Counting the cost

The patient is asked to read letters from a chart ripped down the middle while looking through a phoropter missing half the lenses.

Ridiculous though it may seem, this is an illustration of the gap that would remain at one High Street optometry practice if NHS sight tests were funded through Government reimbursement alone.

When optometrist Dr Neelam Patel examined the books in detail, she found that NHS funding met just over half the costs of a 20-minute appointment at BBR Optometry.

The rate of reimbursement at the time was £21.10, while the cost of the chair time to the practice was £37.41. For a 40-minute appointment, the cost rose to £74.83.

The research, which formed the basis of Dr Patel’s doctoral thesis, used BBR Optometry as a “guinea pig practice” while investigating the flaws in the current optometric business model and the possible alternatives.

“I think the costing we came up with would probably surprise a lot of people,” Dr Patel emphasised.

“It was only for BBR Optometry, but it was very interesting to see the true cost of a sight test. The practice itself used the research to make changes. Their business really benefitted from having a greater understanding of what their chair time was costing them,” she elaborated.

Made to measure?

Dr Patel applied the concept of a ‘loss-leading’ business model to optometric practice.

She explained that a loss-leading service is one that is not profitable, but is used as a marketing tool to attract customers. Those customers then go on to purchase profitable products or services.

She added that the classic example of a loss-leading business model is printers and ink cartridges; where printers are relatively inexpensive to buy but ink cartridges are costly to replace.

“For our industry, the idea is that eye examinations are offered at a below-cost price and recouped with product sales – either spectacles or contact lenses.”

However, Dr Patel highlighted that there are some significant flaws to using this model in High Street optometry practices.

The biggest loophole is that a patient may take advantage of loss-leading pricing, but not use any of the business’ products or services.

“Because competition has increased on the High Street, a patient may shop around or buy online,” Dr Patel shared.

A subtler disadvantage with loss-leading pricing is that the model may discourage a practice from offering a wider range of clinical services, such as minor eye condition services (MECS) or glaucoma care.

“A patient coming in for that kind of appointment is not necessarily going to be leaving with a spectacle prescription that they can fill,” Dr Patel explained.

Her research found that private as well as NHS eye examinations are loss-leading – an interesting finding considering that practitioners can choose what price they put on this appointment.

As well as intense competition on the High Street, Dr Patel pointed to stigma as one of the factors that had influenced the price set for private eye examinations.

“Practitioners don’t feel like they can charge a higher rate,” she added.

Dr Patel carried out work to investigate the impact of raising the cost of a service on patients’ perceptions of quality.

This investigation found that the perceived quality of a service was unaffected by a higher price tag.

“Often we have this notion that if the price goes up, patients expect more. That wasn’t the case in this study,” she shared.

Dr Patel highlighted that there is more research to be done on this topic.

“If the price is going up and patients are not suddenly expecting something different, is it because they think actually it should be sold at a higher price?”

"The sight test is the bread and butter of a practice. It is the key element that will bring patients through the doors"

The alternative

The alternative model that Dr Patel examines in her thesis is cost-pricing – knowing the cost of providing a clinical service and then charging the appropriate rate.

Dr Patel explained that moving away from a loss-leading model is important for optometry practices in the long-term.

“Cost pricing makes your business stronger. You can potentially invest in new types of equipment or expand your business. I think from the perspective of patient care, if we can offer a wider range of clinical services, that is a win for patients,” she shared.

“The risk of not pricing our services right and carrying on with this loss leading model is that practices may end up losing money,” Dr Patel added.

For vulnerable practices, that do not have high-value dispensing, continuing with a loss-leading model could be particularly problematic, she stressed.

“Not only are they loss-leading, but product sales are not generating high volumes of cash flow,” Dr Patel said.

She believes that introducing cost-pricing of optometry services could help to change public perceptions of the role that optometrists play.

“The sight test is the bread and butter of a practice. It is the key element that will bring patients through the doors,” Dr Patel outlined.

“I think patients really value our work and it would be great if that could be recognised.”

She highlighted that there are limits to her research, as she only analysed one long-established practice in an affluent area.

“That practice has its own unique circumstances. It will be interesting to see how the loss-leading model works across a spectrum of practices,” Dr Patel observed.

The AOP view

AOP policy advisor, Kathy Jones, told OT the AOP intends to sponsor more work on practice costs.

“Here we have a very well-worked example showing that in one practice a routine sight test costs at least £16 more to perform than the NHS pays for it. That won't be the same in every practice. We would like to understand the true cost of performing the sight test in other environments – such as more deprived areas, remote rural areas or inner cities for example.”

She highlighted that while the AOP understands why optical practices charge less than cost for a private test, but this disguises the real cost and can make it difficult to argue for increases to the NHS sight test fee.

“AOP believes that the real terms fall in the NHS sight test fee over time may be putting practices under increasing financial pressure in areas where many patients qualify for an NHS test. We are planning to gather evidence about what is happening on the ground, and we have recently put a call out to local optical committees with the help of Local Optical Committee Support Unit, asking if people with long memories can let us know how the number of practices in their area has changed over time.”

Anyone who is interested in helping with research on practice costs or the impact of sight test fee changes should contact [email protected].

Image credit: Paul Lingus