A Look at the Pros and Cons of Buying Group and Alliance Models



This article originally appeared in Eye Care Business.

There are a wide variety of resources available today to help out the economy-beleaguered eyecare professional, including cost-saving buying groups with new features and business-focused alliance groups. In this two-article section, we cover the features, benefits, and downsides of each business model.

Are buying groups still viable?

A fresh focus on these time-tested purchasing programs

In today's fiercely competitive economy, many eyecare professionals find that a buying group helps gives them the extra profit margin they need.

“I can't imagine running your business today without belonging to a group,” says Kara Colecchia, owner of the Optical Factory in Largo, Fla., and former owner of Padro F. Buying Group, which was sold to C&E buying group three years ago. “It's easily saving me between $500 and $1,500 a month, depending on my volume, and maybe more. Plus, I don't store invoices anymore.”

Donald Henry, practice administrator for Logan Eye Care, an independent optometric practice in Lake Mary, Fla., says that buying groups are an excellent way for smaller practices to get good prices. “Our group offers a 30 percent discount off list and this has made a profound impact on our profitability.”

Buying groups burst onto the optical scene in the booming '80s. As optical chain locations proliferated, independent ECPs found buying groups' services, from discounts to one-stop billing and payments, to be highly useful.

As a result, buying groups grew in membership over time, and new ones continued to enter the market. Some of the originals—Block, C&E, and HMI—are still the largest.

Buying Groups: Cons

ADMINISTRATIVE FEES: While many groups support their operations by keeping a small percentage of vendors' discounts (instead of membership fees), some simply charge an administrative fee for services. “All buying groups have almost the same discounts; it depends on the way you do the math,” says C&E's director of buying group relations, David Carneal. “We offer the classic model that all the big buying groups follow of passing on the whole discount minus five percent.”

At Vision West, 100 percent of the discounts are passed along and a small administrative fee is charged. “The more a member bills with us, the lower their fee,” explains Joseph Mallinger, OD, FAAO, president and CEO of Vision West.

CREDIT CONFUSION: Marty Traylor, OD, of Owensboro (Ky.) Family Eye Care Center, says they occasionally have problems with credits for returns from certain manufacturers going to buying groups by mistake.

EQUIPMENT DISCOUNTS: On many ECPs' wish list is more discount plans for exam and lab equipment. Vision West is among those answering the call by adding “the ability for members to purchase a limited amount of refurbished equipment at discount,” says Mallinger.

PRODUCT DISCOUNTS: Discounts vary by group, but typically range from 20 to 30 percent for eyewear and five to 10 percent for contact lenses. “The biggest advantage is cost savings,” says Marty Traylor, OD, with Owensboro Family Eye Care Center in Owensboro, Ky., who is a member of the Red Tray Network buying group. “At last notice, we were receiving a 26 percent discount from our lab.”

Contact lens discounts are a stong draw for some ECPs. Chris Brink, office manager and optician at the Tustin, Calif.-based Jamboree Optometry, belongs to C&E. “We are a member for the discount and the ease of purchasing contacts,” he says.

ONE-STOP BILLING: “It consolidated everything for us. That was the biggest plus,” says Jeff LaFerla, OD, LaFerla Family Eyecare in Kansas City, Mo. “Anything that makes it less of a hassle is great.”

While ECPs still see and order from all their regular reps, the billing and payment go through the group. “We are a third party,” says Joseph Mallinger, OD, FAAO, president and CEO of Vision West. “Everything is pulled into one place,” says Donald Henry at Logan Eye Care. “It is a more efficient way to monitor my cost of goods.”

Kara Colecchia, owner, Optical Factory in Largo, Fla., notes that her monthly buying group statement is typically six pages long. “I don't want to deal with that on my own,” she says.

VALUE-ADDED: Groups are adding a variety of services, many web-based, such as C&E's Beyeright program, which lists top-selling frames by vendor on its website. “We also provide a members-only area where they can download statements, statistics, and vendor invoices with images of everything they've purchased,” says David Carneal, director of buying group relations for 4,000-member C&E, which also offers a Virtual Frame Board feature.

Vision West offers include business-building information and webinars, educational meetings, and speakers on topics like coding and billing techniques. Members of the Block buying group also have access to several online features, such as secure statement payments, a newsletter, a member chat room, and an online “classifieds.”

At Red Tray Network, founder Jerry Hayes, OD, says “our focus now is on educational content and networking. We had our first annual meeting and are creating a platform for peer-to-peer networking and practice metrics comparison.”

“The buying group landscape hasn't really changed,” says Mark Gilbert, president of Vvs [purchasing] Group. “There were always four or five big groups, a few mid-sized, and some very small groups. In the past several years, some of the big groups have acquired several of the large- to mid-sized groups.”

Many were previously part of the Alliance of Ophthalmic Buying Groups. Feeling its goals had been met, the association disbanded in 2010. “Among its accomplishments were the establishment of a major optical credit reporting group that remains in existence and a fully detailed and tested data transfer format available to all vendors,” says Gilbert.

GETTING SQUEEZED

Today, with profit busters like managed care and big box competition, the ECP is getting squeezed, explains Jim Edwards, president of the 600-member Opti-Port alliance group.

“The average practice must take less reimbursement and sales revenue from the patient, but still try to offset the rising cost of doing business. Without some sort of significant change or dynamic, this can be daunting,” Edwards says.

Today's economic crunch has inspired more offices to join together to form an informal “buying group” made up of just a few members.

The Non-Alliance Group

A group by another name, Cleinman Performance Network is a national information-sharing network and business development services enterprise for optometrists.

Launched in 1999, Cleinman Performance Network currently has more than 300 members. And, according to Al Cleinman, founder and president, his group is not an alliance model. “We are exclusively focused on the business development needs of our members; and purchasing is a very secondary element of our offerings,” he says.

Prospective members are invited to join the Network and are provided a range of services focused on leadership and organizational development on a subscription basis with an annual fee paid monthly.

Benefits include access to Cleinman Performance Network's nearly 30 staff members for consulting and other services, a twice-yearly three-day “wisdom sharing meeting,” access to the company's publications and educational webinars, plus an online benchmarking service as well as consulting and information on succession planning, operational performance, marketing, and financial management.

“In the last five years, we've seen more doctors form loose-knit groups—a local society, a group of friends—and they will call themselves something and then go to suppliers to get preferred pricing,” says Jerry Hayes, founder of the 4,500-member HMI buying group as well as the newer Red Tray Network buying group. “There seems to be a very high level of entrepreneurial activity with small groups. Clearly, not all these models are sustainable, but some will do just fine.”

Many independents are also looking for support from a relatively new business model, alliance groups, such as Vision Source and Opti-Port (see accompanying article).

“A lot of our members have joined an alliance, but they are still buying through us,” says Michael Block, president of Block Buying Group. “I believe it's a flawed model, but if ECPs want to pay money to get practice management services, tips, and seminars, then great.”

Staying on top of today's marketplace realities, Block has recently launched its Elite Vendor Program, which offers significant rebates from its top 10 vendors if members achieve certain sales levels and remain within certain returns percentages.

Adds Hayes, who has his own alliance group, Prima Eye Group, “The demise of the traditional buying group has been forecast since the early '90s. Here we are 20 years later and large buying groups have reached critical mass and have lots of members and great relationships with vendors.” EB

Is a membership in an Alliance Group right for you?

A look at the pros and cons of this emerging business model

A recent influx of new doctor alliance groups and a wave of ECPs joining the movement has some asking if alliance groups truly offer real benefits.

“It benefits me and my practice greatly to have the opportunity to meet with other eyecare providers on a local, regional, and national basis continually,” confirms Brett Hagen, OD, with Garland Vision Source, Inc., in Spokane, Wash., and a member of Vision Source since 1999. “I've formed great professional friendships over the years that are an excellent conduit for information.”

Why is the model gaining popularity? “There is a growing complexity of operating a private practice,” says Jerry Hayes, OD, chairman and CEO of Prima Eye Group, a new alliance group launched in 2011. “ODs have to know more clinically, deal with managed care and a heightened level of corporate competition, but they don't have that background from a business standpoint.”

Increasing numbers of ECPs have begun looking to the alliance group business model for a leg up. “At some point, buying groups appeared to be offering discounts on the same products—there was not [as much] to distinguish one from another,” says Bill Nolan, vice president of The Williams Group, a practice management consulting service that provides the education component for certain alliance groups such as Professional Eye Care Associates of America, Inc. (PECAA).

Coupled with a turbulent economy, this new landscape left an opening for the decades-old alliance business model to gain new legs. Launched as many as 20 years ago, alliance groups such as Vision Source and Primary Eyecare Network have provided ECPs with buying group discounts and education. While the goals are similar, the number of alliance players has increased to include groups such as Prima Eye Group, IDOC, OD Excellence, Opti-Port, and PECAA.

“All progressive alliance groups have some type of practice management education component for doctors—or they contract it out to people like us,” says Nolan.

Alliance Benefits

In exchange for a yearly or monthly membership fee, or in some cases a percentage of annual revenue, most alliance groups offer a host of benefits such as online education via webinars and other e-learning platforms, product discounts on everything from frames to equipment, personalized consulting services, and meetings for networking and education. Benefits include the following:

EDUCATION: Most alliance groups offer an effective mix of business-focused online and live education.

PRACTICE MANAGEMENT SERVICES: Some alliance groups offer business benchmarking services via their website. Here, ECPs can track their own sales and compare them against their peers.

CONSULTING: At Prima Eye Group, for example, phone and email consulting are part of the offering.

COST OF GOODS ANALYSIS: “In optometry, cost of goods typically runs about 28 to 30 percent of topline revenue,” says Williams Group vice president Bill Nolan. “Many alliance groups say if you join and use our products, we'll lower your cost of goods by five percent with a two percent payment to us for this service. In a $600,000 practice that's $18,000 back in your pocket annually.”

PRODUCT DISCOUNTS: While most alliance groups offer a more limited selection of vendors than the typical buying group, they may offer slightly larger discounts on those vendors' products.

NETWORKING AND CAMARADERIE: Some alliance groups hold national or regional member meetings each year. Generally, membership fees do not cover travel costs.

Alliance Groups: Cons

BUYING GROUP BENEFITS: If ECPs don't plan on taking advantage of education, then buying groups may be a smarter, less costly option to access product discounts. Industry experts suggest that alliance groups offer similar (but, in some cases, slightly higher) product discounts on frames and lenses. Occasionally, an alliance can offer larger discounts on big purchases such as equipment.

Alliance groups typically have a more select group of vendors than the larger selection buying groups offer. This is how they sometimes obtain higher discounts.

HIGHER MEMBERSHIP FEES: Some alliances charge flat membership fees while others ask for a percentage (up to two percent, in some cases) of total revenue. On the flip side, most buying groups don't charge any fees per se (save for those they shave off the product discounts they broker).

PAPERWORK: While buying groups typically handle the buying and billing paperwork for ECPs and the vendors from which they buy through the group, alliances do not handle this.

FAD OR FIXTURE?

How do buying groups feel about the new alliance models, a new competitor in an already crowded space? “I believe it's a model that is ultimately going to fade away,” says Michael Block, president and CEO of Block Buying Group. Block notes that his group is starting to offer more education to address this demand in the marketplace. “We held a one-day free educational seminar for members,” he says.

Jerry Lieblein, OD, a past president of the California Optometric Association and CEO of the alliance group OD Excellence, says his organization is an “enhancement company.” “Most alliances are buying groups. We work with our members to raise their top line as well as lower their cost of goods. We strive to cut our doctors' cost of goods, but we are all about helping them become better doctors,” he notes.

One service offered by OD Excellence that sets it apart from many groups is online benchmarking, where ECPs can compare their business' numbers against their peers and industry averages. The group also provides its members with free consulting for practice management.

Still, some say the focus of alliance groups has changed today, focusing more on practice management and less on product discounts. “Many are heavily focused on continuing education and practice management,” says Nolan. “For many alliance groups it used to be that the buying advantage was the tail wagging the dog. Now it's the other way around.”

Adds James Rosin, co-president of the 18-location Rosin Eyecare in the Chicago area and a 12-year member of the Opti-Port alliance group, “Pricing and ability to do better from a buying perspective is the draw, but then the information sharing keeps members coming back.”

Groups like Vision Source offer a host of practice development tools, such as Vision Source Radio, which delivers daily practice management tips via the Internet; the Vision Source Experience, a roundup of 32 regional educational workshops taking place in 2012; and VSlearning.com.

“Our infrastructure allows for colleague support through approximately 1,000 monthly or quarterly meetings in 125 markets that allow members to network and share best practices,” says Bryan Pinciaro, chief marketing officer at Vision Source.

Business-building tools are also on tap at PECAA, which offers a wide range of services including doctor and staff education to its 138 members (and 289 doctors) located in 15 states, mostly in the Western U.S. Other support includes the PECAA Business Symposium, an annual meeting, peer-to-peer dinners, a member support team, and a dedicated member business analyst.

While there are membership fees to join, for many optometrists, alliance groups are well worth the price of admission. “I wanted to take my practice to the next level and I wanted to learn from more knowledgeable people,” says Sharokh Kapadia, OD, of St. Johns Eye Associates in St. Augustine, Fla., who is a newer member of Prima Eye Group. “I get to talk to highly experienced consultants about real optometry-related issues. It's so competitive; you need any advantage you can give yourself.”

“Ten years ago, Opti-Port focused mainly on group purchasing and web technology,” observes Jim Edwards, CEO of the Opti-Port alliance group, adding, “However, as the needs of our members have evolved, we have gone to a more complete line of solutions.”

What's ahead for alliances? “The alliance movement is a natural evolution in the marketplace,” says Hayes. “The real question is ‘Can the alliance deliver the education and training that ODs want?"


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