Last month we looked at the basics of valuing an
independent eye care practice for sale in the near future.
In this second of two parts, we examine the steps a business
owner can take to increase the value of an eye care practice
over the long term. Unfortunately, many business owners do
not consider an exit strategy or value of their practice
until they are nearing retirement. By then it�s usually
too late to significantly increase practice equity in a
short time span.
As we noted in the first article, independent eye care
doctors are slowly increasing market share compared to
optical chains and big-box retailers. One effect of managed
care has been to weed out the poor-performing eye care
practices. The days of simply hanging out a shingle and
coming to work every day are long gone as working smart is
far more important than working hard. For the independent
doctor willing to engage in long-term planning, reinvest in
their practice, and continually monitor certain practice
metrics, the future can look very bright indeed. Let�s
examine the opportunities:
1. Expand medical eye care services
Expanding the scope of an optometric practice is a great
way to increase gross profits and create a sense of loyalty
to the practice. Let�s face it, the reimbursements for the
traditional refractions and optical services have been
steadily declining for the past twenty years. An experienced
OD may need additional training for medical services; or
they may need to hire a younger associate. Currently,
medical eye care only accounts for 15-20% of revenue, but
the potential for growth is very high as an increasing
numbers of states have granted more medical privileges to
optometrists. At the same time, many practices do not even
have office processes in place to bill and collect for many
procedures that fall under medical eye care. Currently your
patients are being educated by consumer advertising done for
ophthalmic prescriptions�wouldn�t it be better for you
to control that marketing by providing it as part of the
patient experience in your practice? Here are the numbers as
they currently stand:
Medical Eye Care in Independent Optometry Practices
Median % of annual patient visits 18%
Median % of practice revenue 15%
Medical eye care visits per 1,000 active patients 73
Pharmaceutical Rx's per 1,000 active patients 53
Consultants estimate that a revenue number of around 30%
is attainable for most optometric practices. In other words,
a practice grossing $500,000 annually which increased its
medical revenue from 15% to 30% would see annual revenue
grow by $75,000 with virtually the same patient base.
2. Adopt electronic medical records
Optometry continues to lag behind many other medical
disciplines in adopting new technology. Aside from the
government incentives, electronic medical records improves
the monitoring of patient data, streamlines the patient flow
in the practice, and assists in patient retention
3. Increase revenue per patient
Easier said than done, but in almost every practice there
is a niche market that is not being filled for their
patients. Every practice should keep a patient profile of
each patient, where they list their occupation as well as
non-work activities they participate in. A good dispenser
will match unfilled patient needs with products available in
the practice. A good example is Plano sunwear. Most
independent ODs gave up on that market years ago because
they were available cheaper at other outlets. We are all
familiar with the Bausch & Lomb survey from 15 years ago
where 90% of new contact lens patients purchase Plano
sunwear in the first 48 hours after being fit with contact
lenses for the first time. But how many doctors have
bothered to place an affordable Plano sun wear display in
the contact lens fitting area? Back in the last century
(1989 or so) a very smart optometrist in the Snow Belt,
south of Buffalo, proudly showed me his new sunwear display,
which took up a close to a third of his board space.
Outside, it was a very dark and dreary January day with snow
falling about a foot every 2 hours. The doctors�
reasoning? His patients visited the practice for maybe an
hour per year, and it was his goal for his patients to
understand that there was nowhere else they ever needed to
go for any eye care need!
4. Increase the frequency of patient eye exams
While almost all practices recommend yearly eye exams, in
reality 75% of patients only return every two years. This is
due partly from patients seeing no change in their vision,
partly from token efforts to recall patients, and partly
from increasing demands on household budgets. Obviously, you
can control only one of these factors. Lately I have seen
many practices scheduling the next patient appointment at
the time of checkout this year. There is little or no
resistance to this (who can predict they are going to be
busy that certain day in 12 months?), and it creates an
obligation in the patient�s mind to keep that appointment.
As always, follow up, follow up, and follow up until that
patient walks in your door. Notice how many of these
opportunities work with each other�increased medical eye
care services creates another reason to keep that
appointment, if only for monitoring of eye health.
5. Increase contact lens penetration
Soft contact lenses may dominate the market, but
specialty RGP lens fittings are steadily increasing.
Topography-guided lenses can provide highly refined vision
on otherwise hard-to-fit patients. New software can improve
initial lens fittings by predicting fit characteristics and
allowing the doctor to make changes in lens design before
the lens is ever placed in the eye. Professional fees for
topography-guided RGP lens fittings are appropriately higher
than those for soft contacts. In addition, contact lens
patients as a rule generate more income per patient because
they have more frequent exams and pay higher exam fees.
6. Electronic patient communications
A good practice management software system will allow
increased patient communication via email. Not only recalls
can be processed this way, but you may wish to inform all of
your glaucoma patients of a new drug therapy, or you may
wish to remind patients with a plus Rx about the increased
availability of aspheric lenses, or you may wish to send out
a patient newsletter in Adobe Acrobat form to advertise a
trunk show for a frame manufacturer. Keep your patients
informed about what�s new the eleven months out of the
year they don�t visit your office.
7. Keep your technology current
This is pretty self-explanatory, and an important part of
any practice valuation. Two or three year-old equipment is
much more valuable than equipment in lanes outfitted during
the Nixon administration (don�t laugh, they are out
8. Measure your key practice metrics monthly
Surveys and papers with recommendations for practice
metric are widely available on the web and from consultants.
There are some universal metrics which apply to any
practice; just be sure that some of the other numbers
available actually apply to your practice. For example, a
store like Target or Wal-Mart pays close attention to
numbers like profit per square foot; whereas the same number
does not mean much to an OD renting space in a strip mall.
Let�s take a look at the most important metrics, followed
by others helpful to most doctors.
1 Gross Receipts � otherwise known as production,
deposits, collections, or receipts. Just be sure that you
accurately measure revenue deposited.
2 Net Income � the best sign that a practice is
3 Doctor Hours Worked � a number needed to figure
profit per doctor hour. Also a great example of how the
metrics affect each other. If you increase patient recalls
and capture rate you will most likely increase hours worked.
If so, be sure that gross receipts show a comparable
4 Percentage of New Patients to Established Patients �
a key metric if you are actively seeking to increase your
patient load. There are no accepted recommendations here as
all practices are different, but a ratio of 75% established
to 25% new is excellent for growth.
5 Recall Percentage � 70% patient return from the same
month the previous year is a good goal.
6 Capture Rate � the percentage of Rx�s written who
fill their prescriptions in your practice. There is a wide
variation between OD and MD practices in this number. 60% is
acceptable for an MD practice while anything below 85% in an
OD practice is an indicator of problems in the practice.
7 Accounts Receivable � a good goal is to have 90% of
the AR less than 30 days old. Practices with continuing AR
problems should consider outsourcing their insurance filing
and billing procedures.
8 Inventory Management � a good rule of thumb is that
your frame inventory should turnover three times per year.
Train your sales reps to work for you � they start out
with a certain number of frame slots and make them
responsible for placing only products which sell on your
boards. Let them know that they will lose those slots if
their product does not sell.
9 Percentage of Contact Lens Patients � contact lens
patients tend to visit the practice more often and have
higher exam fees. Plus, they also need at least one pair of
glasses (and sunwear!)
10 Patient Flow � the best way to measure this is to
examine how long patients wait � how long they wait to see
the doctor, how long to see an optician, to check out, and
the turnaround time of glasses from your lab.
11 Optical Percentages � the best indicators of a
well-trained office. The higher the % of proprietary
products sold, the higher profit per patient. Look for
comparisons such as % of anti-reflective lenses, % of
poly/hi-index lenses, and % of second pair sales.
12 Established Community Outreach - usually by the doctor
but can be provided by the staff. This can range from
speaking to seniors about monitoring their glaucoma to the
local health club recommending your practice for sport
goggles to sponsoring and providing sports eye wear for a
Little League team.
First, set goals on a monthly and annual basis for each
of these metrics and measure performance monthly. Share both
the goals and ongoing performance with your staff and hold
them responsible for working with you towards meeting the
Remember � sustainable practice net cash flow is the
biggest factor in determining practice value. Cash flow pays
bills, services your debts, and provides your personal
income. Long range planning and performance monitoring can
go a long way in ensuring that when the time does come for
you to sell, you get the best possible price for your