Managed Care Mayhem
How to protect profits from shrinking reimbursement rates
JOHN RUMPAKIS, O.D., M.B.A.
Our profession is accelerating at a pace that few of us have ever seen. While optometry is rapidly changing, optometrists aren’t — particularly in the area of how they are providing care within a managed vision care plan (MVCP).
MVCPs are the foundation for many optometric practices today. Yet, many O.D.s still do not understand how to evaluate and profit from providing their professional services within a plan. What surprises me is how many O.D.s are signing contracts with these carriers without any type of analysis, thought or consideration of the impact of the specific plan on your practice.
When evaluating MVCPs, here are things to consider.
In a changing MVCP environment, here is an immutable business principle that doesn’t change: reimbursement (income) and patient volume have a direct impact on practice profit. We also know that reimbursements from MVCPs are on the decline, and without changing your patient volume, they will have a direct effect on reducing your profitability as well.
The above chart shows that profits are directly tied to income per patient and patient volume.
So, how are you going to respond to those decreased reimbursements? The only way to make any business transaction a profitable one is to have an intimate, detailed knowledge of both sides of the financial equation: the income side and the expense side. Many practitioners are still not aware of what it costs to provide their professional services. This cost is generally defined as chair cost. When properly calculated, chair cost will provide you with the dollar per hour revenue from professional services alone that allows you to break even. (For more information, see “Calculating Chair Cost: Part 1” on page 82, July 2014 OM.)
If reimbursement per exam is decreasing and patient volume stays the same, the only way that profitability can move is down. For example, if an MVCP reduces your reimbursement per exam from $50 to $40 (a 20% reduction), and you don’t change how many patients per hour you see, then your profit will be cut by 20%.
If you want your profit to stay the same or increase, you need to either increase your reimbursement by negotiating with your MVCP or simply increase your volume of patients per hour. Or, perhaps, you may choose the path of least resistance and not even deal with the issue at all, and use the income from the retail sales portion of your business to cover the losses on your professional services so you can fool yourself into thinking you are profitable.
Changes in the MVCP environment do not have to create mayhem in your practice. So, get out your calculator, figure out your hourly costs, and direct change in the way you want it to go.
With proper knowledge of the business relationship, you should be able to make strategic decisions and employ tactics to embrace and capitalize on these opportunities and make an MVCP work in the best interest of your patients and your practice. OM
DR. RUMPAKIS IS FOUNDER, PRESIDENT AND CEO OF PRACTICE RESOURCE MANAGEMENT, INC., A CONSULTING, APPRAISAL AND MANAGEMENT FIRM FOR HEALTHCARE PROFESSIONALS. E-MAIL HIM AT JOHN@PRMI.COM, OR SEND COMMENTS TO OPTOMETRICMANAGEMENT@GMAIL.COM.