By the Numbers

Interesting trends and countertrends

Let's take a look at some of the possible disrupters of the conservative eye care profession.

“Don’t follow trends, start trends.”

– Frank Capra

“It doesn’t matter how new an idea is; what matters is how new it becomes.”

– Elias Canetti

Ophthalmology is a conservative profession. I first observed in-office cataract surgery in Chile and Germany — nominally advanced countries — more than 20 years ago. But it is only now that office-based ophthalmic surgery is being dusted off as a potentially safe and respectable pursuit here in America.

Even the most worthy new drug, device or surgical maneuver has to wind its way through a steeplechase of professional and regulatory barriers.

And this conservatism is not just on the medical side of the aisle. Business concepts have to become old hat in corporate America before they find their way to practice administrators.

Let’s discuss a few current trends in this light.

Private equity and practice consolidation

Although modern private equity investing started more than 70 years ago, it has finally made its way to medicine. Many see this as a mixed blessing. The emerging impression is that PE is a splendid opportunity for well-established, older practice entrepreneurs to partner to gain resources and have better succession options. But along the way, shade is being cast on the prospects for younger doctors and for the profession at large.

Of course, PE is just one facet of a broad trend toward consolidation. The enterprise scale of the average practice is growing. And PE firms are not the only ones in the auction hall. Small private practices are merging into larger groups. Large groups are buying their smaller competitors. Health systems are developing eye departments. And regional optical/optometry chains are vertically integrating to add surgical services.

Only a tiny fraction of America’s ophthalmologists work in a practice that is partnered with PE. This number will double, quadruple and more in the years ahead but will still be a minority of the profession. What should you do about this trend? Chiefly, stay informed. PE’s impact on you will be positive, negative or neutral in the years ahead. It is an important part of your job as a practice owner to know which of these it is to be.

De novo practice start-ups

How about something completely different from the consolidation of doctors into ever-larger groups? I recently spoke with a team of thoughtful, ambitious ophthalmologists who are putting together a new company (very much on the down-low for now) that is planning to help young doctors hang a solo practice shingle. This makes perfect sense. Few private practices are launching today for well-understood reasons:

  • Much higher start-up costs.
  • High debt combined with less risk tolerance for new grads.
  • A lower relative level of economic ambition compared with past generations.
  • Higher regulatory hurdles.
  • More competition in a majority of markets.
  • A work-life balance tilted more toward “life” than “work.”

None of these headwinds to launching a smaller/private practice is sufficient to sweep away such practices. These headwinds just raise the bar for getting set up. Once launched, even the smallest boutique practices can survive if they are run thoughtfully.

Although consolidation into larger groups is the trend, a reasonable and predictable countertrend (especially when demand for care is growing sharply in most markets) will be doctors leaving ungainly institutional settings and striking out on their own, proclaiming that independence is good medicine for patients and doctors alike.

I have heard funeral dirges for private/small practices for every one of the last 40 years of my consulting career. There have been lots of elegies but few burials, as it turns out. One to three doctor practices most commonly thrive. With simpler enterprises and fewer votes in the board room, they can make much faster changes, responding quicker to the current bumpy environment.

A pivot to office-based cataract surgery?

The average cataract surgeon in America performs only about 25 cases per month. With twice this number of cases, a surgeon can reasonably start thinking about developing a private ASC in a non-CON state, although 100+ cases per month makes it much easier to thrive. That leaves a lot of surgeons on the sidelines and unable to control how and where their patients are served.

In response, Daniel Durrie, MD, OSN Refractive Surgery Editor Emeritus, and co-founders Rick Prell and Tony Burns have recently launched a new company, iOR Partners, which specializes in moving IOL surgery from the ASC to an office-based location. iOR Partners offers turnkey financial and technical support for space buildout, capital equipment, training, accreditation and third-party contracting. Based on how it is currently penciling out, the profit per case is about the same for a modest office-based operatory as for a traditional (more costly) ASC.

How about reimbursement? According to the Kaiser Family Foundation, of the nearly 4 million cataract procedures in America, about half are covered by a Medicare Advantage Plan, with potential reimbursement for office-based cataract procedures so long as the suite is properly accredited.

Prell said, “I really believe office-based surgery will be one of the most significant shifts we will see in ophthalmology, and it will happen fairly rapidly once early adopters have paved the path.”

Data-based business decisions

Even the most thoughtful practice owners and administrators have been conditioned by low competition, high profits and personal time poverty to run their businesses in a rather haphazard, emotional and untidy manner. This must change, and at last it is changing, if slowly.

Although my fellow consultants and I have been deepening the profession’s catalog of benchmarking tools for two generations, few of these performance indicators are used routinely. Any administrator who does not possess a memorized command of the simple business equivalent of IOPs, BPs and white blood cell counts (things such as normative profit margins and percentile staffing costs) is at risk of business “malpractice.” Recent efforts by the American Academy of Ophthalmology and American Society of Cataract and Refractive Surgery to correct this are commendable and will hopefully expand.

Possible effects

All of these trends may be significant disrupters of the conservative eye care profession and the eye care products industry.

  • Private equity firms that gain contracting dominance in selected markets may edge out independent practices, which could face a “join-or-die” ultimatum.
  • With the ability to launch a lower-risk start-up practice, there may be fewer doctors obliged to work as employees in PE-based practices, escalating starting salaries and making it much harder for PE firms to affordably replace retiring doctors who sell their practices.
  • Routine office-based cataract surgery could generate several knock-on effects: Payers could deem more costly ASC and hospital-based care unreasonable and lower allowable facility fees. The pace of new ASC development could slacken as surgeons take a wait-and-see attitude before investing in a more costly center. ASC valuations and syndication buy-in costs could soften in the face of a cheaper in-office alternative.
  • Innovators and industry, seeing all of these trends, could adopt a slower pace to investing in the development of new products because doctors, who largely act today as their own, autonomous purchasing agent, may be supplanted by the more cautious purchasing rules of the larger institutions they fold in with.

Editor’s note: Ocular Surgery News is sponsoring a workshop on private equity trends Nov. 14, just before OSN New York 2019. Go to www.healio.com/meeting/osnpe/home for more information.

For more information:

John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. John is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice, The Efficient Ophthalmologist, The Women of Ophthalmology, Legal Issues in Ophthalmology, Ophthalmic Leadership: A Practical Guide for Physicians, Administrators and Teams, Simple: The Inner Game of Ophthalmic Practice Success and a new book, UP: Taking Ophthalmic Administrators and Management Teams to the Next Level of Skill, Performance and Career Satisfaction. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.

“Don’t follow trends, start trends.”

– Frank Capra

“It doesn’t matter how new an idea is; what matters is how new it becomes.”

– Elias Canetti

Ophthalmology is a conservative profession. I first observed in-office cataract surgery in Chile and Germany — nominally advanced countries — more than 20 years ago. But it is only now that office-based ophthalmic surgery is being dusted off as a potentially safe and respectable pursuit here in America.

Even the most worthy new drug, device or surgical maneuver has to wind its way through a steeplechase of professional and regulatory barriers.

And this conservatism is not just on the medical side of the aisle. Business concepts have to become old hat in corporate America before they find their way to practice administrators.

Let’s discuss a few current trends in this light.

Private equity and practice consolidation

Although modern private equity investing started more than 70 years ago, it has finally made its way to medicine. Many see this as a mixed blessing. The emerging impression is that PE is a splendid opportunity for well-established, older practice entrepreneurs to partner to gain resources and have better succession options. But along the way, shade is being cast on the prospects for younger doctors and for the profession at large.

Of course, PE is just one facet of a broad trend toward consolidation. The enterprise scale of the average practice is growing. And PE firms are not the only ones in the auction hall. Small private practices are merging into larger groups. Large groups are buying their smaller competitors. Health systems are developing eye departments. And regional optical/optometry chains are vertically integrating to add surgical services.

Only a tiny fraction of America’s ophthalmologists work in a practice that is partnered with PE. This number will double, quadruple and more in the years ahead but will still be a minority of the profession. What should you do about this trend? Chiefly, stay informed. PE’s impact on you will be positive, negative or neutral in the years ahead. It is an important part of your job as a practice owner to know which of these it is to be.

PAGE BREAK

De novo practice start-ups

How about something completely different from the consolidation of doctors into ever-larger groups? I recently spoke with a team of thoughtful, ambitious ophthalmologists who are putting together a new company (very much on the down-low for now) that is planning to help young doctors hang a solo practice shingle. This makes perfect sense. Few private practices are launching today for well-understood reasons:

  • Much higher start-up costs.
  • High debt combined with less risk tolerance for new grads.
  • A lower relative level of economic ambition compared with past generations.
  • Higher regulatory hurdles.
  • More competition in a majority of markets.
  • A work-life balance tilted more toward “life” than “work.”

None of these headwinds to launching a smaller/private practice is sufficient to sweep away such practices. These headwinds just raise the bar for getting set up. Once launched, even the smallest boutique practices can survive if they are run thoughtfully.

Although consolidation into larger groups is the trend, a reasonable and predictable countertrend (especially when demand for care is growing sharply in most markets) will be doctors leaving ungainly institutional settings and striking out on their own, proclaiming that independence is good medicine for patients and doctors alike.

I have heard funeral dirges for private/small practices for every one of the last 40 years of my consulting career. There have been lots of elegies but few burials, as it turns out. One to three doctor practices most commonly thrive. With simpler enterprises and fewer votes in the board room, they can make much faster changes, responding quicker to the current bumpy environment.

A pivot to office-based cataract surgery?

The average cataract surgeon in America performs only about 25 cases per month. With twice this number of cases, a surgeon can reasonably start thinking about developing a private ASC in a non-CON state, although 100+ cases per month makes it much easier to thrive. That leaves a lot of surgeons on the sidelines and unable to control how and where their patients are served.

In response, Daniel Durrie, MD, OSN Refractive Surgery Editor Emeritus, and co-founders Rick Prell and Tony Burns have recently launched a new company, iOR Partners, which specializes in moving IOL surgery from the ASC to an office-based location. iOR Partners offers turnkey financial and technical support for space buildout, capital equipment, training, accreditation and third-party contracting. Based on how it is currently penciling out, the profit per case is about the same for a modest office-based operatory as for a traditional (more costly) ASC.

How about reimbursement? According to the Kaiser Family Foundation, of the nearly 4 million cataract procedures in America, about half are covered by a Medicare Advantage Plan, with potential reimbursement for office-based cataract procedures so long as the suite is properly accredited.

Prell said, “I really believe office-based surgery will be one of the most significant shifts we will see in ophthalmology, and it will happen fairly rapidly once early adopters have paved the path.”

PAGE BREAK

Data-based business decisions

Even the most thoughtful practice owners and administrators have been conditioned by low competition, high profits and personal time poverty to run their businesses in a rather haphazard, emotional and untidy manner. This must change, and at last it is changing, if slowly.

Although my fellow consultants and I have been deepening the profession’s catalog of benchmarking tools for two generations, few of these performance indicators are used routinely. Any administrator who does not possess a memorized command of the simple business equivalent of IOPs, BPs and white blood cell counts (things such as normative profit margins and percentile staffing costs) is at risk of business “malpractice.” Recent efforts by the American Academy of Ophthalmology and American Society of Cataract and Refractive Surgery to correct this are commendable and will hopefully expand.

Possible effects

All of these trends may be significant disrupters of the conservative eye care profession and the eye care products industry.

  • Private equity firms that gain contracting dominance in selected markets may edge out independent practices, which could face a “join-or-die” ultimatum.
  • With the ability to launch a lower-risk start-up practice, there may be fewer doctors obliged to work as employees in PE-based practices, escalating starting salaries and making it much harder for PE firms to affordably replace retiring doctors who sell their practices.
  • Routine office-based cataract surgery could generate several knock-on effects: Payers could deem more costly ASC and hospital-based care unreasonable and lower allowable facility fees. The pace of new ASC development could slacken as surgeons take a wait-and-see attitude before investing in a more costly center. ASC valuations and syndication buy-in costs could soften in the face of a cheaper in-office alternative.
  • Innovators and industry, seeing all of these trends, could adopt a slower pace to investing in the development of new products because doctors, who largely act today as their own, autonomous purchasing agent, may be supplanted by the more cautious purchasing rules of the larger institutions they fold in with.

Editor’s note: Ocular Surgery News is sponsoring a workshop on private equity trends Nov. 14, just before OSN New York 2019. Go to www.healio.com/meeting/osnpe/home for more information.

For more information:

John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. John is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice, The Efficient Ophthalmologist, The Women of Ophthalmology, Legal Issues in Ophthalmology, Ophthalmic Leadership: A Practical Guide for Physicians, Administrators and Teams, Simple: The Inner Game of Ophthalmic Practice Success and a new book, UP: Taking Ophthalmic Administrators and Management Teams to the Next Level of Skill, Performance and Career Satisfaction. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.