By Steve Vargo, OD, MBA
The Pareto principle, also known as the 80-20 rule, asserts that 80 percent of what you achieve comes from 20 percent of effort. For all practical purposes, this suggests that 80 percent of our effort is largely irrelevant. As health care moves toward a model that will reward efficiency, excessive effort spent of on low value, irrelevant tasks could prove counter-productive to success.
3rd Party Payers will drive the need for efficiency
As changes continue to evolve within the health care industry, efficiency becomes increasingly important. As 3rd party payers account for a larger share of health care spending, it is inevitable that these companies will seek to contain costs by limiting reimbursements. ODs must implement processes to become more efficient without compromising quality of care (also a major component of health care reform). We will be asked to see more patients, comply with more regulations, communicate faster with primary care physicians, report outcomes, and assume a larger role in medical eyecare. How can we meet these challenges without sacrificing profitability or patient care?
Change is the only constant
It’s possible that many offices will need to adopt a change in mindset and a redeployment of resources to succeed in the coming years. What activities and resources drive the majority of revenue in your practice? The 80/20 Principle suggests that profits could be multiplied if more of the best sort of products sold, employees hired, and customers attracted.
- Products: It’s likely that in addition to declining reimbursements in professional fees, 3rd party payers will also limit reimbursement on eyewear sales, It will become increasingly important to educate patients on the value of the products you recommend. Track your most popular and profitable frame lines (the 20%) and stock your frame boards accordingly. Don’t be shy about recommending premium eyewear, sunglasses, computer glasses, etc. Encourage patients to try contact lenses. Average gross revenue per exam for independent ODs is $306. How does your practice compare?
- Patient relationships: Patient relationships may be the greatest competitive strength of independent ODs. This starts with outstanding, personalized customer service. Studies have show that loyal patients buy more, buy more often, and will refer you to others. A study by Jobson Optical Research found that 61% of patients seen by an independent OD were “extremely likely to recommend the doctor to a friend or relative”, compared to 39% of patients seen by corporate affiliated ODs. What 20% of activities drive 80% or patient loyalty? Consider offering patient surveys to identify what this 20 percent is, and then spend more time doing it. The real measure of a healthy practice lies in the depth and strength of its relationship with its core patients.
- Staff – As ODs align with new health care models, we will be asked to see more patients in less time. This will require increased delegation to technicians and opticians. Do you currently have a high productive, highly-trained staff with low turnover? According to Dr. Jerry Hayes new book, How to Measure and Improve Team Productivity in Private Practice Optometry, a good range for non-OD productivity is between $125,000 and $175,000 in revenue per full time employee per year. What activities are most effective in improving employee retention, morale and productivity?
- Customers: Identify your most profitable customers (of eye wear devices), find out what they want and make a concerted effort to keep them happy. Consider loyalty programs for this segment that deliver targeted, personalized value. Target new products and services at this core 20 percent.
- Vision insurance: Here’s a hot topic. Could you drop the least profitable 80 percent of your plans and build a practice around the most profitable 20 percent of plans, private pay and other fee-for-service specialty services? Maybe 60/40?
- Management: The average independent OD spends 85% of their time in the exam room, working IN their business – not ON it. Less than 5% of their time is spent on business planning and marketing. Spend less time on urgent (but unimportant) tasks that add little to the bottom line, and more time on practice management.
- Services: If you consistently outperform expectations in a given area (ie. dry eye therapy, CRT, etc.), multiply your efforts on these services.
- Technology: Are you devoting excessive staff hours to scheduling patients over the phone, taking contact lens orders, recalling patients, etc? This is the 80 percent, not the 20. Could these time and resource-consuming activities be automated using recall software, web-based ordering forms, etc.?
Contrary to what people think, the relationship between inputs and outputs (effort and reward) is largely imbalanced. In business, many examples of this theory have been validated. Twenty percent of products usually account for 80 percent of dollar value sales; so do 20 percent of customers. While the specific 80/20 relationship may not apply to your practice and should not be taken too rigidly, the principle still constitutes a useful theory for your practice. Focus on the activities, products and customer segments where the largest revenues are being generated. Once identified, multiply your efforts to grow these segments. The result: less overhead, less marginal business being taken, less managerial complexity and increased returns.
Photo: Copyright: dskdesign / 123RF Stock Photo
Steve Vargo, OD, MBA is Vice President of Optometric Consulting for Prima Eye Group in Atlanta, Ga. He is also founder and CEO of OD Success magazine. Dr. Vargo’s interest in technology and marketing led to the creation of iMobile Communications, a web-based system dedicated to marketing the eye care practice through email, text and social media. He is a consultant for Global Eye Ventures, the producer of the leading app in iTunes under the topic of eye exam. Dr. Vargo has authored numerous articles on the topics of marketing and practice management for Review of Optometric Business and other publications. He lives in Atlanta, Ga with his wife and 2 sons. Contact: Svargo@primaeyegroup.com