Optometric Management Tip # 279   -   Wednesday, May 23, 2007
Fee Increases: Too Little, Too Late

The last of my top ten misconceptions in practice management occurs this week. It has been a fun ten weeks of challenging some of the most commonly accepted and trendy management strategies in eye care. This week we'll tackle what seems to be a very sensitive subject: fee increases.

I don't think there is any misconception that fee increases help the profitability of a practice, but I find many eye care practitioners to be very shy about the amount that they can increase in a year's time as well as the frequency of increases. Most doctors feel that 10% is a significant increase and they are afraid to go more than that. That may well be true if the fee is at the right level in the first place, but so many practices charge such low fees for the level of service they deliver that a simple percentage that sounds reasonable is not an optimum approach. These practices are behind the times, but they don't realize it. A $6 increase for a comprehensive eye exam, for example, is just not enough to bring a practice that undervalues its services up to optimum profitability.

Why the fear?

My colleague Dr. Jerry Hayes tells an amusing story that always helps me put fee increases in perspective. He was presenting a lecture and was discussing the importance of setting fees properly when a doctor in the audience voiced concern over losing patients if he were to raise his fees. He cited the competition among the eye care professionals in town. Jerry asked the doctor if there were any doctors in the area that charged more than he did. The doc replied that yes, indeed, there were some practitioners who charged a higher fee. Jerry's response: "Then why don't you have all their patients?"

The answer is because there are many factors other than price that enter into a patient's selection of an eye care provider. In many cases, the fee is actually low on the list of reasons to choose a doctor. I've seen many examples of patients choosing an eye doctor because the fee was high! There are lots of people who want the best in eye care... the best service, the best technology, the best skill, the best contact lenses and the best glasses. The public has very few ways to judge eye care services and products because they are complex and technical, so people often use the fee to help them judge. In fact, the practices described in the story above that charge the highest fees are often the largest and most successful practices in the area.

What part of the market are you in?

There are different segments of the eye care market and while there is one segment of consumers that is very price conscious, there are other segments that are not price sensitive at all.

I find many eye care professionals who charge fairly low fees do so with the best of intentions. They are honestly trying to be good businessmen and women and they have the right idea, but have taken it to extreme. These practice owners understand the importance of giving the customer what he wants, but they make the mistake of trying to satisfy all of the market demands at the same time. These practitioners want to build the most successful practice ever by achieving something that has never been done before. They want to deliver excellent quality eye care with great customer service and do it all at a low price.

The truth is you simply can't do it all. Many businesses of all kinds have tried, but it just doesn't work. Successful practices must decide if they want to be a low price leader or if they want to provide outstanding quality. Which one do you think is a better strategy for an independent private practice? It's really a pretty easy question when one looks at the other companies involved in providing low cost eye care. I would want to focus on the opposite end of the spectrum rather than compete with them.

Even more common than choosing the wrong market strategy is choosing no strategy at all. Many eye care practitioners simply never think about strategy and that leads them to occupy the large mass in the middle. This is the 80% of all practices that are not at the high end of quality and fees and not at the low end of price, but are somewhere in between. This is not a good place to be because there is no competitive advantage there.

Geographical areas

While it makes perfect sense to pick the high quality-high fee philosophy, I always hear from doctors who say their local economy won't support that kind of practice. Of course, fee levels are relative to the local market, but I have found that there is demand for the highest quality and service in every market and people will happily pay for it. It may take some experimentation to find the highest level that will be successful in any market, but I would not presume to guess at it or give up without trying.

Value

I believe that high fee practices must provide good value. Consumers feel like they receive a good value when they get a fair return for what they pay. A good value is not defined as low price. Many people stay at a Ritz-Carlton hotel or buy a Lexus automobile and feel they got a great value. We offer good value in eye care by providing truly excellent service, advanced technology and superior products.

Vision plans

No discussion of fees would be complete without acknowledging that raising fees has virtually no effect in a practice that is dominated by vision plans. That is true to a point, but even these vision plan practices have some component of private pay patients. And let's also remember that patients with vision plans can and will purchase some non-covered services and products. Additionally, we all see cases that can and should be billed to major medical plans. So I don't accept the notion that raising fees will have no effect. Besides, if raising fees would really make no difference due to extensive vision plan participation, then why not go ahead and raise them? The vision plans don't care what you charge.


Best wishes for continued success,

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