Insights From Our Editors

What Employed-OD Compensation Model Works Best?

By Mark Wright, OD, FCOVD,
and Carole Burns, OD, FCOVD

August 14, 2019

Should an optometrist generating $500,000 in gross revenue be paid the same as an optometrist generating $1.4 million?

Here’s how to create a fair system of compensating employed optometrists that helps both the individual doctors, and the practice as a whole, to thrive.

First, let’s get a lay of the land. What are ODs being paid? Let’s pick a city so we can look at specific numbers. (You can use these web sites to see the results for your city.) In Columbus, Ohio, here is the pay according to three web sites.

Let’s start with the government web site, the Bureau of Labor Statistics:i.

Industries with the highest levels of employment in optometry:

Payscale.com gives us this information:ii

Salary.com shares this information:iii

This is helpful information, but it does not address the question in front of us – should an optometrist generating $500,000 annual gross revenue collected be paid the same as an optometrist generating $1.4 million for working the same number of hours in an average year?

To keep the discussion clean, let’s make the following assumptions:
• Both ODs are ethical.
• Both ODs are doing the best they can.
• Both ODs are not trying to “sell” patients things they do not need.
• Both ODs are practicing in similar environments (i.e.: it is not the situation that the $500,000 OD is a Medicaid practice and the $1.4 million is a boutique practice in a high-end part of town – it is the situation that both are practicing in the same part of town).

With these assumptions in place, what then is the real difference between these two ODs? It can be any one or combination of the following.

Let’s consider the answers from the $1.4 million dollar OD’s perspective (which means the $500,000 OD is not doing one or more of these):

• The OD explores all arenas of life (e.g.: home, school, work and play) with the patient to determine how the doctor can help improve the patient’s quality of life in each arena.

• The doctor serves as the patient’s eye doctor, not the patient’s banker. The OD does not make value judgements about what the patient can and cannot afford, so the doctor addresses all the patient’s needs and lets the patient decide what they can and cannot afford.

• The OD is constantly studying, learning and applying best practices.

• The OD measures treatment plan acceptance and uses this knowledge to improve the wording used, the order of presentation and the tools (e.g.: graphics, models, pictures, & videos) used in the case presentation to get a higher patient acceptance.

• The OD prescribes in the exam room as opposed to suggesting, recommending, offering or just pushing this action to the optician.

In any industry, a higher-performing employee should be compensated higher. Here’s a simple formula that can help make this case. The range of payment for an employed OD is 15-20 percent of gross revenue collected. Let’s take the high end of that range to run some numbers.

The most the $500,000 OD should be paid (total package) is .2 x $500,000 = $100,000. Likewise, the most the $1.4 million OD should be paid (total package) is .2 x $1.4M = $280,000. Now that we’ve put some numbers to the question, is the $1.4 million OD worth $180,000 more than the $500,000 OD?

Let’s look at a few more numbers to help us answer that question. In the average practice, the Optometric Net is 30 percent of gross revenue collected. If we are paying the ODs in that practice 20 percent of gross revenue collected, then that leaves 10 percent for True Net. The $1.4 million OD is generating $140,000 of True Net whereas the $500,000 OD is generating only $10,000 of True Net. So, to answer the question, is the $1.4 million OD worth more? From the owner’s perspective, we think so.

Total OD payroll 20 percent
True Net 10 percent
Optometric Net 30 percent

The bottom line in this discussion is that the $1.4 million OD is providing more care to improve the lives of more people than the $500,000 OD given the assumptions above. The $1.4 million OD is a higher-producing OD, and, therefore, should be compensated a higher amount.

By the way, the best answer to the OD who comes to the owner and asks for a raise when they are currently being paid the top of the scale ($100,000) for the gross revenue they are producing ($500,000) is: “I want you to have a raise. How can I help you generate more gross revenue collected, so you can have that raise?”

 

References
i. https://www.bls.gov/oes/current/oes291041.htm
ii. https://www.payscale.com/research/US/Job=Optometrist/Salary/97d06ea9/Columbus-OH
iii. https://www.salary.com/research/salary/benchmark/optometrist-salary/columbus-oh#step-1

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