managed care

Quantifying the Impact of Vision Care Plans

Answers to the fundamental practice management questions surrounding managed vision care plans.

Tara Rosenzweig, Contributing Editor

While the subject of managed vision care plans may at times spark heated debate, the fundamental practice management questions surrounding the plans remain, including:

How can a practice determine which plans to accept?

What steps can be taken to maximize a plan's profitability?

When should a practice drop a plan?

We spoke to several optometrists who answered these questions and shared other insights on how they “manage” managed vision care.

Is the plan profitable?

the plan profitable? In order to determine the profitability of a vision care plan, you first need to know your chair cost, says Jason Maasdam, O.D., who practices in Knoxville, Iowa. You can calculate this by dividing practice overhead by the number of hours the practice is open, which results in a chaircost per hour, says Dr. Maasdam.

For example, if your practice overhead amounts to $500,000 for the year, and your practice was open 2,000 hours, the chair cost would be $250.

“That means in real terms, it costs the practice $250 per hour to remain open, so a plan needs to generate that amount of income for the practice to break even,” Dr. Maasdam says.

You can also calculate a chaircost per patient (annual overhead divided by the number of patients), says Dr. Maasdam, although he prefers units of time.

The reason: “It [units of time] makes every hour you are open and not seeing someone more relevant in terms of cost,” he says.

Or, you could simply calculate chair time as 70% of total expenses, Dr. Maasdam says. “This makes the assumption the COGS [cost of goods sold] is about 30%,” he explains. “I prefer to break this number out, as some practices may have COGS that are higher or lower.”

Once you determine chair cost, it's time to calculate plan reimbursement. Obviously, plan reimbursement rates should cover your chair cost, but rates may not always be so straightforward, say those interviewed. For example, some plans require you to use a specified lab; some plans may pay better for progressives vs. single vision lenses, etc.

In addition, account for plans that “cap” your reimbursement rates, even for high-end products. In these cases, says Dr. Maasdam, while “you do not often pay the lab bill, you also do not get increased margins on the sale of extra product.”

What about plans that reimburse at lower rates?

A redeeming quality of all plans, including those that provide low reimbursement, is that they drive patients to your practice “without one dollar spent in advertising,” says Michael Lange, O.D. who practices in Ocala, Fla. In addition, patients who have these plans can fill open slots in your appointment book.

“If it does not cost you more (i.e., more staff) to see the patient, it should benefit you to see the patient” says Dr. Maasdam. “If the plan reimburses $100 per hour, then that is $100 you did not have, if there were lots of openings.”

However, Michelle Stricklin, C.P.O., assistant director of operations and finance manager at a practice in Midwest City, Okla., stresses that covering your chair cost is the key.

“It might be tempting to sign up with a low-paying vision care plan to simply fill your available exam openings, especially if your practice is only 50%-to-60% booked,” she says. “However, if the reimbursement from this plan does not cover the chair time cost, then ultimately nothing has been gained by filling that slot.”

Jay Petersma, O.D., who practices in Johnston, Iowa, says to use care when accepting low-reimbursement plan patients to fill empty slots.

“All of a sudden prime spots like 3 p.m. or 4 p.m. are filled by new plan patients, and regular self-pay patients can't get in soon enough,” he says. As a result, the self-pay patients may go elsewhere for a prime appointment time, in which case you're still left with empty slots.

Should you drop a plan?

If your appointment book fills up, then you have the option to drop a plan, says Dr. Maasdam.

“Eighty percent of your income comes from 20% of your patients,” he says. “With that in mind, look at your lowest performing plans every year, and consider ‘firing’ them.”

Dropping a plan may create more time in your schedule where, for example, you can “talk to a patient about a second pair of glasses or trying those new multifocal contact lenses,” says Dr. Maasdam.

Take into account reimbursement rate and administrative burden — that is, plans that become a “paperwork nightmare,” says Dr. Lange.

“If the plan is making the practice jump through too many hoops and get prior authorization to get paid pennies on the dollar, that is the time to drop the insurance, but only after the practice has made a good effort at making it work,” he says.

Ms. Stricklin says in addition to reimbursement rates, her office considers profitability and complexity to determine whether they should drop a plan. However, complexity isn't so simple to determine, she says. Factors include ease of filing claims, promptness of payments, plan rules and regulations (such as limitations on labs), ease of explaining benefits, etc.

“If a plan's reimbursement is average, but you're severely limited in your choice of labs and the company takes six weeks to remit payment, then it may not be worth the hassle,” she says. It's also important to gauge your staff's (and your) attitude toward low-fee plans.

“Are you happy when [patients who have a low-fee plan] come in, or do staff groan or look exasperated?” asks Dr. Petersma. “Maybe it's even one of your better-paying plans but it's an administrative nightmare, or patients just can't understand how the plan works. Even if you try your best to treat the patient well, your dislike of the plan can come through to the patient.”

That doesn't reflect well on your practice and isn't fair to the patient, and that's when you might consider dropping the plan as well, says Dr. Petersma.

When you drop a plan

If you do decide to drop a plan, notify the affected patients.

“Send out a notice to all the patients on the plan,” says Dr. Lange. “Include a great cash discount in the mailing to help encourage many of the patients to continue coming to your practice and paying a cash-discounted amount for their optical and other services not covered under their current medical plan.”

Dr. Maasdam says many O.D.s could drop all managed care plans with little change in income, but “there are other factors to consider.”

For example, say an employer keeps a plan because it is cost effective, and employees are happy with your care under the plan. Your practice is doing well and then, seemingly out of the blue, you drop the plan. It could lead to some unhappy patients. Such conditions will be different for each doctor “based on their type of practice and geographic location,” Dr. Maasdam says.

Ms. Stricklin says dropping all managed vision care plans would be extremely difficult for most practices because the number of patients with plans is growing. However, it is possible for a non-managed care office to be profitable if the practice establishes itself as a non-managed care office “from the start,” because these patients “expect that they will pay out-of-pocket for all services and materials,” she says.

Maximize the value of plans

Consider the following steps to help you maximize the value of those patients who have managed vision care coverage.

► Know the plan's details. By becoming familiar with the patient's coverage and benefit details, you decrease the “the risk of costly errors,” Ms. Stricklin says. “Some managed care plans for example, do not allow you to balance bill the patient in the event of a billing mistake. The balance must be written off.”
► Emphasize options with high reimbursement. “Some plans have higher reimbursement for certain lens options with no increased cost to the patient,” Ms. Stricklin says. “If the practice uses the options with higher reimbursement, the patient benefits by receiving a premium product, and you've just added to your bottom line.”
► Stress savings, then upsell. “Take the time to point out what out-of-pocket costs would have been without coverage,” says Ms. Stricklin.” If patients see the amount of money they're saving, they may purchase lens options they might not have considered before, due to their budget constraints.”

Dr. Lange says a successful practice can turn a potential $39 exam and $20 frame dispensing fee into a $1,000 sale.

“Obviously, many patients are going to only want to get the covered items,” he says. “However, with proper education and a little positive sales input, many of these patients will be upsold.”

► Streamline office procedures. Dr. Maasdam says that practices must be efficient in all areas of operation to maximize plan profits. “You must have an optical team that streamlines frame and lens selection,” he says. “Make your checkout and measuring procedures as streamlined as possible.”
► Negotiate reimbursement rates. Many managed care plans allow practices to submit usual and customary rates annually for review, says Ms. Stricklin. “They may raise their reimbursement based on the demographics in your area,” she says. “Unfortunately, not all managed care plans increase their reimbursement at the same rate that your cost per exam increases.”
► Consider providing medical services. When patients have a medical need for eye care, “use their health insurance when appropriate for their visits and other testing, such as OCT, visual fields, etc,” says Dr. Maasdam.

Providing medical services “is an opportunity to dazzle the patient with fantastic customer service and impress the patient with the knowledge of the doctor and staff, says Dr. Lange. “This is also an excellent opportunity to market other aspects of the practice to the patient.”

Dr. Petersma, says there is a misperception that you can automatically increase profits by providing medical services. “Unless you have a highly specialized practice and aggressively seek this out or have good referral networks with primary care physicians, you're still going to see 80% to 90% of the members coming for straight refractive eye care … ” he says.

In other words, performing a dozen full exams at half your normal fee for every one glaucoma visit may not be a very good business decision, he says. And in the end, your practice and your patients benefit only when you make sound business decisions. OM