103
February 2015
OPHTHALMOLOGY BUSINESS
to one with more eventual passive
income, everything would be on
track if your profit margin fell well
under 50% applying this alternative
metric. EW
the optical they co-own is generat-
ing another $1 million in collec-
tions, and their associate providers
are generating another $2 million
in collections.
• The 2 MD owners each enjoy
$450,000 in profit from their core
practice and another $300,000 in
dividends from their optical—
$1.2 million all up.
• If we divide $1.2 million by their
$2 million in active collections,
we get a very favorable 60% profit
margin—much better than if
either doctor was a soloist and
might at best generate a 35% or
40% profit margin on their per-
sonal revenue.
As you can see, this Option
D creates a profit comparison
that can be scaled to compare the
financial success of surgeons in any
size practice. But this approach is
especially appropriate in the largest
ophthalmic practices, those with a
mix of both owner and non-own-
er providers, and a lot of ancillary
profit streams. This way of measur-
ing profit points out the advantages
(at least to owner-MDs) of growing a
larger practice.
Applying this methodology, and
focusing on larger practices with
a lot of passive income, what are
the norms for owner profitability?
Based on my client base, it turns out
the benchmarking figure is 50% or
higher. If you are a co-owner of a
practice with $10 million or more in
annual revenue, it is likely that you
are keeping half or more of every
dollar that you personally generate.
In exceptional practices, with a lot
of employee providers and optical
sales, this figure can approach 65%
and higher.
Keep in mind that during peri-
ods of stress (e.g., loss of partners or
payer contracts) or periods of ma-
terial expansion and reinvestment,
it can be perfectly normal for this
variant of profitability benchmark-
ing to fall materially under 50% and
still be "normal."
The key in any practice is to be
driving the business intentionally.
Your percentile profit margin goals
should be in line with your broader
business strategy. For example, if
your board's clear mandate was to
reinvest profits back into driving an
exceptional 15% revenue growth
pace, or to shift business models
digital.ophthalmologybusiness.org
Mr. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice
management consulting firm established in 1979, with offices in San Diego.
He can be contacted at 619-223-2233 or pintoinc@aol.com.
About the author
