Practice Management

A Better Way to Pay ODs

By Chad Fleming, OD, FAAO

June 22, 2022

Great optometrists enable a practice to expand patient access to high-quality care, and, in the process, boost profitability. The question is how to compensate ODs for the value they provide to a practice. Here is what has worked well in our practice.

The Value of Per-Hour Or Total Revenue Compensation
The longest lasting and most common compensation model is compensating based on a percentage of production that is usually set at a specific percentage, and may or may not have production bonuses tied to it. We did that for a long time and recently changed to a revenue/OD hour OR total revenue compensation that rewards ODs who are efficient and productive in executing on recommendations made in clinic.

As a clinic doctor, you qualify for one of three percentage levels based on your revenue/OD hour or overall production. So, if you want to work three days a week, but are highly productive when you are in clinic, you get compensated accordingly OR if you want to work five days a week, but your revenue/OD hour is lower, you get one of three percentages based on total production.

The cons of the initial compensation model we tried was that if you were happy with production, there was typically not motivation to communicate product recommendation in the exam room. The pros of the revenue/OD hour is the doctor who wants to have less time in clinic, but be more productive while they are in clinic, gets rewarded. It’s a reflection of efficiency and ability to communicate to patients. Those two attributes get rewarded in the revenue/OD hour compensation model.

The revenue per hour compensation model changes the narrative between the practice owner and clinic doctors. Instead working to get ODs to buy into the concept of better communication and prescribing specific products in the exam chair, it brings the doctor to the practice owner asking how they can increase their revenue/OD hour. They initiate the discussion about seeing more patients in an hour. The evolution of practice today is everyone now wants a work-life balance, so you get requests from ODs for three- or four-day work weeks. I don’t mind the chaos that causes in scheduling support staff as long as it’s balanced out with the clinic doctor being productive and motivated when they are in clinic.

Making the Transition to a New Way of Paying Associates
Making the transition starts by seeing a vision of what you want to transition to. We determined three levels of compensation that a clinic doctor falls into based on revenue/OD hour OR total production. Start discussing this by moving to the model, but keeping everyone in the top tier percentage (i.e. your percentages are 16 percent – 18 percent – 20 percent) You would start them in at 20 percent and tell them you will compensate at that level this year and next year you will have two tiers, 18 percent and 20 percent. Then, in the third year of this transition, you pay them according to the three tiers of 16 – 18 – 20 percent based on what they do REVENUE/OD HOUR or TOTAL PRODUCTION, whichever puts them in the highest tier.

Consider this example to illustrate:

Doctor Y produces 600,000, which comes to $554/OD hour, in 2022.

Tier 1: 0-$450 Revenue/OD hour = 16%
Tier 2: $451 – $550 Revenue/OD hour = 18%
Tiers 3: $551 – ABOVE Revenue/OD hour = 20%

OR

Tier 1: $0-$450,000 receipts (net collected) = 16%
Tier 2: $450,001 – $650,000 receipts (net collected) = 18%
Tier 3: $650,001 – $1 mil+ receipts (net collected) = 20%

The Doctor Y in our example would be paid for the highest tier they qualified for. It would be Tier 3 since they were efficient, producing $554/OD hour while in clinic. So, although production was lower, Dr. Y would be compensated nicely because they utilized staff and clinic time effectively.

$600,000 x 20% = $120,000

Many doctors could produce the above in 3-4 days per week, which would allow them to have a strong work-life balance.

Per-Hour Or Total Revenue Compensation Isn’t Just for Associates in Our Practice
We pay all our doctors, whether partners or associates, the same way. It produces a level of shared interest in working hard to be productive while in clinic. The owners are compensated for their risk in owning the company when the company is profitable. If you have an owner who isn’t being productive, they still require the same amount of staff, so they should be expected to pull the weight if they are going to be compensated clinically at a higher tier. This also creates great respect between associates and partners. The associate OD has a harder time complaining about what they don’t like if the partner is on the same compensation model.

The Right Compensation Model Can Motivate Doctors to Improve
One of our doctors was so bothered by how low their efficiency was that they started asking more questions at our doctor meetings about what other doctors were saying to patients in the exam room to facilitate purchases of additional products and services. As the revenue/OD hour went up for this doctor, they told us it was because they re-framed how they communicated with patients, which resulted in patients getting more of what was prescribed.

The practice has improved because the doctors have “prescription cards” with check-boxes that enable a tangible hand-off to the optical staff. The doctors are now checking these off routinely so the optician can “assume the sale.” This has led to higher production in our optical as patients are buying what their doctor prescribed because it is better communicated in the exam room and then handed off in a clearer manner to the optician. This, I believe, has everything to do with the direct impact the doctor sees on their compensation when they do a good job communicating compared to a great job.

Patients benefit from this enhanced communication, and so does our practice’s profitability.

Chad Fleming, OD, FAAO, is a partner with Wichita Optometry, P. A. in Wichita, Kan. To contact: chad@optometryceo.com

 

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