Deciding what type of technology to invest in can be a difficult exercise for the optometrist. This is particularly the case when faced with an array of shiny new “toys” at a trade show. The good news: A process of objectively analyzing the impact of any technology investment can facilitate this decision making. (See “Buy or Lease,” p.18)

Here, I discuss the four elements that comprise this process.

ELEMENT 1: EVALUATE THE INTANGIBLE

Before assessing return on investment (ROI), I recommend the optometrist consider the following intangible criteria, as doing so let’s the optometrist know whether it’s worth determining the ROI:

• Practice brand. How does the technology fit with what the practice is known for? For example, maybe an OD’s practice is known by its patients as one that offers cutting-edge technology that allows them to consume their health care data and information on a mobile device. If this is the case, would it make sense for the owner of that practice to invest in a device that doesn’t provide such connectability?
• Technology investment pros and cons. What are the potential wins and losses of investing in a particular technology? Sometimes, this requires a bit of predicting the future. For example, if it seems as if one in-office device for meibomian gland dysfunction (MGD) may become the treatment of choice, purchasing a different type of in-office device for MGD would likely be a poor investment. For more information and help in “predicting the future,” look to specific industry thinktanks to get a beat on where new technologies are headed and their potential usefulness. These groups and forums tend to be free from influence. I have found that resources, such as the Tear Film & Ocular Surface Society [tearfilm.org ] Optometric Retina Society [optometricretinasociety.org ], and Optometric Glaucoma Society (optometricretinasociety.org are all quite useful.
• Business life cycle. Consider this: An optometrist has diligently invested in their practice, and the practice is well-equipped with technology. This OD’s intent is to either bring on a partner or sell the practice in the next 24 months. In this case, it may be beneficial to hold off on potential investments with long ROI windows. The reason: Such investments could diminish the cash the optometrist may receive in a sale, given the potential multiples on earnings vs. value paid for the capital equipment.

ELEMENT 2: EVALUATE THE TANGIBLE

Assuming the optometrist’s analysis of the above supports purchasing new technology and the decision requires an investment above $1,500 to $2,000 (a reasonable threshold amount), it’s time for the OD to crunch the numbers. The goal of crunching the numbers is to help the optometrist understand the estimated impact of the investment in the technology on incremental cash flows. By first accounting for all the practice’s revenues and expenses, the OD will be able to determine how the decision to invest in a particular technology will improve the practice’s performance and not just generate profit for the investment alone.

Additionally, in keeping in mind the intangible criteria mentioned above (i.e., “Element 1”), it is important for the OD to understand the implications of net-present-value, break-even time frame, and a payback analysis. Often, investors in new technology think in terms of monthly payments, or reimbursements from patients and payors. This thinking is incomplete. Investors in technology should also seek to understand short- and long-term impacts on their business (i.e., practice), in addition to pay-off timelines. Therefore, it’s best for the optometrist who’s evaluating investing in new technology to run their financial analysis using multiple comparative scenarios. At a minimum, this should be best/worst case, with a most-likely-to-occur sandwiched in between.

To run this analysis effectively, I have found that the following data should be compiled:

• Patient need. How many patients will need this technology, and how often per year? When estimating this, the optometrist should consider:
  1. Initial procedures performed on patient referrals to the practice from outside the practice. (Estimate the number of procedures per year, each would have performed.)
  2. Initial procedures from a patient someone referred in (new patients to the practice) vs. those normally referred out from within the practice (current patients).
  3. Initial procedures the practice doesn’t perform but could have, due to any number of reasons, especially the difficulty of care coordination.

EXAMPLE ANALYSIS. One OD may add 10 new patients, 100 referred patients, and 40 patients where care coordination was too difficult. The total estimated patient procedures per year would be (10 + 100 + 40) x 1 (year) = 150. To complete a comparative best-to-worst case evaluation, this optometrist needs to assess whether and for what reasons this estimate would change from year to year. The OD needs to adjust the yearly calculations, accordingly.

To complete this calculation accurately, the optometrist should also understand the differences in collection between payor and patient. Each practice typically has a detailed and different mix. I use a worksheet (see “Financial Projections,” p.17) to provide reasonable estimates for net revenue and net revenue per procedure.

• Lost revenue/impact on other utilized technologies. Will this technology take time away from staff or doctors performing needed duties in the office? For example, if Dr. X usually manually expresses the meibomian glands for three patients a day for 10 minutes per patient, and Dr. X bills $350 for the procedure with minimal consumable costs (estimated net revenue $350 x 3 = $1,050), would an in-office device that does this run by Dr. X for 15 minutes for each patient generate at least $1,050 in net revenue for the same 30 minutes? As an example, some devices have applicators, which can cost hundreds of dollars per pair, per treatment.
• Other costs. What about, sometimes, overlooked capital, fixed and variable costs? I would argue that most ODs are familiar with capital costs, being mostly the purchase price, interest paid, delivery, and, sometimes, remodel costs. In my experience in speaking with colleagues, most of the time, fixed costs (e.g., property tax, rent, salaries, insurance) are rarely considered. For example, in adding a new staff member to run a piece of equipment, the hiring costs associated with that new hire would be considered fixed, while the time spent running the new technology would be considered variable, or those costs that change as the volume of procedures change (e.g., staff, supplies, etc.).
• Rate of return. What about the rate of return on the new technology vs. more traditional investments? For example, can the OD beat the 10% long-term rate of return for the U.S. stock market? Assuming the optometrist’s estimates of procedure volume are conservative, the value of the potential technology investment should be clear. That said, the OD shouldn’t be fooled by a potential perceived loss in years one and two. This is where understanding that cumulative cash flow over multiple years is the financial end goal when making any new technology investment. From a patient care perspective, if it also improves quality of care, the optometrist should expect a phenomenal ROI.
• Break-even analysis. Break-even procedure volume is the point at which the net revenues from operating the technology equals its costs on an annual basis. This data point can be very useful for the optometrist when setting staff goals or explaining the value proposition of the new technology to their chief financial officer. The OD should continue running this calculation about every 12 months to 18 months to ensure the proper utilization of the new technology. The calculation ensures the optometrist is inspecting what they are expecting. If the actuals are on target, no changes should be made to clinic procedures. If not, something is amiss. Something to keep in mind: If new technology acquisition costs were allocated to the first year of operation, break-even volume will likely be quite high and, therefore, not a reasonable expectation for clinic operations. Nonetheless, the technology may still be a worthy investment when including years two to five.
• Payback analysis. If the optometrist wants to know how long it will take to recoup their investment on the new technology, they shouldn’t forget the following: Most medical equipment wears out. I have found that a good rule of thumb for this is between three to five years. When run through a series of calculations, the investment in the technology is considered a slam dunk when the payback period is significantly less than the economic life of the equipment (or when most medical equipment wears out).
• Net-present-value. Essentially, net-present-value subtracts the value of all revenue obtained through what the equipment investment would be worth today from the value of all the costs of what the investment would be worth today and compares this to a rate of return for some alternative investment. When employing this analysis, the OD can decide which investment will provide the most value when there is an initial purchase of a piece of equipment. If the net-present-value is negative, the optometrist should pursue the alternative investment. If it is positive, the investment makes complete sense.

ELEMENT 3: EVALUATE GENERAL PRACTICE FIT

It is easy to assume that a particular piece of equipment is a great fit for the practice because it satisfies Elements 1 and 2. Buyer beware! You could be making a big mistake if you overlook its physical footprint, ease of use for staff, and support/service provided by the manufacturer.

• Physical footprint. Before heading to the trade show floor or entertaining a sales rep in the practice, the optometrist should be sure to measure the technology’s physical footprint and the practice space needed to effectively move a patient in and out of testing without impeding other functions of the practice. After doing so, the OD should add 30% to the dimension calculations to provide a cushion.
• Staff ease of use. Is the technology user-friendly? Does it operate similarly to others in your office(s)? Will it require significant training and development time? The answers to these questions may mean the difference between the technology gathering dust and delivering.
• Vendor reputation. Does the vendor of the technology have a reputation for providing excellent on-boarding and on-going support? Without both, the OD could be wading into diagnostic quicksand. To determine the vendor’s reputation, the optometrist can pick the brains of colleagues and look up ratings. At a minimum, the OD should receive one year of support and “white glove” delivery/setup. Additionally, a representative from the company should be available to train the clinic team alongside actual patients until the team is comfortable operating the technology. Usually this would require the representative to be on-site for the first day and the provision of leaving behind documentation and direct technical methods of communication.

ELEMENT 4: EVALUATE COMPATIBILITY

Assuming the intangible and tangible elements align, compatibility is a meaningful factor when considering new technology (though it is not as critical for treatment technologies, since diagnostic instruments should be able to integrate with management platforms, while treatment technologies are typically “stand alone”). With data and interoperability driving value in health care these days, compatibility is a key consideration.

In the past decade, with the consolidation of health care systems, practices, and the growth of influence from large institutions, such as the Veterans Administration, the demand for data interoperability has grown significantly. To meet this demand, companies that manufacture new technology, such as diagnostic devices, have developed tools that provide for the analysis of DICOM-formatted data. This allows for the combination of data from various modalities: VF and OCT data, biometry and topography data, and a variety of other traditional and virtual diagnostic information.

As such, when evaluating any new investment for diagnostics, I suggest asking any number of the following questions to determine compatibility:

• Is the data from this device in DICOM format? (If no, strongly consider passing on this investment.)
• Can the data, not just the reports, be imported into a diagnostic data management platform?
• Does the diagnostic device allow the OD to communicate with other providers via its interface? (If not, can the data be exported to a platform that allows for this?)
• How does this equipment integrate with other equipment in the practice?
• Will legacy data be compatible with future device improvements and software upgrades?

SUM AND SUBSTANCE

For the OD to determine whether the investment in new technology will bring benefits, they must consider how it aligns with their business objectives, whether it’s able to outperform other investment opportunities, how it contributes to the business’ financial performance, and whether it “fits” with the practice, and supports the ever changing demands of the technology landscape. OM

DR. LECH owns ClearVue Eye Care. Previously, he served as an eye doctor in the Navy, and practiced at the Balboa Naval Hospital in San Diego, Calif. While there, he was the director for both the Optometry Clinic and Specialty Contact Lens Services clinic. Dr. Lech is deeply involved in iCareforIndia, a periodic mission to provide eye care and other critical health care services to some of the world’s most distant and in-need populations.