The Business of Contact Lenses

Rational Pricing Revisited, Part 1

BY CLARKE D. NEWMAN, OD, FAAO

In my November and December 2008 Coding Strategies columns, I outlined methods for establishing fees. After having talked to a colleague, I think I need to revisit this topic again.

Mind How You Discuss Fees

First, when setting fees for services and materials, it is important to avoid any antitrust implications. There are two tests that, if met, rise to a per se violation of the Sherman Antitrust Act. The first is a gathering of competitors. Every time you are in conversation with an optometrist, ophthalmologist, or an optician, you meet the first test.

The second test is the discussion of any activity that might be even tangentially construed as an agreement to do anything such as a boycott or the establishment of fees. So, if you call your friend and ask what he charges for service “X,” this activity could be construed by the Federal Trade Commission and a court as an attempted collusory activity regarding the fixing of prices. Be careful, it’s a tough world out there.

Fee Setting Strategies

With that out of the way, we can talk about developing a rational strategy to establish fees that are fair and profitable. To establish fees that are meaningful to your practice, you have to know how much it costs to deliver the particular services or products to patients. Otherwise, you cannot tell if the fees you are charging result in a profit or a loss. The three basic elements that go into determining how much it costs to deliver a service or product are: 1. the costs of goods, 2. your office chair costs, and 3. the service time of delivery.

The cost of goods is more elusive and ephemeral than you might think. When you think of the cost of a box of disposable spherical hydrogel lenses, the cost of goods is relatively straightforward. The box of lenses costs you “X” dollars. The return policies are generous enough that problems with the product rarely cost you any additional money. So, what they cost is pretty much what they cost. Do remember to add the cost of shipping to your office and the patient into the fee structure somehow, and do everything you can to reduce these costs through smart ordering, bulk buying, buying groups, etc.

For other lenses, the costs may be more difficult to factor. For example, I use a lot of scleral GP lenses. I have eight different trial sets—one of which I use so frequently that I have replaced it once. That costs money and is part of the delivery costs that I factor into the cost of goods.

Also, poor return policies factor into the cost of goods, but you have to be careful with specialty lenses. The best way to address costs with specialty lenses is to have a clear policy regarding the additional charges for extra lenses. Outline this policy in a brochure provided to patients. It is a poor practice to hide the costs of secondary lens purchases in the cost of the first lens. That always comes back to bite you.

The next step is finding out how much time it takes to order, verify, and dispense a lens. I count a staff member as a halftime equivalent. If your chair cost is $200 per hour, and a staff member spends 30 minutes on the lens, then this adds $50 to the delivery cost of the product.

Adding the cost of the materials to the delivery costs gets you to a point where you can then add a suitable profit.

More to Come

Next time we’ll talk more about controlling costs to deliver products competitively. CLS