The Os are coming! The OOs are merging!

With the expected rise in demand for services, teaming up with optometrists makes fiscal sense.

By Robert Calandra, Contributing Editor

Ophthalmology and optometry practices are uniting at an accelerated pace — for many reasons. Ophthalmologists buying or partnering with an optometric practice, or simply hiring optometrists, can make fiscal sense for both professionals. Many physicians and optometrists already have a referral relationship, so buying or merging practices and expanding into a full-service clinic are financially logical.

“We are seeing large MD practices buying smaller MD practices and MD practices of every size buying up optometric practices,” says John Pinto, president of the management consulting firm J. Pinto and Associates in San Diego, Calif.

Combining efforts also allows both types of physicians to do what they do best, says Christopher Quinn, OD, vice president of the American Optometric Association. In an ophthalmology/optometry practice the ophthalmologist focuses on surgery while the optometrist tends to primary eye care. This creates a blended efficiency in which both parties can work together.

“You don’t go to see a cardiac surgeon when you have a headache,” says Dr. Quinn, who works at Omni Eye Services, a combined optometric and ophthalmologic practice in West Orange, N.J. “If the patient has blurry vision I can triage that patient. If it requires some surgical service then I send that patient to the specialist.”

In the long term, merging the professions could also relieve a looming concern. Medical schools simply aren’t turning out enough ophthalmologists to meet future demand (See “ABO diplomate data, below). So “substituting ophthalmology labor for optometry labor,” may be the answer, Mr. Pinto says.

A poor relation gets noticed

An ophthalmologist who wants to hire an optometrist must genuinely respect the profession.

It wasn’t always this way.

A couple of generations ago, most ophthalmologists didn’t view optometrists as colleagues. Whether it was elitism or competitiveness, ophthalmologists viewed optometrists as eye care’s poor relations.

Now, optometry schools have become more academically demanding, placing more emphasis on direct patient care. The result has been a growing respect for the profession among ophthalmologists, so much so that some physicians are partnering with, hiring, or buying optometric practices. For the past 20 years the wall between the two disciplines has been razed brick-by-brick, says Mr. Pinto.

It’s not that wonderful, says Dr. Quinn. Some ophthalmologists are still dismissive about optometry and tend to restrict the scope of the optometrist’s practice. They are the minority but those physicians see optometrists as “second class citizens” and “physician extenders.”

“They are kind of using optometrists instead of embracing them,” Dr. Quinn says. “That kind of model is likely not to be successful for either the optometrist or ophthalmologist. If you don’t have respectful relations between professions it is not likely to work for either party.”

Options for integration

Ophthalmologists and optometrists can commingle in a number of ways. The most popular method, says Robert E. Wiggins Jr., MD, of Asheville (N.C.) Eye Associates, seems to be ophthalmologists hiring optometrists as associates.

“In our practice’s case, it has been a long time since we purchased a practice,” says Dr. Wiggins, AAO senior secretary for ophthalmic practice. Rather, the most recent optometrists to come on board the practice joined as associates.

Elsewhere, the proverbial shoe …

“In Indiana, Florida, Arizona and California, where optometrists can hire ophthalmologists, we’re seeing a very small number of optometrists hiring ophthalmologists,” says Mr. Pinto.

Most states, adds Mr. Pinto, don’t allow the two professions to co-own a practice, making partnerships still fairly rare. But that is beginning to change.

“The trend is toward allowing more” co-ownership, he says. “I think we’re going to see more mergers, not just acquisitions of optometric practices.”

Dr. Quinn says some ODs are buying MD practices because the scope of optometry continues to advance.

“If you’re an optometrist buying an ophthalmology practice you probably aren’t going to have the surgical revenue within the practice,” says Dr. Quinn. “If you’re an ophthalmologist buying an optometric practice it’s a little simpler because you don’t have to worry about the surgical volume.”

Buying a practice

Acquiring an optometric practice is probably the quickest way to grow. Mr. Pinto estimates that a few hundred such deals take place a year, or about 2% to 4% of all ophthalmology practices in the country buy one or more optometry practices in a given year.

With the demand for both ophthalmology and optometry services expected to grow in the coming years and the dwindling number of newly minted ophthalmologists, blending practices makes sense. Dr. Quinn says that buying or blending practices or just hiring optometrists will help ophthalmologists to become more efficient by allowing them to focus on surgery.

“I don’t believe ophthalmologists can actually continue to provide all the primary care and all the surgical care that they would like to believe they can,” Dr. Quinn says. “It seems like a tremendous waste of training for ophthalmologists to engage in primary care. I hope, over time, that their value to the health-care system is more concentrated on surgical services rather than primary care services.”

Before purchasing an optometric practice, you must establish its value. “It’s subject to a lot of variables, and there is really no easy or correct answer,” Dr. Quinn says. “There is a lot of nuance in valuation of medical practices today. Some of the old rules, those formulas, don’t work today.”

Overall, an optometry practice’s value should come down to the cost of its hard assets (such as equipment), accounts receivable (including money not yet collected) as well as goodwill and other intangibles. But Mark Kropiewnicki, JD, principal attorney and president of Health Care Law Associates and president of The Health Care Group, Inc. in Plymouth Meeting, Pa., says it’s not unusual to pay “over and above the hard asset value” for an optometric practice.

“Usually it makes sense if there has been a referral relationship with the optometry practice and the optometrists referred his cataracts and other things to the ophthalmologist group,” Mr. Kropiewnicki says.

An ophthalmology group can also be a bit more generous with its offer because the practice is preserving an existing income stream or generating a new one.

“When you talk about goodwill, it’s always about income streams,” Mr. Kropiewnicki says. Your group should consider if it will make money from the monies it spends to buy the goodwill of that practice, patient base and physician.

Mr. Kropiewnicki doesn’t have hard figures for what to pay for an optometry practice. However, regarding some of the intangibles, he says that the going rate for goodwill is about 30% of the practice’s yearly gross income. So, an optometry practice grossing $500,000 a year comes with a goodwill price tag of roughly $150,000.

“It’s not a huge number,” Mr. Kropiewnicki says. “It keeps that income stream with you or creates a new income stream for patients that you didn’t have before. In the long run it is going to be more than worthwhile.”

Bring in the ODs

If the optometrist stays on as an employee, expect to pay him or her a six-figure salary. Mr. Kropiewnicki says that most optometrists can pull down $100,000 to $120,000 a year. That’s in line with a 2011 Bureau of Labor Statistics report that pegged the average optometrist salary at $107,720.

“Many optometrists working on their own may not make that much, but if they are part of your practice, think about all the referrals for surgical and other procedures in his or her practice that will now be coming to your practice,” he says. “You can afford to be generous with your salary.”

The optometrist who stays on would transition from owning 100% of the business and making all the decisions uncontested, to owning 0% and being either a partner or an employee.

“It’s a very common and well thought-out succession plan for an optometrist,” Mr. Pinto says.

If you don’t retain the optometrist or if she decides to retire, there is an upside. You don’t have to worry about conflicting practice styles and how much professional autonomy the person wants. However, you should also expect to lose some of those patients.

Money changes everything

Mr. Pinto says there is no reason why MDs and ODs shouldn’t work in the same practice. In fact, the ODs he has spoken with would prefer being part of a medical practice.

“As long as the dollars are nearly the same, most optometrists would prefer to work in a medical setting rather than in a retail chain store or even a private practice setting,” Mr. Pinto says. “So we are going to see more practices where ODs and MDs are practicing together each taking their own appropriate slice of the patient care pie.” OM