By Jerome A. Legerton, OD, MS, MBA, FAAO
Jan. 24, 2018
Joining a regional alliance isn’t just about networking with other optometrists, and growing as a professional. It’s about realizing financial advantages.
Thirty years ago, when I was president of the San Diego Optometric Society, our organization built a buying group. A few years later, I led the effort to sell the buying group to the California Optometric Association for the creation of Vision West, and while serving as Vision West’s first executive vice-president, I researched and wrote the strategic plan for Vision West. These experiences revealed a great deal about the purchasing power of regional groups.
The biggest lesson I learned: Our industry is a clear example of one in which there is leverage gained by aggregate buyers. Here are some of the key financial advantages.
Containing Cost of Goods
A regional alliance may achieve purchasing-power-pricing advantages that exceed those received as a member of a buying group, or those extended to a large solo or group practice. Keep in mind that buying groups make their money by factoring. Their income is derived from taking a factor, or piece, of each purchase, or of the purchase volume, while some networks charge a percentage of practice revenue. Buying groups and networks are challenged to influence the product selection of their members. Some do a better job than others at influencing vendor selection and purchasing decisions.
A regional alliance may more easily choose to reduce the number of vendors in a product or service segment, and consolidate their purchases to selected vendors. The alliance has the opportunity to agree on preferred products, and to guarantee annual sales volumes. Exchanges and returns carry a high cost to serve on both sides of the transaction. Alliances may agree with vendors to limit or eliminate exchange and return policies. Vendors may then extend greater discounts.
A centralized-alliance-owned laboratory may benefit an alliance in controlling cost of goods while having control of service levels. Some of today’s best surfacing technology may not be affordable to a single-shingle practice while falling nicely into the budget of an alliance. The alliance also has the purchase volume to rationalize this technology.
Uniform Practices & Instrumentation at Reduced Cost
An alliance may achieve agreement on instrumentation to drive quality of service, reimbursement and differentiation. Test the potential to garner best pricing on instruments by placing an order for 10-20 of the same instrument at the same time versus purchasing one or two. Instrument companies operate with high-gross margins on premium instruments. They need this margin for sales, marketing, installation, training and customer service. An alliance brings cost savings when any of these costs to serve are reduced.
Buying groups and networks already assist in this area while taking a percentage for their human resource cost, and to build their earnings. An opportunity exists for the alliance to build value and earnings within the walls of the alliance, versus within the walls of the buying group or network.
Marketing & Negotiating as a Regional Alliance
An alliance can market their brand far more efficaciously, and achieve greater results in marketing, than nearly any single practice can. The emphasis on being regional, rather than national, facilitates decision-making, implementation and control of plans and management of cost.
Practitioners allied in a region have greater ease and lower cost in meeting with each other to discuss strategic objectives and decisions. They can select agencies and consultants in the region. The alliance may hire and direct a key operating officer, who is immediately accessible in the region. The caliber of this individual may exceed that of most single-practice managers, and be more accessible and effective in the region than buying group and network service personnel.
Regional marketing is less costly than national marketing. The alliance may negotiate industrial vision (safety eyewear programs) with large regional industries, and they can develop proprietary third-party vision plans for employers large and small within the region if doing so is strategically sound and lawful within the region. An objective of the alliance is to have region-wide practice locations. The alliance may negotiate and use the regional presence as an advantage. A single practitioner, who is marketing and negotiating within the same region, lacks geographic accessibility to a significant portion of their marketing audience.
Quality of Ancillary Personnel
I identified the number one internal problem facing independent optometry during my MBA program. While the need for systems that drive strategic objectives is important, the number one problem is achievement of a high-performing team. The alliance can systematize employee recruitment and training, and make it easy for employees who move within the region to shift to a practice that is closer to their home. The alliance can use the total number of employees to negotiate employee benefits because the number of employees in the alliance practices is more valuable to a benefit provider than the number in a single practice.
A clear opportunity of the alliance is to develop and implement training modules that drive the systems of best practices and patient care with the objective of achieving enthusiastic satisfied patients in concert with financial performance outcomes.
The ultimate question is whether a regional alliance of independent practices can outperform an HMO, corporate chain or private-equity-owned group of practices in the outcomes of enthusiastic satisfied patients and in earnings. Each of these delivery systems is different with regard to ownership, decision making, management, systems, proprietary interest and motivation of the practitioners and ancillary personnel. In the end, independent practitioners have a strong competitive edge: delivering unsurpassed care with a personalized touch. And joining a regional optometric alliance can help you to maintain that personal touch.
Finally, the fundamental purpose of the discipline of business administration is to reduce uncertainty and optimize performance. At the same time, in the game of life most folks like to win. A regional alliance can give you the financial and marketing edge you need to win. Game on.
Can you envision regional alliances winning in the outcomes of enthusiastic patient satisfaction, satisfied practitioners and ancillary team members, and in earnings?
Jerome A. Legerton, OD, MS, MBA, FAAO, is co-founder and chief clinical and regulatory officer with Innovega Inc. He is the co-founder of SynergEyes Inc and co-inventor of Paragon CRT. Dr. Legerton was the managing partner of a seven-doctor, four office, multi-specialty practice in San Diego. He holds 54 issued U.S. patents, and has 70 pending applications. Products flowing from these patents are registered in more than 45 countries and enabled eyecare practitioners to earn more than $1 billion in fees for services and lenses in the last 15 years. Contact : firstname.lastname@example.org.