Dispensing Frontiers
Picking Insurance Plans that Work
Here are three strategies to help you determine whether an optical insurance plan will be profitable -- before you join.

Most doctors accept insurance plans because doing so brings in patients. If optical insurance is part of the package, it probably will serve the same purpose, driving extra business into the dispensary and increasing your cash flow.

However, there's a catch: Just because the medical side of a plan is acceptable doesn't mean the optical side is. Usual and customary fees for medical services are based on the cost per hour of delivering those services. Optical fees, on the other hand, are based on the costs of providing both services and product.

As a result, the way an insurance company decides on fees for products, as well as which products will be covered, determines whether or not you'll profit from delivering optical goods and services under that plan.

Consider this: The average optical makes 20% profit on every dollar, but insurance companies can discount prices up to 30%. Given this fact, it takes a lean, mean optical machine -- selling bread-and-butter products at commodity pricing, in volume -- to make money playing the insurance game.

To avoid taking a financial hit, you need a way to decide whether the optical part of an insurance plan will be profitable for your practice. Take the following steps to make sure the optical portion of the plan at least will cover the cost of operating the dispensary -- before you sign the bottom line.

STEP 1: CONSIDER WHICH OPTICAL PRODUCTS AND SERVICES ARE COVERED BY THE PLAN

Ask the following questions:

	ILLUSTRATION: AMY WUMMER

• Does the plan allow you to sell products that aren't covered, at retail prices? If it does, patients can simply pay you the difference between the two prices that the plan doesn't cover.
• Are you limited to offering certain types of frames or lenses? If your optician sells optical products that aren't covered by the plan, the plan may state that you're only allowed to charge what one of the covered products would cost. If your optician doesn't realize this, you may end up having to make costly patient reimbursements.
  If you accept this type of plan, your optician needs to know what's covered and what isn't.
• Can you sell add-ons at a higher profit margin to compensate for discounts? The best plans allow you to do this. Otherwise, taking time to up-sell can actually decrease margins.

Note: With any insurance plan, your dispensary staff should be encouraging patients to consider purchasing a second pair of glasses. The fact that one pair is paid for by insurance will often be sufficient to convince a patient that a second pair is now affordable. If your staff doesn't encourage purchasing a second pair, you may end up losing many profitable sales that could offset some of the losses you take selling the first pairs.

Also, be sure to track multiple pair sales within each plan, so you can tell which plans really do encourage the purchase of additional pairs.

STEP 2: COMPARE AND PROJECT COSTS AND PROFITS

You can accomplish this by doing the following:

• Determine average hourly dispensary costs and profits. Use last year's profit and loss statements to total costs for the optical side of your practice. Divide this total by the number of operational hours to determine how much the dispensary must collect to break even every hour.
  Next, divide your total optical collections by the number of operational hours to determine collections per hour. Subtract your cost per hour and you'll know the average profit the dispensary collects each hour.
• Determine what the plan would pay per hour, given the products you sell. If you substitute the plan's fees for the prices of the products you sold last quarter, would you be as profitable?
  • Multiply the number of single vision, bifocal, progressive and trifocal lenses you sold last quarter (which you should be tracking) by the plan's fee schedule.
  • Add in the extras you sold that the plan would allow.
  • Multiply the amount allowed for frames by the number of actual frames sold. Add this to the lenses balance.
  • Divide this by the number of operational hours and you'll know what the plan would have paid per hour if you'd sold the same items under the plan.
• Compare what the plan could cost you per hour to the costs behind retail sales. Some plans will require you to use a specific laboratory to provide services. If so:
  • What happens if the lab doesn't perform to your expectations? Under what conditions can you choose another lab?
  • Who pays for re-makes?
  • Are there other providing labs you could resort to?
  • If you can process the product in-house, will the plan pay you at the same rate it pays the providing labs?
  • Can you only sell particular types of lenses?
  • Will the provider labs charge less than your current labs?

The answers to these questions will tell you whether or not participating in this plan will allow you to reduce your cost of goods.
If it will, substitute the new lens pricing under the plan for the cost of the actual lenses you sold last quarter so you can determine the break-even point per hour, if you were working under the plan.
Also, using last quarter's sales figures, subtract the plan's cost per hour from its collection per hour. This will let you compare the profit margin of the plan to your overall dispensary's profit margin. If the amount the plan pays per hour is less than what you're now making, you'll need to see more patients per hour to make up the difference.

• Calculate the number of patients you can see without increasing costs per hour. The idea behind accepting another plan is to bring in more patients, but bringing in more patients raises other issues.
  You need to estimate the number of additional patients the plan will bring in. Even though you may be able to refract a patient every 15 minutes, remember that it takes 30 to 45 minutes (on average) to choose new glasses. If the plan will bring in more new patients per hour than your current dispensary staff can manage, you'll have to hire new employees to meet service demands. Then you have to ask: Will income from the extra patients offset the cost of hiring new dispensary employees?
  You may find that taking a plan that requires you to hire additional staff just isn't worth it. On the other hand, if more patients are needed to meet your dispensary's break-even point under your current circumstances, the plan may help by bringing in needed cash flow, even if it's not as profitable per hour as you'd like.

STEP 3: FIND OUT WHAT'S INVOLVED IN EXITING THE PLAN

Along with the financial value of an insurance plan, you need to consider other issues such as whether you'll encounter problems when and if you decide to leave the plan. Get the details of what you'll need to do to exit the plan, in writing -- before joining the plan.

Get answers to questions like these:

• Will you still be able to provide medical services if you choose not to provide optical services?
• How far in advance must you notify patients of your intent to exit?
• Where else can these patients go for service? Can you retain them in your practice or must you suggest other plan providers?

Answer these questions now, so you won't find yourself stuck in a non-performing plan later.

STAYING ON THE RIGHT TRACK

Many practices deal with a large number of insurance plans, yet the practice owners have no idea which ones are actually helping their bottom lines. Obviously, this is not a good way to ensure profitability.

If you take the time to use the strategies outlined above, you'll be basing your decisions about which insurance plans to join on solid information. Armed with this knowledge, you can join a plan and be confident that you and your practice will, indeed, profit from the association.

Leona Meditz is a practice consultant with 25 years experience opening, owning and operating optical dispensaries. Visit her new Web site at www.3ps4profit.com or email her at Leona@3ps4profit.com