Picking Your Plans Wisely
Why some managed care plans may, or may not, be for you
By Susan P. Tarrant
Illustrations by Jon Krause

Two-thirds of American consumers have some form of coverage for their eyecare. And it's growing. That number is alarming if you want to rely solely on private-pay patients to fuel your practice. That number is encouraging if you accept the idea that managed vision care is here to stay and third-party payment plans will be responsible for at least a portion of your patient base. But the variety of plans out there can be confusing. How many should you accept? What will they do to or for your bottom line? Which ones are right for your practice and for your patient base?

THE SHIFT TOWARD ACCEPTANCE

The number of optical docs rejecting the notion of managed care has decreased as managed care has increased its foothold in the industry. In the early days, "the only clientele were typically labor unions and school ' district employees. And, as a result, there were only regional plans," says Roger Valine, president of VSP, a not-for-profit managed vision care plan specifically for independent eyecare practitioners. It wasn't until the late-1970s that companies began adding vision care to their benefits package.

"In its earlier days, managed care created a lot of confusion for providers," says Carl Moroff, OD, chief operating officer of Davis Vision. "As the practitioner has become more educated and experienced about managed care, it has become more accepted. There was a time they hoped it would just go away, but the managed care industry has made great strides, especially with the use of technology, that have made it more efficient and easier for the eyecare providers."

As the industry has changed the way it does business, the ECP market has had to change the way it looks at managed care. There are more plans than ever and many more elements to the decision-making process of what panels to join. The choice has never been harder, or more complex.

In a perfect world, the three Os wouldn't even need to consider joining any kind of third-party panel. In a perfect world, all patients would pay the usual and customary fees out of their pockets before they left your office.

"If I were Roger Valine, independent practicing optometrist, and I didn't have a need for new patients because all of my time is taken up with private-pay patients, I might not ever consider joining a managed care plan. Why would I have to?" Valine says.

But, if your practice is more the norm, with private-pay patients filling up just a portion of your appointment book, you'll have to look at joining some panels.

Bill Nolan, vice president of Williams Consulting Group in Lincoln, Neb., says he agrees. "The first option of most ECPs would be to fill up my chair with private-pay patients. The problem is that they're [private pay] not out there."

According to Nolan's figures, about 70 percent of Americans have either an eyecare benefit or an eyewear benefit or both. In some areas of the country, that number climbs.

Research statistics vary slightly, but studies put the percentage of lives covered at between 66 and 70 percent.

If you don't want to accept managed care patients, you'd better be filling your office with members of that shrinking minority--and that's a pretty tall order. The way to figure whether you need managed care in your practice--or, more realistically--to what point do you need managed care in your practice, is by figuring out how much your time is worth and how much it costs to run your practice.

DOING THE MATH

"In order to work in a managed care arena, you need to know how much it costs to do business," says Brad Williams, OD, founder and president of Williams Consulting Group. "Prior to managed care, all we had to do to compete was to be a better doctor--to provide better patient care. Then managed care said, 'It has less to do with patient care and more to do with patient cost.' We were then thrown into an arena in which we have to provide great patient care with a lot less money."

Since the biggest issue regarding third party plans is how much you're going to be reimbursed for your services (on average it's a discounted rate of 25 percent from your usual and customary fees, Nolan says), you need to calculate your chair cost, and determine whether the reimbursement rate just covers it, or exceeds it and provides you with profit.

Chair cost is the amount of money you must make from each patient in order to cover your practice's expenses-- office lease, utilities, staff salaries, etc.

Calculating chair cost. To calculate chair cost, first figure out your practice's operating expenses (the industry average is about 40 to 45 percent of your gross, Nolan says). Divide that monthly figure by the number of hours you have each month to generate your income, and that's your bottom line chair cost--how much you have to generate per patient in order to cover your expenses. Anything over chair cost is profit.

As an example, Nolan says an average solo practice with a staff of six grossing $500,000 to $600,000 per year is going to have a likely chair cost of between $75 to $90 per hour. Assuming they do the traditional 30-minute exam, that practice has a chair cost of around $40--two exams per hour, providing $80 in revenue per hour.

"What many ODs have a hard time understanding is that since so many of the costs of operating a practice are fixed, that $40 is not going to go away," Nolan says. ECPs need to ask themselves, 'What does it really cost me to offer this type of service,' and then determine what kind of schedule they must keep in order to meet that figure.

Sure, the ideal situation would be the private-pay patient whose bill is $500, including eyewear. But assuming your private-pay patients only fill up one-quarter to one-third of your appointment book, it's better to have a managed care patient with a reimbursement of $250, including eyewear, than to have that time slot remain unfilled.

"You join [managed care] plans not to displace your private-pay customers," Nolan says, "but to fill the empty appointment slots to optimize your productivity."

The most important (and confusing) decisions regarding managed care are which plans to join and which to ditch. Base your decisions on the following issues, our experts advise.

Reputation. Moroff says it's imperative to consider the company itself, as well as the plan it offers. "The decision needs to be based on [the doctor's] understanding of who the company is. Ask yourself, 'Are they a major player in the industry? Do they have a good reputation in the industry, as a business, for prompt payment, for meeting regulatory requirements?'"

Reimbursement. How much of a reduction in your "usual and customary fees" a managed care plan will give is an area of concern to most ECPs. According to Nolan, that reduction is about 25 percent on average. But it certainly varies from plan to plan and from procedure to procedure.

"The question you need to ask yourself about a plan's reimbursement fees is, 'are they reasonable?'" says Valine. The answer to that question depends, he says, on the individual doctor's chair cost, and how badly he needs patients. And the answer is different for everyone.

Patient lives. A common sales pitch of the managed care companies is how many "patient lives" they cover. If they have a lot of lives in your area, accepting the plan could translate into new patients--an important thing to consider if you've got a portion of your appointment book empty and your chair costs are on the rise.

"If they have a lot of patients for you that you normally wouldn't get, you should be on that plan," offers Valine. Conversely, if the employers with the managed care company have very few employees in your community, you can be a bit more selective.

When considering how many patients a company has to offer you, Valine suggests asking for patient statistics regarding where they typically go for medical treatment with the plan. Ask what percentage sees network doctors vs. the percentage going out of network. If the majority of customers regularly see out-of-network doctors and pay the additional cost, then that plan won't necessarily bring more patients through your door, he says.

According to VSP, the market average of return frequency over a five-year period is 2.5 times. The average for private-pay patients is 2.1 times. The average VSP patient returns 3.6 times.

Administration. Since your office staff is going to be using their time to deal with the paperwork of administering third party payment, it had better be as efficient as possible.

The ease in verifying coverage, processing payment claims, and tracking reimbursements has a huge impact on staff time. To gain some insight as to how easy it will be to work with a particular company, look at its policies and procedures. Do they have simple procedures in place? Do they work over the Internet? Is everything done electronically? (see sidebar, Page 38 for more information on using the Internet)

"ECPs have told us, 'You can give us the greatest reimbursements in the world, but if it takes two or three months to get paid, that doesn't help my revenue chain much," says Henry Sand, vice president of sales and industry relations for Luxottica, the parent company of managed care plan EyeMed.

Quality, flexibility. The extent of care and the options for care are among the most important factors to consider in a plan. The worst scenario professionally is for you to feel stifled in what you can do for your patients.

"We want providers to be in plans that encourage quality in eyecare," Moroff says. "I feel strongly that providers should only be in plans in which they feel comfortable providing services to their patients." Ask if the plan has protocols for dilation, or for patients with special needs such as diabetics, he says.

Before joining up, Nolan of Williams Consulting Group agrees that ECPs need to determine the flexibility of treatment options under the plan. "Make sure they allow you to operate under the full extent of your license," he says. "The major nightmare of any OD is that he has to say, 'This procedure or test isn't covered by your insurance. I need to refer you to an ophthalmologist,' even though the OD is trained and licensed to do the same thing."

Sand also suggests checking to see if the eyecare provider has control over whether to process a job in-office or to send it to a lab. And, can you continue to use the lab you've been working with, or do you have to switch to one of the plan's "approved" labs?

It's a notion that Henry Sand of EyeMed (itself owned by Luxottica Group, which also owns LensCrafters and other retail bodies) rejects. He says that with so many acquisitions happening in all sectors of the vision care industry, there is no guarantee that the plans you already accept won't be acquired in the future. "Then you'd have to say, 'I'm sorry, I can't take you as a patient anymore.'

"As an ECP, you lose control of your own destiny when, instead of evaluating what's good for your patients you base your decision on whether or not a managed care plan also has ties to retail stores," he says. "There are many big, good plans that belong to a parent company with retail operations."

HOW MANY?

There is no ideal number of plans that a practice should accept, our experts say. There are simply too many variables to consider, including how many plans are popular in your community, and what those plans may offer you and your patients.

VSP research puts the average number of plans that ECPs belong to at four to six, although "one plan could be too many, if it's a bad one and does nothing for you," Valine says.

According to Nolan, 80 percent of the money an ECP gets from his managed care patients usually comes from three to five programs. "I don't think it behooves you to be on every plan that comes along," Nolan says. "The administration burden alone is a nightmare."

Moroff, agrees, and says, "ECPs need to assess the impact that those managed care patients will have on your practice: On scheduling, on volume, and on revenue. That impact will be different for each ECP."

DECISIONS, DECISIONS

Of course, there are other issues driving your managed care decision than profitability and administration.

Sometimes an ECP will have to consider joining a panel that he or she ordinarily wouldn't.

Especially in small towns, the situation may occur in which one plan has a contract with the biggest employer in town, such as the municipal workers, or a factory. The fact that this plan covers a large number of the people in your community is in itself reason to be associated with it. This is especially true if your competition participates in the plan, too.

"You may not like it, and it may not have the best reimbursements, but sometimes you've just got to be on it," Nolan says.

Sand offers another element to consider in the decision-making process--the type of lifestyle you want and whether or not managed care companies can help you attain or retain that lifestyle.

"It's a lifestyle choice as to what's more important to you," he explains. "Some ECPs would rather make less money, but have more time for themselves, while others are more worried about filling absolutely every time slot available. The number of managed care plans chosen by these two types of eyecare providers differs tremendously."

THE FUTURE...

Since managed care is here to stay, what will the coming years bring?

"The fact that managed care patients are more likely to continue to return to a practice for eyecare, coupled with the fact that more and more patients have a third party plan," will contribute to the growth of the industry, VSP's Valine says.

"The consumers are more educated, and they want more out of their eyecare and eyewear," says Davis Vision's Moroff. "I think the managed care companies are and will continue to be striving to give them more."

Moroff also observes that there is work to do in the future regarding the confusing state of managed care industry regulations--which sets forth requirements regarding payment, timely reimbursement, and other issues.

Regulations exist on both the state and federal level, and they can be confusing for providers.

Valine adds that perhaps the biggest cog in the managed vision care wheel is the employee who reaps the benefit of the plan.

"Managed vision care is here to stay, especially from an employee benefit perspective," he says. "It's become something that's expected more and more in a benefits package."

Now it's up to the eyecare practitioners to determine how they want to figure into that package.