PRACTICE MADE PERFECT
Eliminating Managed Care
How one practice arrived at the point of cutting themselves free.
By Marilee Blackwell, M.B.A., C.P.A., A.I.B.A., and Donna Suter

The word "insurance" once had positive connotations for optometrists. It meant being recognized as more than refractionists and being reimbursed for the treatment of primary care patients. To some, it meant reimbursement for treating disease with topical and oral medications. For others, it meant reimbursement for the co-management of tertiary care patients.

But say "insurance" today, and you're likely to hear laments about congested waiting rooms, a higher percentage of what used to be net being spent on the salaries of insurance clerks, and about opticals crowded with the lower-priced options vision plans require. How did a profession proud of its growth in primary eye care so radically change its opinion about third-party insurance plans? One word: reimbursement.

Professional outcry against low paying managed care plans has led to a search for alternatives. Practices are looking for smart ways to grow. Here's how we helped one doctor in need.

Call for help

In September 1998, the practice of Dr. John Johnson was experiencing the pain of managed care's growth. An analysis of his existing patients showed that 64% were covered by a single managed care plan and 30% by other managed care plans. Dr. Johnson's son Luke, a recent graduate of optometry school, wanted to join his father's practice. However, with managed care driving down his reimbursement rates, and his gross income below that of the average solo practitioner, Dr. Johnson feared that Luke might opt to practice in a more lucrative setting.

The practice, which Dr. Johnson had inherited from his father, was still located on the first floor of his mother's home in a small town in coastal Oregon. When Dr. Johnson and his father had decided to accept managed care insurance, it had made sense. The two-doctor practice had unfilled slots, and the practitioners viewed managed care as a good source of additional income.

After the elder Dr. Johnson retired, his now middle-aged son, Dr. John, became a victim of his own success. Soon word spread that the Johnsons treated participants of even the lowest reimbursement level plans in a warm, friendly fashion. Their kindness, proximity to enrollees and free parking across the street quickly multiplied their patients. A few once-welcomed additions turned into the lion's share of the practice's patient base.

The goals

When we first observed Dr. Johnson seeing patients, he performed the pretesting and examination in his combination office/ lane. Afterward, he walked the patient into the optical and assisted with frame selection and lens design. His wife, Mary, collected the patient's money and warmly said, "We'll see you next time." The computer was used only for billing insurance. They performed all other front office functions on paper. Mary and Dr. Johnson worked 10- and 12-hour days for less and less.

The goal of their consultation was for their practice to drop the low-paying managed care plan that accounted for 64% of their gross; for Mary to work part-time; Luke to work with his father and Mary and Dr. Johnson to have time for vacations.

The Johnsons couldn't automatically drop the plan with the lowest reimbursement rate because it was such a large part of their gross. The Johnsons needed to increase their income from other sources through "smart growth" tactics.

Smart growth

Smart growth occurs when a practice's gross and net increase proportionately. Participation in a managed care plan shouldn't cause practice net to dip below 30% of gross.

Smart growth also encompasses manpower availability, so you should consider physician capacity and staffing levels as they relate to net -- it takes just as much time to serve a patient for a reduced exam fee and $15 dispensing fee as it does to see a private-pay patient who purchases $300 worth of product from the optical.

On a broad scale, we began implementing smart growth tactics that preserved the 36% of the Johnson's existing patient base that was profitable while building a positive image in the community.

Smart growth encompassed a range of measures intended to encourage referrals by offering managed care patients the same options typically purchased by private-pay patients. The Johnsons zeroed in on strategies that preserved their existing, profitable patient base and revitalized their practice's prominence in the community.

With our three-part strategic plan, we intended to:

• change the way the community-at-large perceived the Johnson's practice
• improve the patients' perceptions of goods and services
• change the practice's perception of managed care patients.

We carefully instituted smart growth changes that supported this plan with a view to sound fiscal sense and protect the Johnson's net. Here's how we approached our plan.

• Changing community perceptions. The usage profile of the typical practice usually shows that patients live in the zip code where the practice is located. Market research suggested that the zip codes of the area where the Johnson's practice is located and that of surrounding areas encompassed a large population of persons needing eye health care, with enough disposable income to afford quality eyewear and premium lenses.
  The Johnson's usage profile analysis showed that very few existing patients lived within the typical 15-minute drive. We implied from this fact that the community-at-large didn't know about the practice or thought of it as an old-fashioned, residential type that sold only low-end merchandise. Both of these perceptions can lead to low usage.
  So, we concentrated our external marketing efforts on letting the community know that the Johnson's practice exists, that Dr. Johnson is highly trained (He's a member of the Academy) and on educating the community about available service (the practice offers comprehensive care and the latest in frame styles). We took these steps:
  • Sent year-end bulk-rate, direct mail pieces to area residents encouraging them to use leftover flex benefits on eyewear.
  • Added a sign to the practice's front lawn that blended with the period look of the neighborhood. The sign identifies Dr. Johnson, encourages patients to ask about Luke, and lists the practice's top three services. It's visible from a popular park across the street.
  • Inserted a sophisticated, professionally designed and written quarterly newsletter in the local paper. With a different focus in each issue, it covers education, practice news, office hours, frames carried, information about the doctors, etc. The goal is to raise awareness of the practice and stress the importance of regular eye care.
• Changing patient perceptions. Dr. Johnson could only change patient perceptions if he changed the way he practiced. Here's what we had him do:
  • Write out loud. Instead of writing in his chart and saying nothing aloud, he began to "write out loud," using vocabulary that the patient would understand about his eyes. For example:
    "Mrs. Smith, my exam reveals that your eyes are healthy, with no sign of cataract or other eye disease. I've also examined the blood vessels and nerves in your eyeball, and they're normal."
  • Deliver educational messages. Dr. Johnson takes the information from the "findings" part of the exam and recommendation and builds strong educational messages about the importance of eye health and identifies lens technology instead of simply telling the patient his findings.
    This one change alone caused an immediate increase in optical sales. When Dr. Johnson began giving a lens guide to every patient who received a comprehensive exam, optical sales jumped again. He and Mary were amazed at how eager managed care patients were to hear more about lens options not covered by insurance that they could purchase for a co-pay, or separately.
    The Johnson's average optical fee went from their third quarter, 1998 average of $149.38 to a yearly 2000 average of $231.20.
  • Encourage return visits. Dr. Johnson also started telling his private-pay patients about Luke's return; asking for referrals (this was particularly hard for him); and recommending annual examinations to those patients who he felt needed to be seen more frequently than their plan's every-other-year schedule. The practice began using a pre- appointing system.
• Changing the Johnson's perceptions. The Johnsons also began working on their third initiative -- changing their perception of managed care patients.
  It's not uncommon for staff and doctor to resent patients who are covered by a poorly paying plan. Patient relations problems occur when there's "emotional leakage" into the doctor's or staffers' communications with patients. Remember, only 7% of any message is relayed in words. The other 93% is consciously or unconsciously relayed through the speaker's body language, tone of voice, facial expression and professional demeanor as well.
  The Johnsons weren't "leaking" such resentment, however. Instead, they were guilty of prejudging a patient's ability and willingness to purchase premium eyecare products.
  Addressing this attitude problem led us to the core problem facing the practice. By focusing on the managed care reimbursement rate, the Johnsons had missed the real story -- that every patient must be educated about the importance of eye health and lens options.

The solutions included:

• adopting an optimistic attitude toward managed care patients: Managed care may not pay much, but it does pay and its patients can purchase lenses, lens coating and frames not covered by insurance
• using computer technology in both the lanes and the front office
• learning scripts to deal with difficult patient encounters
• rewriting office policy and procedures
• adopting time-management techniques.

When the doctor and Mary began to treat every patient alike, referrals multiplied and the average fee collected increased.

Other steps

We also encouraged the Johnsons to do other things to boost their practice.

• Raise fees. Mystery shopping at their competition revealed that the fees the Johnsons charged for goods and services were below those of their primary competitors. We had them raise the fees that were most out of line with the marketplace.
• Reformat their profit and loss statement. We looked at their seven key expense areas:
  1. cost of goods sold
  2. staff salaries and benefits
  3. occupancy costs
  4. patients care costs and equipment
  5. marketing and promotion
  6. general office overhead
  7. practice net.

We then compared these numbers to accepted norms and made specific recommendations for improving deficiencies in each of these critical areas in the practice.

• Hire an optician. We encouraged Dr. Johnson to practice lifestyle-dispensing techniques when working with patients in his optical. This was important because he would have to train an optician. He seated the patient at the dispensing table and reviewed available lenses and lens coatings that met the patient's visual and lifestyle needs before selecting a frame. He received a dispensing fee from the insurance provider targeted for elimination.
  A review of patient benefits revealed that patients could order up to two pairs of eyewear each year and only had to pay a nominal co-pay for most coatings. Multiple sales of lenses and complete pairs of glasses increased.
  In fact, the practice was now ready to hire a licensed optician.
  Most managed care patients readily understood the need for a second pair of glasses and authorized billing their insurance for another dispensing fee. Lens upgrades and the purchase of progressives, though certainly not common with these patients, also increased.
  Initially, hiring an optician was very scary for the Johnsons. The optician's salary could eliminate all of their recently increased net revenue, and then some. Assuring them that the right person would turn the optical into a major profit center didn't entirely calm their fears, but it did give them the courage to begin interviewing.
  The Johnsons patiently waited for the right candidate to apply for the job. She was worth the wait. Janet turned the optical into the profit center the Johnsons had hoped for.
• Revamp their frame selection. Frame selection needed a more fashion-forward look. One remedy was simply to position the most fashion-forward merchandise closest to the dispensing table. The Johnsons also began to track sales not just by vendor and line, but also by how long merchandise stayed on the boards and what eye shapes moved the best.
  Armed with these data and fashion-trend advice from sales representatives, Mary eliminated some vendors, gave others more space and brought in several boutique lines.

About 1 year into the consultation, we shopped the competition again and had the Johnsons again raise selected fees. Our attention then turned to modernizing the clinic portion of the office.

Now equipped with two modern lanes and a contact lens training room as well, the practice was ready for Dr. Luke to join his father.

Good future outlook

As of year-end 2000, only 18% of their now-tripled gross is provided by plans with reimbursement rates that don't cover chair costs. They plan on re-evaluating their participation in all of their managed care plans in 2001. Mary works part-time unless needed, and she and Dr. Johnson are enjoying more frequent vacations.

Dr. Luke splits his time between the practice and an ophthalmologist's office. He plans on joining the practice full-time when he and his parents feel that the patient load will keep two optometrists busy full-time.

All parts of the practice now work together to fulfill the spoken and unspoken needs and desires of the patients. Based on our observations of this and other vibrant practices, we find a commonality among those with large managed care populations.

They use the same protocols and procedures for private-pay and insurance patients. This means that feeling rushed and knowing that the insurance patient in the optical might select from dated-looking, budget frames and old-technology lenses isn't a valid reason for staff or doctor to skip protocol or procedures that feature high-quality eyewear that meets the patient's visual and lifestyle needs. Nor is it a reason for speaking in a condescending tone to the patient.

Smart growth isn't something mysterious. It's many small remedies that equal the solution to a big problem. It's acknowledging and working on the practice's faults. It takes lots of hard work and the determination to complete all the action steps that lead to the solution.

It forced the Johnsons to integrate their managed care and private-pay philosophies. It's smart growth that, as modernist architect Le Courbusier said in a different context, makes the good easy and the bad difficult. And in doing so, it may reconcile the modern eyecare practitioner to the managed care growth that has become inevitable. 

Marilee Blackwell, M.B.A., C.P.A., A..I.B.A., senior consultant for Hayes Consulting (904-273-1115), and Donna Suter, president, Suter Consulting Group (423-892-3638) team up to offer financial guidance and on-site consulting services.