Professional fee models 60

Published literature and articles suggest that the cost of providing a single eye examination can range from £50 to £150 (Sheinman, 2006; Russ, 2008; Llewellyn, 2012) and the cost of running a practice per hour is £130 to £300 (Association of Optometrists, 2008; Russ, 2008). The costs will alter significantly depending on the size, location, activity and resources of a practice. There are guides and templates available to help practice managers calculate the cost of service delivery in their own practice (Russ, 2008). One widely recognised example is the ‘CIBA Vision Professional Fee Template’ (Russ, 2008). The Association of Optometrists (AOP) also provides an ‘Optometric Practice Costs Model for Shared Care Schemes’. The CIBA Vision Professional Fee template and AOP Optometric Practice Costs Model are available as Microsoft® _Excel® _{spreadsheets. Various data specific to an} individual practice is entered into the spreadsheet. Formulae within the spreadsheet then use this information to derive the calculated cost per appointment. The AOP Practice Costs Model was developed to help Local Optical Committees (LOC) to assess the financial viability of community-enhanced services. Whereas the CIBA template was developed to encourage practitioners and practice managers to calculate appropriate professional fees for contact lens services and eye care direct debit payment plans. Additionally the tool demonstrates how to competitively mark up contact lens products (Russ, 2008).

Figure 3.1 The CIBA Vision Professional Fee Template. This example represents

a single consulting room practice. Professional fees and product prices are calculated using information that has been entered into the dark blue boxes at the

Figure 3.2 The AOP Optometric Practice Costs Model for Shared Care Schemes.

This is the AOP’s example for a glaucoma referral refinement community- enhanced service. Practice information is entered into the white cells. The information is used to provide the calculated cost per appointment shown in the

green cells.

Both models essentially apply the same method for calculating the cost of service delivery. The formulae divides the practice’s annual gross profit (£) by the annual number of clinic hours available for appointment bookings. This sum derives ‘the cost per clinic hour’, which can be further subdivided to provide a cost of an appointment. For instance, the cost per clinic hour (60 minutes) would need to be divided in half to provide the cost of a 30-minute appointment and divided by 1/3rd to provide the cost of a 20-minute appointment. Each model has additional features to improve the precision of costs calculated. For instance the CIBA calculator also compensates for unattended and empty appointments and additional profit requirements (Russ, 2008). The AOP model considers the additional equipment cost that may be associated with particular community-enhanced services. Differentiated costs for different clinicians (e.g. optometrists and clinical assistants)

are also considered in the AOP model, although the method is largely arbitrary (Frampton, 2011).

The professional fee calculators described above represent relatively simple methods of calculating the cost of service delivery. Both examples have flaws and make a number of assumptions. Firstly, both models are based on the use of gross profit, which is described as total turnover less the cost of resale goods (Russ, 2008). Gross profit actually represents the profitability before accounting for operating costs, interest payments and taxes. Hence it is not a measure of costs or budgets associated with optometric service delivery (Frampton, 2011). Gross profit is normally used to calculate the gross profit margin and indicate the success and competitive edge of a business. A positive gross profit can be a feature of both successful and unsuccessful businesses. For instance a business may have a good gross profit margin, but expensive operating costs will consume the gross profit and may render an overall net loss.

Secondly, both models calculate the cost per appointment by dividing the annual gross profit. The gross profit consists of all fixed and variable costs, other than the cost of goods, and also includes the net profits. The costs encompassed within this figure are for the entire practice as a whole. Most optometric practices have two distinct departments; retail of optical products and provision of optometric services. Therefore, the AOP and CIBA models treat practices as a single department whereby the gross profit not only represents service operating costs, but also encompasses those directly associated with maintaining the retail aspects including shop floor, displays, equipment, advertising and sales staff salaries. Hence the model incorrectly assumes that all fixed and all variable operating costs are directly associated with service delivery only and that all net profits are to be generated through service provision. This will erroneously inflate the calculated cost per appointment.

The CIBA and AOP model then divides the gross profit evenly amongst the number of clinic hours. The cost per appointment is solely dependant on the total number of clinic hours. There is no flexibility for differing levels of resources that may be applied to each service. For instance some services may require the use of additional equipment or further qualified optometrists. These features of a particular service would inflate the cost of service provision. This is not considered in the CIBA model and is absorbed across the business as a whole. The AOP model does account for clinical expertise and equipment. However the AOP model

determines the cost of a clinical assistant appointment to be 50 - 75% of the cost of an optometrist appointment, which is an arbitrary assumption (Frampton, 2011). Finally, the methods described assume that all revenues generated though optical product sales should only cover the cost of goods. Hence it is assumed that spectacle sales do not contribute to other practice costs or generate a profit margin. Therefore the models establish spectacle dispensing as a purely retail activity, whereby products are sold at cost price. In reality the dispensing of spectacles actually includes an element of professional expertise by a registered (or supervising) optometrist or dispensing optician. The professional service associated with spectacle dispensing includes professional advice and measuring and fitting of spectacles. This element is considered a service and can be charged separately to qualify for VAT exemption. Hence neither professional fee model takes this into consideration when allocating practice costs.

The CIBA Vision Professional Fee Template and the AOP Optometric Practice Costs Model for Shared Care Schemes attempt to provide a means of calculating cost of service delivery. However, both models have numerous flaws, which will inevitably render inaccurate costs for the basis of pricing. These models are based around the traditional cost allocation method, whereby a single volume-based cost driver has been identified (total number of clinic hours).