Income Is Up. Fees Are Down
Does This Compute?
BY JOSEPH T. BARR, O.D., M.S., EDITOR
JULY 1996
Despite price competition by mail-order, despite restrictions imposed by managed care, despite laser refractive surgery nipping at our patient base -- yes, despite it all, we're still prescribing contact lenses for profit.Our 1996 Fee and Income Survey results revealed some interesting facts about contact lens practice, validated some previously suspected trends in the industry and, in some instances, perplexed us.
Nearly six times more respondents thought their contact lens practice income had increased despite the fact that they report they've decreased their average professional fees and material charges. What may account for this apparent disparity is that those who lowered their fees pulled the average fee down, while others who didn't decrease their fees reported their income is up. Or, it may indicate that practitioners are seeing more contact lens patients.
EXAMINING THE DATA
Tables 1 and 2 illustrate average fees by lens type. Note that our survey respondents charge new and refit patients similar material fees, confirming a trend we've noticed in the past few years. There is also a trend to lower conventional lens fees, except fees for enhancing tints which are similar to those for extended wear.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Professional fees for extended wear, according to our survey, have decreased by $10 to $20 over the past two years. Quarterly planned replacement fees are down $10 from 1995, and average disposable lens professional fees have decreased $5 to $10 over the past two years. Professional fees for toric lenses have decreased $20 and material fees are down by $30. Even RGP fees have gone down by $6 to $10 over the past two years. Material fees for disposable lenses indicate some slippage of scheduled replacement on weekly and biweekly schedules, even though frequent lens replacement is healthier than conventional schedules. Daily disposables material fees probably reflect the fact that many of these patient do not use contact lenses every day.
Twelve percent of our respondents said they increased material charges in the last year while 61 percent did not change their material fees. There is, of course, no way of knowing if significant differences have really occurred since we do not query the same practitioners from year to year. Figure 1 illustrates expected income from various popular lens types.
Fifty-two percent of our respondents this year said they offer their contact lens patients a service agreement versus 68 percent in 1994. This may be a real indication that practitioners are de-emphasizing these programs because material costs are already low. The average fee for a service agreement is now $40 versus $33 in 1994, an apparent increased charge for service. The average service agreement allows about a 30 percent discount on lens replacement.
In 1995 and 1994, 72 percent of our survey respondents thought spectacles-only patients were more profitable. In 1996, 67 percent thought spectacles-only patients were more profitable. Does this really mean that there is a significant increase of five percent more who think contact lens patients are more profitable?
It's interesting to note that some managed health care plans and vision plans have decreased reimbursement for some contact lens care, while others are starting to use contact lens services on a fee-for-service basis to make up for lost revenue from capitation contracts that are too low.
WHAT TO CONCLUDE?
One-third of our survey respondents thought their contact lens practice income was up (versus 45 percent last year); one-fourth thought their income from contact lenses was down (Table 3).
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As we said in 1995, the practitioners who charge higher professional fees clearly profit more and are likely more motivated to prescribe contact lenses. Many others who fear losing their patients react by lowering their fees. Yet, even at these average fees and taking into account the cost of lenses to the doctor (and the fact that today's better lenses cause fewer problems), there is still enough margin in contact lens care after overhead expenses to motivate practitioners to offer contact lenses to their patients. CLS
WHO RESPONDED TO OUR SURVEY
This year, 54 optometrists, eight opticians and two ophthamologists told us about their contact lens practices. Sixty-four percent of our respondents are from the midwest and the south. Seventy-five percent are in private practice, 14 percent are employed by an O.D. or an M.D., and three percent are employed by optical chains. The average time in practice was 16 years, ranging from three years to 58 years. Due to the small sample, we consider these data as thought-provoking trends, but not conclusive.
Understanding trends in the contact lens industry is critical to managing a practice today. You may provide the highest quality vision care and contact lens service, but that alone won't guarantee your success.
Tracking expenses is an important part of the overall business management of any practice. If you're not tracking your expenses, there's no better time than now to start!
Many believe that contact lens profitability is the contact lens fee minus the cost of the materials. Not so. Overhead expenses such as utilities, rent, insurance, staff wages and benefits, promotional costs and lease payments also influence your bottom line. A simple formula is: Contact Lens Fees (Material Costs + Overhead Expenses) = Profit.
For a true picture of your practice's profitability, track disbursements by category, such as frames, ophthalmic lenses, contact lenses, solutions, wages and benefits, and other operating expenses. With this data, it's easy to calculate the operating expenses that are related to your contact lens practice.
The most accurate method to determine the contact lens overhead expenses involves an extensive analysis of your office space and a time utilization study of your staff. You'll need to know what percentage of your office space is used for contact lenses and how much of your staff's time is dedicated to contact lenses. This would be fairly easy if your office were organized so that the contact lens portion of the practice is completely separate, including storage, administration, contact lens check-ups, etc. However, most practices are not organized this way and trying to get an accurate accounting is somewhat difficult.
Another method is to use the contact lens fees as a percentage of total fees and allocate that percentage of overhead expenses to contact lenses.
A sample practice might show:
| FEES CHARGED: | Amount | % |
| Exams | $36,000 | 30% |
| Ophthalmic Lenses | $30,000 | 25% |
| Frames | $24,000 | 20% |
| Contact Lenses | $30,000 | 25% |
| Total | $120,000 | 100% |
| EXPENSES: | |
| Ophthalmic Lens Costs | $15,000 |
| Frame Costs | $6,000 |
| Contact Lens Costs | $9,000 |
| Wages & Benefits | $21,600 |
| Other Operating Expenses | $36,000 |
| Total Expenses | $87,600 |
Since 25% of the fees were from contact lenses, we'll allocate 25% of the operating expenses against the contact lens fees: ($21,600 + $36,000) x 25% = $14,400. Applying the formula for profit: $30,000 ($9,000 + $14,400) = $6,600.
You can also calculate the overhead expenses related to each contact lens patient who purchases lenses from you by dividing the overhead expenses related to contact lenses by the number of complete contact lens prescriptions you write.
Considering the industry trends carefully and taking the time to compare this information to your practice is an important part of operating and managing a contact lens practice today.
-- By Richard Franz, O.D., F.A.A.O.
Worthington Group
Professional Practice Consultants
Alpharetta, Georgia
![]({"src":"/media/ir2bj31m/image-not-available.png","focalPoint":null,"crops":[{"alias":"thumbnail","width":1110,"height":700,"coordinates":null}]})