Optometric Management Tip # 164   -   Wednesday, March 09, 2005
Dropping Managed Care Plans, Part 1
The Philosophy of the High Fee Practice

Discontinuing managed care plans is a concept that many optometrists long to pursue, but it’s a very complex issue. To cover the subject in this tip format, I’ll write a four-part series, with each article focusing on a different aspect as follows:

Part 1: The philosophy of the high fee practice
Part 2: Evaluating chair costs, marginal costs and time management
Part 3: Evaluating vision plans and medical plans
Part 4: Communicating financial policies to patients

Free enterprise

As we develop our marketing plans for our practices, we run into an obstacle that most small businesses don’t have to face: we are not part of the free enterprise system. When managed health care became prevalent in our society, we lost the ability to set our fees where we wanted.

That’s a disadvantage, because business owners usually have the freedom to select the quality and value they wish to offer, and to set prices they deem appropriate. Ultimately, the marketplace decides if prices are appropriate, but there is a growing segment of the population that wants the best, and is willing to pay for it. When prices are fixed by a third party at a low level, business owners must make cuts in services in order to maximize profits. Maximizing profits is what business owners do; that’s what business is all about. Discounted managed care plans force ODs into a low-fee / basic-service philosophy.

A better business model for optometry, in my opinion, is a high-fee / advanced-service practice, but to succeed, a large percentage of the patient base must be private pay or covered by a full-fee medical plan. For many practices today, that would mean dropping participation in some managed care plans. A common response to that notion is that it can’t be done in “my practice”, or in “my community”, but let’s not be too quick to write that off. It is possible to attract people out of their plan into a non-participating practice, if the benefits are compelling enough. It is possible to develop the private pay sector of a practice, while still keeping the best of the managed care plans available. A practice can do both, but control the mix.

Note that when I write about managed care, it could refer to either vision plans or medical plans.

Private pay and managed care coexist

The blending of the private pay and managed care components of a practice can be further enhanced in two ways:
  1. Not participating in a plan, but still seeing patients that are members of the plan. These patients file for out-of-network reimbursement themselves. Granted, the benefits are often much lower this way, but it can still occur if the practice offers compelling advantages to the patient. These patients become private pay, even though they have some managed care coverage.
  2. Accepting a managed care plan, and providing additional, non-covered services to its members. Even those patients who have managed care coverage can elect to purchase multiple pairs of eyeglasses, high-end frame and lens options, sunglasses, contact lenses, low vision aids, and advanced medical testing. The mentality that says “I only want what my plan covers” can be changed in the right practice environment.
Learning from other businesses

We only need to look at dentistry to see how high-fee practices can flourish. Sure, there are dental insurance plans, but most of them allow the dentist to balance bill the patient, and dentistry has enough elective and cosmetic procedures to allow plenty of free enterprise in their practices. Professional dental fees are high, marketing efforts are advanced and patient loyalty is excellent. There are opportunities in optometry too, if we simply pursue them.

Ritz-Carlton hotels do very well, even though there are plenty of Holiday Inns out there. Exclusive restaurants in major cities are booked for months in advance and require a credit card just to make a reservation, even though there are alternatives like Applebee’s and McDonald’s.

How is a patient attracted out of his plan?

By offering something compelling. Let’s look at a real-world scenario that happens all the time as an illustration. A patient is so impressed with the services at Main Street Eye Care that he raves about it to a close friend who needs eye care (let’s call the friend Seymour). The referral is very strong, and Seymour trusts his friend. Seymour has had mediocre experiences from his previous eye doctors. Seymour decides to see the new doctor and calls the office to schedule an appointment, and the friendly, caring receptionist on the phone asks if Seymour has any insurance plans. Seymour mentions the vision plan he has through his employer, but he is politely informed that the office does not participate in that plan. The receptionist mentions that he can file his own claim with his plan, but the exam fee of $XXX is due at the time of service. Seymour decides to schedule the appointment, based on the strong referral from his friend, and because he figures his eyes are worth it.

Situations like this actually happen quite frequently when the patient chooses a practice based on reputation and referral, rather than looking up someone on a list of providers. People find optometrists in a variety of ways. If your practice routinely turns patients into goodwill ambassadors, you’ll get plenty of new patients who select their eye care practitioner first – not their vision plan.

If you want to pursue the high-end market, start by making your practice high-end. It takes time to build that reputation, but in the meantime you can analyze your practice profitability and develop a plan to control managed care. More on that next week.

Best wishes for continued success,

Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management