Principles of optometrist compensation

With more ophthalmology practices employing optometrists, an effective compensation methodology can help to align practitioners’ interests.

John B. Pinto

One of the most prominent eye care trends of the past quarter century has been the slow, continuous interweaving of ophthalmology and optometry. As optometric training and scope of practice have slowly widened, ODs and MDs — and DOs, of course — are now working more closely than ever before.

A few ophthalmologists are highly disturbed by this. But the majority, recognizing the inevitable or even relishing a professional or business opportunity, are going with the flow.

The U.S. has about two optometrists for every ophthalmologist. This means that as ophthalmic practices march along to become ever larger and more comprehensive in scope, they will typically be composed of two ODs for every MD. We are nowhere near that yet, of course. In the typical MD practice that employs ODs, the MDs are still in the majority. But the trend line is clear.

Employing optometrists

Ophthalmology practices are increasingly employing optometrists, most commonly as durable associates, although occasionally as partners. The drivers for this include:

• The average MD recognizes that one-third or more of their work involves primary care, which can be readily delegated to an optometrist.
• The professionalism and intellectual talents of optometric providers continue to rise as training programs become both more robust and more selective.
• For purely business reasons, adding an associate optometrist can be much more profitable to the existing owners of a practice than bringing in an MD, with whom profits must in most cases be shared.
• Ophthalmologists are in increasingly short supply, and base salaries are rising, while optometrists can be readily recruited, even to less desirable markets, and optometric base wages are relatively stagnant.

Perhaps you are considering adding one or more optometrists to your practice. Most of the recruitment and employment details are fairly mundane. However, the most common sticking point I see in the field is how to fairly compensate optometric providers. Here are the basics.

According to the U.S. Bureau of Labor Statistics, median annual wages of salaried optometrists were $96,320 as of May 2008. The middle 50% earned between $70,140 and $125,460.

Salaried optometrists tend to earn more initially than do optometrists who set up their own practices. In the long run, however, those in private practice usually earn more. According to the American Optometric Association, the average annual income for self-employed optometrists was $175,329 in 2007. Earnings also vary by group size. For example, practitioners in groups of six or more earn $159,300 on average; those in groups of two people earn $176,944 on average; and individual practitioners earn an average of $134,094. Practitioners associated with optical chains earn $100,704 on average.

These baseline Bureau of Labor Statistics and American Optometric Association figures are in line with what I see around the country and indicate boundaries to consider when hiring ODs for your practice.

Compensation models

There are myriad compensation models, but they break into four main types:

• Fixed salary (for example, $100,000 per year, irrespective of production)
• Base salary plus bonus (for example, a $90,000 base plus 20% of collections in excess of three times the base compensation)
• Flat percent of collections (for example, 28% of professional fees, including special testing and an imputed value for postop visits)
• Tiered percent of collections (for example, 25% of collections under $300,000; 30% of collections over $300,000; 35% of collections over $500,000)

Under any of these models, there may also be optical and/or contact lens profit sharing.

All optometric providers in a given group practice should ideally be paid using the same basic model, rather than using many different approaches. However, it is fine to shift from a guaranteed base as a junior associate to a base-plus-bonus or flat percent of collections downstream, once a doctor’s production stabilizes.

Base compensation is wide-ranging and dependent on location, training, productivity and experience. Typical base wages run lower in urban centers near training programs where there is a frank excess of providers. Wages can be higher in remote, difficult-to-recruit-to rural areas, or can paradoxically be lower. For example, North Dakota has for years provided an optometrist training stipend requiring the new doctor to practice within the state. This has created a bubble of providers there and has reduced average wage levels.

A fixed-compensation model works best in a steady-state environment, where patient volumes are relatively level. Such a model may also be appropriate for a younger colleague who is at a stage of life where they are unable to accept fluctuations in income based on productivity.

Compensation example

In most settings, I find that a base-plus-bonus compensation model works best: A floor compensation rate is provided, but there is an incentive for productivity. Here is an example using typical numbers:

• Imagine the doctor has a base compensation of $80,000 per year.
• She receives a bonus of 20% of collections in excess of 2.5 times the base.
• She generates $450,000 in collections in the subject year.
• Her bonus is 20% × [$450,000 – (2.5 × $80,000)], or $50,000, for total compensation of $130,000 (plus benefits, malpractice insurance, licensure costs and a continuing education stipend).
• Overall, between base, bonus and miscellaneous employment costs, this doctor costs the practice about $150,000.
• This payment is 33% of her collections as an associate.

Simplifying the business math, and not accounting for marginal costs, surgical case referrals or labor substitution, if the practice has an overall profit margin of 40%, the practice owners are earning a profit of roughly $32,000 on this doctor’s labor in exchange for the work, risk and capital they put into her recruitment, employment, training and supervision. Obviously, if the practice only has a 30% profit margin, the associate OD’s compensation has to be adjusted downward to make her employment commercially sensible.

Rather than indexing the bonus to collections, you can index to patient visits, although this omits incentives for special testing and is less favored.

A pure percent-of-collections approach is not infrequently seen, especially in practices where optometric productivity is largely under the control of the subject doctor (for example, when the OD is anchoring a satellite office). Typical percentile figures run in the range of 20% to 35% of collections, including revenue from all clinical and testing services. A doctor generating $350,000 in total collections with a 25% flat compensation model would be paid $87,500 per year.

Because optometrists are commonly responsible for a high volume of postoperative care, it is typical and appropriate to credit a per-visit fee of $25 to $35 per encounter when a percent-of-collections compensation model is used.

For practices that dispense, an additional optical bonus is common and typically falls in the range of 3% to 8% of personal optical collections, which works out to about one-quarter to one-third of the typical profits being generated from such sales. Bonus payments are rarely made for contact lens material fees, which can be break-even at best after handling costs.

The typical total compensation should, of course, correlate well with total value provided to the practice. This value, beyond clinical care, can be augmented to include:

• Staff training and supervision
• Protocol development and care pathway auditing
• Optometric departmental leadership
• Peer-to-peer outreach and referral development
• Special projects and committee work

With all of these potential approaches, please remember that there is no one “best and only” model. You have to work within the financial realities of the practice, the personalities and expectations of the providers, and the history of legacy compensation models in the practice. Especially profitable or unprofitable practices may reasonably diverge from these guidelines. In the present shifting environment and likely falling reimbursement per service unit, the expectation is that compensation model adjustments will become more common and will more often be downward in nature.

It is important for your practice’s leadership to work proactively to sustain team morale and the nonmonetary dimensions of professional compensation. Providing scheduling flexibility, peer interaction, research involvement and community service opportunities can offset disappointing compensation policies or adverse policy changes. A strong provider coaching environment should be fostered so that ambitious individuals have an opportunity to earn exceptional livelihoods in your practice setting.

What if, based on the above discussion, you have learned that you are overpaying your optometric staff? It is often both practical and fair to phase in compensation revisions over time when shifting from one model to another.

As eye care slowly industrializes from a boutique profession to a vertically integrated enterprise, the “O’s” are joining ranks. Given the high output of optometric training programs and the relative surplus of ODs in the job market, I will predict here that in another generation, a significant majority of optometrists will be non-owner associates working in one of two contexts: commercial chains (Walmart, Pearle Vision, et al) or full-service ophthalmic clinics, which I believe will remain largely private. For such practices to successfully employ optometrists, the interests of each side must be aligned through an effective compensation methodology bolstered by a growing respect for the real talents present on both sides of the aisle.

• John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. Mr. Pinto is the country’s most published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology; Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement; Cash Flow: The Practical Art of Earning More From Your Ophthalmology Practice; The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees; The Women of Ophthalmology; and his new book, Legal Issues in Ophthalmology: A Review for Surgeons and Administrators. He can be reached at 619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.