Dispensary business is thriving: So what's the problem?

Take-home message: This dispensary case study highlights how a practice and outsourcing partnership can tame inventory control and lighten the load.

Newport News, VA—James River Eye Physicians, an ophthalmology practice offering full-service eyecare in Newport News, VA, was thriving.

The problem? Its in-house optical dispensary had begun to demand too many staff hours and resources. On top of that, the dispensary was not making as much of a profit as physicians running the practice thought it could.

Brian J. McKee, MD, MS, one of the practice’s two board-certified ophthalmologists, made the decision to outsource the management of the practice’s optical dispensary (Vision Associates of Warren, NJ).

Related: Making the case for computer lenses

“Before we made the decision to outsource, our dispensary was operating inefficiently—even with two part-time optometrists and two part-time account people,” Dr. McKee said.

“Although our practice’s profits had grown each year, our optical dispensary profits weren’t growing along the same curve,” he added. “We knew this meant we weren’t converting the optimal rate of eye-care patients into eyewear customers.”

Among the practice’s challenges was the piecemeal, non-strategic fashion in which sales representatives and other vendors were bringing in frames. Inventory control and economy of scale were two of the main goals the practice hoped to achieve.

Additionally, since the practice accepted many different vision plans, third-party insurance billing had become very time-consuming. The ability to turn over the labor-intensive processing of optical claims to a third party was appealing.

Managing inventory

Managing inventory

Inventory management was among the first items the ophthalmic practice decided to tackle.

“Lens refractions and their subsequent frames sales capture rates determine a dispensary’s size, as well as its income potential,” said Mary Walker, director of operations at Vision Associates Inc. “Ophthalmologists should strive to achieve capture rate benchmarks. When these numbers underperform, the inventory a dispensary is presenting to its customers can be a significant factor.”

More: 7 steps to boost optical revenue 

Determining whether the appropriate types and number of frames are on display necessitates a bird’s-eye view of the dispensary, because a major factor could be a shortage of appropriate products for the particular patient base. From there, the calculations are math meets metadata.

The dispensary inventory ranged between 800 and 1,000 frames at any given time. A full analysis was given to the practice’s market to fully understand competitive prices structures and consumer preferences. The conclusion was its inventory was not being bought and managed as strategically as possible.

The practice’s existing inventory was sold off and meaningful changes were made to its purchasing and benchmarking structures. An inventory customized to the patient base was created, enhanced computer software was introduced, and three new opticians—two full-time and one part-time—who were trained in proper inventory management were brought in.

The new staff members “provided heightened expertise regarding the latest eyewear technology and incorporated added incentives for patients to patronize the dispensary,” Dr. McKee said.

“Frames are selling at an accelerated rate because they better appeal to our demographic,” he said.

The optical dispensary management firm also helped set price point and discounting strategies that led to an increased per-sale profit margin.

Marketing programs

Marketing programs

Marketing programs and collateral were introduced to increase dispensary foot traffic and help boost sales.

For one such effort, patients were given football-shaped cards to fill in with their contact info. Patients then placed the card in a box located (where else?) in the optical dispensary, with monthly winners receiving a free pair of eyeglasses.

Related: Adding an optical shop as fixture of success

The ophthalmic practice also took advantage of its prime Center City office location by starting a program providing area workers with an optical shop discount.

The bottom line? James River Eye Physicians is now in its fifth year of working with the optical dispensary management firm, and 2014 was its highest year yet in terms of sales. Its optical dispensary sales have increased precipitously, making it far more representative of a growing, thriving business.

Having enjoyed such success, Dr. McKee has the following advice for managers of robust ophthalmic eyecare practices: “[We] learned that it is simply not feasible to give 100% to your ophthalmology practice while still optimizing an optical dispensary. We highly recommend taking advantage of the mentorship and installation of best practices that an optical dispensary management firm can provide.” 

More: What makes a good optical manager?

Kurt Behrle is co-principal of Vision Associates Inc., which offers turnkey, customizable optical dispensary management and consulting services.