Most newly credentialed ophthalmologists don’t give much thought to the financial business side of their practice. Not coincidentally, they likely haven’t been afforded much education on the subject, either. Unless you’ve inherited your own private practice or attended business school, you probably are not obsessing over concepts such as profit-and-loss margins, net assets and productivity models.

These are, however, among the elements that will determine the overall ongoing “health” of any practice — or the lack thereof. The almost-unprecedented COVID-19 pandemic has placed even more importance on the meticulous focus required for the oversight of a practice’s finances.

To keep their business efficient, all clinicians must be mindful of certain financial vital signs, whether it’s the physician or a managing business partner who’s responsible for this facet of the practice. We all need a certain level of financial intelligence and the ability to view our productivity through an analytical lens, if you will pardon the pun. This could require a change in approach to how business is conducted, especially when considering COVID-19, which has and will continue to impact patient volume and expectations.

This article will offer a baseline background on the financial elements to conducting a successful practice and suggest when a financial expert should be consulted.

IN CASE YOU STILL NEED SOME INCENTIVE

According to a 2021 analysis by Strata-Sphere, ophthalmology lost more patient volume (www.stratadecision.com/National-Patient-and-Procedure-Volume-Tracker ) due to the COVID-19 pandemic than any other medical specialty.¹ The AAO advocated for the closure of offices other than for emergencies in March 2020. Some clinicians were forced to lay off staff, retire early or sell their practice.

Additionally, many senior residents and fellows exiting their residencies over the past year-plus have not had the benefit of knowing how long their contract negotiations would continue or if their existing documents would be honored.

To a degree, COVID eradicated the sense of something like invincibility that we might have had in this field (see “Good business during the pandemic”). It doesn’t matter how many cataract procedures we were previously doing per week. Financial stability is not guaranteed, and there’s always the chance of another pandemic. As many providers and patients make their way back into the office, all ophthalmologists should ensure that they’re financially savvy.

Whether you are private equity backed or not, the future of your practice will be at stake.

KEY FINANCIAL TERMS AND CONCEPTS

Now for the basics you need to know.^2-4 All ophthalmologists should be familiar with the terms and the concepts that follow. It’s essential to possess the foundational financial understanding that these terms represent — not just for the benefit of your practice’s performance, but for having the ability to hold intelligent conversations with potential investors, business partners, colleagues and other industry stakeholders who will be familiar with this financial jargon.

• Accounts Payable: Payments that are due to vendors and service providers for goods and services received. The balance sheet should include a sum of all outstanding amounts owed.
• Accounts Receivable: The balance of anticipated payments due to the business for goods and services provided. These figures can be listed on the balance sheet as current assets.
• Balance Sheet: Documentation of how much the business is worth by accounting for all assets, liabilities and equity.
• Cash flow statements: Aggregate data regarding all cash inflow that the business receives through its operations and investment sources. These statements also account for all cash outflow that funds the business’ activities and investments.
• Current Procedural Terminology (CPT): The set of codes, descriptions and guidelines that describe procedures and services performed for purposes of reimbursement.
• Depreciation: The monetary value of decreases in assets over time due to use, wear-and-tear and/or obsolescence.
• EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): A measure of overall financial performance that can be used as an alternative to net income; it can be subjective and is a particularly important metric in private equity because it’s also used to indicate debt load.
• Equity: The amount of money that would be received by shareholders if all assets were liquidated and all debts were satisfied.
• Net assets: Assets minus liabilities.
• Net collection rate: The rate at which the business has collected reimbursement-due dollars.
• Net income: A figure that is calculated through the total on sales minus the cost of goods/services sold, expenses, depreciation, interest, taxes and other expenses. Also referred to as net earnings.
• Opportunity cost: The presumed loss incurred from a missed or skipped opportunity.
• Paycheck Protection Program (PPP) Loan: A small-business-backed loan that helped organizations to keep their staff members employed during the COVID-19 pandemic. Existing borrowers may be eligible for loan forgiveness, and businesses that are operational with no more than 500 employees could still be eligible for loan activity.
• Productivity efficiency: A variable number that is calculated by dividing the outputs produced by a business by the inputs used in its production process. Common inputs include labor hours, capital and natural resources. Outputs are generally measured in sales or the number of goods and services produced. Productivity can also be calculated by measuring the number of units produced relative to employee labor hours or by measuring the business’ net sales relative to employee labor hours.
• Productivity models: Measurement methods for recording productivity (eg, Salary plus bonus (tinyurl.com/2s3aypja ), generalized overhead (tinyurl.com/yzkx2ybn ), total percentage of collections (tinyurl.com/5n6ckvwc ).
• Profit and Loss (P&L) Statement: These documents reveal revenues and expenditures during a specific time frame, typically one fiscal year. Also known as income statements, these materials should be reviewed monthly or quarterly. Information gleaned from these statements can be utilized by potential investors to assess profitability when analyzed alongside balance sheets and cash flow statements. According to accounting specialist Mary Girsch-Bock, creating a P&L statement can be accomplished in eight steps (tinyurl.com/2p8cre7t ).
• Relative Value Unit (RVUs): A national standard for the measurement of value that’s utilized by Medicare as a reimbursement formula to determine payments for specific services. Calculated by multiplying the frequency associated with each CPT code billed during a period of time by the work relative value units (wRVUs) for each code.
• Return on Equity (ROE): A measure of financial performance calculated by dividing the net income by combined equity.
• Shareholders’ equity: A total of how much shareholders have invested. Includes common shares, preferred shares and retained earnings.

WHEN TO CONSIDER FINANCIAL CONSULTATION

Financial advice and conversation should always be sought through one’s accountant and business manager, but external consultation can also be helpful — perhaps in the event of a difference of opinion.

Corcoran Wealth Management (www.cwmfamily.com ) and Diccianni Financial Group (dfgpa.com ) are among the available experts who have considerable experience working with health-care providers.

As it pertains specifically to coding, billing, reimbursement and documentation guidelines, local and national guidelines must be reviewed routinely to remain current. Regulations set forth by the Centers for Medicare & Medicaid Services have softened, particularly on telehealth, but there’s still a lot that can be lost if the most recent updates are not well known.

As health-care providers come out of the COVID-19 pandemic and adjust to the commerce of COVID, it is imperative that everyone measures their financial health and prowess, especially when it comes to the business of our practices. OM

REFERENCES

1. StrataSphere. The 2021 national patient and volume tracker. https://www.stratadecision.com/National-Patient-and-Procedure-Volume-Tracker . Accessed December 9, 2021.
2. Profit and loss statement (P&L): A summary of income and expenditures for a business. CFI. 2021. https://corporatefinanceinstitute.com/resources/knowledge/accounting/profit-and-loss-statement-pl . Accessed December 1, 2021.
3. Fernand J. Profit and loss statement (P&L). Investopedia. 2021. www.investopedia.com/terms/p/plstatement.asp . Accessed December 1, 2021.
4. Tang S. EBITDA from a private equity point of view. CEPRES. 2021. www.cepres.com/ebitda . Accessed December 1, 2021.

Jai G. Parekh, MD, MBA, FAAO, is a board-certified comprehensive ophthalmologist and anterior segment eye surgeon. He is co-founder, EyeCare Consultants of NJ and founder, Center for Ocular Surface Excellence of NJ. He is a clinical associate professor of ophthalmology at The New York Eye & Ear Infirmary of Mt. Sinai.