Major Threats Faced By Independent ODs


By Thomas F. Steiner

Director of Market Research,
Review of Optometric Business

Vision Source is the leading alliance of independent ODs, with 2,700+ member practices and 5,500+ member doctors in the US and Canada. The organization is actively engaged in advancing the competitive position of independent ODs. Earlier this year, Vision Source commissioned the editors of Review of Optometric Business to develop an objective analysis of the current state of independent optometry and to identify strategic priorities for bolstering competitiveness. This article distils one section of the full report, identifying the major threats facing independent ODs.

>>>Click HERE for a COMPLIMENTARY download of the full report “Challenges and Opportunities in the Future of Independent Optometry<<<

Independent ODs face several threats to their continued prosperity in the emerging business environment. These are discussed in this article.

Internet Sellers
Currently 8 percent of all US retail sales are made on the internet, a market share that is increasing rapidly. The rising penetration of smartphones and tablet computers will only accelerate the trend. Across every consumer product category, the internet is bringing a greater pricing transparency.

The recent upsurge in activity by low-cost, internet-based eyewear retailers raises the specter of significant revenue loss for independent ODs. A recent Vision Council VisionWatch study indicated that 16 percent of consumers use the internet during some phase of their eyewear purchase process. The greatest number of eyewear buyers use the internet to check prices and scout out frame designs before visiting their practitioner. The VisionWatch study estimates that less than 3 percent of eyewear buyers actually purchase eyewear from internet suppliers. The overwhelming majority of buyers continue to prefer to try on eyewear before they purchase and to get trusted advice from trained professionals about what looks and works best. Internet eyewear purchases will continue to grow, but over the next five years, internet eyewear sellers will not seriously threaten the competitive position of independent ODs.

Internet sellers have already had a larger impact in the contact lens market. As branded packaged goods, soft lenses are better suited to internet sales and distribution than are made-to-order eyeglasses. Internet contact lens sales grew rapidly during the 1990’s, but leveled after the internet companies began to verify prescriptions before shipping lenses. Currently internet providers control about 15 percent of the soft lens business, a share which is likely to grow slowly.

New Refractive Technologies
On the horizon are technologies which could perform adequate refractions online, potentially eliminating the need for patients needing correction to visit a practitioner’s office to obtain an eyeglasses prescription. That could be a game changer. This represents a threat of uncertain consequences for which no immediate response can be adequately formulated.

Managed Care
Over the past several decades, independent ODs have become increasingly dependent on third-party payers, including vision plans, medical insurers and government programs. Currently it’s estimated that third-party sources account for two-thirds of OD revenue overall, and a somewhat higher percentage among independent ODs. Most independents have successfully adapted to the increased pervasiveness of managed vision care. But the landscape is about to change dramatically.

The 2010 Affordable Care Act, which will begin to be implemented in 2014, and rapid growth in Medicare enrollment pose new threats of patient loss and lower revenue per patient visit, if independent ODs are unprepared to cope with new healthcare realities.

Beginning in 2014, companies with 50 or more employees will face the choice of continuing current health benefits or discontinuing benefits and paying a penalty to the federal government for each uncovered employee. When an employer discontinues coverage, an employee will be able to purchase their own coverage via a newly created insurance exchange in their home state. Estimates of the percentage of the currently insured population who will lose employer funded coverage range from 8-20 percent, or between 12 and 30 million people. As some employers drop medical insurance benefits, they are likely to simultaneously drop vision benefits.

The Affordable Care Act will cause a large increase in the population eligible for Medicaid benefits. In 2009, 15 percent of the population, or 48 million people, were covered by Medicaid. This number is projected to increase by 16 million people (another 5 percent of the population) under the more liberal eligibility requirements. Depending on practice location, this could cause a surge in the number of patients with vision benefits.

The aging Baby Boomer generation will produce rapid growth in Medicare enrollment in the years immediately ahead. Currently there are 51 million Medicare beneficiaries (16 percent of the total population). Medicare beneficiaries will rise to 61 million in 2020 (19 percent of the population) and to 70 million in 2025 (21 percent of the population).

Baby Boomers with chronic conditions such as diabetes and glaucoma will increasingly rely on optometrists for ongoing monitoring of their ocular health. This will occur as Primary Care Physicians (PCPs) refer patients for routine testing. The Affordable Care Act will accelerate the trend of PCPs abandoning solo practices to become employees in very large group practices or in hospital-owned networks. This will erode many long-standing referral arrangements between individual PCPs and ODs, as large MD groups seek arrangements with OD provider panels which can service a wide geographic area with consistently high standards.

Strategy Implications
To address the threats independent ODs face, the following strategies can be pursued:
• Internet sellers
A current assessment is that internet sales of eyewear will not pose a significant threat to independent ODs in the near term. By 2020, it’s unlikely that internet sellers will capture more than 6-7 percent of the eyewear market. But patients are likely to be increasingly aware of eyewear prices in the future.

The best defense against internet sellers of contact lenses is to use manufacturer rebates to encourage annual supply purchases. Independents are also able to offer online contact lens reordering in response to internet sellers, neutralizing the convenience advantage these companies offer.

• Managed care
To successfully cope with the major changes in the managed vision care environment, independent ODs can align with OD networks such as Vision Source, which have staff resources to negotiate with large insurers and with local PCP groups to assure accreditation of members, to structure referral arrangements and to aid members with claims management. Independent ODs should also:
• Delegate testing and administrative duties to staff to the full extent possible
• Lower business costs to preserve profitability in the face of likely reductions in reimbursements
• Re-structure office processes to maximize revenue from each managed care patient.

Thomas F. Steiner, Director of Market Research for ROB, has spent more than 25 years helping eyecare practices succeed, including pioneering the introduction of color contact lenses into optometry. To contact him:

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