The evolution of ophthalmology economics
I am going to take a little stroll down memory lane in this commentary and present some personal thoughts on the economic past, present and future of ophthalmology.
I committed to ophthalmology in 1972 in my senior year of medical school after completing a 6-week rotation at the University of Minnesota department of ophthalmology, another 6 weeks with the then-icon of Minnesota ophthalmology, the late Malcolm McCannel, MD, in his private practice, and entering into ophthalmology research on corneal preservation and eye banking with the late Donald J. Doughman, MD. After medical school, I completed a 1-year internal medicine internship, 3 years of ophthalmology residency at the University of Minnesota and affiliated hospitals, and then three fellowships: cornea at Minnesota, advanced anterior segment microsurgery at Mary Shiels Eye Hospital in Dallas and a Heed Fellowship in glaucoma at the University of Utah.
I practiced for 2 years in Dallas with my mentor William S. Harris, MD, and then joined the University of Minnesota department of ophthalmology as director of the cornea/anterior segment service and chief of the ophthalmology section at the Minneapolis Veterans Administration Hospital. After 10 years of full-time academic practice, I founded Minnesota Eye Consultants and am today in my 50th year of ophthalmology, counting training. I have experienced academia in three states, private practice in two and government service in a VA hospital, so I have a broad and varied experience.
I have always been interested in practice management and the economics of ophthalmology. I have lived through an amazing evolution of eye care over the last 50 years. So, a few thoughts on the past, present and a little insight into the future of ophthalmology.
In 1972, we performed approximately 800,000 cataract surgeries in the United States with about 8,000 cataract surgeons. So, the mean number of cataract surgeries per surgeon was about 100 per year, or two to three per week. The comprehensive ophthalmologist of that day did most everything, including strabismus surgery, glaucoma surgery, corneal surgery, plastic surgery and even some retina work. The typical ophthalmologist was truly comprehensive. Adding in other surgeries, the typical comprehensive ophthalmologist operated 1 day a week and did six surgical procedures.
Of note, cataract surgery in that day paid the surgeon about $2,500 per eye (we could charge any amount we wished, and patients paid the difference between insurance and our bill). Several other procedures paid somewhat less, but a typical surgeon reimbursement paid about $2,000 per case for a total of $12,000 per surgical day. Multiply that times 46 weeks worked, and we get $552,000 in total surgical revenue.
In the office, most ophthalmologists saw only two patients per hour and performed the entire examination, including refraction and testing, themselves. Four days a week in the office for 8 hours a day is 64 patients a week, and multiplying that times 46 weeks gives 2,944 patients seen in the office a year. Each 11 clinic patients generated about one surgery. However, office visit reimbursement was quite low, averaging about $50 per visit. Multiplying 50 times 2,944 is $147,200 a year from office practice. So, surgery was what paid the bills.
Total revenue generated was about $700,000, much less than today, but overhead was also much lower than today, usually only 40% to 50%. Let’s use 50% overhead for our 1972 ophthalmologist. If so, take-home pay was $350,000 for a year’s work, quite good for 1972. To put these numbers in perspective, I use the “cataracts per Cadillac ratio.” Not including taxes, how many cataract surgeries did it take to buy a top-of-the-line Cadillac in 1972? Let’s also look at “office visits per Cadillac.” In 1972, a very nice Cadillac cost approximately $30,000. So, in 1972, it took 12 cataract surgery fees to buy a Cadillac or 600 office visits.
Fast forward 50 years to today. Ten thousand U.S. cataract surgeons are doing 4.5 million cataract procedures a year and another 1.5 million other procedures for a total of about 6 million procedures a year. That is a whopping 600 surgical procedures a year, 10 to 14 per surgical day for the typical comprehensive ophthalmologist. Surgical suite throughput is much faster, so all surgery can still be completed in a single day whether in a hospital, ASC or office-based surgical suite. But median reimbursement has fallen to approximately $500 per case for the surgeon. Multiply 600 procedures times $500 per procedure and we only get $300,000, about half of that generated in surgery by the 1972 ophthalmologist.
Office visit volumes have also increased substantially, with most ophthalmologists seeing between 5,000 to 6,000 patients a year in the office. Let’s use 5,000 patients a year. Reimbursement in the office has also increased substantially, to $150 to $200 per visit because of increasingly lucrative ancillary testing and in-office laser and other procedures. Let’s use $180 per office visit. Multiply $180 per office visit times 5,000 office visits a year and we get $900,000 for a year — six times more than 1972. This is an important fact that many comprehensive ophthalmologists do not appreciate.
Today’s typical comprehensive ophthalmologist generates three times more revenue per year in the office than they do in the OR, unless they own their own surgery suite. In 1972, more money was there to be made in the OR from surgeon fees. Today, more money is there to be made in the office seeing and treating patients. Meanwhile, overhead has increased for the comprehensive ophthalmologist to approximately 70% from the 1972 number of 50%.
The 2021 ophthalmologist generates $1.2 million in revenue, much more than the 1972 ophthalmologist, but, with a 70% overhead, takes home only $360,000, similar to the 1972 ophthalmologist. Now, let’s do “cataracts per Cadillac” in 2021. The top-of-the-line Cadillac today is an SUV Escalade priced at $80,000. So, in 2021, it takes 160 cataract surgery procedures to buy a Cadillac vs. 12 in 1972, or 13 times more. The office is exactly the opposite: Today, 444 office visits can buy a Cadillac vs. 600 in 1972, and we are doing nearly twice as many office visits per year.
Another interesting observation: It took 11 patients seen in the office in 1972 to generate a surgical procedure. Today, it only takes about eight.
Now, a few thoughts for the future for the young ophthalmologist with decades left to practice. What are the best ways to generate more revenue? First, see more patients per hour, per day and per year in the office, either yourself or with employees or referring ophthalmologists and optometrists. Seeing more patients increases office-based revenue and also generates more surgical cases. Both generate more revenue. This is a double win.
Two, pay attention to your office-based practice. There is a lot of money to be made today in the office, and office-based reimbursement will increase every year because it is “cognitive,” and our office-based reimbursement is tied to our primary care provider colleagues.
Three, while surgeon fees per procedure will continue to decrease, facility fees will continue to increase. Find a way to get on the facility side of reimbursement. None of us can own equity in a hospital, but we can own equity in an ASC or office surgery center.
Four, maximize the cash-pay channel that is available in ophthalmology: refractive cataract surgery with premium channel IOL implantation, refractive corneal surgery, ophthalmic plastic surgery, optical and contact lens, and office-based procedures for ocular surface disease, to name a few.
With a little foresight and planning, the ophthalmologist of the future will continue to enjoy a personally and financially rewarding practice preserving, restoring and enhancing vision. The opportunities in our field are nearly endless. Take a moment to create a 1- and 5-year business plan for yourself and your practice. As Louis Pasteur said, and I repeat regularly to our fellows: “Fortune favors the prepared mind.”