Background: The optometry practice sits inside a national retail store. It serves a medium market in the Southeast. The practices’ model is to (1) offer eye examinations at or below market prices (2) fit contact lenses and (3) spend 20-30 minutes with each patient answering all questions during the examination. The niche of the practice is excellence in patient care, particularly taking the time to listen to the symptoms. To accommodate increased demand the practice has added a 6th day. Each year the exam boasts increased revenues.
Competitive Advantage: The competitive advantages of the practice are numerous:
o An independent doctor conveniently located next to a retail regional optical shop.
o A loyal patient base (60-70% recall rate, which is best in class1).
o A growing word of mouth referral business requiring low advertising expense.
o A low cost structure/overhead (800 square feet lease, low malpractice insurance, a part time receptionist, etc).
o An environment of trust, because the doctor does not recommend any retail solution. Many eyeglass stores are owned by optometrists or have salaried optometrists on staff.
o An excellent reputation in market with patients, competitors, and ophthalmologists.
o A practice focused on core competencies: eye exams, contact lens fittings, and simple eye disease treatment. The practice does not conduct visual therapy, offer advanced eye technology, or treat advanced eye disease.
Goals: The doctor has several practice goals.
o Grow the practice.
o Work fewer hours and maintain revenues by becoming more efficient and seeing more patients per hour.
o Focus on the optometry practice (no ambition to offer a retail eyewear solution).
o Establish on going relationships, spanning several years with her patients and their families.
o Strike a balance between seeing 2-4 patients per hour.
o Get credentialed with additional insurance companies.
Solution: Hire a business consultant to apply lean tools
During the initial process walk we discussed an unused examination room, which was being used as a storage room for contact lenses. These lenses are used during contact fittings and dispensed to the patients free of charge. We discussed the benefit of using the space for inventory (that is given away) rather than for patient care. As a result we implemented a vendor managed inventory system with the contact lens company and moved the most of the contact lenses into the hallway into a secure cabinet.
Additionally, in the past, the optometrist or her staff inventoried the lenses and called the contact lens company when inventories were running low. We found a win-win by shifting the inventory management burden back to the contact lens company sales representative. The sales rep had better visibility into inventory and demand. The practice could focus on patient care. While there is still some overflow supply in the spare room, and the space cannot yet be converted into an additional exam room or a pre-exam room, at least the Optometrist and staff have eliminated the low value work and have made better use of space.
We made another improvement in appointment scheduling. Due to the part time status of the practice office manager, the adjoining retail shop often set appointments for the doctor. When the retail shop would set appointments, they would try to fit the patient in a quickly as possible or as convenient for the customer. This was inefficient because the rules of the retail side do not translate to an optimized eye exam schedule. Retail appointment setting created gaps in the doctor’s schedule that often went unfilled. The solution was to have the part time office manager set appointments. When the office manager is away, the practice has established and communicated written business rules where the retail shop has to schedule appointments by sequence or by day. This rule of thumb led to stacking exams one after the other rather than spreading them out. In both solutions now the doctor’s schedule is level loaded and is operating more efficiently.
As with many small businesses, the practice struggled with its value proposition. The patient demographic of the practice is 40% non-insurance and 60% insurance. The insurance rates are nonnegotiable and fixed by HMOs, but the practice does have control over the non-insurance exam pricing. The practice had held examination rates for several years. There was an opportunity to grow revenue with a general rate increase. Raising rates is not an act of efficiency and does not create value for the patient. However, it is important for the practice to understand its value and position its fees accordingly.
We benchmarked the basic eye exam rates (with dilation) of eight local practices, and the data showed that seven of the competing practices charged higher rates. Although many non-insurance patients do comparison shop eye exams for price, a practice that has a high patient loyalty rate can and should compete on quality of care. Dr. Ko believes that her patients do not return year after year because of the low rates; they come back because of the doctor, staff, and the quality of care. The practice now institutes a rate increase each year.
The practice had identified many ways to boost revenue, such as sending recall cards. One revenue lever recently implemented is referring patients that require surgery to ophthalmologists. The optometrist does not get payment for the referral but often is referred back to her for the follow up care.
The practice is also getting credentialed with other insurances. Though some insurance plans are not as attractive as other plans due to lower reimbursements and slow payment, the doctor has realized that getting credentialed in other insurance programs is an opportunity nonetheless.
Some of the opportunities that we discussed do not align with the practice’s goals. Offering eyewear sales is a conflict of interest currently with the retail store. Getting into eyewear sales is very complicated and would require a large inventory investment. Offering new technological testing requires significant capital investment or long term leases. The practice is taking a wait-and-see approach to new technology.
Other opportunities do align with Dr. Ko’s goals, such as creating a practice website. This would be a low cost solution to disseminate general patient information such as what insurances are accepted, appointment schedule and FAQs. Education sites can be linked to the website as well as informational items such as a practice newsletter or staff biographies. Some of the competitions’ websites take patient education to another level by having detail on each service offering and posting pre exam survey forms which can also save time in the waiting room.
By Heechung Ko, O.D. and John Damm, CPIM, C.P.M.
1″Driving Toward Efficiency” Lee, Judith, Review of Optometry, pp. 47-50, March 15, 1999.