6 Things You’re Getting Wrong About Retail Optical
As an ophthalmologist, you might think retail optical is better left to the optometry practices. And sure, your main focus is medical care. But you might also be missing out on an opportunity. An optical dispensary can be a profit center for your practice. The non-insurance dependent revenue it generates can help your practice weather declining reimbursements and economic shifts.
Why Retail Optical Makes Sense for Ophthalmology Practices
More and more ophthalmologists are understanding that in order to stay profitable, they must diversify their services and reduce the power of payers. Retail optical is a great way to that, while boosting patient satisfaction at the same time. Retail optical sessions at conferences like AAO are increasingly well-attended, but many ophthalmologists still believe that an optical dispensary won’t be profitable in an ophthalmology practice. And they’re right. An optical dispensary won’t be profitable—unless it is set up and managed correctly, like the retail business it is.
“In my experience, most ophthalmology practices that have opticals are running them at 10-15 percent profit margin, and that is unnecessarily low, says consultant Pam Fritz, whose business, Ophthalmology Resources, focuses exclusively on ophthalmology practices with opticals. “A 25 percent profit margin is what I try to achieve. And if you don’t accept insurance—and it’s a myth that you have to—you can do greater than that.”
So why is the belief that optical dispensaries don’t have a place in ophthalmology practices so persistent? It’s likely due to one or more of these “optical delusions:” False assumptions that prevent ophthalmologists from realizing the financial potential of an optical dispensary.
Delusion #1: Patients would rather purchase their eyewear online or from big box stores.
“That is absolutely not true,” says Fritz. The reason? “The ophthalmologist will be selling products that are a cut above what is sold in those locations.” The eye care practice has access to frames and lenses that create differentiation from big box stores. “Those venues are selling products that they can get at a much lower price, because the retail markup is so low and the profits are slim,” Fritz explains. Plus, many manufactures simply will not sell to the chains. “There are things you can get that the chains just can’t.”
Ophthalmology practices should be able provide the medical devices that meet the standards of their practice. “It was negligent of me not to be able to advise patients of the best type of eyewear for them,” reveals Kenneth Low, MD, who offered an ophthalmologist’s perspective on retail optical during his session at AAO 2018. The vision of many ophthalmology patients can be complicated. “To go to Costco to get their glasses is not going to fit their needs,” says Fritz. Low agrees. I “finally realized that the final step of obtaining the best vision was the lenses the patients wear,” he remarks.
And then, there’s the convenience factor. “It’s the one-stop shopping,” observes Fritz. “People today need convenience.” If the dispensary is right there in your practice, “it’s natural for patients to want to get their eyewear there,” explains Fritz. “Having that convenience is going to contribute to patient satisfaction throughout the entire practice.”
Delusion #2: You can ‘set it and forget it.’
“One of the biggest problems that hurts optical profitability is that [ophthalmologists] open an optical, they hire an optician, and then they walk away from it,” says Fritz. “The optical will not be successful if it’s left to run on its own.” Let’s be honest—physicians enjoy the profits an optical can bring, but many don’t have the time, the skills, or even the interest to be involved with running it.
Hiring the right optician is “a-make-it-or-break-it element” of a successful optical, says Low. Fritz agrees. “An optical dispensary is a retail business and must be run as such or else it will not be successful,” she emphasizes. “I can hire lots of really great opticians that sell well and fit in well and are terrific with patients—but they don’t know anything about managing the place. And that’s where things fall apart.”
But even the best optician or optical manger still needs oversight. “Someone—the doctor, the administrator, the practice manager—has to supervise in some capacity. The optical must have accountability,” advises Fritz. “There’s no other way to do it.” The more knowledgeable the administrator or practice manager is about the optical and the basics of how it should financially operate, the more successful it will be. “They don’t need to know how to make glasses; they need to know how to benchmark,” Fritz points out.
Delusion #3: A management company is the answer.
Some physicians think they can have their cake and eat it too by turning their optical over to a management company. “This generally does not work well,” warns Fritz, “unless you really don’t want to bother with your optical or you don’t care whether or not it’s profitable. You get the convenience factor but not the profitability factor,” Fritz explains.
There’s also a larger issue at hand. While there are still some independent management companies, the industry has been consolidating. “Because of that what I am seeing—especially in ophthalmology practices—is that these opticals are slowly moving into a mini-model of a chain operation,” she explains. In fact, several of the major management companies have been acquired. For example, both Vision Associates (the largest optical management company in the U.S.) and Partners in Vision announced a partnership with Essilor in 2017, according to a July 28, 2017 article from Vision Monday.
The management company usually owns a larger portion of your retail optical than you do, so you receive only a fraction of the profits. And with their formulaic sales model with pre-determined products and sales processes, you miss opportunities to cash in on products and sales initiatives that would work especially well for your specific patient demographic. But with a few small changes, you may be able to turn a big profit all on your own—and keep every cent. “I have converted optical dispensaries that were management-run to doctor-owned and doctor-run and the difference in profitability is just amazing,” says Fritz.
Delusion #4: Someone else will take care of credentialing.
Most physicians are not paying attention to credentialing for their optical. “They say ‘Oh, the optician takes care of that,” says Fritz. “If they don’t have someone on the administrative level of their practice tracking the credentialing and revalidating for DME and other insurance (like Medicare Advantage plans) you are at risk for being audited.” And a DME audit, Fritz emphasizes, is something you’ll want to avoid. “They will shut you down,” she warns.
An audit of your optical dispensary usually isn’t as big of a deal as a medical audit. But one thing leads to another, and that could be bad news for your entire practice. “What happens is that they catch you doing something fraudulent in your dispensary, they might say ‘Let’s audit one of the doctors too, and see what we find. A DME audit is a total nightmare.” Fritz laments. If your optical loses that credential, it’s very difficult to get it back. “It’s not just a slap on the wrist—it could take years,” says Fritz. “And they are really cracking down.”
Delusion #5: The capture rate isn’t that important.
“If the patient can get out of the office without going through the dispensary, you’re going to lose revenue,” says Fritz, who has encountered more than one physician bypassing their own opticals and sending patients to the drugstore for reading glasses. “Your capture rate must be very high.” Luckily, there is a range of things you can do to improve your capture rate.
All of the physicians in the practice must be on board with the handoff from medical to optical. That can be tough to achieve. “They can’t just give the patient the prescription anymore, and they’ll need to get used to the new flow,” Fritz explains. You could also set up an electronic transfer of prescriptions from the exam lane directly to the optical, she suggests. That way, the patient must go through the optical to pick it up.
Every position in the practice plays an integral part in increasing the capture rate, and techs are no exception. Patients having comprehensive exams and are going to be dilated, so set it up so those patients go to the optical first “because once they get dilated they can’t see anything,” Fritz points out. “Get them into the optical to look at frames, hold the ones they want, and then the get them dilated,” she recommends.
Delusion #6: An optical dispensary is too expensive to set up and run.
The cost to add an optical is “relatively low compared to the profit it will generate for you,” says Fritz. “It’s the return on investment you’ll see after you get it up and running.” If a practice decides they want to add an optical and they have the space—Fritz recommends 800 square feet at minimum—the cost can be reasonable. Plan to spend at least $50,000 for furnishings, and another $50,000 to $60,000 for inventory. The good news is that you can work with the manufacturers and negotiate payment terms. That way, you’re not spending money up front; you’re spreading it out. “The day you open your optical, you’re not paying for any of the frames until you’ve sold some,” Fritz explains.
Once open, “there are three primary cost control drivers for your optical,” says Low, “and you can control all of them.” Here’s how, according to Low:
- Lab vendor: Find a vendor partner who offers you the best price, quality, and service.
- Frame vendor: Set an optimal number of 8-12 vendors. Then, create collections that mimic your practice’s demographics.
- Staffing: The metric is one optician equals $225,000 of projected gross sales in the optical. If sales volume is higher, add additional staffing.
- Review all business relationships every two years, Low suggests. “This allows you to maximize savings as your volume increases.”
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