Last week’s tip on how to make a decision about becoming a provider for vision plans drew a nice response from our readers. I’m happy to report I did not seem to upset anyone and that is quite an accomplishment with this topic! As promised, this week I will delve into how to figure out the financial aspects of vision plans.
Whether you are trying to decide if you should accept a vision plan or if you are already a provider and wondering if you are actually making a profit, this article is for you. I’ve studied the issue of profitability extensively and I have a simple and accurate way to do it.
Evaluating fees for plans you are considering
Knowing what you will be paid for eye care services and products is one of the most important factors about a vision plan, yet it is incredibly difficult to get a straight answer to this question! Most vision plans will send you a sample fee schedule in advance that will list most fees for exams and optical products, but I’ve seen some plans that will not even tell you the fees until you sign a contract! Also, there are often many different sub-plans and most of them have chargebacks, so it gets pretty complicated.
Usually, ODs just look at the exam fees because that seems straight forward, but those fees are often so low that the plan is rejected right away. I think it is a mistake to base the decision on only one small part of the fee structure. I’ve seen many doctors assume that vision plan A pays much better than vision plan B based on the exam fees, but when you factor in the profit that is earned on optical products, the plans come out about the same in total profit. That is important to know.
The best way (and maybe the only accurate way) to evaluate the fees from a vision plan is to sign up as a provider for the plan and see patients for about three months. That will allow you to take an aggregate look at all the patients seen with the plan and to accurately determine the profitability. This method takes into consideration that some patients will be exam only, some will buy glasses, some will get contact lenses and some will buy services or products out-of-pocket. We can also assess the true profit we retain after chargebacks with this method.
If it turns out that the fees and profits are not acceptable, the provider can drop out of the plan. That may seem like a lot to go through just to find out the fees, but in most cases I’ve seen, the total profit and average profit is better than anticipated. Clearly, the profit will seem low compared to private pay patients, but we know that going in. I think there is really nothing to lose to try out a vision plan.
After you start seeing patients, follow the procedure I describe below to determine your average profit per patient with the new vision plan.
Profit analysis on plans you currently accept
Most optometrists have no idea how much profit they make with vision plans. If you are in that group, it is time to find out. It is really not that difficult or time consuming; just follow this method and get a staff member to help you gather some data. Do this with each vision plan you accept.
The goal is to take a cross section of patients with the right mix of products, add up all the fees paid by the patient and the vision plan, deduct any chargebacks and any other cost of goods and determine the average gross profit per patient. I’m looking for the average gross profit which is after cost of goods, but does not look at other fixed expenses like rent, staff, etc. You can get a good estimate of this average profit per patient if you pull the records for 20 patients, but if you want more accuracy, use a larger sample size.
The important factor is to select the right mix of patients for this self-audit; you want the correct ratio of exam only patients and patients who buy glasses. To be fair, it is likely that at least one patient in 20 would buy two pairs of glasses. Figure out what the normal ratio is for these case types in your whole practice and duplicate that ratio in your analysis. Here is the mix I used in my practice in a 20 patient sample:
12 had exam and glasses (60%)
2 had exam and two pairs of glasses (10%)
3 had exam and contact lenses (15%)
2 were exam only (10%)
1 was glasses only (5%)
Here is the procedure to follow:
Write each patient down on paper and show all the fees that were actually collected from the patient and the vision plan.
Deduct any cost of goods for products that were supplied by your practice. If you sent the job to your own lab and paid the bill, find this cost and deduct it. If you sent the job to the vision plan’s own lab, you did not incur a cost so you have nothing to include.
Deduct any amount you had to pay the vision plan for chargebacks if you actually had to send a check. If the chargebacks were deducted from your payment, you do not need to consider those at all because you only counted what the vision plan paid you.
After doing the math, you will have a gross profit amount for each patient. Add all those gross profits and divide by 20 (or the number of patients in your sample) to get the average profit per patient with this vision plan.
When we do this analysis, we should include all the things the patient buys during that visit, even if some are out-of-pocket. There are often some services and products that are not covered by the vision plan and those still count because without the plan, we would not have seen these patients at all. So you should include fees paid for items like a retinal screening, nutritional supplements, contact lens fitting, sunglasses or multiple pairs of glasses.
I do not include services that are billed to medical insurance in my profit analysis, although we should note that it is additional revenue that we would generally not have received if it were not for the vision plan that gave us access to the patient in the first place. I view medical billing as an additional value that I’m well aware of, but I don’t count it in the vision plan profit picture.
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.