Visit the private practice of an independent OD and you’re likely to find a big-box retailer down the street with its own optometric office, offering low-cost products and same-day service. These retailers—in the business of doing business—have deep pockets, massively high sales volume and decades of marketing experience, easing the burden of cost-of-goods and providing an opportunity for inexpensive vision plans and two-for-one deals.
As the motivation and magnitude of corporate optometry evolves in the modern marketplace, individual ODs find themselves standing on an unlevel, ever-changing playing field.
For many ODs, professional alliance groups have helped independents regain some leverage.
These groups—also variously known as purchasing alliances, cooperative networks, practice management service firms and buying groups—allow independent ODs to pool their resources into a single network, giving them greater clout with vendors and insurers for purchases and contract negotiations. Through this collaboration, ODs have a better chance of competing with corporate chains.
“Business alliances are one of the best things to happen to private-practice ODs in recent years,” says Jack Schaeffer, OD, who operates 15 optometry practices throughout Alabama. “They offer a better cost structure, which allows you to increase your profits so you can afford needed high tech equipment and offer a higher salary package to maintain the best staff.” In short, it levels the playing field—not by offering lower costs so you can lower your prices, he says, but by having more cash flow available to help your practice maintain the highest quality of care. Operating a primary care practice requires setting higher fees, as the cost of doing business usually has increased costs.
“The national chains can play in the low cost sales game because they’re in the business of transactional sales,” Dr. Schaeffer says. “We are in the business of relationship sales. That requires a higher price, expensive equipment and staff and less volume, so therefore higher cost structures.”
Services provided by these alliance groups typically include claims processing, optical buying, IT and auditing services, practice management, EMR and credentialing. Many groups also provide instructional courses, materials and other professional education services.
According to Don Railsback, OD, interim operations officer of Independent Eye Care Professionals, ODs have virtually no chance of competing with corporate entities unless they band together. “Doctors of optometry are independent by nature,” Dr. Railsback says. “That’s what makes them such great doctors. However, if optometry is going to survive as an independent profession, it’s time for us all to learn how to become more interdependent so that we can create organizations and systems that become force multipliers,” Dr. Railsback says. “This approach will help us better meet our challenges and take advantage of opportunities.”
Brian Chou, OD, of San Diego, joined an alliance to minimize cost of goods. Although he says the investment can be worthwhile, he also cautions independent ODs to “do their homework.” There are several groups out there, but not all will mesh with your practice. “It’s reasonable to expect access to pre-negotiated pricing and other special considerations from the group’s purchasing power,” Dr. Chou says. “But there are big differences between the various alliances.”
Many alliances initially launched their services to allow for more competitive cost of goods, but services have now grown to include educational or business development programs, patient access issues and managed care contracting.
Vendor discounts can have substantial effects on an OD’s bottom line and allow them to compete more realistically with big-box retailers and corporations, but “it’s not enough to just get good vendor pricing,” says Dr. Chou.
“There are many factors that doctors should consider when looking at any alliance,” Dr. Railsback says. “Some have to do with the organization’s ability to bring doctors cost savings on products, equipment and services, but those advantages shouldn’t outweigh factors that may be equally or more important in the long run.” For Dr. Railsback, some of those primary beneficial factors are concerned with staff, education, training, and the promotion of optometric care and its value. He says that his group, IECP, differs from the traditional alliance groups by providing a low-cost model that can co-exist with alliance group offerings.
To uncover the potential benefits of joining an alliance group, look no further than the hard numbers, says Arthur Medina, OD, with Optometric Medical Solutions.
“When you look at the top 5% of the top optometric practices running solo,” Dr. Medina says, “these practices earn three times more income than the average OD, and 50% of their service was from medical reimbursements.” The ability to streamline and administer such reimbursements is one of the most significant cost-saving benefits of alliance groups, he says. “Solo practitioners aren’t always efficient at getting these reimbursements. Most ODs don’t do their own taxes or write their own legal documents, yet they handle their own medical reimbursements, where they could lose 30%, 40% or even up to 60% of income.”
Networking, practice management assistance and marketing are other areas where alliance groups can step in on behalf of the independent OD, says Bradley Smith, OD, founder of Professional Eye Care Associates of America.
“It is rewarding to know that you are not alone in facing the challenges of managing your own practice and that there are proven strategies that will help improve your patient services, staff management, practice marketing and day-to-day operations,” Dr. Smith says. “If it’s impacting your practice, it’s impacting someone else’s, too. Collectively, we can work together to come up with the best approaches to overcome these challenges.”
Kelly Kerksick, OD, with Vision Source, says professional alliances also provide compliance support for solo practitioners. Regulatory compliance is a complicated process that can influence a practice’s bottom line. “There is so much we need to do to remain compliant and in good standing. You’d almost have to have someone full-time to handle these responsibilities,” Dr. Kerksick says. “As it stands, I don’t think the independent OD can compete when you look at the direction that health care is going.”
One of the assumed pitfalls of joining an alliance is the cost; however, most groups contend that independent ODs have a positive return on the dollars they invest, since they ultimately save money.
When Dr. Chou searched for the best alliance for his practice, he discovered that the cost disparities were vast. “Hypothetically, if one alliance assesses a 3% franchise fee on the gross collections, a $3 million/year practice will be paying $90,000 a year. On the other hand, another alliance with a flat $500/year price of participation with the same vendor discounts would save the $3 million practice $89,500 a year. That’s a lot of money.”
Profit-driven alliance groups that answer to stockholders or owners could be more likely to base decisions on what is best for investors rather than the doctors, Dr. Railsback says, “but ideally, all of the alliance or affinity groups and the IPAs could find a way to work together rather than working against each other when we should all have the same ultimate goal.”
Dr. Chou says, “Some of the alliances are owned by investor groups and are trying to make money off you ‘parasitically’ and are not necessarily vested in making sure your practice is successful,” he says. “I think the parasitic alliances use their members as a marketing list, charging vendors a fee to display their goods at their meetings and to send promotional spam.”
He’s had both positive and negative experiences with his professional alliance relationships, and cautions that there are alliances that have “a multi-level-marketing structure to it, where the early-joining members are incentivized to recruit subsequent members.” He also noted that some alliance groups may compromise the OD’s independence by inserting themselves into marketing and promotional incentives.
“Every practice is different,” Dr. Chou says. An alliance is not required to sustain a financially successful practice, he suggests. “In fact, a person with enough buying power and a savvy owner-negotiator can arrange deals themselves with vendors that may be as good, if not better, than the alliances. However, this consumes time and many business owners may rather pay someone else to do the negotiating.” For a small practice, a franchise fee-arrangement alliance could make financial sense, he says, “since the costs of participation are low and there are other value-added benefits.”
Before You Join
As corporate retailers gain momentum in the marketplace, so do the professional alliance groups designed to keep the independent OD competitive. But with so many options, how do you know which group deserves your signature on the bottom line? How do you avoid committing yourself to a contract that may not reap any rewards? The answer: research.
• Understand your needs. Many ODs focus solely on obtaining vendor discounts, but it’s possible to get much more out of your alliance. What other services would help you grow, evolve and improve your business? Identify the areas of your business that you want to improve and choose a group whose offerings check off all of those boxes, Dr. Smith advises. “Whether it’s lowering cost of goods, marketing, education, finance or practice efficiency, make sure the group you join can provide solutions for the areas that are most important to you,” Dr. Smith says.
• Consider the length of the deal. “The worst thing is realizing that you are stuck paying high fees for participation and are obliged to remain in the group until the contract expires,” Dr. Chou says. Always have an exit strategy.
• Know what’s expected of you. How much of your independence—if any—will be compromised by your partnership? Will you have to compromise control over advertising, marketing or inventory decisions?
• Find a group that’s symbiotic with your vision. “Preferably one that offers courses of management that fit your business philosophy,” Dr. Schaeffer suggests.
• Ask detailed financial questions. “Find out how the groups are funded, where the money generated by those entities goes and how the money is spent,” Dr. Railsback says.
• Know the history of the organization. Who owns it? What is their mission? What is their reputation in the marketplace?
Also, Dr. Kerksick says, “consider how long the organization has been around, and how established they are.”
“We must all hang together,” Benjamin Franklin said, “or else we’ll surely all hang separately.” While independent ODs don’t face stakes quite that high, there are undeniable benefits to collaborative efforts for the common good. Just be sure you know the pros and cons, the many different possible affiliations—and how to extricate yourself if need be. Your independence should be fiercely guarded. Surely Franklin would agree.