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Consolidation allows for full-service integration
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For optometrists, riding out this highly unpredictable and unstable period in the business of eye care is difficult. Falling fees and reimbursements, inconsistent access to patients and shrinking revenues and profits are all very real symptoms of their struggle to make a living.
These manifestations signal a shift in the eye care delivery system toward full-service integration and the need to maximize efficiencies. For optometrists to participate on this level, they must consolidate their practices with those of ophthalmologists and other optometrists in their own communities.
What makes consolidation such a crucial issue for optometrists today is the emergence of physician practice management companies (PPMCs) in the delivery of eye care. While these national and regional entities have been largely targeting ophthalmologists and their practices, optometrists can expect to feel their impact either directly — through personal encounters and relationships — or indirectly, as they influence the business of eye care.
Previously, I shared some frank concerns about practitioners signing up with PPMCs during these uncertain times. I raised the question: Should optometrists and ophthalmologists "bet the ranch" — and their long-found stability — on newly created (and, thus, unproved) business approaches, which themselves are entering into an unstable health care environment? From a business perspective, if practitioners were to take the funds they would have relegated to a PPMC and invest them in the formation of fully integrated practices (FIPs) that are established with stable practitioner-partners they know and trust, they can incorporate and maximize all eye care profit centers and become more competitive.
FIPs: in practice and profits
The key to success is finding methods to grow existing and new revenue streams. To do so, practitioners should concentrate on becoming a full-service FIP provider and achieving the highest productivity.
In the future, it's likely that our eye care delivery system will include a wide range of customers — fee-for-service, capitated managed care, prepaid vision care, local employers — with highly specific service requirements. Consequently, optometrists and ophthalmologists should incorporate flexibility into their FIPs to meet the market's changing needs.
For example, I recently facilitated the consolidation of a nondispensing ophthalmologist’s practice with that of a three-partner optometric practice with two locations. The MD's focus was secondary eye care and refractive surgery (he had his own ambulatory surgery center and excimer laser); the ODs had a high-volume practice with a well-established discounted vision care program for small- to medium-sized area employers.
My analysis of the market and of the practices revealed numerous areas of commonality that the MD and OD practices could jointly support as a single business entity.
Successful seminars
Refractive surgery was one such profit center that could be expanded. After FIP formation, the new partners marketed refractive procedures through a series of seminars that they offered to selected patients they identified in the ODs’ database. Through its new centralized management information system, the FIP used sophisticated database management capabilities for this marketing effort.
While perhaps 100 patients attended these programs and five signed up for the surgery, 20 patients made appointments for primary eye care examinations and purchased new spectacles and contact lenses. The MD generated $20,000 in additional revenue; the optometrists generated more than $7,500. The net result: the seminars were highly successful and more than paid for themselves; the practitioners intend to run similar programs next year.
Profits with prepaid care
Prepaid vision care — directed toward small businesses — was another profit center that the new FIP was able to expand. My staff assisted the FIP's new marketing staff in converting the ODs’ original discounted eyeglass program to prepaid vision care. Many new features and benefits were added, including vision screenings, safety eyeglass programs and computer screen education programs.
Using the existing vision care customer base, they were able to generate additional revenue for MD and OD services. In addition to creating standard primary eye care packages, they also structured a plan that included patient access to the ophthalmologist. By establishing proper patient protocols and incentives, practitioners eliminated professional and financial concerns over patient care. Because this new vision care program was clearly innovative, the practitioners succeeded in differentiating their program from the competition.
Formal affiliations a plus
There were other gains realized by the optometrists. For years, they had had little success penetrating managed care panels and referrals from primary care physicians and hospitals. Now that they had a formal affiliation with an ophthalmologist, managed care contracts and patient referrals were being directed their way.
Furthermore, the optometrists were able to identify and implement new profit centers — such as specialty contact lenses, low vision, vision therapy and sports vision — within their practice. In addition, the FIP opened a full-service optical lab, which stocked proprietary frame lines, to ensure quality and lower production costs and turnaround. All customers, including patients and managed care contractors, were pleased with the results.
The practitioners also pooled and expanded their existing marketing budgets to increase exposure in their core community and surrounding areas where future satellite offices are planned. The marketing program includes cataract and glaucoma screenings, wellness programs and TV infomercials on eye care, featuring the practitioners as spokespeople.
Independence vs. new freedoms
While consolidation does mean an end to the solo practice, I suggest that this concept of independence is, in actuality, a perception. Optometrists actually gain significant new freedoms: long-term stability and peace of mind. For example, under an FIP arrangement, optometrists can retain their own locations and identities and enjoy all the benefits of being a part of an integrated, full-service organization.
Just how independent are practitioners today? When I posed that question to a group of optometrists on the West Coast, most acknowledged that they were. Then I asked a second question: How many derived more than half of their income from third-party sources: managed care, managed vision care or the government? What surprised the group most was that virtually every hand in the room was raised!
In reality, most optometrists already work for powers higher up the delivery chain. What I found equally revealing was asking a group of ophthalmologists similar questions at the recent American Society of Cataract and Refractive Surgery meeting and getting similar responses. The point is, consolidation doesn't necessarily mean a loss of freedom.
The most viable FIP delivery system uses a hub and spoke model: multiple optometrists providing primary eye care — and the appropriate diagnostics and therapeutics — along with optical services, feeding secondary and tertiary eye care provided by ophthalmologists. This "closed loop" structure opens access to new patient bases and provides the needed geography to service managed vision contracting.
Making FIPs feasible
Putting an FIP together is like putting together the pieces of a puzzle. Case in point: I recently was asked by an ophthalmologist to assess the feasibility of FIP formation in his community. Within a few years of start-up, the MD had built his practice in a mid-sized urban setting. My preliminary assessment of his practice revealed excess capacity, few referrals, surgical activity of 600 cataract procedures/year and only modest primary eye care and optical business, despite an aggressive marketing effort.
In assessing possible local ophthalmologists for consolidation, I discovered a solo practitioner in his mid-60s; he had a stable medical/surgical business and was performing about 600 cataract procedures/year in his own ambulatory surgery center. Upon assessing the local optometric activity, I identified five noncompeting optometrists in the suburbs, who were deriving almost 75% of their revenue from managed vision care and who were interested in consolidation.
By consolidating these parties — merging the ophthalmologists’ practices and then having that entity subsequently acquire the five optometry practices — the new FIP was able to achieve new and increased cash flow and, more importantly, profits. By creating a powerful economic entity, the practitioners could provide more efficient and competitive quality care across different market segments, without diluting their current fee structures.
In addition, the group gained increased opportunities for managed vision care contracting with local industry (small- to mid-sized businesses) and could afford to develop stronger and more effective marketing programs. Everyone won: the MDs achieved their respective exit and entrance strategies and a steady referral stream, and the ODs gained more efficient lab services, job security and improved managed vision care and managed care positioning.
Properly structured, FIPs can create an environment where practitioners and staff can thrive professionally. With ample financial resources, FIPs can hire high-caliber individuals (MBA level) to manage departments and handle key functions in the organization and allow staff to pursue professional enrichment and growth through training, cross-training and education.