Optometric Management Tip # 392   -   Wednesday, August 12, 2009
What if you raised your fees and nobody cared?

I'm always perplexed at the prevalence of low fees in optometric practice. I'm not referring to the discounted fees paid by vision plans; I'm focusing on the fees set by practice owners for exams, spectacle lenses, frames, and contact lens fittings. In my opinion, if you look at the actual value of eye care compared to other products and services in our society, optometrists charge too little.

It's actually hard to say what the average eye exam fee is in the United States. A recent large survey resulted in an average figure of $110, but if we examine the question, which I always want to do in surveys, we see that it asked for the “undiscounted, full pay” fee. You can see how that muddies the water with many eye care practitioners charging a reduced fee for private pay through time of service discounts, s-codes and other discounts. I would be interested in the average fee for a comprehensive exam including refraction that is actually charged in most cases. I think it would be under $100 and I see many practices in the $80 to $90 range. Consider the cost of dinner (with tip) at a nice restaurant for a family of four... and how much is a “cut and color” at a hair salon?

Let's project what would happen if you raised your fees.

On private pay transactions

This is where you will realize an increase in practice net income. Most of the fee increase will fall directly to the net income line because your fixed expenses are already being met. Yes, there will be some cost of goods sold, but even that was being met with the old fee structure and those costs did not go up.

It is important to realize that even vision plan members make some private pay transactions. Not everything is covered by the plan. If a vision plan patient needs another pair of glasses six months after his exam or if he has problems with his contact lenses or if he buys a pair of plano sunglasses, it is a private pay transaction. And based on the revenue typically collected for covered vision plan services, we must maximize revenue on the non-covered ones.

Based on my experience and that of many others (possibly your experience too?), there is generally very little reaction from patients to a fee increase. Typically, no one even notices. But look at the example practice below to see the true effect of patient loss on net revenue.

On vision plan transactions

I often hear the logic that there is no point in raising fees because it has no impact on what vision plans pay. While that is true, I would counter that there is no reason not to raise fees within this group. Vision plans certainly don't care if you increase fees because most of them place a maximum on covered goods and services and providers may not charge the patient any more than that.

Patients also don't care what the fee is for the goods and services covered by their plan. But there is a side benefit to the practice when fees are increased for covered items: patients will perceive a higher value for the service, even though they are not paying for it. Many consumers use price as a barometer for the value of things, especially for items that are difficult to evaluate. When I look at audio speakers for a home theater system, all I know is that the more expensive ones are better. Even size of the speaker is not a good indicator of quality.

On medical plan transactions

This is a mixed bag because medical insurance often pays pretty well, but not always. And they typically do not cover refraction, eyeglasses and contact lenses, so those items move to the private pay category. But in any case, I would not expect much of a negative reaction to a fee increase in most practices.

Example practice

I assume the main reason most ECPs do not raise their fees is fear of losing patients. While I believe there is much less price sensitivity among patients of independent professional ECPs than one might think, this example shows that you could withstand a large percentage of patients leaving and still net the same amount.

Let's make some assumptions for a hypothetical practice:

Now let's suppose that you raised fees by 20%. Of course, the prevalence of discount vision plans in the practice has a huge effect on whether a fee increase will be realized or if it is simply written off. But most practices are a mix of private pay, medical plans and vision plans. Let's assume that all fees (exam, optical and contact lens) were raised by some large amount so there was a net increase in fees paid to the practice by 20%. This may not be realistic for some practices, but it will help me make a point and many practices are so grossly undercharging that they truly could increase fees dramatically.

A 20% average increase in fees would take our practice to a gross of $720,000 and the average revenue per exam would jump to $360. Under this scenario, you could lose 333 patients or 16.6% of the entire patient base and still net the same as you did with the old fees. With 1667 patients each averaging $360 in fees, the practice would gross about $600,000 again. Assuming practice expenses remained the same, the net would be the same with far fewer patients. It is highly unlikely that you would lose 16% of patients, but even if you did you would work less and earn the same.

How to justify a fee increase

Many ECPs and staffs worry about how to justify a fee increase. If you have that concern, set out to improve your service. Treat patients better, run on time for appointments, be caring and friendly, and find a way to say yes to patients. Let the patient win in a dispute. I like the exam to be thorough, but don't make it take longer in an attempt to justify a fee increase. Patients will actually pay more if the eye exam doesn't take so long.

Best wishes for continued success,

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