What price will the market bear for premium cataract surgery?

Surgeons and patients will decide which add-on procedures and tests are worth the extra fees.

Issue: April 25, 2012

ByJohn A. Hovanesian, MD, FACS

John A. Hovanesian

As cataract surgery evolves to a procedure for rejuvenating vision as much as for treatment of a disease, our profession continues to discover new methods of improving results. The costs of most of these add-on procedures and tests are not covered by Medicare or private insurance, and as the number of available add-ons grows, many surgeons wonder what is the upper limit of what the public will pay for good vision. Let’s examine some of these add-on services and their costs.

Add-on services

The premium IOL remains the centerpiece of the add-on package most surgeons will offer. The purpose of almost everything else offered is to enhance the effectiveness of the lens. Cost per lens: $1,000. Additional charges are for necessary, related services that are also non-covered because they are used for screening purposes. These include topography, optical coherence tomography screening for maculopathy, endothelial cell density and refractions during the follow-up period and range from $1,000 to $3,000. Average additional cost: $2,000.

Total charge per patient per eye: $3,000

For now, the only non-covered service performed by the femtosecond laser is creation of limbal relaxing incisions for management of astigmatism. Additional femtosecond laser benefits, such as more precise capsulotomies and corneal incisions and less phaco time because of lens fragmentation, are covered services bundled within the cataract surgery payment provided by Medicare or private insurance. The cost to offer femtosecond laser surgery is high because it costs around $350,000 to produce each laser. For the average surgeon, who will amortize this fixed cost over 3 years to 5 years and share it with other surgeons, this may add up to $500 per eye. Additionally, the companies producing these lasers charge per-procedure fees of about $300 per eye for each one-use “patient interface.” Adding these capital and per-case costs comes to $800 per eye. But use of a femtosecond laser will also require substantially more physician time because of the additional procedure performed under a separate microscope. It takes at least 50% more time to complete these procedures. This comes at a cost, as does the extra staffing and disposables necessary for these additional steps. To cover these added costs, surgeons should probably charge $1,500 per eye.

Total add-on charge per patient per eye: $2,300.

One report found that intraoperative aberrometry reduced enhancement rates after cataract surgery by sixfold. As instruments become more refined and more ubiquitous, fewer surgeons will doubt their utility, and their use may soon be considered indispensable. At a current cost of $40,000 for hardware that will last an estimated 3 years to 5 years and a $3,000 per month licensing fee for unlimited use, figure a cost to the surgeon of $165 per eye based on an average monthly volume of 25 premium cases. For additional operating time required to perform these intraoperative refractions, surgeons may add $85.

Total charge per patient per eye: $250.

Wound-sealing polymers may further increase the precision and comfort of routine cataract surgery. These devices, made of polyethylene glycol or other materials, may soon be approved by the U.S. Food and Drug Administration, allowing premium cataract surgery patients the assurance of a wound sealed by more than just stromal hydration while avoiding the discomfort of a suture.

Added cost per patient per eye: $100.

Vision rehabilitation systems such as RevitalVision have seen growing use by refractive cataract surgeons around the world. These systems provide patients with a set of visual exercises that they can perform over time to increase contrast sensitivity and accommodation. Objective assessment of their results shows that rehabilitation has value, although many are skeptical about how much time patients are willing to invest in “physical therapy for vision.”

Added cost per patient: $250.

VisionLock insurance is a plan that specifically covers the outcome of refractive surgery, allowing payment for enhancements and even covering claims related to severe postoperative complications such as endophthalmitis that occur within a limited time period. Some high-volume refractive cataract surgeons offer this service as part of the deluxe package of premium surgery.

Added cost per patient per eye: $200.

The state of the market

How will the market of surgeons and patients respond to this growing array of expensive add-ons? Here are some thoughts on current and future trends as new technologies become available.

The market speaks to every new technology. Many industry experts continue to declare that there is no limit to the price patients will pay for premium vision. I do not believe this is the case, at least for the majority of cataract patients. Based on experience talking with thousands of patients from all walks of life about the value proposition of premium cataract surgery, the majority of cataract patients cannot afford an out-of-pocket expense of more than $12,000 for premium vision, no matter how good the combined result of these technologies. Most patients simply cannot afford that kind of investment.

The market of surgeons is also resisting penetration of these new products. Adoption of every device or service depends on the cost and the perceived value brought by the new offering. Both high costs and low perceived value are now very much slowing the adoption of most of these technologies. To speed adoption, the companies selling them are gathering data to prove that they can offer a better, safer outcome. As long as costs remain so high, though, these technologies will be limited to a “premium segment” of at most 15% of the cataract market — the approximate portion of the cataract market currently choosing premium lens implants.

Possible solutions

Companies could charge less. This is an easy position to take, blaming “big device” companies for their seemingly greedy charges, but the choice to charge high fees is generally not up to the technology’s inventors or the company’s founders. The investors (venture capital firms, investment banks, angel investors, etc.) who fund these companies dictate high prices partially to recoup cost of research and development, which has grown unwieldy because of an obstructive FDA. Investors also must estimate that the majority of startup companies will fail or never become approved, which means the few remaining successful companies must produce a return of 600% within a short span of 3 years to 5 years. This can be achieved only through aggressive pricing. Finally, because successful smaller companies are usually quickly swallowed up by larger industry players, these small companies need to demonstrate high profitability — which means high prices — in order to command the highest corporate acquisition price tag. In the end, patients pay for this.

In price-sensitive markets, which is just about everywhere in a sluggish economy, many surgeons have already discovered that offering monovision cataract surgery as a refractive upgrade can save the patient the cost of a premium implant while providing spectacle freedom and patient satisfaction that rivals multifocal IOLs. It is my belief that an increasing number of surgeons will turn to “advanced monovision” in the years ahead. Because a surgeon can charge essentially what he or she wants, advanced monovision can be positioned as a high-value, lower-cost option for those who cannot afford premium implants.

With declining Medicare reimbursement, surgeons cannot simply give away all these premium services and technologies, but some savvy practices are considering offering select upgrades at no cost. One reason is to gain cataract market share, then “up-sell” patients to other refractive upgrades at added cost. This may make sense among surgeons who own their surgical facility because Medicare-paid facility fees can subsidize these other services. In the end, though, this amounts to working for a lower profit margin and must be approached cautiously.

As well-heeled baby boomers enter the cataract age group, there will, no doubt, be a growing array of premium services surgeons have to offer. A skeptical market of surgeons is an appropriate first layer of screening for these new technologies. This, combined with an ever more educated population of cataract patients, will marginalize those offerings whose value proposition is weak, while allowing truly effective new technologies to grow in popularity and profitability for those who make them available.

References:

Alcon LenSx. http://www.lensxlasers.com.
Corcoran Consulting Group. http://www.corcoranccg.com.
Donnenfeld ED. Presentation at American College of Ophthalmic Surgeons meeting; October 2011; Orlando, Fla.
Hovanesian JA. Prospective, randomized, controlled, multicenter study of a hydrogel bandage: 24-hour post-cataract outcomes. Presented at: American Academy of Ophthalmology meeting; October 2010; Chicago.
Packer M. Effect of intraoperative aberrometry on the rate of postoperative enhancement: retrospective study. J Cataract Refract Surg. 2010;36(5):747-755.
Packer M. Intraoperative aberrometry slashes cataract enhancement rate. Ocular Surgery News. 2010;21(28):6.
Zhang F, Sugar A, Jacobsen G, Collins M. Visual function and spectacle independence after cataract surgery: bilateral diffractive multifocal intraocular lenses versus monovision pseudophakia. J Cataract Refract Surg. 2011;37(5):853-858.

For more information:

John A. Hovanesian, MD, FACS, can be reached at Harvard Eye Associates, 24401 Calle De La Louisa, Suite 300, Laguna Hills, CA 92653; 949-951-2020; fax: 949-380-7856; email: drhovanesian@harvardeye.com.
Disclosure: Dr. Hovanesian is a consultant to Clarity Medical Systems, Bausch + Lomb Surgical and Abbott Medical Optics.