EVER WONDER WHY YOU’VE BEEN CHARGING THE SAME AMOUNT ALL THESE YEARS?

SOME FOLKS STILL REMEMBER 29-cent gasoline and five-cent candy bars. It hasn’t been very long since 3 lbs of hamburgers sold for a dollar. The same house that changed hands for $30,000 in 1970 could sell for over $150,000 today. This theme of rising prices applies to the world of healthcare as well. Since 1980, annual dental fees have increased more than 130%. Similarly, average patient out-of-pocket spending has increased 10x. Yet, for some reason, eye exam fees have remained stagnant at $50-$100. Did dental exams become more critical than eye exams? We don’t think so! The true culprit in this scenario is inflation, which has silently weakened eye exam fees over the years.

DEMISE OF THE EYE EXAM

WHEN THE PRICE OF ONE THING remains constant relative to the price of everything else, it’s relative value decreases. Another way to think about it is what $50 bought you in 1980 versus what it buys you today. In 1980, $50 from an exam fee would buy your office 20bs of coffee. Fast-forward to present, a $50 fee will only buy you 10lbs of coffee. Using the same thinking, we deflated the value of a $50 exam fee to reflect historic prices in 1980s-dollars.

PRICE OF EYE EXAMS ADJUSTED FOR INFLATION, 1980 – 2016

Today, exams are only worth $17.16 in 1980s-dollars, a 66% decrease in purchasing power. This is the basic principle behind inflation and a painful thing to consider. Try out this inflation calculator (https://westegg.com/inflation/) to get a better idea of how inflation affects value.

WHAT ABOUT OTHER MEDICAL SERVICES?

WHEN YOU MAP OUT other medical exam fees, the story is the opposite. Verticals such as dental, home health and nursing care increased their prices each year to counteract inflation. By doing this, these industries maintained their fee value or purchasing power ie. the fee buys the same amount of coffee today as it did in 1980. We applied the same math to the annual pricing of hospice, nursing and dental services for comparison.

PRICE OF OTHER MEDICAL SERVICES ADJUSTED FOR INFLATION, 1980 – 2017

 Notice anything different? Even when adjusted for inflation these service fees increased over time. They not only adjusted for inflation but added additional revenue with even higher prices. For example, between 2006 and 2016, the average annual price of dentists’ services increased from $175 to $285. The 22% price increase counteracted the 20% of inflation over the same time period while adding an additional 2% of profit!

HOW BAD CAN IT BE?

SO WHAT WOULD eye exam fees be today if ODs had similarly adjusted pricing? There are too many factors to know for sure but we can make an educated guess based on monthly consumer price indexes (CPIs) courtesy of the Bureau of Labor Statistics. To convert past exam fees into present-day dollars, we increased the price by the same amount as inflation each year.

PRICE OF EYE EXAMS ADJUSTED FOR INFLATION, 1980 – 2016

If a $50 exam fee in 1980 were adjusted annually to account for inflation, today that exam would cost about $145 per visit. This is about a 190% increase in revenue from exams. Returning to our coffee metaphor, $145 today would purchase the same amount of coffee as $50 in 1980, or about 20lbs (assuming $7 per pound).

PARADOXICAL PRICING

SO HOW DID this happen? Clearly, something went wrong along the way. Surprisingly, patients were actually more willing to spend $ on fees with out-of-pocket spending increasing more than 10x over the same time period.

EYE EXAM FEE VS ANNUAL OUT-OF-POCKET SPENDING, ADJUSTED FOR INFLATION, 1980 – 2016

Increased out-of-pocket spending means more money is flowing into the medical services industry year-over-year. Yet somehow, ODs have been capturing less and less of this growing market.

FINAL THOUGHTS

LOOKING AT THIS SITUATION from a holistic standpoint a few thoughts come to mind. To begin with, ODs as a community should move to increase exam pricing across the board each year. Your collective bargaining power will ensure patients/ insurance carriers accept the change. Second, given the inverse correlation of out-of-pocket spending versus eye exam pricing, it’s clear that somewhere along the line a third party has been capturing the excess out-of-pocket spend. In the instance of eye care, those third parties are insurance carriers. Over the years, their revenue streams have surged thanks to contractual terms pushing in-network ODs to sell their materials, utilize their labs and pay percentages of hard-earned exam fees. By keeping network exam fees stable, insurance companies make themselves more attractive to large companies looking to cover their employees. Given that inflation is generally +2% a year, it’s unfair for carriers not to adjust in-network fees accordingly. What can you do to make up the difference? Many ODs have found success moving out-of-network and adopting a premium business model. By selling premium materials at a slightly higher price point and increasing their exam fee, ODs ensure a higher spend per patient to account for lost traffic.

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