When it comes to your dispensary, is no news really good news? For many ophthalmologists, dispensary management is an afterthought. As long as it’s not losing money and patients aren’t complaining, the doctors are content to leave well enough alone.
But Medicare reimbursements continue to decline and so do reimbursements from commercial payers that follow CMS’s lead. A robustly performing dispensary is a hedge against these forces that threaten to drag down your profits. But if you want to fully reap those benefits, complacency when it comes to dispensary management won’t cut it.
“So, is a dispensary still profitable for ophthalmologists?”
In a nutshell? Yes. Some ophthalmologists think retail opticals are just not profitable, when the real problem is that they are not managing them correctly, optical expert Arthur DeGennaro told a group of physicians at last year’s ASCRS symposium. For many ophthalmologists, that’s exactly what scares them. The triple threat of not having the time, expertise, or desire to directly manage their dispensary leads them to shrug off modest performance.
But that “if it ain’t broke don’t fix it” mindset means that you are missing out on opportunities to jump start your dispens ary’s profits by making just a few purposeful adjustments. And with the right dispensary management strategy, you won’t have to give up any chair time to do so. If you’re committed to investing in the right staff, the right training, and the right processes, your dispensary could be as close to passive income as you can get.
Here’s more good news: You don’t need to know everything about managing an optical. You just need to know enough to know whether your staff—who are often doing stuff you can’t always pay attention to—are losing revenue opportunities, or worse, ripping you off. During his seminar, DeGennaro detailed some of the most common and easy to ignore dispensary management mistakes.
Dispensary Management Mistake #1: Your manager has the wrong background.
Many ophthalmologists with so-so opticals don’t want to take on what they imagine is the huge burden of turning things around, so they end up outsourcing to optical dispensary management companies (ODMs) that run the place for them. Yes, that means less work. But it also means fewer profits—often only a small percentage. Most practices don’t realize that if they just hired the right optical manager, they’d make more money—and keep all the profits, DeGennaro says.
The problem with finding the right manager can be twofold:
Sometimes, a manager doesn’t have enough optical experience. Many practices hire general healthcare administrators to manage their opticals. But optical aren’t just a “healthcare” business; they’re a very specific retail business. A successful optical manager will not only understand healthcare and retail, but also must be able to understand and cater to the wants, needs and desires of optical customers.
Alternatively, a physician will often hire the first optician they can find who has a ton of experience, and give them free reign. The problem? Not all long-term opticians have the necessary skills to assess and manage the financial performance of an optical, according to DeGennaro. Financial assessment skills include the ability to analyze goods costs, set retail prices that provide adequate margins of profit, negotiating discounts with vendors, and determining realistic staffing requirements to ensure exceptional service while maintaining affordability for the practice, he says.
Finding a manager that has both financial management and optical experience can be difficult so it may make sense to acquire additional training for a potential or existing manager, DeGennaro says. But again, there’s a bright side. Investing in a good manager will pay dividends in the long term, for both your optical profits and your staffing costs. Invest the right person now—an administrator who can handle the daily operations of your optical as well as define and monitor your performance goals and objectives—and you’ll save money on replacing that person later.
Dispensary Management Mistake #2: Not enough physician involvement.
Today’s physicians should be looking for as much out-of-pocket revenue as possible. An optical’s non-insurance dependent revenue can help balance unpredictable government policy changes and cushion practices from the whims of payers. Physicians have every logical reason to be engaged in the performance of their opticals, but many just aren’t involved enough, according to DeGennaro. Why? DeGennaro points to two common issues.
1. They don’t want to be seen as “sellers.”
Doctors sell patients on procedures all day long. But when it comes to selling patients on their optical, there’s a disconnect. “Why is it they are comfortable with one and not the other?” DeGennaro asks.
Reframe “selling” as “education,” he recommends. Offer patients practical, appropriate solutions that have real benefits, just as you would when talking about LASIK or cataract surgery. “If the patient thinks, ‘Wow, that guy didn’t try to sell me at all,’ Yes, he did. He’s just really good at engaging the customer,” DeGennaro points out.
2. They don’t know what to say.
Ophthalmologists are rightly focused on the clinical care of their patients, so they’re often unsure of exactly what’s going on in their dispensaries, from both a product and a process perspective. In order for doctors to feel more at ease talking to patients about the dispensary and optical products, they’ll often need optical product training that focuses on the basics and also helps them to set up their optical staff as experts.
3. They’re afraid to make the ask.
They may not readily admit it, but many doctors are simply fearful of asking patients to use the practice’s dispensary. Scripts can help overcome that mental block, DeGennaro says. Try something low-pressure, like “I know you haven’t bought from us before but would you at least be willing to give us a look?” Regular use of scripts like this will positively influence your capture rate over time.
If the practice’s doctors are engaged, the optical shop will profit. Why? Because “patients put their trust in the doctor to take care of them,” DeGennaro says. Dispensary sales start in the exam room (or even the pre-test room). Doctors should present the dispensary to patients as an integral part of their medical care, and not just “a place to buy new glasses” after their doctor visit. So don’t think a dispensary issue is not a doctor issue, DeGennaro emphasizes. From the patient’s perspective, it’s a doctor issue.
Dispensary Management Mistake #3: You don’t have enough data (or if you do, you’re not using it).
If you’re benchmarking, great. And if you’re not, you should be. But simply tracking your numbers isn’t enough. Running reports and making them look pretty for the doctors is one thing; it’s easy to identify trends according to a graph or bar chart. Actually knowing what to do about those trends requires deeper knowledge, and implementing strategic changes to alter the direction of those trends is much more difficult.
When your optical staff performs well, your optical profits will grow, so you should also use benchmarking data to create work standards for your optical staff, says DeGennaro. Without data, it can be very difficult for doctors to evaluate the performance of their optical staff; oftentimes, the optical staff knows more about what they do on a day-to-day basis than the doctor does. Tracking the right data will help you evaluate staff performance objectively in relation to the work standards, remediate areas that are below those standards, and create a plan of action for the professional and personal growth of each optical employee. Look at data points like these, DeGennaro recommends:
- Net retail sales: $250-350K per FTE provider in your practice.
- Sales performance of each optician: 1000 units per year at minimum.
- Add-on sales: Use a sell through report to track sales of second pairs, transitions, progressives, and other add-on items per optician.
Tip: Add-on sales tell you about quality of an optician’s selling performance. For example, if their sell through of second pairs is above average for your market, their sales techniques are likely top notch.
- Technical ability: Use a remake report to track quality.
Dispensary Management Mistake #4: Your inventory is being mismanaged.
Inventory management is crucial to profit control. Every frame on your board is like $50 hanging on that board, DeGennaro says. First, take a look at your capture rate. If it’s low, this can point to problems with the inventory mix. Stock the wrong mix for your patient base, and you’ll lose out on sales. Correct that, and your sales will increase because you’ll be more appealing to your demographic. DeGennaro points to these additional reasons you’re not making enough money:
1. Poor sourcing
Watch out for less-than-stellar deals with vendors and labs. Smart purchasing and negotiating with your labs can help you offer competitively priced eyeglass packages that are profitable to the practice and appealing to patients. And don’t let your contracts languish—bid them out at least every two years, DeGennaro recommends.
2. Poor pricing
“Stop worrying about Sam’s Club,” DeGennaro quips. Price your products according to your market. Instead of worrying that they’re too high, focus on educating your customers on your value proposition. Without enough information, customers will usually make their decision based on price alone, and they’ll gravitate to the low end, DeGennaro cautions.
3. Too many discounts or unauthorized discounts:
Poor sellers always try to lower prices because it makes it easier for them to get the customer to say yes,” DeGennaro says. Rather than implement a price reduction, ask your vendors to swap out frames that don’t sell. That way you’ll at least have a chance to make a profit, rather than just recouping the initial cost of the frames.
Tip: Your cost of goods (COG) can tell you about more than just what you’re paying for inventory. “If your COG is above 50%, there is a strong possibility someone is stealing,” DeGennaro warns.