General Optical Group (GenOp) is working with its ‘parent’ company, US based VSP, to contract independent optometrists to an agreement with ‘VSP Neighbourhood Eyecare’, which will be included in Medibank’s Members Choice Optical Network.
Optometrists who sign up with VSP are obliged to offer Medibank members (whether new or existing customers) a 20 per cent discount on all frame and lens sales (other than No Gap purchases) and a 15 per cent discount on contact lens purchases.
Genevieve Quilty, President of Optometrists Association Australia said optometrists should carefully consider the flow on effects of being bound to such a discount. “Margins are already low so you need to ensure that your practice can afford this discounting or attract new patients to your practice to increase revenue to balance out the discount. If you need to attract new patients, this may have a flow on effect of requiring additional staff – another cost to your business,” she said.
“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 member of a Health Fund (in this case, specifically Medibank) 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.”
…consumer research shows that a large portion of our members want to go to an independent optometrist for..eye care treatment…
Ms. Quilty went on to suggest optometrists consider whether they would be able to offer all patients the same discount upon request and reminded optometrists that many of their patients would be Medibank members. “So instead of continuing to pay the price you have charged them previously, you now are required to provide them with the discount. Can you afford this change to revenue?”
She warned that health funds may change their required provider offers in the future. “It is in the interests of Health Funds to negotiate Preferred Provider contracts with the sector. Often the arrangements presented to practitioners include a provision, which allows the Health Fund to make unilateral changes to the arrangement first proposed by the Health Fund.”
As well as offering Medibank members a substantial discount, optometrists who join the VSP network will be required to spend AUD$1,800 per month on General Optical “lenses and lens and frame options” for each of their locations. According to documentation provided to optometrists this is necessary because “VSP will not receive any funding from Medibank to administer and market the programme. The programme’s only means of financial support is through the promotion of GenOp products.”
The ‘VSP Vision Care Australia Provider Agreement’ states that GenOp will issue quarterly progress reports detailing each optometrist’s GenOp purchases and that VSP has the right to terminate agreements with optometrists who do not purchase 100 per cent of their minimum requirement within a 12 month period.
Network optometrists are also bound to stock a minimum of frames within several different price brackets and, while these do not have to be GenOp frames, they “must be from the collections approved by GenOp”. In the FAQs VSP states “Please remember that GenOp is the only frame distributor providing quality products that support your profitability. Your support of GenOp products helps us support you.”
The minimum stock requirements total 76 frames that consist of:“No Gap selections of a minimum of ten (10) frames, including men’s and women’s frame brands and six (6) children’s frame brands from the collections approved by GenOp, for a retail price of no more than AUD$150; a selection of ten (10) men’s and women’s frame brands and six (6) children’s frame brands from the collections approved by GenOp, for a retail price of no more than AUD$200; a selection of twenty (20) men’s and women’s frames from the collections approved by GenOp, for a retail price range of AUD$225-$250; and a selection of twenty-four (24) men’s and women’s frames from the collections approved by GenOp, for a retail price of AUD$300.”
Members Want Independents
Laz Cotsios, Group Executive – Medibank Private Health Insurance, whose optical providers are principally Luxottica, Specsavers and Optical Superstore, said the intention is to provide access to a broader cross section of optical outlets by expanding the Medibank network for members as these members primarily “want to go to an independent”.
“Our consumer research shows that a large portion of our members want to go to an independent optometrist for their eye care treatment. This new agreement means they will have access to a network (of optical practices) that is up to 30 per cent larger,” he said.
EyeQ Optometrists has signed up and Executive Chairman Ray Fortescue says the Network is a “perfect fit”.
“Our group couldn’t be happier entering into the new relationship and are looking forward to growing our business with Medibank members and stopping the leak of confused and unhappy patients to the marketing ‘noise’ of the retail chains in the optical industry,” said Mr. Fortescue.
According to the campaign circulated to promote ‘VSP Neighbourhood Eyecare’ to optical practices, optometrists that sign up to the network will be promoted to 3.8 million Medibank members. Additionally, VSP will “continue to pursue opportunities to partner with addition health funds”.
Although undefined, the FAQs also refer to co-branded VSP/Medibank marketing and advertising support to promote the network. This will be in the form of “in store signage… a web based directory… (and) point of purchase materials” and Medibank may promote the network in “any of its advertising or promotional material”.
In a statement, Ms. Quilty said before entering any such arrangements, OAA recommends you:
- Understand the economic impact of these arrangements on your practice and the likely effect on your 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.
- Ensure you are aware of your legal obligations, including competition and consumer laws and any other relevant legislation.”