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 By Neil B. Gailmard, OD, MBA, FAAO, Editor May 9, 2012 - Tip #532 
 Contact Dr. Gailmard | Subscribe | Archives | Print this issue Visit: optometricmanagement.com 
The Third Way to Increase Practice Net

  Sponsor: ICaps® Eye Vitamins

Continuing in our series covering the five methods to increase your practice net income, let's focus on the practice fee structure. As a review, raising prices or reducing discounts is the third way to increase profitability. Here is the list we are working on:

  1. See more patients per day.
  2. "Sell" more to each patient.
  3. Raise fees (or reduce discounts).
  4. Avoid costly errors.
  5. Reduce expenses.

Raising fees increases the net
When most of us think about raising fees, we realize that it will increase gross revenue, but we should also know that it has a huge effect on the practice net as well. Most of the expenses in your practice are considered fixed costs; in fact, the only variable cost is cost of goods. Because you are already paying the fixed costs, the vast majority of any collected fee increase will fall directly to your bottom line net. That is a big jump in profitability.

One of the fastest ways to increase your net income is to increase your gross income.

What are you worth?
As I consult with ODs and analyze practices throughout the US, I find that we routinely undervalue our services. This is especially true for routine eye exams, which we have somehow convinced ourselves must have a much lower fee than medical eye exams. I think we should charge the same fee regardless of the medical diagnosis and regardless of the insurance plan.

When you consider the importance of good vision to the public, the level of training of the OD, and the investment in equipment, inventory and staff, it becomes obvious that the average routine eye exam fee is too low. So are many other fees like contact lens fittings, frame mark-ups and ophthalmic lenses. I often compare optometric fees to those charged by other occupations, such as lawyers, plumbers, and ophthalmologists. When you think of the fees those professionals charge I believe you see my point. Are optometric services worth less? I have one more service I like to compare to: a "cut and color" at a hair salon. If we charged for eye exams what hair stylists charge for a cut and color, we would be doing very well.

Fee increases don't matter with vision plans
The usual mantra from optometrists about raising fees is that it won't make any difference anyway because they see so many patients with vision plans. My response to that is: In that case, why not raise them? Most of the concern over fee increases is that the practice might lose some patients (which is actually not true in my experience). But you certainly won't lose any of the vision plan patients because they don't pay the full fee anyway. So why not raise them?

Even with vision plans, two good things happen when you raise fees:

  1. The patient's perception of the quality of your service improves. People equate the value of the service with the fee, especially when they can't really evaluate the technical aspects themselves.
  2. Vision plan patients still buy some goods and services that are not covered by the vision plan and when they do, you need to make a strong profit. Patients may need an eye exam or may want to buy a pair of glasses before they are eligible for benefits. They may buy a pair of sunglasses or they may get an eye infection. These services and products are not covered by the vision plan and they are paid for out-of-pocket or billed to medical insurance.

What if you lose patients?
The fear of losing patients is the main factor that prevents ODs from raising fees and makes staff members worry about it. Yet, if you ask doctors what happened the last time they raised fees the usual response is that nothing happened. Most likely no one noticed or complained. Even if some patients do notice, they really understand that prices sometimes must go up. Professional fees and optical prices in a doctor's office setting is just not that price sensitive. People will not leave a trusted doctor over a fee increase. Did you ever notice that the eye care practices with high fees usually have plenty of patients? Price is not the only factor when a patient chooses an eye doctor.

What about discounts?
Getting rid of a discount is basically the same as raising fees and both can help your bottom line.

When considering offering a discount to patients, here is the test question I ask: Will the discount result in many more purchases that would not have happened anyway? Many discounts I see do not really increase sales - at least not enough to cover the reduced profit. One example is the use of lens packages or bundles. Typically, some of the most popular lens features are grouped together and sold as a package at a lower price than the items would have cost individually. I would argue that the vast majority of patients would have bought all those features at the regular price. A time of service discount is another example; most of those patients would have paid the full fee.

Discounts to family members, employees or professional courtesies are not part of this. Those discounts are given as a benefit or as a gift and profitability is not the main goal.

Vision plans require huge discounts and the decision to accept them or not can be complicated. That topic is beyond the scope of this article, but it is smart to analyze all vision plans regularly and decide if you may be better off dropping some of them. I have seen many examples of practices that dropped a vision plan and the owner reports that they saw fewer patients but had the same net income. That sounds like a good move to me.

Best wishes for continued success,

Read Past Tips Neil B. Gailmard, OD, MBA, FAAO
Editor, Optometric Management Tip of the Week

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Send questions and comments to neil@gailmard.com.

Dr. Gailmard offers consulting services to eye care professionals through Prima Eye Group; information is available at www.primaeyegroup.com.

Please Note: The views expressed in Management Tip of the Week do not necessarily reflect those of the sponsor.

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