Do you all remember one of the questions you had at your optometry school interview? I remember mine.
Question: Why do you want to be an optometrist?
My answer: I want to be rich, and it seems like a good way to go about it.
This was not my answer nor was it my primary reason for choosing my profession.
Ultimately, I came to realize that not only did I enjoy working with people to detect and solve problems while enhancing visual outcomes, I also enjoyed saving lives while earning excellent compensation for my services.
In this article we will talk about:
Employer vs. Employee income potential
- What is your day-to-day as a practice owner
- Making money on the medical side of the business
- Making money on the optical side of the business
- Practice analytics and data
- Resources to keep up with business
- The cost of inventory
- To have an in-house lab, or not
- Pension plans
Employer vs. Employee Income Potential in Optometry
Today's managed care environment presents new challenges in clinical practice and practice management decisions. One of today’s management challenges is keeping the practice of optometry profitable.
As the profession of optometry has been excellent financially for me and my family, I would like to share a few ways to parlay your knowledge into good fortune.
There are two basic ways to practice optometry, as an employee and as an employer. Each has its benefits and its challenges.
An employee, as in any chosen profession works to receive a salary.
In some cases, the salary is a flat rate and in other cases it is based on production. As an employed OD, getting paid on production has the most upside potential, especially in a well-managed practice. The harder or more efficient you work, the higher the earning potential.
Many employers will offer benefits including vacation pay, medical, life and/or malpractice insurance, CE stipends, profit sharing and 401K plans. Profit sharing and 401K plans deserve its own discussion later.
The benefit of being an employee is that you go to work and then go home without the hassles of running a practice. Many would say that balancing family life and down time is probably easier as an employee.
Life is good and hopefully satisfying.
My path as an employer
In my opinion and from a financial perspective, owning and ultimately running a successful practice was much more fulfilling for me. I was the one in charge of my own future and I was able to reap the financial benefits of a successful practice. As most of us do, I started my career as an employee, working in private and retail settings and as an OD in an ophthalmology office. I never had the opportunity to work on production and was paid a salary for each hour I worked. If I did not work, I did not get paid.
My upside income potential was limited and that bothered me. I was not a business major in school but I knew that I needed others to make money for me, in addition to the income I could generate myself.
After 4 years of hard work for others, learning all I could from each mode of practice, I opened my own practice cold with two partners. Of course, this was in 1984 and managed care plans weren’t the norm.
That being said, it still was a daunting task. After almost 3 years with partners, we parted ways and I was finally the boss, controlling my own destiny.
I learned very quickly that owning and running a practice requires that you understand each aspect of your business. Yes, an optometric practice is a business. Actually, it is two businesses in one.
We have our professional or medical side of optometry and we have our retail or optical side.
Each side of our business must be profitable and it is important to understand every aspect of each side of our business.
The day-to-day in an optometry practice
It is hard enough as a professional to keep up with the demands of our professional license, patient care, continuing education, HIPAA, PQRS, paperless office, new exam technology, and insurance and vision plans.
As a practice owner we are also responsible for our employees’ actions:
- sales training for the optical and medical staff;
- patient satisfaction with product;
- and a host of other business modalities.
We must do all of this while balancing family life and personal time.
In the early years of ownership there is a big learning curve. In the early years of a new practice you will not likely have a large support team. This may be very different if you purchased an established practice. In a new practice you will wear many hats, perhaps all of them.
In between seeing patients and charting you might meet with sales reps.
You will learn to select inventory yourself or choose to delegate that to someone else, with your oversight.
You will learn to negotiate with your labs for best lens prices while making sure that the lab you choose gives you a product you will be proud to dispense to your patients.
If you have an in-office lab, you may even learn to fabricate eyeglasses. This is not a bad thing as you will get a taste of what it takes to run your lab.
You will learn all about the vision plans you choose to accept in your practice. If you work with VSP, Eyemed, Davis Vision, or others, you must understand how your practice can make money while providing excellent service and products to the patients.
Resources for optometrists
Many resources are available for educating you on how to make money with vision plans. One such source is GPN. You should attend as many practice management seminars as possible at Vision Expo or at one of the alliance meetings. IDOC, PERC, PECCA and Vision Source all have educational meetings that go deep into practice management discussions.
If you're a new graduate, you must tap into the free new graduate optometrist resources at newgradoptometry.com. Be sure to read Optometric Management magazine. This was always my favorite resource for new ideas. Subscribe to Review of Optometric Business. This will come directly to your inbox, providing both video and written blogs on best business practices. You will be able to choose which of the many pieces of advice will be best for your practice.
Optometry staff and optometry jobs
I found that I wanted to introduce so many of these great ideas that it became overwhelming and nothing actually got done. Not only that, your staff will push back against change if you try to do too many things at once.
The best way to approach change is to prioritize and inject one change every few weeks. Let your staff develop good habits with this change in procedure and then go on to the next one. Remember that you constantly have to review each and every new system until it becomes routine.
As I mentioned before, most optometry practices are two businesses, medical and optical. Each needs to turn a profit but they must work together like a well-oiled machine. Efficiency is what will make the practice money in a managed care environment.
While your team is your most important asset, it is equally important to track the metrics in your practice to understand if your systems are working and where you are generating a profit. There is a lot of information that you can get from your accountant’s report of your profit and loss but it only gives you your bottom line net income. It does not give you any information on where you are actually making or losing money in your business.
Optometry EHR data and analytics
Many years ago, knowing the intricacies of my business took a tremendous amount of time and the information I was able to gather was tedious and very limited. About 10 years ago, a few software analytical tools were developed for optometrists. In my practice, we use the EDGE software platform developed by GPN. This software integrates with many practice management systems (PMS) including OfficeMate, My Vision Express, Crystal PM, Revolution HER, Compulink, and others.
Pulling data entered into our PMS, this software identifies opportunities for growth by analyzing everything that is important for our practice financial health. We’ve learned which vision plans are making us money and which sales staff member was in need of sales training.
We can compare the knowledge and sales skills of each sales staff to the other. Any possible metric that you can think of is analyzed, and all with the click of a few buttons.
You will then be able to make smart decisions about change and where you need to educate your staff. On the professional side, we are able to analyze doctor production, and because we have more than one doctor, it gives us side-by-side comparisons of doctor use of available technology in the practice.
Here’s an example on how powerful this is for our medical practice.
Perhaps doctor A and B see the same number of glaucoma patients in a month but doctor A performs an OCT 50% less, Visual fields 30% less, fundus photos 20% less and never did pachymetry.
By knowing this information in real time we are able to show doctor A why he/she is not producing well for the practice, leaving a lot of money on the table. More importantly we will show them that they are not doing the right thing for the patient as far as diagnostic procedures, important as the standard of care.
Improving patient care is the most important factor in using all of the tools available to us. By improving patient care, we are also improving the bottom line of our professional and optical side of the practice. We attempt to maximize staff education in the utilization of all services and materials that are available to patients in our practice.
Managing your optical dispensary as an optometrist
Most practice owners do not realize how much money they have sitting on the shelves in their office.
The inventory overage can be a tremendous drain on practice finances. With the availability of same or next day shipping from our vendors, why keep so much inventory in stock? Unless you have purchased inventory at very steep discounts that you are unable to return, why keep the full fee frames in stock?
Your money is just sitting on the shelf or in a drawer.
A system of board management should be set up, allocating a certain amount of board space to each vendor, and no more. In addition, do you know how to price your frames?
Years ago, pricing was 2x the wholesale amount plus $10 or as much as a three times markup. In the managed care climate, this pricing practice is a recipe for losing money.
A practice that has a large managed care population is always giving discounts, sometimes based on the wholesale fee to you and sometimes based on the retail price that you have set.
The proper way to price your frames should be based on a minimum list price.
No matter what you pay for your frames, you should have a minimum price you will sell that frame for. Take an example of a frame that is in the Frames Pricing Book at a cost to you of $50.00.
The old school of thinking was to mark this at $110.00 to as much as $150.
Todays’ thought is that you should mark it at whatever the market will bear. Perhaps a minimum list price of $189. And what if you were able to purchase this same frame at a deep discount of $20.00? Would you mark it at $50.00 to $60.00?
The answer is you would still mark it at the same $189, enjoying the fact that you are a great buyer.
Managed care plans base their formulas on the price that is in the frames book. If you are able to purchase inventory at prices that are significantly lower than the posted wholesale, the difference to you is profit. If your practice is deep into managed care, this difference in cost, multiplied by the number of patient purchases within the managed care scenario, can mean a large difference in profit for the practice.
How about another scenario where the plan says you need to give a 50% discount off your retail price of the frame?
If your frame was marked at $110.00 you would sell that frame for $55.00 making $5.00. If you marked it at $189.00 you would sell it for $89.50, enjoying a $39.50 profit. The bottom line is that you need to understand all of the plans so that you are profitable every time.
Ophthalmic lenses and labs
We are very lucky that our labs will credit us for scratched lenses, AR breakdown, progressive lens non-adapts, and more. So many of the practices that I’ve visited have no system for tracking product returns and many just allow this pile of lenses to collect dust. Every one of the above lenses is money to the practice.
A system needs to be in place, assigned to a trusted employee, to send back and track every single lens return.
Don’t leave money on your shelves.
In addition, you need to be constantly negotiating with your labs for better pricing based on volume and company rebates. Consider joining alliances like IDOC, PERC, PECCA or Vison Source as they have negotiated volume discounts with labs for you.
Perhaps just joining a conventional buying group like Block Vision Group or Combine can get you better discounts than you get now.
Pension plans for optometry private practices
One of the most significant ways that you can add to your wealth is to maximize pension and profit sharing plans. While this discussion will not be complete, I will try to cover most of the options available to both employed optometrists and employers.
Employed OD’s have a little less control over the ways they can put away money for the future. I was always told to put away as much as I could, starting as young as I could. I was told to let the financial laws of compounding work for me over the years and I was smart enough to listen.
In my early years of practice, I did not have any formalized plan.
My wife and I both put away an IRA, maximizing as much as we could afford at the time. I would put away a certain amount each month using the rules of dollar cost averaging. This means that you might invest some money when the market is low but you also might invest some money when the market is high. By doing this however, it guaranteed that you did not invest all of your money when the market was high, protecting you against a downturn.
Investing yourself or using advisors is up to you. In my early years, having little money and being relatively conservative, I invested in funds that were diversified over different market segments. This protected me in case one or more areas of the market had a downward turn.
As my practice grew, advisors recommended that I start a profit sharing plan. This would allow me as the owner and the highest wage earner in the practice, to shelter the highest percentage of the money invested to the plan from current taxes.
A profit sharing plan was also a way for me to reward my valued employees for their efforts on my behalf. The contributions to this plan are the employers option. After a few years more, we added another component to our plan called a 401K. This can be either a Roth 401K or a conventional 401K.
Each vested employee had the opportunity to withhold the amount of their choosing from their paycheck to invest in a Roth or conventional 401K. I always maximized mine to whatever the amount was in that particular year, sheltering as much income as possible.
This let my money grow tax deferred.
With a Roth 401K, the amount withdrawn is actually taxable in the year it is withheld but the growing savings will be tax free when you withdraw it in retirement.
A third component of our retirement plan is called a Safe Harbor Plan.
This is the only one of the plans that is mandatory, meaning that the employer must contribute to the plan each year. In our case, I contribute 3% of all salaried employee income to their individual 401K plan. Every plan is different, and I assume they are also different depending on the state in which you practice. It is best to seek the advice of a qualified pension advisor to discuss what is best for you.
Oh and by the way, if you have enough income and are able to shelter even more money, you can still put away an IRA using after tax dollars, letting the interest and gains grow tax deferred for your retirement.
So as you can see, making money in optometry has many moving parts.
For practice owners, it is not only taking home a salary, it is making money on the back side by understanding every aspect of your business, negotiating with vendors, joining doctor networks, streamlining purchasing and billing, and taking advantage of the tax laws by investing in profit sharing, IRA and 401K plans.
For employed doctors, try to negotiate production based income packages and do your best to help your employer grow his/her business. This is both good for you, good for the practice, and good for the patients.
Perhaps I was correct when I said that getting rich by being an optometrist seemed like a good way to go about it…