Prepare now for next decade’s megatrends

In the next 10 years, successful practices will have to redouble their vigilance, pursue missing profits and challenge the status quo.

John B. Pinto

by John B. Pinto

“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.”

– Peter F. Drucker

Drucker, the great dean and legend of international business consultants, was right in this, as in all things. With the start of a new decade nearly at hand and with change of every kind in the air, it is impossible to resist making a short inventory of what is coming up for us just around the corner in eye care.

Let us all tuck a copy of this month’s column away and share a laugh in 2020. It is going to be a somewhat bumpier ride than the past 10 years, but I am confident we will all make it safely to the end.

Bubble market

One characteristic of a bubble is for the asset in question to be rising in price, even in the face of an abundance in supply. At the moment, America represents about 4.5% of the planet’s population and generates about one-quarter of the planet’s economy. This advantaged position, which now allows us to spend one-sixth of our total national output on health care, is on the verge of significant retrenchment. The future is unknown. We will all learn together what portion of the downsized health care pie remains and how big a wedge gets sliced off for eye care. Stay tuned.

And do not expect that slice of pie to be served a la mode. Over longer timeframes, U.S. health care costs will likely be rationalized down to the ±12% of the gross domestic product seen in most other industrial nations. That would be a roughly one-third drop from today’s spending levels. Health care reform, now or later, is inevitable.

This is the new normal

As expressed by Microsoft’s CEO, Steve Ballmer, as we entered the Great Recession, “We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage (debt) in the economy.”

If Mr. Ballmer is correct, rather than an orthodox rebound in consumer spending, patients will be holding onto their discretionary dollars and no longer using their homes as ATMs. Household savings rates will continue to increase. This may somewhat impede the hoped-for shift of patients paying for more of their own care out-of-pocket.

Dearth of ophthalmic provider-equivalents?

In the past decade, the U.S. population has grown by about 11%, whereas the number of residency slots has dropped by a similar percentage. Fewer physicians are training as ophthalmologists, and some critical social dynamics have changed. Many young ophthalmologists are less workaholic than their parents’ generation. This “Gen-X” factor is compounded by gender and cultural issues. One-half of all residency graduates are now women, often keen to balance business and family life.

At the same time, demand for care is rising. The 65+ population will grow by 50% or so in the next 15 years. That is about 3% per year of compounded growth, compared with about 1% growth for the nation at large. And because seniors can consume as much as 10 times the eye care services of younger patients, this will result in a leveraged increase in the demand for ophthalmic care. Count on a 5% year-on-year rise in demand colliding with only a 1% annual gain in ophthalmologists.

A key megatrend linked to this anticipated MD-provider gap is the extent to which the abundant growth of optometric providers, aided by a generalized trend toward state-by-state scope-of-care liberalization (perhaps accelerated by national health reform?), will back-fill the MD gap.

Succession planning gets harder

A generation ago, ophthalmologists found an abundant pool of potential successors willing to pay a goodwill premium to take over their practices. Today, there are more jobs than applicants in most markets. This supply vs. demand imbalance continues to soften practice buy-in, buy-out and divestiture terms. Some practices are now being sold for little more than adjusted book value or are simply closing down for lack of a willing buyer.

Ophthalmology practice ownership complex

New legal and regulatory demands are around every corner, with higher penalties for error. Payer contracting nuances abound. There are abundant new clinical procedures to stay current with. Fast-accelerating technology upgrades are getting harder and more costly to keep up with. Patient demands are rising. Count on more of the same for the rest of your career.

Refractive surgery limping along

Refractive surgery started as a low barrier to entry, RK-based service with an even distribution of low-, medium- and high-volume surgeons. LASIK changed this with higher capital and marketing costs and separated the committed from the less so, even after open access and mobile centers were developed.

We are now in an era, perhaps a long-lingering one, in which consumer reluctance to add new debt and discretionary spending and a shifting demographic mean that high-volume, well-run centers will struggle and the diminishing number of low-volume “boutiques” will be snuffed out one by one.

Integrated MD-OD delivery systems

The best-compensated eye surgeons in America work closely with optometry. They do so either through comanagement relationships or through traditional employment arrangements. In both situations, control over access to surgical cases is improved, and the surgeon’s workday is narrowed to high-value/high-satisfaction surgical care.

Because ophthalmology is expanding beyond its former geriatric bias to full-service “lust-to-dust” patient care at the same time that optometric practice scope is widening, there is a rising trend toward combined OD-MD practices. Relatively conservative one-to-one or lower OD-to-MD ratios will yield to two-, three- and four-to-one ratios in the future. Most such practices will be owned by MDs and a small but growing number of ODs. By 2020, group ophthalmology practices without optometric staffing will be rare.

New services and products to sell

Ophthalmology has always been vanguard in the hunt for new benefits to provide to patients. Not all of these have worked out well, economically or clinically. Many novel variations on refractive surgery disappoint. Blepharopigmentation was a bust. Facial skin resurfacing is rarely commercially successful. Selling cosmeceuticals and nutritional supplements is a low-margin challenge. Unexpectedly, selling hearing aids is working well in motivated settings. The next decade will see many additional efforts. Most of these that stray from the core ophthalmic mission will fail.

Electronic medical records inevitable

There is now an industry-wide sense of inevitability about going paperless, which was not present a few years ago. Adoption of electronic medical and health records is still moving at a glacially slow pace in ophthalmology. Only about 10% of practices have made a full conversion. By 2020, more than 75% will have taken the plunge, based on current sentiments. Doctor and staff satisfaction will slowly rise from today’s uncertain approval, as software and systems slowly improve.

PPMC resurgence?

So-called physician practice management companies (PPMCs) were launched in the early 1990s concurrent with the same conditions seen today: a soft economy, fast-rising health costs and fear of top-down federal reform. An economic resurgence tabled reform efforts 15 years ago, and this, combined with severe flaws in the enterprise model of most PPMCs in the ophthalmic space, extinguished such firms. However, with a cohort of peri-retirement providers trying to divest their practices and with renewed health reform jitters, the ground for a new generation of PPMCs is fertile.

Energy, economy and ophthalmology nexus

Most of the major petroleum fields of the world have passed their peak production and are rapidly depleting, which is why oil prices spiked last year just before the recession. Although oil prices have been sharply lower since then, some economists and peak-oil theorists agree that as post-recession oil demand rises, reserve capacity will be stretched thin, and barrel prices will be briskly leveraged back upward into triple digits, snuffing out the nascent global economic recovery.

A U.S. economy that falls backward or only grows anemically will have several knock-on effects for eye care providers, including:

• A longer-period of high unemployment, constraining the rolls of insured patients.
• Depressed consumer confidence, retarding the purchase of elective services.
• A stronger pretext for health care reform and/or draconian Medicare fee reductions.
• Sustained challenges for others in the eye care community, including manufacturers of ophthalmic equipment and products.

Our post-recession trajectory

As this is being written, the consensus of economists is that we have emerged and will continue to steadily emerge from the recession. A countercurrent opinion holds that our country’s return to positive growth — and a hoped-for resurgence in optical, elective care, cosmetic and related eye care categories will rise in lock step — is a false dawn brought on by unsustainable federal stimulus.

If these contrarians are correct, we will experience a broad, U-shaped recovery with a much longer trough than we have had thus far or even a multi-dip W-shaped recovery. Such ups and downs will be dispiriting for providers and problematic for any owners and managers who rush their development efforts ahead of a more lasting economic resurgence.

Resurgent inflation and dollar devaluation

The toughest scenario for a largely price-fixed fee profession such as ophthalmology is one in which dollar-denominated fees are uncontrollably stagnant or falling while dollar-denominated practice costs are rising with inflation. Billionaire Warren Buffett has joined a chorus of folks concerned about the unsustainable federal deficit, the growing debt, the rising prospects for inflation and a drop in the dollar’s value.

In a nod to global warming, he said, “The unchecked emissions of dollars will certainly cause the purchasing power of currency to melt the way runaway carbon emissions will probably melt icebergs.” If this occurs, key practice cost drivers such as staffing, facilities and technology could climb sharply as a percentage of fixed revenue, shrinking profits sharply.

Pareto was right

The well-known “80-20 rule” is being played out in the distribution of surgical cases and overall ophthalmic market share. A small percentage of high-volume surgeons and surgical institutions are harboring a slowly growing majority percentage of patient care. This is happy news for larger institutions, not so much for smaller players.

Solo and small practices will continue to thrive

The death knell for solo practices was rung loudly, starting a little more than 30 years ago when I first started consulting. Today, a new generation of worrywarts assumes that the end of boutique, mom-and-pop practice is nigh. Horse feathers. Small, nimble outfits can, with effort and intelligence, often deliver a unit of patient care for less cost than their mega-competitors, in which there can be a frustrating diseconomy of scale.

Custom surgical care proliferates

The typical client is now implanting well more than 10% of cataract cases with custom IOLs. Fifty percent rates are not unheard of. To some extent, this trend is being accompanied by “change fatigue” on the part of some surgeons, who, with everything else in their world changing rapidly, have reached personal limits on their ability to adopt and adapt.

Patient expectations and frustrations will not decline

As baby boomers age and increasingly populate your waiting room, their expectations for Lexus service at Chevrolet pricing will be a growing fact of practice life. They will expect spotless facilities, snappy service and one-stop cures, accompanied by a customer experience that is educational, entertaining and thrifty, and all at a time when you and your management team are trying to pack in the masses and trim the fat. Do the best you can and paint on a smile. You and your staff will continue to bear the brunt of patient frustrations, which in a fairer world, would be borne not by you but by their employer, their insurance company and their elected government officials.

Profit margins continue to lower

Depending on the twin trajectory of health reform and future Medicare fee adjustments, surgeons will continue to accommodate to higher cost margins and lower profits. Gross mitigation, in the form of optical shops, ASCs and related ancillary development, is a tapering opportunity. Most practices that can readily develop such entities have already done so, which means that raw efficiency and marginal output gains (seeing 60 patients, when you once maxed out at 45) are the easiest strategies still under your direct control. Adding optometric providers as durable associates, although harder and riskier, remains the most under-utilized mitigation opportunity at present.

“Bunts and base hits” will prevail

The day-to-day pursuit of marginal revenue, cost control and profit gains can still materially plump up economic performance in the average practice setting. Even the best-run practices in America waste dollars and miss out on profits daily. In the typical practice, seeing just three more patients per day can result in a $100,000+ net annual profit gain.

For successful practices, the next 10 years will be an era of redoubled vigilance, the energetic pursuit of missing profits, both small and large, and a ceaseless dissatisfaction with the status quo.

• John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. Mr. Pinto 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: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees, The Women of Ophthalmology and the new book, Legal Issues in Ophthalmology: A Review for Surgeons and Administrators. He can be reached at 619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.