Ophthalmology practices are often faced with making decisions regarding expanding current resources or acquiring new resources, given the nature of the “technology-heavy” specialty.    While there are important clinical implications to consider, a practice must also consider the financial implications of these decisions.  If an investment can be expected to improve patient care, outcomes, and patient satisfaction, it can override a negative outcome. Therefore, your first step should be to establish clear and measurable goals to determine whether the investment will pay for itself.  Once your goals have been defined, there are several strategic decisions with financial implications that require analysis.

These include:

• Opening an additional office location, or expanding or relocating a current office space
• Adding a new service or equipment.
• Upgrading or adding additional units of existing equipment
• Adding additional staff or a new practitioner (physician, physician assistant, or nurse practitioner, optometrist)
• Initiating a marketing campaign for your practice.

The purpose of this article is to provide a basic framework for analyzing the cost and return on investment (ROI) for these added resources.

The calculation of the true expenditure cost could include all or some of the following:

• Acquisition cost
• Space – primary space for the new asset or employee.
• Collateral equipment or resources required (e.g., plumbing, electrical)
• Installation
• Development of materials, templates, documentation
• Training (initial and ongoing)
  • Cost
  • Practice “down-time”
• Ongoing support (e.g., software or equipment support, upgrades)
• Added personnel
• Per-unit cost (e.g., for testing equipment, is there a cost per test or a supply or reading cost per test)
• Productivity penalties (does the new resource impede physician or staff productivity? (e.g., electronic medical records)
• Legal liability associated with the service
• Contingency cost (e.g., the number of post-op visits, the level of “hand-holding” required, for instance from LASIK patients compared to cataract patients)

There could very well be other costs, specific to your acquisition.  What is important is to categorize the costs into fixed (e.g., monthly payments for acquisition, rent, salary, support, staff, etc.) and variable (e.g. – per-test cost, supplies, eyeglass frames and lenses, etc.).

The factors involved in estimating income include

• Volume
• Perhaps the most difficult to project accurately
• Must define
• Ramp-up volume
• Ultimate volume
• Maximum capacity
• Income per unit
• Is there an existing CPT code that covers the service?
• Is the code covered by your payors?
• What is the “allowable payment”?
• Savings
• If the new equipment or service replaces an existing methodology, can the savings be quantified?
• Less time
• Less staff
• Lower cost
• Increased productivity
• Does the new equipment allow patients to be seen more quickly (e.g., an auto-refractor), and therefore increase patient volume?
• Marketing – does the acquisition differentiate the practice from your competitors, and can increased volume be anticipated from this differentiation?

The following spreadsheets will help to illustrate the evaluation process.  These analyses are very basic, and the numbers are not representative, so should not be used as benchmark data.

Fixed Costs