Frame Board Management, Part Two: What Price Points to Carry
April 20, 2016
Last week, I started a series on frame board management (FBM) and I’ll continue with that for the next few issues. In this article, I’ll give you some ideas about frame price ranges to select for your inventory and how vision plans might influence your decisions.
I believe most independent optometrists should have a good representation of all frame prices from the budget-conscious low-end through the mid-range and including the high-end. Of course, how we define low-end and high-end will differ based on your market demographics, such as median household income, but we really do want something for everyone. You want to make the strong profit that comes with exclusive luxury frames. You also want to prevent some folks from walking out with their Rx if they feel you don’t have a good selection of affordable glasses or glasses that are fully covered by a vision plan.
Understand vision plan pricing
To maintain strong profitability in your optical, it is important for everyone on your FBM committee (see last week’s article), including the doctor/owner, to understand how vision plans work. Vision Service Plan is one of the largest plans in the U.S. and the system they use is a bit different, so let’s review VSP frame pricing. Opticians generally understand the procedure very well, but if I ask ODs if they know how it works, the answer is usually no. It is not that difficult and it may affect the frame prices you decide to carry.
VSP lists two allowances in dollar amounts on each patient’s benefit authorization. We find it helpful to print this benefit sheet in advance of the patient’s visit and we refer to it during the frame selection and lens design process. You will see a wholesale frame allowance (WFA) and a retail frame allowance (RFA) on the VSP benefit form. If a patient selects a frame with a wholesale cost (as shown in the Frames Data book) of less than the WFA, the frame is fully covered by the plan and the patient owes nothing on the frame. Obviously, that means your practice makes a lower profit.
If the patient selects a frame with a wholesale Frames Data price of higher than the WFA, the patient will pay some frame overage and we look to the RFA to calculate that. The RFA is subtracted from the retail price you set for the frame and the patient pays 80% of that difference in price. If you priced the frame at $400 and the RFA is $170, the difference is $230. The patient pays 80% of that or $184. It is important to note that you have the freedom to set the retail price at whatever you wish. The market will drive that decision.
Lessons to learn
Of course, if VSP is not very big in your practice, then you don’t need to consider its pricing system in your frame buying. But if VSP is a large managed care plan for you, you can buy smarter and make more profit if you keep the following points in mind.
If you could buy fewer frames with wholesale prices less than the typical WFA value in your practice, you would have more patients paying something toward their frame cost. Of course, the vision plan contract requires providers to maintain a specific minimum number of frames that are fully covered, and you want to do that anyway to satisfy patients’ budgetary needs. But you could opt to buy frames with a wholesale cost that is well below the typical WFA and make a better profit. This would include low priced frame vendors and closeout frames. The least profitable scenario is when you buy frames that are just slightly less than your typical WFA. How do you know your typical WFA? Look at your patients’ benefit forms and average them.
If you increase your frame mark-ups up a little bit, patients will pay more in frame overages. Only you can decide if your market will accept that, but if you feel the vision plan does not pay enough in fees, you may have to collect more from the patient. Many optical consultants feel the old 2.5X or 3X mark-ups are out-of-date. You may be able to mark-up some brands more than others.
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Editor, Optometric Management Tip of the Week
Dr. Gailmard's new book, Practice Management in Optometry: A Blueprint for Success Based on the Optometric Management Tip of the Week, is now available on Amazon.