coding strategies

A Rational Method for Setting Fees, Part 2

BY CLARKE D. NEWMAN, OD, FAAO

Last month we talked about determining your "chair costs" and figuring out how to determine staff hour contributions to an enterprise in your office. This month, let's continue the discussion of how to determine the dispensing fees for your cosmetic contact lens practice.

Time and Money

If you determine that your chair cost is $128, as we assumed last month from our example, then you now know how much it costs to run your office every time someone sits in your chair. Next, determine how much time you spend and how much time your staff spends with a patient who is new to contact lens wear. Do that for each lens category that you prescribe.

Remember, the time your staff spends with a patient is worth roughly half of the time you spend with them when it comes to income generation. For example, you spend one hour with a patient to prescribe and follow up a toric soft lens. Your staff spends an hour with the patient on instruction, etc. You have a total of 1.5 hours of staff time invested for that patient.

If your chair cost is $128 and you have 1.5 hours of chair time, then you must make $192 on that enterprise just to keep the doors open. Beyond that, you need to add your profit so that your kids can eat. Here is where you have to look at the percentage of contribution each enterprise makes.

If your goal is to net 30 percent, and a particular enterprise such as soft toric prescribing makes up 5 percent of your total, then you have a little wiggle room. Let's say that something you do makes up 100 percent of your enterprise and you want to net 30 percent, then you need to charge $250.

Not Really a Loss

If a particular enterprise makes up a very small percentage of your practice, then you can afford to alter that amount to be more competitive without really hurting your profit projection of 30 percent.

Here's what I mean. If the world around you is charging $225 for a service that your chair cost and profit projections demand you charge $250, but that service makes up only 2 percent of your practice, then you can afford to "loss lead" this service for $220, or whatever. Big companies do this to private practitioners every day. However, if a service makes up 80 percent of your enterprise, it becomes very difficult to loss lead because you end up delivering services at a loss.

So, why would anyone loss lead something? The answer is obvious. If you loss lead a service or product that has a high perceived value or that has a high demand, then your loss lead gets patients in the door. Once they're in your office they can purchase other things that go beyond your profit projection.

For example, if every patient who takes advantage of your loss lead buys a pair of plano sun wear that you have marked up more than your loss lead, then you come out ahead if your loss lead brings in more people than you would have drawn if your fee was $250.

Determine Your Costs

Loss leads aside, you need to determine which categories of lenses you prescribe, determine what your chair cost is, determine how much doctor and staff time is involved with each category and see if your fees, when added to your projected profit, stack up against the market.

If your projected fee is way higher than the market will bear, then you either need to lower your chair cost, decrease the time needed to deliver the service or lower your profit. CLS

Dr. Newman has been in private practice in Dallas, Texas since 1986 specializing in vision rehabilitation through contact lenses as well as corneal disease management, optometric medicine and refractive surgery.