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South Florida
Business Journal
Exclusive
Reports
From the
January 18, 2002
print edition
Ronni Sayewitz
When TLC Laser Eye Centers became one of
the first to dazzle American consumers with laser vision correction, the
future looked clear.
The year was 1995, and the miracle of
perfect vision was in sight for many people fed up with their reliance on
eyeglasses or contact lenses.
Healthy profits also loomed for
ophthalmologists delighted by the chance to treat a younger clientele and
receive thousands of dollars in cash up front without haggling with
insurance companies.
Or so TLC (Nasdaq: TLCV) officials thought.
Six years later, a crowded marketplace, fierce pricing wars and negative
media attention spurred by lawsuits and bankruptcies have blurred the
industry's outlook.
America's fuzzy economic picture which
became even fuzzier after the Sept. 11 attacks also caused business to
plummet as potential patients were suddenly unable or unwilling to fork over
an average of more than $1,600 an eye for an elective cosmetic procedure.
Thirty-five percent fewer laser eye
surgeries were performed in the third quarter of 2001 than during the same
period in 2000, said Dr. Marguerite McDonald, clinical professor of
ophthalmology at the Tulane University School of Medicine in New Orleans and
spokeswoman for the American Academy of Ophthalmology. After Sept. 11, as
much as 90 percent fewer procedures were performed than in the same period
the previous year, she said.
"It's almost like the end of World War II,
and we're in the reconstruction period," said Stephen Kilmer, director of
corporate communications for Bethesda, Md.-based TLC, North America's
largest provider of laser vision corrections with nearly 60 centers,
including three in South Florida. "The industry had been growing by 100
percent every year and it couldn't stay that way. Now things are starting to
stabilize."
It's a correction that couldn't come
quickly enough for practitioners struggling to hold onto their piece of the
$2 billion-a-year laser eye industry.
After the Food and Drug Administration gave
the green light to using the excimer laser in eye surgery in 1995, laser
vision correction quickly became the most common surgical procedure in the
United States surpassing nose jobs, liposuction and breast enlargements.
About 1.4 million operations were performed nationally in 2001, up from
105,000 in 1995, said David Harmon, president of Market Scope, a St.
Louis-based research firm that tracks refractive surgery.
Lasik an acronym for laser in situ
keratomileusis represents 95 percent of those procedures, Harmon said. And
for many of the billions of people worldwide who are nearsighted, farsighted
or have astigmatism, the simple surgery ophthalmologists call "flap and zap"
is a dream come true.
During lasik, a surgeon makes a small slice
in the clear lens that covers the cornea. A flap is lifted and a laser is
used to reshape the cornea so the eye focuses better.
There can be complications from the
surgery, most commonly dry eyes and glare around outdoor lights at night.
Severe problems, such as heavily impaired vision, are relatively uncommon,
although patients have outlined a host of complaints on a Web site,
surgicaleyes.com. But in most cases, the operation is
painless, takes only minutes and is often followed by a rapid recovery.
"It's really one of the biggest joys an
ophthalmologist has," said Dr. Wayne Bizer, who has performed "a few
thousand" procedures at the Fort Lauderdale Eye Institute in Sunrise and is
an AAO spokesman. "I can't tell you how many times I've had people in my
office in tears because they are so happy with the results."
Low risks, high profits
But in many cases, what those happy
patients' doctors were seeing more clearly were dollar signs. At a time when
declining insurance reimbursements and rising overhead costs were putting
the squeeze on medical practices, many saw laser eye surgery which is not
covered by most health plans as a way to guarantee a steady stream of
cash. Risks were low and with initial prices quoted at up to $4,500 an eye
profits were high.
Soon, small physician practices and big
corporate chains were locked in a heated battle over market share, spending
millions on advertising aimed at convincing consumers that the path to
perfect vision ended in their operating rooms.
Direct-mail campaigns, billboards,
television commercials and full-page newspaper ads abounded. Celebrities
also jumped into the fray, with everyone from golfer Tiger Woods to NFL
quarterback Rodney Peete hawking the advantages of certain surgical centers.
But it was the arrival of the discount
chains in the late 1990s that truly made the industry's eyes widen.
Suddenly, consumers could purchase laser vision correction for as little as
$499 an eye. After Sept. 11, Lake Worth-based The Laser Vision Institute
which has 15 centers nationwide started marketing the "once in a lifetime
offer" of $299 an eye.
"Laser vision correction used to be a
luxury that only a wealthy person could purchase," said Amy White, national
operations director for the institute, which performs 65,000 vision
corrections a year. "We're making it affordable to the average person."
But private practitioners and full-priced
chains have loudly wondered how companies such as Laser Vision Institute can
afford to offer rock-bottom prices when costs start at $650,000 for the
newest lasers and each procedure requires at least $200 in disposable
equipment. They also have accused discount chains of "upselling," or luring
consumers in with an amazingly low price and then giving employees bonuses
for convincing them to buy other services.
In 2000, the FDA posted an online warning
urging consumers to be wary of lasik deals that seemed too good to be true.
"I strongly feel that when you're cutting
price, you're cutting something out," said Kilmer, noting that TLC's prices
average in the top third of its markets for the 100,000 procedures it
performs each year. "At those [low] price levels, the whole idea is to
generate maximum volume. There is a real pressure to do people regardless of
their candidacy because everyone you turn away is someone who isn't paying
$499 an eye."
But White said bulk buying allows Laser
Vision Institute to keep its prices low. And while she admitted that
upselling and sales bonuses are a common practice at the company, she
insisted that its ethics are beyond reproach.
While the $299 price includes three months
of post-operative care, the average Laser Vision Institute customer actually
pays close to $1,800 an eye, depending upon his or her prescription and if
an enhancement policy is added, White said.
"I'm not offended by upselling," she said.
"But I think we turn away more non-candidates than anyone else because we're
so much under the microscope. Certainly it's in our counselors' best
interests to try to upsell everyone, but it's not up to them who actually
gets approved for surgery."
White said it is the private surgeons and
full-priced chains who overcharge patients. "They have the same costs that
we do," she said. "My question to them is why are they still charging $2,500
an eye?"
An eye to the future
But no matter which side a practitioner
takes, there's no denying the impact of the discount chains on the laser eye
industry.
Surgeons who weren't generating significant
business had no choice but to follow the trend toward extra-low prices,
Kilmer said.
Consumer confidence also helped drive
prices down last year after a wave of media stories about botched procedures
and patients abandoned by fly-by-night centers that shut down without
warning, said Robert Weaver, marketing director of the Rand Eye Institute in
Pompano Beach, which averages "hundreds" of procedures each month.
"Once a procedure ceases to be new, the
news it generates is when something goes wrong," he said. "The problem is
that people don't put the energy into differentiating between what happened
at those places and what happens at a place like the Rand Eye Institute."
Such factors have triggered a shake up in
the laser eye market. Many of the larger chains are consolidating, a trend
that is most prominently evidenced by the pending merger of TLC and St.
Louis-based LaserVision Centers (Nasdaq: LVCI).
Within the past year, a growing number of
ophthalmologists also have cut lasik from their practices, refocusing their
attention on traditional procedures that aren't impacted by downturns in the
economy, Kilmer said. Market Scope's Harmon reported that fewer than 250 new
lasers were sold in 2001, compared to 500 in 2000.
Other centers including two of the
nation's biggest discount chains, Icon Laser Eye Centers and Lasik Vision
have slid into bankruptcy court.
"A lot of very good surgeons in the area
have decided that they don't want to compete in the market any more," Weaver
said.
But AAO's McDonald said there are signs
that the shake-up is nearing its end. The economy is improving and the tide
of negative media reports has ebbed. The disappearance of many of the
discount chains also has allowed prices to climb back to more reasonable
levels, Kilmer said.
Although it's too early to report
statistics, Harmon said anecdotal evidence shows that many laser centers
emerged from the sales slump of 2001 to find full surgical calendars
awaiting them this month.
"Most of the centers that were going to
close have closed," said McDonald, who is credited with performing the
world's first excimer laser eye surgery in 1987. "And to be honest, some of
us who saw certain people drop out of the market quietly cheered because we
didn't think they were doing what was best for the patients."
Still, McDonald said the savviest of the
practitioners who remain realize that it's time to change the way they do
business.
Many began by slashing their once-generous
advertising budgets.
When Weaver joined the Rand Eye Institute
two years ago, he shifted its marketing focus to community outreach,
including lectures at schools and community groups on such topics as
preventing blindness.
"Unless you're advertising price and going
after that segment of the market, it's difficult to differentiate your
advertising. It's not a good way to build credibility," he said. "It's not
our goal for the lectures to help us on the business end, but it does work
to our advantage. People choose their medical care very conservatively, and
they're more likely to go with the name they know."
Niches also have started forming within the
laser eye industry, with some practitioners concentrating on older patients,
for example, and others targeting a younger audience, McDonald said. Still
others are trying to emerge as the antithesis to the discount centers.
Dr. Alan Mitchell of the Mitchell
Refractive Surgery and Eye Center in Boca Raton has lowered his lasik prices
in the past year, from an average of $4,800 to $4,000 for both eyes. He said
he targets consumers who feel most comfortable with the personalized service
and attention from a surgeon that's associated with a high-end product.
"I like to view the lasik market like any
other market," he said. "There's Kmart, there's Burdines and then there is
Neiman Marcus. This isn't a car or a boat where you negotiate the best
price. This is your eyes, and I want to be able to have the best equipment
and offer the finest care so I can make [lasik] a very pleasant experience
for my patients."
Still others believe that focusing on new
procedures in less competitive segments of the market is the secret to
success.
Fort Lauderdale Eye Institute's Bizer said
he aims to remain on the industry's cutting edge. He carefully monitors the
progress of the half-dozen new technologies that will soon be introduced in
the United States.
Already, he's become one of the first local
doctors to offer a new laser correction called lasek that widens his market
of potential patients because it can be performed on people whose eyes or
lifestyles made them poor candidates for lasik surgery. Lasek eliminates the
incision but involves a more prolonged and painful recovery.
Bizer also found a way to reduce the high
overhead associated with laser surgery by renting time on equipment owned by
others instead of buying his own.
"Yes, the profit margins have been reduced.
But [laser eye surgery] is still a profitable part of a practice," Bizer
said. "And once the new technologies come out that offer corrections to
those who had been on the sidelines before, I think we're going to see those
numbers go up even more."
Harmon agreed that the future looks rosy
for surgeons such as Bizer who managed to navigate the rough waters of 2001.
Of the 30 million people who wear contact
lenses in the United States, less than 5 million have had laser eye surgery,
he said. And with 4 million people reaching the procedure's minimum age
requirement of 21 each year, the pool of potential patients continues to
grow, he said.
"Up until last year, the laser eye surgery
market was a rising tide that floats all boats," Harmon said. "Then it was
low tide and a lot of boats were left high and dry. We've already started to
see evidence that the tide is rising again."
E-mail health care writer Ronni Sayewitz
at RSayewitz@bizjournals.com.
Courtesy of American City Business
Journals, Inc.
Copyright 2002 American City Business
Journals Inc
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