If you told a family-owned bakery that they had to pay the current rates for their lease, utilities, employees, and ingredients, but had to sell their baked goods at the average price that they cost in 1980, they’d tell you to get lost.
How could they stay in business if they were making wages from decades ago?
Even though this scenario sounds crazy, most chiropractors as healthcare providers are living it every single day.
The typical DC has an idea of how a traditional practice has to look and operate. There has to be a waiting room, a reception area, and multiple treatment rooms. There will be a receptionist—maybe two. This is how it has been done for decades, and it’s still the way many do it now. The problem, however, is that the cost of running this model of practice has increased dramatically, while the amount DCs are getting paid has not.
Look at the numbers
The main components of an office’s overhead are rent, utilities, and employees. In 1980, the national average for office real estate was $10.50 per square foot, and by 1990 it had risen to $14.50. In 2013, the national average was $23.23 per square foot. Since 1990, that’s an increase of more than 60 percent.
The federal minimum wage was $3.10 in 1980, $3.80 in 1990, $5.15 in 2000, and $7.25 in 2010. Today the federal minimum wage is still $7.25, but it is higher in many states.
The cost of utilities varies greatly depending upon location, but the national average has roughly increased by roughly 63 percent since 1990 and about 55 percent since 2000.
Inflation
Since 1990, the cost of your office has increased by 60 percent, utilities by almost 65 percent, and in many places employees cost more than twice as much.
And don’t forget you’re probably paying at least $100 per month for internet service, which offices didn’t have 20 years ago. Moderate inflation is OK as long as your earnings are also inflating.
The problem is they are not.
To use the state of Arizona as an example, in 2017, the Medicare fee schedule said that a 1–2 region adjustment was reimbursed at $28.45.
The same code in the same region in 2000 paid $26.78. Seventeen years later and the rate is an extra $1.67. That’s an increase of 6.2 percent, far from the rate of inflation. In fact, when Medicare first started using a fee schedule in 1992, the reimbursement for therapeutic procedures decreased by nearly 10 percent compared to data from 1988.
You may not see many people on Medicare, or maybe you don’t accept Medicare at all. So why does this matter? Because other insurance companies take their cues from the Centers for Medicare and Medicaid Services. Aetna, for instance, paid less per visit in 2016 than they did for the same codes in 2015.
Is the solution to stop accepting insurance and just make everyone pay cash? That’s a great idea if you are in a field where insurance typically doesn’t cover anything.
In some fields though, including chiropractic, you run the risk of losing the patient to someone who does accept their insurance. There’s always going to be someone out there who will charge a lower cash rate than you.
Patients these days also aren’t as likely to stick to lengthy treatment plans like they may have in years past because they now have higher copays and deductibles. And if they do have coverage, they’re likely wanting to use it since they are also paying higher premiums.
In 2005, the average monthly premium for a family policy was $916.67. Today, some have to pay roughly $1,500 a month—if they can get any kind of coverage from their insurer.
So what do you do? Go back to that family-owned bakery. They’ll need to find ways to increase their profits (and most healthcare providers will, too). Overhead is so high in a traditional office setting that most need to see 30 to 40 patients a day to make a living.
To generate more income, some DCs try to sell supplements, pillows, orthotics, and more. Yet after the initial surge to sell new products, many times inventory just sits in the office collecting dust.
You can bring in an extra therapist or two to perform more therapies that you can bill for. But you’ll raise your overhead by hiring these therapists and you run the risk of losing money if you have a slow day. Sometimes they are truly needed, but sometimes they are not.
And maybe you could buy an X-ray machine, decompression table, or another high-priced piece of equipment that may not necessarily be essential for your practice.
Expensive purchases can generate a profit over time, but they can set you back in the short term.
Overhead matters
You are always looking for a way to increase your profits. But what if the key isn’t to increase how much you are collecting? What if the answer to increasing your profits is to decrease your overhead?
While some are happy with a high-volume practice, the average DC wants to keep overhead low, be able to spend some time with each patient, and only need to see a small number of patients per day to make a good living. In this model, all you need to be successful is to take good care of your patients. Make them happy and the word will spread. If your over- head is low, you’ll be able to charge a reasonable rate and won’t have to see a large number of people per day.
Consider a DC who, a few years ago, subleased an office roughly 115 square feet in size at the front of a CrossFit gym. It was a good fit for him and the types of active people he enjoyed working with. The low over- head included utilities and internet.
He was in a position to attract walk-ins from the gym.
Fast-forward to today, and things are going well. He sees about 10 people a day, works out at the gym around lunchtime, typically goes home to spend some time with his family, and then heads back for a few hours in the afternoon.
He sees about 10 people a day at roughly $50 per visit, which has him earning approximately $10,000 per month. With his low practice over- head, he can keep nearly all of it and make a good living.
And because he only sees about 10 people a day, there’s plenty of time to put a patient on the schedule for the following week and it only takes about 15 seconds to run a credit card through a smartphone card reader.
As far as taking calls goes, most patients realize they can send email or texts instead of calling. People appreciate the convenience.
What about billing? Many providers want someone to do their billing for them because it can be a hassle. But that person doesn’t need to be in your office. Find one or learn to do billing yourself. The right software can easily do billing, scheduling, and note-taking for a modest price.
Another option to consider is forming a multidisciplinary practice.
This model requires an investment in a larger facility where you can give healthcare providers from different disciplines the office space they need to run their practice, and in this case they can enjoy low overhead, and have the cost of utilities, internet, janitorial, and a virtual receptionist included in their rent.
The future of private practice is shifting toward providers having smaller office spaces with lower overhead. If you go this route, you’ll likely find yourself working more efficiently, rather than working harder.
Nick Porterfield, DC, has a private practice in Chandler, Arizona. He also founded and co-owns America’s Health Center, which leases office space to healthcare providers from different disciplines at an affordable rate in a referral-rich environment. He can be contacted at n_porterfield@americashealthcenter.com, or through americashealthcenter.com.
