Running a Successful Audiology Clinic: Is a Bundled or Unbundled Approach Best?

Dave Kemp 0:10
All right and welcome to another episode of This Week in Hearing. I’m very honored to be joined today by Mike Valente, Dr. Mike Valente, professor emeritus of clinical otolaryngology at Wash U, here in St. Louis. So Mike, awesome to have you on today. You approached the team here at this week in hearing saying you had some material that you wanted to cover, and you came very prepared, you have a full PowerPoint deck and some spreadsheets that we’re gonna go into. So I’ll kick it over to you and let you sort of introduce the topic and just kind of delve into what you want to share today.

Michael Valente 0:45
Thank you, Dave, for the invitation. It’s always nice to talk about this particular topic, because I was involved with this for 34 years, directing the adult audiology program at Washington University. And I think it’s an area that is of critical, and it’s always been critically important. And I think it’s an area that becomes more important now, because of what’s occurring between the dialogue between using a bundled approach and unbundled approach. How do we handle things such as OTC direct to consumer and all these other issues? So what I would like to go through is to put a presentation there are 50 slides that very pragmatically shows how I addressed this issue in financially directing the program Washington University to very accurately and easily calculate our cost per hour. convert that into a charge per hour. Utilizing whether it’d be a bundled approach or an unbundled approach, how we explain the differences between a bundle and an unbundled approach? And how we use this for all things going forward as an example, how do we use this which will be in the next presentation for remote fine tuning? Or how do we use this, for example, to determine what we should charge you to utilizing an unbundled approach, dispensing OTC type devices in our clinic, as opposed to losing that patient to go outside the clinic to pursue the same technology? So it’s kind of like how you should run a practice so that your practice is profitable. Whether or not you’re utilizing a bundled approach an unbundled approach? And how does that also deal with what’s going on diminished returns on what you’re getting for doing diagnostic audiology? So that’s all involved in this presentation.

So first, why should you listen to what it is I have to say? Because in my, my experience, I’m typically mostly usually talking about hearing aids. So what is Valente doing talking about profit and cost per hour and these kinds of things? Well, it’s because this is what I did on a daily basis. I had no business experience prior to becoming the director. But I had to overtime, learn these things, and develop tools to allow me to do this efficiently and accurately. And that’s really the thrust of the presentation. How did I get to doing what I did, so that I know at the end of the year, my income, my net income will exceed my charges, my expenses, so at the end of the year, I will be profitable. And as you can see, in the 34 years, I directed audiology, we were profitable every year, except for 2008-2009. And I don’t think anybody in that year was profitable, because that’s when the housing market went south. And then, of course, the pandemic in 2020, where everything shut down. So other than those two years, audiology was profitable. And it didn’t happen by accident. It took a lot of work. And a lot of that was what I want to share with you today. And you might ask yourself, why is it essentially be profitable? And can you be profitable, and practice a practice utilizing best practice? So in our in my opinion, there is no defense to take shortcuts clinically, to achieve the profit at the expense of using best practice. Our clinic operation demonstrated that profit and best practice are compatible. You can do both and do both quite well. So here’s an example of one year in the clinic that I operated. We had nine full time audiologist, four full time secretaries at three clinical sites. So for one year, and I’ve stayed on all these years we generated in gross charges a little under 4 million dollars, we had to have adjustments of little over $600,000. Those are expenses that left us with gross charges of about 3 million, we collected $3,229,000. And we had a collection rate of 83.5%, which means for every dollar that we generated, we collected almost 80%. Now that in itself is quite astonishing, if you look at the collection rate of virtually every health care profession in the United States, which typically is 50% or below. So how is it that we were able to collect 80 cents on every dollar as opposed to 50 cents on every dollar? And the answer is how we managed our hearing aid dispensing practice. And we’ll get to that into a little bit later on. In that same year, we had $2,200 in direct expenses, we had $704,000 in expense allocations. So our total expenses were a little less than $3 million. So at the end of that year, and our year began January 1, and ended at the end of June, when all was said and done, our net Inc, our net profit was almost $320,000. And so we’ve, in the years that I was there, sometimes it would be 500,000. Sometimes it would be 200,000, sometimes 600,000. But in the 34 years, we always managed to bring in more than what we expended, we were always in the black. We were never in the red, except for those two years. And that did not happen by osmosis. That didn’t happen just by itself. There’s a lot of stuff that went into that. And that’s some of the stuff they want to share with you. And just one more side note, if you think making a profit is in a private practice is difficult. making a profit in a medical school is even more difficult, because of all the additional expenses that are added onto your budget that I have no control over. And I’ll share that with you later on in the presentation. So here’s some interesting questions the listener the viewer might have, and I’m going to provide answers to all of these. Why would a practice offer bundled and unbundled models in the clinic? Why not one? Why not the other? Why 2? And the answer is and I’ll get into greater detail later on prior to the last two years. So for 32 years or more. We have utilized the bundled model like the rest of the country. When we dispensed hearing aids, it’s only the last two or three years that we converted and offered an unbundled approach. As an I’ll share with you later on as our answer to getting hearing aids over the online, OTC big box, and all these other things. Well, I’ll talk to you about in a little bit. So I have what we call a hybrid model. We offer to our patients a bundled approach, which means all inclusive, or we offer an unbundled approach, which means pay as you go. And that means you have to know what you charge for each visit. So we create a menu of services that a patient can select from if they elect to do the unbundled approach. But how did the charges come for that? And well, this, this presentation gets into the nuts and bolts of all of that, if you offered a bundle and an unbound approach, this is very important. If you had 100 patients, given them the choice between the two models, how many would choose to go with a bundled approach? That is I don’t want to be nickeled and dimed to death, I want to pay right up front. And let’s go, or do you want to do a bundled approach? I want to enter the technology at a lower cost. And then later on, if I want your services for the other things you describe, I’ll come make an appointment and you’ll charge me for that.

So why in offering those two models, what percent of our patients selected one versus the other? Now, obviously, for that to work, you have to develop good counseling tools to explain to the patient, what are the differences between the two? And what are the advantages and the disadvantages of each and then throw it out there? And let’s see, what would they select? You might be? You might be surprised if the answer to that question. The second question the third question might ask, what percent of your patients elected to pursue the traditional hearing aid versus those who selected to pursue the less expensive OTC PSAP DTC direct to consumer type aids using an unbundled approach? In other words, if you offered your patient the Do the OTC process within your practice at a reduced startup costs, what percent of the patients would still select the traditional, more expensive model that you’ve been doing for 30 odd years? Versus the new, less expensive unbundled model? The answer to that you might find interesting. And the answer to these latter two questions that is presented patients is really the heart of how audiology has done a poor job, in my opinion, in differentiating the product, versus purchasing a product with service, we have not been good at explaining what we do as part of the bundled product. So when a person hears this hearing aid is $600 online, whereas it’s $3,000 in the clinic, why is it $3,000 versus $600? Why should I go with you at six 3000, as opposed to going online, because they are taking your $3,000 as a product, they don’t understand what they’re getting online is a product. And what you’re providing is a product and service. And I’ll explain that to you later on. It’s the same thing as purchasing a chicken in a store and cooking it yourself. Or going to a restaurant and order the chicken. The former is inexpensive, and the latter more expensive due to the added value of the service and convenience. We have not been good at explaining to patients, when you get your hearing aid from us, it’s like being at a restaurant. As opposed to you just getting this hearing and out of the box and you’re on your own. And once you explain this in a in an intelligent fashion, you’ll be surprised at the answer that you get to the two questions above. And I’ll share that share that with you down the road. So why shifting? Why would you not shift completely to an unbundled model? If you’ve had a bundled model for 30 odd years? Why would that not be a wise decision? And I toyed with that for many, many weeks months. And in the end, we as a group nine audiologists decided we’re going to offer both. And here’s the reason. Dave, you had a question.

Dave Kemp 12:13
I just said, Yeah, that makes sense. The hybrid approach

Michael Valente 12:29
Yeah, we have a hybrid – So here’s the question. And I’ve tried to think about this in my own personal experience. My wife and I, Maureen and I, we love going out to eat, and God knows, we have plenty of choices of eating in a wide variety of restaurants here in St. Louis. So what if we went to a restaurant, and our experience was candle light, quiet, we can converse. And then somewhere down the road, for whatever reason, that same restaurant now became noisy, and we couldn’t communicate. So the first experience, we’re going to call it bundles. The second one is different. It’s just not the same. My question to you would be here, would you likely go back to the second experience when you’ve experienced the first? I don’t know about you, but we would not. Because something changed. That made it more unpleasant different. Here’s another example. In that restaurant, when we first went there, we got this lovely meal. And it was 24.99. We went back, and it was 25.99 and the portion decreased. And then we went back again. And the price went up further and it decreased even more. My question to you would be if the first one has been your initial experience, and you were happy, and now things have changed -are you likely to go back to that restaurant? Worse than that, would you be willing to tell the restaurant why you’re not going back to them? Think of how many patients when you change things, you don’t even know they’re not coming back anymore, because you don’t have a really good system to track your patients. Here’s another example. Your first one. The waiter waitress was on time, they were there to get your order. They were there to give you your bill. The second time you’re waiting like forever to get your bill.

This happened to us this past weekend we went to a restaurant. We must have waited 20 minutes to get our bill. What’s the chances of Maureen and I going back to that restaurant? Not only that, they the food that we got was what we didn’t order and we went to that restaurant many, many times. Are we likely to go back to that when there are so many other choices to go out to dinner? Probably not. So we decided to stay with the bundled approach. Number one it was profitable. And number two, there was a large patient database that we had, that was their experience. And we did not want to force another experience upon them that they were not used to or did not want. So that’s why we stayed with both, and let the patient choose which way they wanted to go. So my answer to that first question, if you ordered if you offered, bundled and an unbundled model to 100 patients, and you explain the difference,

how many of you are, in our experience, how many of those patients would either select a bundled model or an unbundled model? Now you might say 30% 50% 70%, it’s actually almost 91% – 91% of our patients, when I was there, elected the bundled approach. Now, you might say, well, think about this. By offering both, we kept 9% of those patients to stay within us as opposed to going someplace else. So by offering an array of choices, you make yourself more competitive. And not only that, you have to understand if you’re already if you’re offering a bundled approach, or if you’re offering an unbundled approach, and you have correctly calculated your cost per hour and your profit, you’re gonna make the same profit, regardless of which one you do. And it’s just offering the patient the choice, and in our experience, and I’ll share with you some of those, those counseling tools. And if not, let me know and I’ll get them to you. We explain what you get on a bundle, what do you get on bundle? What are the advantages? Whether did…you tell us what you would like us to do? I just think it makes us more competitive.

Dave Kemp 16:50
Yeah, I agree with that. I feel like the choice is a really good thing in those 9% of people, you know, that might be something that is appealing to a larger portion of people that maybe never sought you out in the first place, because they only had that perception in their head that there’s this one size fits all approach. So I think that you’re sort of catering to the old world, if you will, but also bridging it, and giving people optionality to choose on their own terms what they want.

Michael Valente 17:20
It also may be related partially to the demographics in our patient database, I don’t know. But the fact of the matter is, then I’ll show you later on we we dispense almost 75 hearing aids per month. So we have a large pot of a large, you know, hearing a practice over many, many years. And our experience has been with proper counseling. Most of our patients ended up selecting traditional technology and not the OTC, direct to consumer. And we’ll talk about that in the presentation to follow this one. Yes. So the the bundled patients, they will they will come out and tell you, that’s very nice that you offer this menu of services, but I’ve been with you for 20 years, 30 years, whatever it might be. I don’t want to be nickeled and dimed to death. I want to go with what we did in the past. And that’s what we do. And these people like to – these people, these patients want to pay one charge for all service for the duration of the warranty. And we already hearing aids which I’ll share with you later on a one year warranty, a two year warranty, a three year warranty, it doesn’t make a difference. I’ll show you how to price it regardless of what how many years warranties, it might be how we did it. Okay. So this is a big this is a big slide I want to go through it’s slowly thus we offer bundled, and our current patients and new patients about the services utilizing a bundled approach and don’t don’t they don’t want to be nickeled and dimed to death. We also offer the unbundled approach to reduce the charge in order to be more competitive with the upcoming OTC DTC direct to consumer and in our unbundle approach, we always incorporate REM Real Ear Measures and 2cc analysis, that is not negotiable. And I’ll show you exactly later on in our next presentation, how we priced this are so that we’ll be competitive with what these patients would see on online and what they might see in when they get it in OTC. So that but that we the one thing we won’t compromise, it just is incorporated into our charge is real ear measures so that the and I’ll show you where we came to that. So that the target the the Fit matches a prescriptive target with a right and left ear and also the 2cc so that we know before we attach to the hearing aid, it is it is performing to manufacturer’s specifications. Those two things are not negotiable. They are provided. And that’s part of our unbundled approach. And that will become clearer in the next presentation. And again, for those of you who are skeptical data clearly supports significantly better performance, utilizing real ear measures to match a valid prescriptive target and 2 cc measures to ensure quality control. It’s is there.

So we offer both the unbundled and the bundled approach to provide patients with the choice and counsel on the advantage and disadvantage reach and let the patient decide, do they want this fork? Do they want that fork, and we can accommodate both, and both will end up in a profit at the end of the at the end of the day. It’s really about retention, because patients arrive to your clinic, because he or she felt you were the best to help that person hear better. Why provide that person, any reason to pursue to go someplace else for that care? They vote, you’ve opened the door, they walk through the door, what can you do to address their concerns at what other price point they want to start? That’s why we incorporated OTC type technology within our practice. To overcome those questions. Your clinic should offer as many options as possible. So how do you calculate cost per hour, convert that to charge per hour, and then charge per business visit type. And we had hours set aside in 30 minute increments. And I’ll explain that to you later on. And this this one calculation, and I’ll share with you how we did this was used for both unbundled and bundled approaches. And I’m going to, I promise you, I’m going to go to I’m gonna go through the step by step how we did this. So this is what you’re going to need to do this. First of all, you’re going to have to know what is your P&L statement? That is, every business has a p&l statement. Some are simple, some are very complex, I’m going to share your our actual p&l, which is very complex. But what do you want to get from that p&l are only two things? 1) What are all of your direct and indirect expenses?

And I’ll share with you in a little bit, what are direct and indirect expenses? And number 2, what are those expenses of things that you have purchased, to dispense that you’ll make money off? So it’s two buckets. One bucket is all of your big expenses. And your second bucket of what did you buy that you dispensed? And I’ll show you how to do that. The thing that you

also need is how much time does your clinic actually spend seeing patients making a fee ticket generating income? And I’ll share with you that’s not nearly as easy as you might think. Okay, thank God, if I’m paying for 40 hours a week, I don’t want to work seeing patients 40 hours, I have things to do with those things that I do other than seeing patients is not generating any income. What percent of my time? Am I generating income that’s billable? And what percent of my time am I not seeing patients that is not billable? So you have to find out for the nine audiologists in my clinic. How much time was spent generating income, and I’ll share with you that later on. Also, equally as important is when you’re doing hearing aid dispensing. It’s made up of many, many different components. There is the hearing aid, the hearing aid evaluation, there is the hearing aid fitting, there is counseling, there’s to see analysis, there’s changing tubing, there is connecting Bluetooth,

there’s a variety of things that we do that require a different visit, each one of those visits require a good amount of time. So how do you do a time analysis so that you can calculate what is the average amount of time that you spend doing all of these different visit types, and then you create a menu of services. And I’ll share with you exactly what that is later on. And then the last thing you need is how much money do you want to make? What’s your profit? Do you want to make a 10% profit a 20% profit a 30% profit or forgetting about percent I want to make I want to have a profit of $200,000 at the end Year, I want to half a million at the end of the year. So one is a percent that you add. The other one is, how much money do you want at the end of the year that is greater than your expenses, your net profit. The the Excel spreadsheet that I created does both. And I’ll share with you that later on how you entered this data and instantaneously, it calculates everything. And then all you have to do is say, Well, do I want to 10% rather than 20%. And then also, you’ll see what happens if all I’ll show I’m gonna leave you suspense. I’m going to I’m going to show you later on what you can do with this in terms of the games you can play with the finances of your department. Okay, so in the slides that follow, I’m going to show you step by step utilizing real world that my data to demonstrate how I calculated cost per hour, how I converted that to charge for our utilizing either the bundled or the unbundled approach. That’s what this that’s what this presentation is really all about. It takes the mystery out of it, and how you how you can be better financial directors of a division. So here’s a question for you. Is it essential for every single staff member to know this we add nine audiologist? Is it really important that all nine audiologist know what I did? The my answer is no. The director would be the most obvious choice. But it’s important. However, for every staff to be aware of the importance of changing a profit, and minimize no charge visits. Audiologists in my experience, sometimes are as close to being social work as you can be without having an MSW, I’m in a giveaway this day giveaway that they give away this. And every time you do that it’s taking away from your profit. I’m not saying don’t do it, I’m just simply saying you need to be aware of what the impact of that is, on your paycheck on your ability to buy new equipment on the ability to add more staff, so on and so on and so on. The responsibility, in my opinion, should be the director of audiology of that program. Or the business the Well, whoever owns the business, not a business manager. The director obviously has to work closely with the business manager, but the financial operation of the clinic should be the responsibility of the director. How many times have I heard, how can I convince the business manager to purchase a real ear system? And when I had that, people ask me that question, I say, What are you doing having a business manager telling you how to operate your clinic? That should be your decision? And that decision is based upon? Can you afford it? Do you have the profit to support that?

Dave Kemp 27:52
One question I want to ask here, going off of that last slide is, you know, I’m I’m really impressed that you’re pretty much self taught in this regard. But it seems like there’s part of the problem here, if you will, is that the business manager probably is has some sort of, you know, MBA or business degree, something like that. They’ve, they were literally they have an education in reading profit in p&l statements, and they’re very well versed in this world, whereas the director, the audiologist, the business owner, whatever might be like the social worker that you described. And so how would you? I mean, I think you’re doing a great service of even kind of providing a granular overview here of how you would go about doing this, but I’ll let you continue to proceed. But it seems to me that that’s something that we can touch upon on this is how you can sort of maybe teach yourself, how to become equipped to understand things like your breakeven rates and be able to do these kinds of costs analysis yourself.

Michael Valente 28:55
Hopefully, that’s a great question. And hopefully, by the end of the presentation, the viewer will have a greater understanding of that. But I do want to go back to your excellent point, when I was hired to direct the program, you know, 34 years ago by the chair at the time, John Fredrickson. I had absolutely no business background. None. I mean, zero. I worked for the VA and the VA, you know, you don’t have to worry about these things. And I worked at a university and the university had to worry about these things. I had absolutely no experience. It was through trial and error. And I have to tell you, in all honestly, having a lot of meetings with the Business Director going through a p&l, because when I show my when I’ll show you in a minute, when I saw my first p&l, I said What the heck is this? And I had a lot of meetings with the business manager to learn all of these things. And so it’s and I learned a lot of things along the way made a lot of errors made corrections. But again, I want to I didn’t start out any different than anybody who’s watching this presentation. I had zero business experience. And it was only through really delving into the p&l. To understand what this was all about, recognizing that the things that were being charged to me, were not my expenses, and I had to do better tracking of my expenses. So I go back to the business manager. Why are we being charged for X, Y, and Z when that we don’t even do that? Yeah. So, but it was really working closely with that person. But I have to tell you, as an example, in our in my operation, there were a lot of third party payers who wanted to have a hearing aid business as part of what their patients would get. And then I had good relations with the office that made those those contracts, if you will. And it took a lot of meetings, a lot of talking, for me to quickly understand, going into third party hearing aid dispensing programs is not financially to the benefit of Audiology. audiologists lose on many of these a lot of money. So I ended up in a place many, many years ago, where we offered no third party reimbursement, we carved out hearing aids, and we only accepted to that allowed balanced billing. But how did I know that by getting into the meat by getting into the guts of this whole thing? Yeah. And I’ll get into that a little bit later on. But again, to answer your question, I’m not like anybody else listening to this, who has no prior experience. It’s due diligence is taking the time. And hopefully this presentation will allow people to make some shortcuts and get to where I am now and not having to go through the weeds to get there like I had to get. And that’s, that’s really what I’m, that’s what I’m hoping that people get from this.

Dave Kemp 31:48
Yeah.

Okay. So

Michael Valente 31:52
what I mean, why do you want to make a profit? Well, you know, there’s a thing called a security. There are programs, you know, that have folded or positions eliminated, because audiology wasn’t profitable. There audiologists who had to take a vacation or convert to part time, because the schedule wasn’t sufficiently full. You have to build your own practice independent of physician referrals. And that takes time. You have to have income if you want to go to AAA.

Or do you want to go to? We had one we had one audiologist who wants to develop a tinnitus program. We sent that person to Baltimore. To Hopkins, we had another person who wanted to learn electrophysiology stacked ABR, we had another person who wanted to learn misophonia, that took time away from billing, so they can travel and learn how to do this. Well, we could do that, because we were profitable. And we knew that we can afford to that person not to spend as much time in the clinic to do that, to buy the equipment to do that. We also had a budget so that every audiologist had $1,200, to go to a national meeting. Because we could afford it, we were profitable. We had to have income to buy new equipment. Prior to me leaving, we replaced, I think it was nine audiometers, brand new GSI that we could afford, because we were profitable. So all of this leads to making important decisions, being somewhat in control autonomous of your own environment, because you’re profitable. We could offer new programs or services, we could hire new staff, we could increase salary could possibly offer a bonus. We could have staff take part in program development, research, teaching meetings, all of these things are non billable hours that we could afford to do because we were profitable. Audiologists should not be viewed as income generators, or technicians. audiologists are well trained professionals, who need to have the tools and the time to pursue and build his or her own specific passions. And that becomes possible if you’re profitable. That was my that was that was my function. So that those things that they that we’ll want to we could have. Or I could say, Geez, I wish we could but we were not where we should be in terms of profit. So how do you calculate cost? Here’s the meat we’re getting to the meat. Okay. So you have to calculate cost per hour. And I’m going to share with you the spreadsheet, you have to select a desired profit. Do you want a 10% profit a 20% profit a 30% profit? Or do you want some goal as $1 amount at the end of the year that the spreadsheet will give you that you have to complete a time analysis for all business for all visit types. And this is kind of important. And yeah, I think you and I Dave, we talked about this before it I don’t know how many times either in the classroom when I taught, you know, hearing aids, or in the clinic when I was supervising or at national or international meetings, I was just curious. And I knew the answer. I would ask the question, when I was talking about this topic, I would ask the question, how much time does it take you to change tubing? I mean, it’s a common clinical procedure. If you asked 100, audiologist, almost 100, will say 10 minutes, 15 minutes? And then I would say, really? And I say, Well, how about the time before the patient came that you reviewed their chart in your electronic medical record? How about the time it took you to walk up to the front? To get the patient, walk them back? Sit him down? And do your salatories – Hello, how are you? What’s going on your life? How long did it take you to listen to your patient on what the issue was?

How long did it take you to actually change the tubing? How long did it take you to counsel the patient on what you did? How long did it take you to walk the patient back, reschedule that patient and then back to your desk to write the report. It’s not 10-15 minutes. It’s much more than that. So when you’re talking about a visit, it’s not only direct patient contact, it’s everything that went on before. Everything that went on during and everything that went on after. And in my experience, if you calculate all that, even the most simple thing as changing tubing is a half hour. And our menu is designed along that a hearing aid check where you do a sushi analysis, you clean the ear molds or clean the hearing aid. You change the the room and the white of the wax trap, you do a whole bunch of things. That’s 30 minutes, sometimes it takes more, sometimes it takes less. But on average 30 minutes, an audiometric exam 45 minutes, our hearing aid evaluation 60 minutes, the actual fitting of the hearing aid an hour, an hour and a half, two hours, depending upon the technology and the comfort level of the of the audiology an ABR 60 minutes patient counsel that varies depending upon what’s being counseled. The point is, every single thing that you do in terms of patient visit, you can time it on average, and I’ll share that and create a menu based upon cost per hour. And I’ll share with you. So remember, we said you have to know all of your direct and indirect costs. So what is that? It’s in your p&l? Well, what is that? It’s your salary, that’s your biggest cost. It’s your fringe benefits, disability insurance, unemployment, liability, Social Security, retirement education for your children or your spouse, health, vision, dental insurance. That is the thrust. That’s your biggest cost. professional meetings, we had $1,200 allocated for each staff member to attend a meeting your cost to it. malpractice insurance, postage, web development, parking spaces, these are all expenses that we had to pay for an audiology, the amount of rent loan taxes insurance per year. costs for your billing and collection service costs for your scheduling costs your electronic medical record system which were used epic costs for marketing, consumer seminars, brochures, TV slots in the waiting room, we were not allowed to advertise. Here’s additional equipment, PCs, laptops, phones, voice vanes, fax machines, wireless interface for hearing aids, or base offer for electronic. And when you can just look at that list. Each one of these has a cost associated with it. It none of this is free. And that goes into that p&l costs, your direct and indirect costs were not done. Here’s even more expenses. I mean, it just goes on and on and on. Utilities, janitors service email addresses, we have email addresses. They’re not free. We have to pay for it at the university. We couldn’t use Gmail or Yahoo. We have to use Wash U to it’s not free. You pay for it. Shredding service, special software, pens, paper printers, fax, ink, eating area refrigerator. I mean you go on and on and on. It’s a litany that you know, the typical audiologist doesn’t think about but we had to pay for the hanging pictures on a wall. If we had you know, the janitorial come in and hang pictures on the wall. We had to pay for that. Nothing. Nothing in the medical school was free. We can’t Upgrading the equipment, everything. So that’s what this is. I mean, these are just expenses. So what a hearing aid expense, and that’s the little one, the little one. Remember, the first one is that’s the big one. Now this is the little one, your hearing aids in your assessories. Shipping batteries chargers, microphones, dryers stores impression ledger, it just goes on and on and on. These expenses are now separated out from the previous expenses in our formula. Okay. Question is, where do you see that in your p&l? I’ll share that with you. So hold on to your seats on this one. This is my p&l. This is what I got. Every single month. When I saw this the first time, I said, What the heck is this. So let me kind of walk you through it. Now, your p&l Probably is much easier than this. But this is my p&l. This is what I use to operate my clinic. So what do we have here? This column is all of my expenses and income. All of this this area right here. That’s all of my income. This area here, surprise, surprise, surprise, the bigger one. Those were all my expenses. And at the bottom, this is my profit.

So again, all of this is income. All of this is expense. And the bottom is how much did I make? Or how much did I lose? So let me kind of explain all of this. What’s in terms of being important? The top line is for up to in this particular case, this was June 2018. How much did audiology generate? As you can see, we generated a little over $3.6 million. The first column was our office on the 11th floor of the center for advanced medicine. The second column was our office on the third floor of the center for advanced medicine. The next column was our audiology office at CID. The next column was our audiology, suburb, West County. The next column was what did we pay for research. That’s always a loser. Research is always a negative value. As you can see, on the bottom, it actually was negative 56. It costs our budget, a little over 56,000 to do research. And on the right is just the sum across for the three for the for the four offices and the research. So when all of this was said and done, at the end of the year as a whole, we generated $3.6 million. You can see here, we had a provision of adjustments. So that’s 474,000. And if you look at our net income, it was a little over $3 million. So if you have your expenses at 3.6. And your income, the money you’ve received is a little over three, you do the math that came out to an 84.2% collection ratio. That means for every dollar we generated, we collected 84 cents. Believe me, that is really high. And there’s a reason for that did that did not happen by itself. There’s a reason for that. If you look at most professional services and medical school, that number would probably be closer to 40 to 60%. Audiology is higher. Why? Because we have something that is self pay known as hearing aids and hearing aid accessories. And that is what floats the boat known as profit. If we had no hearing aids, that would not have been profitable. So the question is, how do you work all that all of this down here is our expenses. If you look down, you’ll see a line that says resale. And it says $663,000.03 115. That is that second bucket. How much did we spend on hearing aids as services for that year? So the top part is income. This other part here is the bucket for our cost for hearing aids. The bottom bucket is what were our total costs 2.2 million 43,000. That was our expense of which 663,000 was for our business related to your Ah, okay. The 376 is overhead, which is an expense. Okay. So our total business expenses was two point I can’t see it down there, amen, something like that. And at the end of the year, we had a profit of $326,178, Cam had a profit of 30,000, CID had a profit of 42,000, Reese, West County had a profit of 260,000. And research had a loss of 56,000. That’s to the left, taken from that bottom row. So why was West County more profitable than cam? Well, West profit went West County generated more hearing aid business, less diagnostics, Cam generated a lot more diagnostics, less hearing aid. Research is always going to be a financial loss. But we could do the research because the other three clinics carried the load. Today, at the end of the year, we were profitable. Again, every year, we were profitable, because of the dispensing practice we had. And the decisions that were made based upon cost per hour per hour. So

I’m not going to read that, but don’t worry about that one. Okay, so I created a spreadsheet, which I’m going to share with you in a few moments. Because it was so complex, I needed something that would just let me see the big picture rapidly, rather than going through all these mental gymnastics. So I created this spreadsheet. And number one, it acted as a counterbalance to compare it to the accuracy of the data I got on my p&l. And early on, I found out those differences were quite large. And that has, as I had more and more meetings with the business manager, those differences became smaller, because we identified those things that will be taken as an expense off on my budget that shouldn’t have been on my budget. But I would not have known that if I didn’t take the time to track these things. It’s an excellent source to demonstrate the need for additional staff equipment, spaces, services, and it’s much easier to receive approval when you’re profitable. You can make sound business decisions based upon profit. Do you need more staff? Do you need less staff? Which I never did? Do? How much should it be for annual pay increase? Should there be a bonus and it’s how much of a bonus, all of these things are generated by that p&l? You can make changes in the calculation based upon if there are changes. And that calculation will be easy, accurate and consistent. You can make accurate projections for your profit and loss for the following year. Every year, I had to submit a budget and predict my profit. For the following year, it became very easy to do that because I had this spreadsheet. I use it for quarterly and annual reviews to the staff to provide an actual an accurate reflection of the productivity across and within staff insights. So we had as I mentioned, a collection ratio greater than 80. Why? Again, most places typically is 45 to 60% or lower audiology was higher. So how did we achieve this? In our division, hearing aids were 100% reimbursable. There was no third party reimbursement except for 2 third parties. And both of those agreed to balance billing. We generated about 75 hearing aids per month. We never accepted a contract from third party reimburses that did not include balanced billing. For age with a well balanced billing, this is important. We had to create a system that tracked the payment. You’d be amazed at the number of audiology clinics that have third party reimbursement, send it off to billing collection, and there’s no system in place either themselves or billing collection. To be sure they receive payment. We created a system where we we we tracked what it is the bill was what it is three received at the time in which the hearing aid was dispensed, how much was due from the patient, which we got at the time the hearing aids with dispense and how much was due from the third party reimbursement either it be UHC BlueCross BlueShield and we sent that off to the business office. And we allowed three months to receive payment, which is an arbitrary point. And then when we saw that it wasn’t being paid after three months, we let billing collection know what’s going on with this payment. And it was taken care of, but you would be amazed the number of practices and I know this be true, who have third party reimbursement, get whatever payment they get from the payment at the time in which it’s paid, if any at all, Bill it to the third party reimbursement and assume that the payments been received, that is a death keel, because that practice has the cost of the aid as part of their budget. But they don’t have a corresponding income. It’s a double whammy. So for those of you who do third party reimbursement, you really need to have in place a method to track payment, you don’t really assume, assume that you’ve received the income just because you build it. And the other one, which I’m going to talk about in great detail next, at the next presentation is you really need to consider how you’re going to integrate, quote unquote, OTC hearing aids in your clinic. And equally as important remote fine tuning. And I’m going to talk about both of those. How why you should do that, and how you should do that in the next presentation. Okay. Little a little carrot out.

Dave Kemp 51:09
Yeah, a little tease

Michael Valente 51:10
a little carrot.

Okay, so today I’m going to demonstrate this. I know you hear the drumroll about the Excel spreadsheet. And we’re going to talk about how to take this stuff and incorporate it into a bundle and an unbundled model. So bundling again, is all inclusive, unbundled is pay as you go. How long you have to to make that decision, how much is the cost to operate your clinic? And how should you charge for your service? What do you do with that information? How and when would you promote bundling? How and when would you promote unbundling we promote both. And we let the patient decide which way they want to go. How much is the cost per hour to break even 0% profit. But you never want to do that. Because you’re never going to have cost that you never thought you’re going to have. You’re always want to have money in the bank to cover these unexpensive on unexpected expenses. But you want to have money for staff equipment, and so on and so forth. You never have a cost that’s equal to 0%. Because that’s just not a good strategy. So again, cost per hour is equal to the total of the direct and indirect cost minus the cost of goods divided by billable hours. That’s that’s the formula. It all seems straightforward, but it’s not always easy to gather the information. So now I’m going to demonstrate how we did it. Don’t worry about that one. So here’s where you need to think about what are your billable hours, that is as billable hours decreased? cost to charge increases? Not as straightforward. So here’s an example. Total contact hours per staff is 2080. Assuming eight hours a day, a 40 hour work week and 52 weeks. So the contact hours for all my staff was 18,720. That is 2080 times nine audiologist is 18,720 hours. So at the beginning of the year, July 1, I had in the bucket 18 plus 18,000 plus hours of time for staff to generate income billable hours. Thankfully, audiologist don’t see patients every minute of every day, then what is the estimate of billable hours? What is the number of contact hours? How much time do they actually generate income? That’s that’s what you have? That’s the billable hours? And then how does this relate to the cost to break even? So considered non contact hours? Now this is important because audiologists don’t think along this way. So in my environment, okay, this isn’t my environment. They were 22 days of vacation, day one. That’s eight hours times nine staff. That’s 1584 hours per year non billable, they’re gone. Their expenses haven’t stopped, but they have gone. There were eight holidays at eight hours nine audiologist that’s 576 hours. Every audiologist we’re allowed five CEUs, times eight hours times nine audiologist, that’s 360 hours. We had a thing called ogre day, which is a research day was mandatory to attend. That’s 72 hours. sick days. They’re allowed 12 days per year, times eight hours times nine that 64 hours. Audiology Grand Rounds 99 hours. Wednesday morning see you two against 16 hours retreat 45 hours. So there were a total of 3816 In hours starting out where audiologists would not be available to see patients. So if you take the 18,720, you subtract the 3016. That leaves you with 14,904 billable hours. That means before you even started the year 20% of your time, there’s nobody available see patients. That’s one day a week. Think about that. Right. That’s one day a week.

Without without anything else going on, now, it gets worse. Okay, watch this. bereavement. We had one staff member out one year, four occasions, two days a week, two days. So that’s eight days. That’s not in that first slide. We had maternity leave three months. We had patient and parent, we had staff who are in surgery and recovery. We had we had one parent one audiology had jury duty, where they were out for a week and another was out for three days. Washington University is Christmas party heaven. There are so many parties around Christmas time that everybody’s gone. Yeah, here’s one that’s crucial. No shows. Or there’s so late that you can fill the slot. In one year, we had 645 No shows.

Dave Kemp 56:30
Yeah

Michael Valente 56:31
That would be between a half hour and one hour, we had 6014 19 patients who came in late and we couldn’t fill the slot.

You really need to have a system to get a hold of this. And a policy in place. That’s a whole presentation in itself. How do you handle repeat no shows, and late cancellations. Because it’s like you’re stepping on vacation. They’re not generating any income to no fault of their own.

Dave Kemp 57:01
I’m excited. I’m excited for the second the round two of our this presentation. You had mentioned earlier remote diagnostics and stuff like that. Because you know, without putting the cart before the horse, we don’t need to get into it. Now I just want to kind of put a pin in this is that a lot of this is like you said you need to get a handle on it and figure out a policy and all that in terms to minimize this. But a lot of it also is how do you very quickly re budget your time effectively. And I think there’s some really exciting opportunity starting to kind of emerge of ways you can be a lot more dynamic to do that,

Michael Valente 57:37
and I would love to do that. Because I never really had a saw I knew the policy on what do we do with repeat no shows and what we were due to cancellations. So I knew how to take a handle on that. But I do not have I did not have a handle on what do we do with that time in terms of generating income? So I’d be actually interested in that, but I don’t have an answer to that one. Okay, talk about that on the next round. Okay, traveled within a facility to go to Grand Rounds. Town Hall meeting. That is the chair had 2 town hall meetings, which was two hours long, twice a year. report writing telephone calls, responding to emails, preparing for teaching. I mean, we had staff who taught acts, who taught residents there was time away from the clinic. Writing manuscripts, we had a hearing aid research lab in which time set aside to Manu to to write manuscripts guidebooks, gather counseling, handouts, calibration, which we had a big we had three big clinics, you can’t use the equipment, that the equipment is down normative data for new procedures, research, I had two staff members directly involved with my hearing aid Research Lab, public speaking in the community, taking care of division tasks, any number of things. So there’s remember that 20% is at the start, all of these things are added on top of that. And in my spreadsheet, I’m going to share with you how some of these can affect your bottom line. And I’ll show you that. So

so this is the spreadsheet that I developed years ago, that would help me very accurately calculate the cost per hour, and then convert it to charge per hour. And I just got to I sort of wanted to walk you through it. To give you an idea what it’s all about. This took several years to work through. And I also sent it to several business managers at Washington University, to check for its accuracy to make sure that it was doing what it was supposed to do. But let’s kind of look at it as it is right now. Right now you’re seeing that here on top. Because I have nine audiologists, there are 18,720 billable hours that are available at the beginning of the year. That’s that’s our starting point. And remember the formula is billable hours, that is how much time is a person actually in the clinic to see patients at And earlier on, I shared with you that just taking our, our vacation holidays sick time, and those kinds of things, we ended up basically having 20% of the time in which each staff member was not available to build. So it was reduced by that by that amount. So that’s what this top line is, with nine audiologists that you see down here, starting at the year, there are 18,720 hours available. These three lines, here are all of my direct and indirect expenses, that I just simply transferred over from my p&l that I shared with you earlier in the presentation. This line here, the 660, that is the separating out of all of my expenses relative to those things that I dispense, because remember, billable hours, or cost per hour is your total direct and indirect costs, which would be those three top lines, minus your hearing aid sales, which are invoices, which is that line, divided by the billable hours. And then the remainder of this are just other expenses for contractual adjustment. So my total expenses for this particular spreadsheet is little over $2.9 million. So that’s where I start. Okay, so I just simply entered the data from the PnL directly into these first several lines. You’ll notice down here and then in the next section, this is going to calculate my billable hours. So at Washington University, every audiologist has 22 days vacation, and with 9 Audiologist that comes out to a level of 1500 hours in which they’re away from the clinic. We have eight holidays, that’s another 576 hours non billable, we have 12 sick days, again, you can read the numbers 864. And there’s something that we call unrecorded, which we won’t worry about right now. Because we’re a medical institution research, our and a lot of things going on in terms of new programs, we have meetings, and we have about eight about five meetings per year. And that comes out to about 360 hours away from the clinic. And then there’s something called personal days, which here is two days. So what started out at 18 720. Subtracting all of this time that the staff is not there, it comes out, we really have 15,084 hours available for the staff to see their patients. And if you take all of that, that comes $295.40 per hour for cost. And that then is calculated a little further down in the spreadsheet. And it tells me if I want a 20% profit, that 194 I need to charge 235 an hour. Or if at the end of the year, I want $500,000 profit $500,000 profit, that comes out to about $230.20 $30 per hour. So this very, very accurately and very, very quickly tells me if I have a target of 20%. And my cost is 195. What do I have to charge per hour, it’s 234. If I’m a little more entrepreneurial, and I say it should be a 50% profit, that would go up to 293. And so you can work any way you want. For me, I settled on 20%, it was arbitrary. And it worked because we were profitable all these years. And I wanted about a half a million profit at the end of the year. So it came out roughly to $230 per hour. So what I want to share with you now is how easy all of this is to work with. Let’s say I’m feeling like we had a really good year. And now I want to increase my staff to 10, I want to go up by one staff. I just take my number now. And I increase that to 10. And look, you went now up to 2000 20,800 because you have more billable hours, and your cost went down to 173. And your charge per hour

went down to 208. And for half a million dollars. Watch me come down here a little bit. It went down to 203. But because I added staff, I now have an additional expense. And let’s just say the person has a salary of 70,000. And let’s just say the, the the the the benefit, the benefits are 30% of your salary. So we’re going to add that on to this as a cost, which will make it 2 million that’d be 91,000 $2,1 71,344. What happens now I’m gonna take this now make this into 10 So by just simply entering into the spreadsheet, one additional staff member, correcting the billable hours up, because you now have one person who’s generating more hours, is taking that original sum, which was 195. And now we’re down to 181. So you could see that you could take this information to a higher end versus hey, look, we can cover these costs, I went from 195, now down to 181. And then also your costs, or I could just say, you know, I’m gonna keep my cost per hour, the same just make more money. I mean, there’s a lot of ways in which you can jumble this, let’s say you’re an institution. And instead of having 22 days vacation, which is little over four weeks, you have 15 days. And let’s say you have six holidays. And let’s say you have 10, sick days. And let’s say you’re not, you don’t have any meetings, and you don’t have any. And it will instantaneously change and calculate your cost per hour, and then also calculate your charge per hour. So, in the beginning, we were at what 230. Now we’re down to 200, because we made these changes. So this really, really allows me to make all kinds of instantaneous decisions by placing the information in whatever box I want, and then also trying to do future forecasting. What if my costs for I, for all of my hearing aid instead of being 660, I was a better negotiator. And this now went down to 600. What does that do? It tells you instantaneous, well, let’s say I had a really bad year. And I had a lot of contractual adjustments. And instead of 804, I had 12 12,000, let’s just say or whatever it might be, I had to make this 12,000. It tells you instantaneously, what your cost per hour is going to be. So I just wanted to share with you what went into the spreadsheet, and how you can manipulate it instantaneously by any set of data that you want, and how it will change your cost per hour and convert it to charge per hour, whether a percent of what your goal is at the end of the year, relative to 20,000 300,000, whatever it might be. So that is just a tool that I decided that I needed to take the time to develop, so that I can very, very quickly predict what my performance is going to be if I made any change in my budget. Yeah, that’s it.

Dave Kemp 1:07:49
I think it’s brilliant, Mike, I think it really gets to the guts of how to make these decisions from a financial standpoint and understand exactly what your breakeven rate is, and all the different costs that go into, you know, being able to operate at these different percentages of, of profitability, like you outlined.

Michael Valente 1:08:10
And it also makes it an excellent tool to take to your business manager to your boss, whoever it might be. And you’re just not throwing things in the air and hoping that it sticks. You have solid data to make solid financial decisions. And then when you do that, over time, there’s trust built into you because you can deliver what you promised. Absolutely, you have to remember that cost per hour is fluid. As I demonstrated, your costs can increase decrease based upon changes in salary and fringe benefits, collection rate, cost of goods, equipment, repair, support staff and services, staff numbers could have been increased decrease, billable hours could increase decrease. goal of percent could increase, decrease. goal net could change. But the point is, all of this is in that spreadsheet. And all you have to do is one click Change it. And you’ll know exactly what is the change. This just cute little picture, knowing that not only is income important, but what can you do to control expense. It’s a pendulum. And we have control over both of those. I want more income I gotta be a better negotiator for invoice cost of aged a you and I we had we had a lot of discussion about this when we ordered stuff that we ordered. Yeah. All right. And then cost per hour is a reasonable profit. This is an example of how we took this into a bundled up model. Okay, based upon the data. So what you’re going to see next is we established a dispensing fee for our bundle model for hearing aids at one year or a two year or three year warranty. And for this model is assumed a tune in $40 charge per hour. That included the fitting process, and seven visits in the first year, three visits in years two and three, that was my model. You could change it any way you want. But I just want to show this is what I based the information mine. Okay? It’s a template, it’s a starting point. And you can change it any way you want. So what did it come out to look like? So on the top here, you’ll see year one, it’s all of these numbers are based upon to 40 an hour, I assume, because it’s a three year warranty, that might cost is going to 5% to 252 on the second year, and 265 on the third year. So for a three year warranty, a two year warranty, a one year warranty, has to include an Hae that’s one hour, that’s you and $40 had to include our pre a preHAF, that’s measuring and being sure we got the right thing and the hearing aid is doing what it’s supposed to do. That’s 120. We have the hearing aid fit, I calculated an hour and a half, that’s 360. There was the HA the patient came back, we counseled we made any changes, I assumed one hour, then we had three hearing aid checks, each of which were 120. If you’re if you added that up, the cost for that is $1,320. The second year is an additional 375. Because we didn’t have these additional expenses. That was in the first year. And we just had the three visits. The third year, again, only three visits. And that was an additional $45. So for a one year warranty, we took the 1320 That was our dispensing bundled cost. And we added that to our cost for the hearing aids. And you’re gonna have a presentation on do you want that cost to be your invoice cost? Do you want that to be the manufacturer single unit cost? I won’t get into that. But that’s just the cost of the aid. We always add up to $20. Shipping, a lot of audiologists forget there’s a shipping attached to your cost. And then we provided goodies. And by goodies, I mean, we gave every patient, a dehumidifier, and some other things as part of their package. So all we did for a one year warranty, it was $1,320 added on to this. For a two year warranty, it was the $1,700 which was a thirteen 20 plus 375 added on to that. And for a three year warranty. It was the 2100 which was out the 3000 whatever it was added on to that. So we just simply knew exactly what we wanted to charge for any hearing aid that had a one year a two year or three year warranty utilizing a bundled approach. And that’s how we did it. Based upon charge for our and time analysis of what we did in that first year. What we didn’t do and did do in the second year and a third year. And we just simply added those charges, the professional component, if you will, to the cost of the hearing aid. And

they’re also in and then different types of visits, okay for the bundled approach. And we used to counsel this on the unbundled approach. And again, in the year we’ve been doing the unbundled approach for a little over two years. And the bundled approach, which we did for years. Again, surprisingly, one, the number of our patients who elected to go the traditional bundled approach was around 90 What about 90% equally important and this might surprise people when we offered patients, and I’m gonna tell you right now, our our cost to the patient for and I’ll go into much greater detail in the next presentation. These were not, these were really good hearing aids entry level hearing aids. For two with an unbundled approach. Their cost going in was $810. That included REM and 2CC and then a menu of things to do later on. Little visits and we gave him a menu of services. And the two in the year and a half that I collected data on that 93% still went for the bundled approach the more traditional technology and 7% opted for the the unbundled OTC route. Okay. So that’s why i i said before and I’ll say it again, audiologists that I’ve talked to that I’ve listened to on Facebook and the various they seem to have an apocalyptic view of the future based upon the competition from OTC, DTC and big box I back when heard about, you know, Congress’s attempt to put OTC I view that As an opportunity, not a threat. And I needed to develop a strategy to take advantage of that opportunity. And that’s what the next presentation is all about. So I believe our future is bright. And that’s the focus of the next presentation. And I’m, I’m done.

Dave Kemp 1:15:18
That’s awesome Mike.

Michael Valente 1:15:19
One more slide. One more slide. One more slide. Thank you for your time and interest. If you have any interests or you need clarification, feel free to contact and I promise you, I will get back to you.

Dave Kemp 1:15:32
Thank you so much, Mike, I really do think this is this is a topic that’s come up a lot, which is, it’s one thing to talk about, sort of the state of the industry, the way things are moving, and kind of like the theory level, but really to see the this extremely granular approach and understand how somebody might get started, I just continue to believe that. So it’s in such high demand right now. So I know that as somebody that’s been in this field for a long time, a lot of people respect you look up to you. So I wouldn’t be surprised if some people reach out. Because I think that you’re imparting a lot of the wisdom that you gained by doing all of this and being profitable, like you said, for all those years. So can’t thank you enough for coming on and sharing all that. It’s been great.

Michael Valente 1:16:21
Dave, thank you so much for the invitation, and I’ll be with you next time for the next one

Dave Kemp 1:16:25
for for part two. Sounds good.

Michael Valente 1:16:26
Talk soon. Have a good one.