Practice principles can help survive LASIK slump

A realistic assessment of current revenues and commitment to certain management principles can help your practice get through the rough times.

Issue: April 1, 2002

ByRichard L. Lindstrom, MD

January marked the end of the fifth full year since the excimer laser achieved Food and Drug Administration approval and refractive surgery entered the mainstream of American ophthalmology. As we enter 2002 and begin the next 5-year cycle, excessive surgeon exuberance has given way in many refractive practices to discouragement, anxiety and fear for the future.

At Minnesota Eye Consultants, we have outlined several principles that we think will allow refractive surgery practices to prosper over the next 5 to 10 years. We appreciate that every practice is unique and simply hope that some of these principles will help our colleagues navigate through these difficult times toward a successful future.

Facing reality

In order to maintain a successful practice, we must face reality as it is, not as it was. In 1997 we focused our practice increasingly on refractive surgery; we performed 1,300 refractive procedures that year. This grew to nearly 8,000 in 1999 and 2000. In the face of price competition we saw our average LASIK pricing fall from slightly over $2,000 per eye to approximately $1,500 per eye, but strong procedure growth resulted in increasing practice revenues each year. In our business plan we anticipated 15% to 20% growth in refractive procedures for 2001, or approximately 9,000 to 10,000 procedures with a stable price. Instead we saw our annual volume fall to 6,000 procedures, approximately a 25% decline. At $1,500 per eye this was a $4.5 million shortfall from our business plan and a $3 million shortfall from our previous year. In addition, our current business plan has led us to anticipate little growth in procedure volume for 2003, as the economy slowly recovers.

While unattractive, the decline in demand was clear. Following a short period of denial, bargaining, a little anger and a little depression, we came to accept it. We then realized it was time to develop a new strategy and business plan because the alternative, bankruptcy, was even more unattractive. The following principles are at the heart of our new business plan.

Operational efficiency program

Support: The ophthalmologist managing a successful practice must be backed by outstanding administrative, financial and consultant support. We strengthened our management team, increased our commitment to planning and monitoring our business plan and drew heavily on the knowledge and experience of our consultants and advisers.

At difficult times it is necessary to spend more time meeting as a group, evaluating the facts of the situation and planning for the future. In addition, it is important to continue to retain and use high-quality consultants and advisers, and we believe this is not an area in which to cut costs.

Efficiency: The successful practice should have an operational efficiency program. We immediately focused on aggressively managing our costs. In particular, we cut our workforce approximately 10%, reduced our monthly budget for our marketing by 40% and focused this marketing in the areas with the greatest impact, including radio and newsprint in our market. We adjusted some salaries for our remaining core employees, as they had become inappropriate during the good years, and aggressively monitored our expenses.

Overhead reduction: An operational efficiency program team should work continuously to reduce practice overhead. Our team is chaired by our managing partner and meets monthly. We believe cost control is not a one-time fix, but will require a lifelong commitment to operating efficiency and creating and maintaining a new practice culture. We have found that no area of expense is too small to investigate and we are attempting to reduce our costs in every possible area.

Information technology: Invest heavily in information technology. Even in the face of reduced income, Minnesota Eye Consultants installed a new practice management information technology system and invested heavily in this area. We believe the successful practice of the future will require accurate and current data in order to properly manage its business plan. We believe this is not an area in which to cut costs and that accurate information evaluated in a timely fashion will be a key criterion for success in the future.

Diverse, profitable service

Diversification: The successful practice should be diversified and offer full service, including primary, secondary and tertiary care. There should also be an integration of ophthalmology, optometry and opticianry. We made this decision years before, but this past year the benefits of diversification became clear in the face of the refractive market downturn. Our strong presence in primary care, cataract surgery, glaucoma, keratoplasty, and the fact that we own an ambulatory surgery center allowed us to significantly soften the blow of our refractive surgery volume reduction. Our practice revenues grew in every area except for refractive surgery in 2001, as our surgeons had more time to devote to these areas. The diversification of our practice was clearly a major factor in our ability to adjust to the sudden and unexpected downturn in the demand for refractive surgery.

Profitability: The successful practice will capture all potential aspects of eye care revenue. In addition, all aspects of the practice will be profitable. We examined each aspect of our practice as an individual business unit; those that were not profitable were eliminated. This past year we closed one refractive surgery location, three primary care offices, deleted our aesthetician and reorganized our research and fellowship training departments to make them self-sufficient. This has allowed us to invest more of our capital and management time in those aspects of our practice that are most successful and most profitable, allowing them to prosper.

Expand regional focus

Growth: The successful practice will be focused on growth in order to spread its general and administrative overhead over a larger number of patient visits. We believe that downsizing is inappropriate and that new and return patients are the lifeblood of any practice. While we considered downsizing at one time, in the end it was our conclusion that it was important to continue to grow. We did, however, adjust our infrastructure to match the size of our management team.

Reach: The successful practice will have a regional focus, and it will be important for it to continue to expand its reach. In order to increase patient visits, new sources of patients are required. We expanded our zone of influence from a 50-mile circumference surrounding Minneapolis/St. Paul to a 100-mile circumference. We also reached out to additional referral sources and instituted a new program to strengthen our relationships with the referral community.

Value: Practices should focus on providing a high value to the community they serve. At Minnesota Eye Consultants, we believe we are part of our community. We believe that we will be successful in the future in proportion to the value we provide to our community. We consider value to be high quality care at a reasonable cost. We have noted that many others in our community have suffered this past year greater than have we. We remain appreciative of the trust that the patients in our community place in us to preserve, enhance and restore their vision, and remain committed to providing only the highest quality care. This has led us to continue to invest in our equipment and team member infrastructure, and we have made no cuts that would influence quality of care. We have also been careful to monitor our pricing in order to be sure that we are providing a high value to our patients.

2001 was a difficult year for us, but by following the principles outlined above we feel well-positioned for a prosperous 2002 and beyond.

For Your Information:

Richard L. Lindstrom, MD, can be reached at Minnesota Eye Consultants, 710 E. 24th St., Suite 106, Minneapolis, MN 55404; (612) 813-3600; fax: (612) 813-3660; e-mail: rllindstrom@mneye.com.