General Financial Performance

• Business Processes that Generate Income
• Understanding Your Reimbursements and Fee Schedules
• Payor Mix Analysis
• The Billing Process
• Using Your Computer System
• Collection Target and Performance Analysis
• Calculating Collection Target
• Accounts Receivable Analysis
• Overhead Cost Analysis
• 13 Tips for Effective Billing
• Financial Performance Analysis and Reports
• Monitoring Third-Party Payments
• Monthly Management Reports
• Managing Staff Costs
• Relative Value Units - a history and calculations

General Practice Management

• How to Have Your Staff Be Effective
• The Myth That Physicians Are Not Trained In Business
• Co-Employment/Staff Leasing
• Computer Selection, Part I
• End of Year Opportunities
• Incentive Compensation for Optometrists and Opticians
• Financing Eyecare Services
• Outsourcing in Ophthalmology Practices
• Medical Equipment Acquisition
• Staff Incentives and Bonuses

Many ophthalmology practices use optometrists and opticians to expand the practices' productivity, income, and profitability. Your ability to obtain and retain the services of these professionals, as well as to improve their performance and productivity, is enhanced by offering compensation incentives.

Keep in mind that we’ve given you a variety of formulas for performance measurements. Choose the one that best fits your practice parameters. If the thought of monitoring these performance parameters seems daunting, remember that the optical dispensary is a retail business, and the principles of financial performance for running that business are easier to apply than those in the clinical practice.

Setting the Stage
The whole concept of incentive compensation is designed to create an “ante” for staff members. The ante is designed to put a portion of their compensation at risk and to offer desired rewards for exceeding expected production.

Of course, if an optometrist or optician is already on your staff, he or she should be given a choice to play or not to play. Remember, however, that once you have investigated the concept of incentive compensation, you will find obvious financial disincentives for not having this system in your practice. That is, you may see the potential for increased income and profitability that this approach can produce, and if you have an optician or optometrist who won’t “ante up,” there may be a significant cost to the practice.

Two Lines of Business
There are two components of your practice that can be enhanced by optometrists and opticians. First, optometrists can act as mid-level providers, similar to specialized physician assistants and nurse practitioners, by providing services that range from refractions through eye exams and by channeling patients to the optical dispensary and to refractive surgery.

Second, both optometrists and opticians can impact the productivity and profitability of the optical dispensary through professional, consultative sales activities with patients.

These are two distinct and different lines of business, however, and the management skills and techniques required by the two businesses are very different.

Optometrists

1. Provide clinical services to optimize the MD’s effectiveness (e.g., refractions and other parts of the patient encounter).
2. See “work-ins” for certain problems.
3. Provide eye exams for vision care patients.
4. Assist with pre- and postoperative care.
5. Supervise the back office, including the techs and the patient flow.
6. Manage the patient scheduling process.
7. Promote referrals to the optical shop and to refractive surgery.

Opticians

1. Provide optical services to patients.
2. Promote optical sales.

The Principle of Baseline Performance
Incentives should be based on unpredictable improvements.

An employee who is being given an incentive should be compensated for improving performance beyond the predictable; that is, assuming that there are no interventions for improvement, determine the level of performance that can be predicted‹that is the baseline.

As an example, the practice’s optical shop has been producing $25,000 gross income per month on 200 jobs, and the optician is receiving the median salary for your area. The dispensary’s income level has been steady over the last year, and there have been no special sales campaigns, sales training, or advertising to produce that level of production. The income level and the number of jobs have become predictable. You don’t want to provide a special incentive to maintain that level.

Compensation at Risk
The concept of compensation at risk is useful in establishing incentives for staff. If you’ve determined a baseline, and you’ve been paying salaries based on attaining that baseline level, why not pay 80% of the salary for reaching 80% of baseline and the additional 20% of the salary for reaching 100% of baseline? The stage is now set to pay additional incentives to exceed baseline.

By putting a portion of base salary at risk, the staff member is now in the game.

You and the staff member may choose not to put any of the current base salary at risk. That is an acceptable option, but it should markedly reduce the size of the total incentive package for exceeding baseline. “Nothing ventured, nothing gained.”

What to Measure at Baseline and Beyond
Optometrists. The optometrist’s incentives can be based on a variety of factors, including the following:

1. Average number of patients seen per clinic session (1/2 day)
2. Recall effectiveness (percentage of patients notified for annual recall who return to the office)
3. Percentage of patients having eye exams who purchase refractions (of those without refraction coverage)
4. Percentage of those patients getting refractions (and prescriptions) who purchase eyeglasses in the practice’s optical shop
5. Number of contact lens patients who purchase glasses, sunglasses, etc. (if the optometrist handles the contact lens fittings in the practice)

Opticians. As with the optometrist, there are several statistics to track, including the following:

1. Total gross optical sales
a. Number of sales b. Average charges or items per sale
2. Percent increase of gross sales over sales in previous periods
3. Average size of add-on sales over basic vision insurance benefit
4. Percentage of all sales from purchase of lens add-ons
5. Percentage of customers who purchase more than one pair of glasses at once
6. Percentage of refraction prescriptions that convert to optical sales

Incentives for Exceeding Baseline

Optometrist. Since most of the optometrist’s work is clinical rather than sales related, the compensation for productivity over baseline should be a bonus expressed as a percentage of salary, not as a percentage of revenue and not as a per-patient payment.

The following is an example of a bonus table for an optometrist. You may not want to use all of the categories. PLEASE NOTE THAT THESE NUMBERS ARE EXAMPLES AND NOT RECOMMENDATIONS.

Category	Basis	Rate	Baseline	Result	Bonus
Pts per clinic session	Average per clinic session measured quarterly	1% bonus for 2% increase	18	20 = 11%	5.50%
Recall effectiveness	Percent of those on list who return to office	65 - 75% = 2% bonus, 76 - 90% = 3% bonus, >90% = 4% bonus	65%	70%	2%
% of patients refracted who purchase glasses	Of patients who receive a refraction Rx, % who purchase glasses	55%-65% = 2%, 65%-75% = 3%, >75% = 4%	55%	62%	2%
% of contact lens patients who purchase glasses	% of patients with annual contact lens management who purchase eyeglasses in practice	50%-60% = 2%, 60%-70% = 3%, >70% = 4%	40%	56%	2%
TOTAL BONUS					11.50%

At first glance, it may seem that some of these categories are not under the control of the optometrist‹for instance, “recall effectiveness.” This should be a category for evaluation only if the optometrist is managing that aspect of the practice.

Additional categories can be defined and added to the table. Remember, the algorithm for defining a category, the baseline, and the bonus for various levels of performance is as follows:

1. Determine every aspect of the practice that the optometrist’s performance can impact.
2. Calculate the current level of performance of the area and the expected level if no changes are made.
3. Estimate the level of impact that the optometrist can have on each area.
4. Determine the value to the practice of varying levels of improvement.
5. Stratify the improvements into ranges and assign a bonus amount to each range.

Remember that some categories will have a ceiling on the possible performance (e.g., no more than 100% of contact lens patients can purchase eyeglasses). Again, some categories may not apply, and you may not want to use every applicable category.

Optician. Because an optician works in a retail business, you have more freedom to give bonuses directly related to sales. A table similar to the optometrist’s can be produced for opticians.

While some of these categories may seem to be repetitive (e.g., “Average add-on sale over basic insurance benefit” and “% of sales from purchase of lens add-ons”), each one measures something slightly different. If you include similar categories, adjust the compensation for each so that the total bonus is reasonable. However, bear in mind that the incentives should be designed so that the more that is paid in bonuses, the more profit there is for the practice.

A well-compensated and productive optician is the key to a financially successful optical dispensary.

Special Campaigns
In the optical shop, there are often opportunities for special promotions. A frame vendor may be introducing a new line, and special purchases can be made at reduced prices. Special incentives can be developed for the sale of those frames.

Compensation for Other Responsibilities
For the optometrist, there may be opportunities to obtain additional compensation for managing special projects or for managing certain areas of the practice.

Incentive Compensation for Other Staff Members
Some of the categories of productivity require the assistance of other staff members. These include the following:

• 100% appointment capacity (filling in for cancellations and preventing no-shows)
• Collecting all co-payments at time of service
• Having all appropriate patients purchase refractions and prescriptions
• Patient flow‹facilitating the seeing of all patients without falling behind in the schedule

Cautions
Because of the Stark laws on referrals and fee-splitting for Medicare beneficiaries (and similar state statutes for non-Medicare patients), any incentive compensation plan and the "games" for having patients purchase refractions and prescriptions, as well as those for patients who visit the optical shop and purchase eyeglasses, should be reviewed by your health care attorney. Don't allow these concerns to stop you from considering offering such incentives, but apply the resources to ensure that they are within the law. Your return on the investment of designing the plans, getting approval from your attorney, and enrolling your staff will be significant.

Ron Rosenberg, PA, MPH, Author Practice Management Resource Group
Irene Chriss, Editor Director, AAO Practice Management Department