CONTACT LENS PRACTICE
The Elusive Profitable Contact Lens Practice
Here's a look at what can make your contact lens practice successful in today's marketplace.
John M.B. Rumpakis, OD, MBA
One of the most exciting areas of practice today is the area of contact lenses. Unfortunately, it's also one of the most turbulent.
Innovations in contact lens technology are making contact lenses an increasingly attractive option for patient correction. Unfortunately, most of this innovation does little to drive patients to our practices. Until recently, practitioners were the primary drivers of the contact lens marketplace. The recent events surrounding the outbreaks of Fusarium keratitis and Bausch & Lomb's removal of its ReNu with MoistureLoc product from the market have put contact lenses and, more importantly, eye care back into the media spotlight.
With this market turbulence, how can we ensure that our contact lens practices are poised to offer the best care to patients and maintain profitability? Let's take a look at the traits of a successful contact lens practice in today's marketplace.
The metrics that quantify success in contact lens practice are less developed than the retail optical part of our practices. Traditional benchmarks such as average unit sale, inventory turnover and net margin on sales are often monitored and give practitioners a good sense of how their optical dispensary is doing, but we have very few commonly accepted or widely used metrics when it comes to analyzing our contact lens practice. What we can use in their place is knowledge of the traits, attitudes and behaviors that characterize successful practices. The degree to which a practice employs the strategies discussed here is the best measure we have to know whether it has optimized the opportunities inherent in lens practice.
As a consultant, when practitioners approach me to evaluate their practices, more specifically their contact lens operations, I don't begin by asking for benchmarking statistics, which they rarely keep. Instead, I look for those practices and behaviors that are elements of successful contact lens operations.
In my evaluation, I start with the basics: In its accounting, does the practice make use of cost based accounting applied to a profit center structure, and are contact lenses one of them? If a practice doesn't use profit centers, or management centers, as they're sometimes called, it's difficult to isolate and evaluate this one aspect of the practice. Indeed, if specific services related to contact lenses and their corresponding products aren't broken out in the practice's accounting, it will be difficult to determine whether the practice is making or losing money from providing contact lens-related services and products.
Figure 1. Total Contact Lens Revenues As A Percentage Of Optometric Gross Income, 1998 – 2004
Profit From Your Expertise
Pricing strategy is a key element of success in contact lens dispensing. Before disposable lenses engulfed the market, it was possible to gain adequate compensation by charging a modest amount for the practitioners' service and a considerable amount for lenses. Alternatively, both materials and service were often bundled into a global or package fee. In either case, the overall profitability of a contact lens patient has traditionally come from the sale of contact lenses.
Over time, the switch to disposable lenses and the lowering of prices because of competition from non-practitioner channels (big box stores, Internet and 800-number retailers) has changed the playing field. Powerful nonprofessional competition has made it virtually impossible to significantly mark up the materials portion of the fee.
Indeed, the period from 1998-2004 saw a seismic shift in patients' buying habits from practitioners to retailers primarily online retailers. This was just economic rationality combined with the power of the Internet, as educated, price-conscious patients saw that they had a convenient lower cost alternative for obtaining replacement lenses. The result has been a drop in contact lens-related income for practitioners from nearly 30 percent of gross income to less than 20 percent (American Optometric Association, Caring For The Eyes Of America, 2004).
This loss of materials revenue is not an insoluble problem. The alternative is to charge appropriately for fitting services and to sell materials at a market competitive rate. In the long run, this is a more successful strategy than hiding your profit in material fees. A pricing strategy that charges appropriately for services and maintains a competitive markup on materials is a trait of a good contact lens practice.
Service fees cannot be a loss leader. Service fees for contact lens fitting must accurately reflect the costs of the time and resources involved in fitting, not the subsidized service fees we now see in the market. Additionally, you should also price and charge clinically appropriate follow-up care based on the time, complexity and individual patient characteristics that exist separately from that of the contact lens fit.
Albeit a soft benchmark, patient satisfaction is an important indicator of success. While it's difficult to accurately measure patient satisfaction directly, in the contact lens world we have a good surrogate measure: the dropout rate.
Each year approximately 3.8 million people begin contact lens wear but close to 3 million others drop out, for a net increase of roughly 800,000 wearers a year. What's true for the industry should be roughly true for the practice a successful practice should have a dropout rate lower than the national norm, and certainly the number of new fits should exceed the number of dropouts.
How does a practice reduce its dropout rate? The contact lens industry has long understood that significant growth requires reducing the dropout rate. A key element that causes dropout appears to be discomfort, particularly discomfort from perceived dryness. As a result, the last four or five years have seen a profusion of lens and lens care products that directly address the issues of dryness and discomfort, as well as appropriate compatible disinfection.
For example, the major solution manufacturers in the last few years have come out with products that aim to reduce dryness and increase comfort. Because we now have lenses with different polymers and surface treatments on the market, solutions are formulated with specific lens types in mind. To take advantage of this, practitioners need to think in terms of prescribing a lens/solution system rather than two separate items, as lens and solution compatibility is a significant issue. Lenses and solutions have to work together, and you must counsel patients to purchase the best, not the cheapest, system for their lenses. Practices can take active steps to improve lens patient satisfaction, which will, in turn, diminish dropout rate and grow the practice. Succeeding at this requires a high level of product knowledge and willingness to apply that knowledge to provide the best possible lens wearing experience for patients.
Successful contact lens practitioners must be up-to-date on all technologies to be valued as a specialist in patients' eyes.
Today there are competing theories about contact lens inventory: small, just-in-time inventory; no inventory (direct delivery to patients); or a large, extensive inventory. My personal belief is that inventory should be large enough so that if you fit a new patient, you can offer him a full prescription cycle of lenses on the spot when he returns after his diagnostic lens evaluation, capturing the revenue for the entire cycle.
While a practice could ask patients to order lenses through its Web site (which would allow just-in-time delivery), I think it better to satisfy the patient (close the sale) immediately. The difference is being proactive. When you leave patients on their own, anything can happen. They become susceptible to any competitive sources. Thus, my preference is to close the sale at a patient's point of maximum interest.
Approximately 94 percent of first-time contact lens patients buy a pair of plano sunglasses within 48 hours of being fit, even if it's with a diagnostic lens. This is an enormous opportunity for practices that's often untapped because we don't often look at things from the patient's perspective.
For patients who have never been able to wear high-fashion plano sunglasses, the opportunity to get new, cool sunglasses is almost palpable. They often want the best, which can be a significant piece of revenue for a contact lens practice that positions itself to capture the business. A successful strategy I use is offering a small discount on sunwear if it's purchased as part of the contact lens sale. Additionally, contact lens patients must have backup spectacles something we've always recommended but patients have rarely followed. Educate patients with scenarios such as the recent Fusarium incidents on why backup spectacles are a health-related recommendation, not just a boost for your bottom line. We need to stop concerning ourselves with patients' pocketbooks and instead take the position of being their eyecare provider and making a strong recommendation.
Make Strong Recommendations
Life today is filled with complex visual demands. It's rare that one vision correction solution meets every need optimally. Why not offer a patient the solution that best meets each identified need? For example, a patient who says, "I fish, I golf, and during the week I work at a computer from 8 until 5. After work I play pick-up hoops, and on winter weekends I like to ski. I also tie flies for when I go fishing in the spring." An astute contact lens practitioner will look at this situation and identify the number of different, disparate optical needs demonstrated by the patient. It's all but certain that no single contact lens product will fulfill all of those needs, so look to make the best recommendations based upon your expertise and experience; after all, isn't this what the patient is seeking?
Good medicine can also be good business as reflected in this case. Because he stares at the computer all day, depending on his age, a multifocal contact lens might be a good way to help him see both intermediate and distant objects clearly. Prolonged computer use also means that you'll need to take care in selecting the contact lens material and the appropriate care system. For evening basketball games, skiing, golfing and fishing, distance vision is paramount. A daily disposable might be a good choice.
For the intense near work of tying flies, glasses will likely provide the best possible vision. And for the fishing itself, polarized (plano) sunglasses are ideal. And of course, the patient should wear protective goggles over his contact lenses when playing basketball. Obviously, these recommendations would yield a different economic outcome than if we failed to recognize the patient's lifestyle demands.
Although some focus solely on price, most patients want to know their options and what your recommendations are. Our job is to find out the patient's specific needs and make sure that we match the existing technology to those needs in a way that maximizes success. At the very least, the practice should recommend the best and explain the recommendation. If nothing else, this allows the patient to make an informed decision. The last thing we would want is the patient finding out other options from friends, neighbors or other practitioners because you failed to educate and recommend. Probing to make sure that you identify the patient's needs without pre-judging a patient's ability to pay is another characteristic of a successful contact lens practice.
Keeping Things Simple
Often times, the most successful things are also the simplest. Implementing these key points are most certain to revive your contact lens practice both from a medical and business perspective.
Use cost based accounting.
Use a profit or management center approach to isolate income/costs to the contact lens portion of your practice.
Price your services appropriately and separately from contact lens materials.
Measure the ratio of professional service revenues to material sales and the impact on profitability.
Measure the ratio of dropouts vs. new fits and refits.
Prescribe for lifestyle without financial predetermination or bias.
Capture plano sunglass and back-up spectacle sales by recommending appropriate choices and creating an incentive for patients.
Measure patient return rate successful contact lens patients return more frequently for services than do spectacle only patients.
The Bottom Line
While eyecare practitioners' role has been challenged in recent years by alternative purchase channels, market-savvy consumers and complacency of practitioner and patient, there's no time like the present to reassert our place as experts in this segment. Make sure that you and your practice are poised to be the best alternative for your patients by keeping current, making recommendations based on needs/wants without financial bias and incorporating the best our industry has to offer. The elusive profitable lens practice is easier to achieve than you may think. Just remember one key pearl: the difference between those who think about it and those who achieve it is one simple thing action.
Dr. Rumpakis is currently President & CEO of Practice Resource Management, Inc., a firm that specializes in providing a fully array of consulting, appraisal and management services for healthcare professionals and industry.