5 Major Financial Threats To The CEO Optometrist in Private Practice
In part one of this series, we talked about threat #1, Not paying yourself first. In that article, I reminded you that you’ve achieved something great by starting your practice. As a CEO Optometrist, you were willing to take risks to grow your practice. You deserve to be paid, just like any of your employees. Invest in yourself just like you do in your practice.
In today’s article we’re going to talk about threat #2 – Overreliance on vision plans. Specifically, how vision plans affect your cost per acquisition (CPA) of new patients. The opinions expressed in this article are just that, my opinions. They are based on my experience and observations from 13+ years in private practice. With that said, let’s get to it!
Threat #2 – Overreliance on Vision Plans
Vision plan reimbursements are the bread and butter of most private Optometry practices. Many practices would go out of business if they lost their contract with some of the vision plans in the industry. While, these plans do bring patients into your practice, but sometimes I wonder at what cost?
Many private practice owners rely heavily on vision plans for lead generation and income. Consequently, when someone opens a practice, the general consensus is to enroll in “profitable” vision plans as a network provider and success will ensue. As a result, many Optometrists in private practice don’t allocate an appropriate dollar amount for marketing in their budget to attract and retain patients, instead they just rely on vision plans.
When making a decision to enroll as a provider for vision plans I recommend you consider the following 3 observations before making your decision. If you’re already a provider like myself, I still recommend that you consider these 3 observations as well as they may help you understand your current position and decide how you want to structure your practice for the future.
Observation #1 – The Cost Per Acquisition (CPA) of new patients with vision plans
Cost per acquisition (CPA) is simply how much you spend for each new patient you get. Here is an example of how to determine your CPA. Let say you spend $1000 per month on google ads and in 1 month your campaign generates 30 leads for your office. Out of those 30 leads, you convert 10 patients to come to your practice. Your cost per acquisition (CPA) is $100 per patient.
- CPA= $1000/10 = $100 per patient
As you can see, the more patient you convert, the less your CPA and vice versa. Pretty simple, right? Keep in mind that in the example above, I did not mention ROI. I’m only focusing on the CPA of new patients. But what does this have to do with vision plans? Well, it’s all about control.
In the example above the CPA is set per campaign and has an inverse relationship with the number of new patients converted. Which means, If you train your team well, you can reduce your CPA by increasing your lead conversions. You can control your cost! In addition, the CPA in this example is a one-time fee per patient. If this patient returns to your practice year after year, there are no additional CPA fees. That’s huge for your ROI!
However, that is not the case for vision plans or any insurance plans for that matter. When using vision plans to acquire new patients, your CPA is calculated per patient and you have zero control in the matter once you sign the contract. With vision plans, CPA is calculated as follows: CPA= U&C fees – plan reimbursements.
Example: If your U&C fees for a comprehensive eye exam for new patients is $150 and your reimbursement from a vision plan is $40; this is how you’d calculate your CPA of new patients under this plan.
- CPA= $150 – $40= $110 per patient
As you can see, regardless of how many patients you convert in this example, your CPA remains the same. You have no control, that is why I consider vision plans a financial threat. We have a fancy term for this in our industry, we call it “the write-off”. Until now, did you realize you could be losing up to %75 of your fees to acquire a new patient under a vision plan? Shocking, isn’t it?
But wait, there’s more. You pay this fee every single time the patient returns to your office and if the insurance company decides to lower reimbursements, your CPA will go up. Again, you have no control in this matter once you sign the contract that is why it’s a threat.
Sometimes, I wonder why we criticize other entities who charge a minimal fee for their eye exams, when we are willing to write off almost 75% of our fees. We say that they’re reducing the perceived value of our profession because of their minimal fees, but are they? I used to say such things and then it hit me one day. How was I any different? At least they didn’t have to deal with a 3rd party. At least, they had control.
So, what am I saying? In light of this threat, should you go to your office tomorrow and cancel all your vision plan contracts? Noooooo, that is not what I’m saying at all. Although, wouldn’t it be totally awesome if you could do that and not go out of business? But alas, most of us would go out of business if we did. So, what should you do? What is the point of this article? What am it trying to say?
If you do accept vision plans in your practice, and they are your primary source of income, you need them. However, I urge you to calculate your CPA per patient and ask yourself if you’re comfortable with this arrangement. In addition, do a risk analysis for your practice and determine what would happen if any one of those plans decided to kick you off their panel.
What if one of them cancelled your network contract? Are you prepared for that? If not, what can you do to prepare? With the current climate in our industry, it’s important to consider these questions. These are threats to the survival of your practice and you have to be proactive and not put your head in the sand. You have to plan for the possibility of this threat.
Once you do these calculations and this risk assessment, you can then make an informed choice on how to manage vision plans in your practice. There is no wrong or right choice here, only the choice for you. You have to decide what is best for your practice.
My goal in this article was to give you some insight to help you make the best choice for you. When you are informed, you are empowered. Remember, you don’t owe anyone an explanation for the choice you make. You pay your own damn bills and that my friend gives you the right to chose. Just make sure you are choosing what is in your best interest.
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We’re not done yet with vision plans. There are still a 2 more observations to go.
- The revenue cycle management cost
- The limitations of contractual regulations
So stay tuned! Until then, remember to Dream Big, Take Risks and become the CEO of YOU™!
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