spectacle lens strategies

A Strategic Approach to Spectacle Lenses

Depending on your business model, spectacle lens sales represent either a great opportunity or a significant liability.

BEN GADDIE, O.D., F.A.A.O., LOUISVILLE, KY.

The year 2013 has started with some harsh realities for most Americans, and optometrists have not been spared. Paychecks have shrunk for many. As we discuss here, optometrists are really beginning to appreciate the challenges of maintaining strong net incomes with the considerable headwinds of managed vision care (MVCP) reimbursement models, decreased reimbursement from medical insurers and monumental regulatory requirements from the federal government, including the required adoption of electronic health records. As a result, we are feeling the collar tightening around our collective necks and an urgency to do something about it.

Liability or opportunity?

In this environment, spectacle lens sales represent either a significant liability or a great opportunity for the future of optometric practices.

In terms of opportunity, we are already seeing a high penetration rate of digital refraction systems, and it makes sense to match that highly optimized refraction with the best lenses possible. That’s why patients come to see the optometrist: They want our recommendations regarding the best technology for their visual performance.

Couple digital refraction systems with the steady incremental improvement in digitally processed and highly personalized PALs, and there’s never been more excitement about high performance lenses.

We can take advantage of this opportunity by examining the three major areas where competitive advantage goes a long way toward increasing our profitability:

► Practice-lab business relationships.

► Vision insurance lab models.

► Your retail optical (yes, retail optical — that’s how your patients view your optical when they purchase eyewear from your practice).

The in-office lab challenge

While the numbers are certainly dwindling, there is still an argument to be made for in-office surfacing and finishing. The challenge is how to make a surfacing lab survive with the high penetration rate of digital lenses and AR coatings. That is, what is left to grind? The one exception to this is a digital lens molding system that can be operated in-office with the latest PAL designs and AR for a fraction of the price of a national lab. Since the lens is semi-finished following molding of the monomers, PAL in-office work could be feasible. A potentially limiting factor here is that as more and more MVCPs mandate the use of their contracted lab or network of labs, there are only a few mid-sized MVCPs that will enable you to still use your own lab.

While many plans have a mandatory lab program, there are some that do allow for in-office finishing of single vision lenses. And after reviewing my own practice’s statistics, I was surprised to see that almost 50% of all lenses we sold to patients who use MVCPs were single vision lenses.

In some cases, the increased revenue available through the MVCPs in-office exemption is compelling. Just keep in mind the labor paid to edge and mount the lenses in your office falls into the COGS category on the P & L statement. Obviously, an investment in an edging system, stock lenses and the salary package for a bench optician is also required. I think there is incremental profit to be made in this area, and that opportunity, due to MVCP reimbursement, may expand in the near future.

Practice lab relationships and pricing

For everyone else who has sworn off in-office lab work, choosing a lab to which you entrust all your practice’s end product is an important decision (and all the merits of such are beyond the scope of this article). I have noticed that many practitioners have used the same lab for a long time. They have been relatively happy with the lab’s work and have developed a good relationship with the lab manager and sales team. But be careful: This can be followed by complacency on pricing and before you know it, your COGS is negatively affecting your profitability.

Whatever your reason for seeking a new lab arrangement, there are two main routes to consider that have the potential to save you money. First, if you are splitting jobs between various labs because you get better prices on certain lenses, consolidate all your business to one lab. In fact, shop your business around to all the major labs first: They are all hungry for market share and new accounts. I think you’ll be surprised with what you learn during this process.

While there is always someone out there who will pay less than you for a product, chances are if you do your homework and ask your lab, there are ways to increase your margins with your most common lens types in a substantial way. Selecting two or three PAL designs and easy options for single vision makes it easier for the lab to work with you on pricing and rebates. (We’ll discuss how this impacts lens option bundling later.)

Second, consider joining a buying group. Many times, these groups are able to design their own private label lens at a significant discount, or their members receive volume discounts based on the sales of the collective buying group. Not only can you save big on your lenses, but you can also take advantage of similar savings on all aspects of your COGS, including contact lenses and equipment.

Be certain to factor in the cost of membership, which can vary from a monthly set amount to multiyear contracts requiring a percentage of your gross revenue for membership dues.

MVCP

Let’s face it, no matter which MVCP you participate in, you are looking at essentially covering your cost of doing business, plus a modest dispensing fee for that initial pair of glasses. Compared with your usual and customary fees, you are not even in the ball game in terms of revenue, let alone profitability, with a MVCP. The only area where you can pick up more reimbursement here is on the sale of additional features such as AR coatings, photochromics and higher index materials.

The real opportunity for increased profitability comes from multiple pair sales. Many labs offer a significant discount on a second pair made at the same time with the same materials. Also, ask for a similar arrangement if the patient purchases prescription sunglasses at the same time he/she purchases his/her everyday pair. Not only is the insurance company not involved in dictating your fees for this second pair, but with the increased margins, you may want to consider extending a significant discount to the patient as an incentive to purchase the second pair, especially given the benefits of an additional pair of glasses. It’s all about incremental income and, more importantly, incremental profit for the practice.

Some MVCPs have operated a materials benefit plan based on the use of an MVCP-controlled lab for many years. This essentially wipes away any ability to control the COGS and quality of your optical business. However, opportunities still remain to recoup some profitability. With these models, an important trend is increased benefit allowance for newer technology PALs. Many times, patients can get the most advanced digitally-enhanced PALs for less than $200 out of pocket for lenses that retail for more than twice that price. The provider also receives a higher fee for selling and fitting the most advanced lenses.

This is an opportunity for progressive practices, as more incremental profit is on the table without increased COGS for the provider. The patient experience is enhanced at the same time, as patients benefit from incredible vision and value for their purchase. Hopefully, these patients will recommend your practice to their friends who do not have MVCPs.

Keep in mind that selling older generation PALs out of habit is actually costing both the provider and the patient since, from the patient’s perspective, he could have experienced the latest technology for less than $50 more, while the provider lost $50 in profit. The same differential is available in the AR arena as well. The difference in the price to an MVCP patient for our house AR product vs. our branded AR was less than $25. The branded AR is better and has value at a $25 price point. The bottom line for the practice is an increase in more than $10 of profit, not revenue, as a result of product positioning and the value proposition for the patient.

The key to a profitable optical is having the right mix of materials and designs to cover 98% of all lifestyle situations. Make it an easy environment for your patient-consumers to purchase eyewear while building buyer loyalty and ultimately practice loyalty. That should be a goal in your practice this year.

Your retail optical

I see several problems in optometric dispensaries that lead to stale retail environments. The first problem is when the opticians can choose from any number of PAL styles and coatings. Many times, the choice of lens is determined by the insurance coverage and what would be the cheapest for the patient.

Unfortunately, the MVCP bug has infected your staff — that is, they feel that the patient who has “insurance” shouldn’t have to pay that much out of pocket. Apathetic to value, your staff begin to empathize with the patient’s desire for the lowest-cost solution, and they are even complicit in selling low quality lenses, which provides less profit to the practice. When patients can understand the quality and the value they are receiving from your practice; that you are an ally in helping them leverage the most out of their MVCP benefits, then you can retain more loyal patients. The solution ultimately comes down to understanding the patients’ vision and lifestyle needs and selecting those lens options that provide the most value.

The second problem I see is when opticians see no concrete benefits between various products. This deficiency leads to loss of confidence from the patient-consumer who wants a compelling reason or benefit for his/her additional dollar. Easily remedy this problem by narrowing the type of lenses sold in the practice. Better yet, bundling of lens type, coating and material allows you to frame all purchases in one of three packages: “good,” “better,” and “best.” There is a clear distinction between the advantages of each level, and the savings or value provided by the practice while utilizing the MVCP’s material benefit. After all, the patient paid for vision care benefits, likely as part of a benefits package that is deducted from their paychecks. When you acknowledge that these benefits were applied or well-used, you complete the value proposition cycle.

The optician must understand the differences between polycarbonate, CR-39 and high index lenses as well as the limitations of each. Differences in house AR vs. standard and high-end branded AR must be concrete and practical for the consumer. Finally, the differences in performance between our standard, digitally-enhanced freeform lenses and the latest lens technology must be articulated.

We have reduced the number of PALs available to our opticians from more than 15 to two, and the number of AR options from six to three. This allows our team to be more involved in the entire process, since there isn’t insurance speak dominating the patient encounter. We first show the patient the retail price of their selection and then apply the bundling and insurance benefits to demonstrate the savings and value.

Bundling: complete the package

Don’t get me wrong, choice is synonymous with freedom and generally considered a good thing. But without proper education about the various choices, this freedom can become crippling to the decision process and result in a poor retail experience. Patient-consumers suffer from decision fatigue when presented with too many options related to a purchase decision. For me, whether I am at a restaurant or the car dealership, offer two or three decisions maximum or I’m not interested in buying anymore. Consider shopping for eyewear. Decision 1: frame. Decision 2: PAL type. Decision 3: lens material. See, we haven’t even reached AR or photochromics, let alone any discussion of a second pair. The doctors and opticians only have so many decisions they can influence, and that’s why bundling of lenses can have a significant impact on your optical profitability and patient satisfaction with their eyewear.

We sell three lens materials: CR-39, polycarbonate and 1.67 high-index, single vision and PAL. My staff knows the ins and outs of all three materials and when each material is indicated or potentially problematic. We sell two PALs. By committing to using two high-performance lenses, we are able to negotiate the best pricing and rebates, which are in line with our MVCP strategy as well as our private-pay patients. Essentially, we have one lens as our top-of-the-line premier lens, while the second fits in nicely with our expectations for outstanding visual performance and a great all around utility PAL.

Finally, we sell our AR in three levels. We package our lenses based on AR levels. That is, both single vision and PAL lenses are available in each of the three AR categories. All lenses sold have AR. The lowest tier lens that leaves our office is a single vision CR-39 with a house brand AR, scratch coated and UV coated. We show the patient the retail price of the lenses he/she has been prescribed and then show the out-of-pocket cost after MVCP benefits and bundling savings.

Shocking results

In our practice, we’ve been shocked at times to see the magnitude of savings these plans provide to patients. If nothing else, bundling your lenses gives you an opportunity to truly understand the mechanics of the MVCP business model and how you can ride the wave that best serves your practice and patients, regardless of how they pay for their spectacles. OM

Dr. Gaddie is the owner and director of the Gaddie Eye Centers, a multi-location, full-service practice in Louisville, Ky., and is currently the chair of the Continuing Education Committee for the American Optometric Association. E-mail him at ibgaddie@me.com, or send comments to optometricman agement@gmail.com.