OAA cautions members on discounts for proposed preferred-provider plan

Under the proposed no-gap benefits plan, to commence on 1 January, VSP (Vision Service Providers), is offering its ‘VSP Neighbourhood Eyecare’ and Medibank Private is offering its ‘Mbers’ Choice Optical Plan’ network to the latter’s mbers, with General Optical providing frames from its stock and prescription lenses surfaced in laboratories in the United States and fitted at General Optical in Sydney.Under the agreent, to be signed by 16 Novber, in order to become a preferred provider, discounts of 15 per cent will have to be given to patients/clients for contact lenses and 20 per cent for frames and lenses outside the no-gap range. The discounts are to be given on ‘standard’ retail prices, whatever that means.It will also be necessary for preferred providers to stock no-gap frames (they can be from other sources than General Optical, but must be of equal or better quality to its no-gap products) and to provide basic lenses for a fixed reimbursent.In addition, there will be a requirent to carry 76 no-gap frames in stock, prices ranging from $150 to $300 retail including ‘basic’ lenses with hard and UV coating for single vision, bifocal and progressive lenses.Each preferred provider will be obliged to purchase a minimum monthly average of $1,800 ($21,600 a year) in General Optical products, to be reviewed annually to take into consideration the cyclical nature of the business.The plan is being promoted as a way in which ‘independent’ optometrists can compete with large corporations who use their extensive marketing resources and partnerships with health funds to dominate the marketplace by for the first time ever participating in the plan and that means exposure to more than 3.5 million prospective new patients .An outline of the plan was presented to some 450 practitioners at meetings in the five major capital cities, commencing in Melbourne on 15 October and ending in Perth on 23 October, as well as meetings with Eyecare Plus, EyeQ and Provision.Although invitations to the exclusive information meetings referred to independent optometrists in the network gaining exposure to millions of prospective new patients , there were no specific commitments at the meetings as to how there would be such exposure, with questions from the floor largely unanswered. The nearest was mention of promotion of preferred-provider practices to 4 million Medibank Private mbers and staff and inclusion in the its and VSP’s provider directories … conducting special promotions later this year and in 2013 and in-practice communication materials and signage.Present at the meetings were a representative from VSP, Mr Richard Steer, and the head of General Optical, Mr Peter Lewis. No representative from Medibank Private was present.Medibank Private is offering its largest discount – 8.3 per cent – on health-insurance cover for practitioners, their families, their staff and their families.The attitude of the two largest optometrical companies in Australia, Luxottica and Specsavers, to Medibank Private’s involvent in the plan, had not been made known by press time, however there were most likely discussions going on about their future relationships with the health fund. And it would be similar in the case of smaller corporate ployers of significant numbers of optometrists.Medibank Private has about 31 per cent market share of the private health funds industry, followed by BUPA with about 27 per cent and HCF with about 11 per cent.Annual revenue of Medibank Private is more than $4.2 billion, with $3.5 billion in paid out in benefits.What OAA said:In an 1100-word communication to mbers on 24 October, Optometrists Association Australia said, inter alia: It is generally accepted that the net profit on the sale of spectacles is approximately 20 per cent of the sale price, therefore, without other changes to the way in which your practice functions, a discount of 20 per cent would result in no net income from the sale of goods at all. If the margin on goods is even smaller, then each pair of spectacles sold to a mber of a health fund would represent a loss to the practice. It does not matter how many more patients are attracted to the practice, the loss could not be recovered unless other actions were taken. The communication went on to say that to rain viable the options include: raising the price of spectacles; reducing the cost of running a practice by buying cheaper goods and selling th at the prices charged for current stock; reducing the cost of goods by other means such as negotiating discounts from suppliers; and that none are necessarily easy options and each would need to be carefully assessed; and that the cost of the ‘no-gap’ to a practice may increase over time.Furthermore, the administrative burden on a practice will increase as a result of reporting and other requirents associated with preferred-provider arrangents and that often such arrangents require a practice to agree to stock certain frames and lenses and use nominated laboratories, the latter raising the question of what if a patient requires a different lens not able to be made at the nominated laboratory?The association said that before any mber enters any preferred-provider arrangents, it recommends they:Understand the economic impact of those arrangents on their practice and the likely effect on their patient base;Carefully consider the impact of discounting. Overcoming the loss of margin that discounts entail requires a larger increase in patient numbers than most realise. Discounts have a severe effect on net income; andEnsure they are aware of their legal obligations, including competition and consumer laws and any other relevant legislation.OAA suggested mbers consider how discounting would affect their existing patient base, including how many existing patients would request a discount (they will see any in-practice promotional material offering discounts), its effect on practice revenue, and the necessity to be careful to say the savings are off the recommended retail price, not the usual price to avoid misleading patients under national consumer laws.The association also suggested mbers consider the possible creation of ill will from existing patients.Regarding health funds, OAA said often preferred-provider arrangents included provision for a health fund to make unilateral changes to the arrangent first proposed by the fund.Furthermore, OAA suggested mbers check any agreent makes it clear that they have freedom with respect to clinical decision making and recommendations for optical appliances.It also suggested mbers check how many health-fund policy holders live in their catchment area and how many practices there are that are preferred providers.And it suggested that mbers consider if advertising by funds would attract additional patients or whether using the costs saved by not discounting could be better targeted to attract additional patients.Finally, OAA suggested mbers consider lead times in the event of electing to end a preferred-provider arrangent; consider how they would sell raining stock in that event; and if selling a practice understand the terms of a preferred-provider contract, the contract usually not being transferrable to the new owner.OAA rinded mbers information is provided to [th] for information purposes only; that mbers of the association are free to enter into discussions and agreents with health funds as they see fit; and that it hopes that this letter provides some valuable information to assist in any decision you wish to make in this area .