presenting the service.
This example assumes a utilization rate of six out of 10 patients (60%). On services such as digital retinal imaging, we strive for, and almost always achieve, about an 80% utilization rate in our office and in our clients practices. This is done through rigorous and continuous staff training and through the use of effective staff motivational systems, such as the bonus system.
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A Quick Calculation of Return on Investment | |
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Monthly Balance Sheet for a Digital Retinal Imaging System | |
| Expenditures | Income |
| Loan payment: ($860) | 128 procedures a month: $3,840 a week at $30 per procedure) |
| Staff bonus: ($640) ($5 per procedure for 128 procedures) |
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| ($1,500) | $3,840 |
| Net monthly income: $2,340 | |
Now, lets look at the example above with an 80% utilization rate. If you capture eight out of 10 patients per day instead of six, you would generate income of $240 per day (eight patients x $30), $960 per week, and $3,840 per month. Your loan payment is still $860, and youll pay a staff bonus of $640 per month for a total debt of $1,500. This leaves you with a net income of $2,340 per month.
What if you cant achieve that 80% utilization rate? Should you lower the fee for the service to achieve this higher level of utilization? Or, should you maintain the $30 fee and accept a moderate utilization rate (e.g., 60%)?
Consider what would happen if you lowered the fee to $25 for the service. If you could capture eight out of 10 patients per day with a lower fee of $25, you would generate income of $200 per day (eight patients x $25), which equals $800 per week and $3,200 per month. Your loan payment is still $860, and you must still pay a staff bonus of $640 per month. (Even if you lower your fee, dont lower your staff incentive accordingly. Once you set a level for the staff bonus, its best to keep it there.) Your total debt is $1,500, which leaves you with a net income of $1,700 per month. Compare that to the $1,540 of monthly income generated by a $30 fee at 60% utilization. So, in this particular example, it would be better to opt for a higher utilization rate (80%) and a more moderate fee ($25).
Account for ROI
The most effective tracking system weve found for monitoring ROI is to set up a separate bank account, called a reserve account, that you can easily transfer funds to and from. You can do this easily through online banking, which enables you to instantly check balances and quickly transfer funds from one account to another.
At the end of each day, have your office manager (or whoever closes the books at the end of the day) verify the number of procedures performed (in this case, the number of retinal images taken). The total number and the payment amount collected that day are noted on the deposit slip or day sheet summary. After you make the deposit for that day into your main business checking account, simply transfer the amount generated by the retinal imaging to the reserve account. You can call this account Retinal Imaging Account or whatever you wish. This reserve account (also called sinking fund) will enable you to easily track exactly how much revenue you generate during any given month from a particular instrument or procedure.
Another bonus: At the end of the month, the money is available to make the payment and to pay the bonus to your technician. This is an excellent budgeting tool that really helps you understand your cash flow. Also, it instantly shows you when you need to take action to bolster the number of procedures performed if you discover this number has been slipping.
Keep the account open even after you have paid off the instrument, and continue to make daily deposits. You can use the money generated from the now-paid-off instrument to purchase another instrument down the road, accelerate other loan payments or debt obligations, or simply keep it as a rainy day emergency fund. This accounting method is another tool you can use to improve cash flow and achieve a better understanding of any area of your practice that generates revenue.
So, the next time youre at a show or convention, and you see that high-tech instrument or gizmo that you simply must have, you now have a method to help you make a more educated buying decision.
Drs. Adlington and Adlington are a husband and wife team in private practice in Reno, Nev. In addition to running a successful high-end practice, they offer innovative and tailored consulting services to select clients. They can be reached by phone at (775) 284-3937 or by e-mail at tadlington@eyeglassgallery.net. Their Web address is www.eyeglassgallery.net. They have no financial interest to disclose.
