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Ophthalmic megatrends 2014 through 2024, part 1
Ophthalmologists should prepare for the inevitable changes that will alter health care.
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“It is not in the stars to hold our destiny but in ourselves.” – William Shakespeare
“I never think of the future — it comes soon enough.” – Albert Einstein
Despite the advice of sages to “live in the moment,” nothing calls to us as loudly as the future. This is as true in our personal lives as in our professional ones. “How will it turn out for my practice? How will it turn out for me?” Those are the important questions. And in ophthalmology, where the line between life and practice is blurry, just one question will do.
Every few years in this space, I update the answers to that question. Those hoping to have their fears validated will not be disappointed in what follows. But between the lines, please read the hopeful subtext: that after an end to the golden era of ophthalmology — and private medical practice in general — lies at least a kind of “silver” era in which the hardest working and smartest surgeons will still thrive and in which the rest will at least find an abundance of interesting, if less profitable, work.
Health care service delivery in America is a classic bubble market. Actually, it is a bubble within a bubble. 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 by most accounts is destined to slip in the years ahead as the rest of the world catches up, allows us for the moment to spend one-sixth of our total national output on health care.
The future is unknown. But it seems certain that within the career span of most people reading this, U.S. health care costs will have to be rationalized down from roughly 18% of the gross domestic product to about 12% to be in line with other industrial nations.
That would be a roughly one-third drop from today’s spending levels and, for most providers, a one-third drop in the fees paid for a given unit of patient care. Draconian fee reform, now or later, seems inevitable in my view. Although we may indeed see several more years of 11th-hour rescues, each applied as a political expediency, such delays in reducing the cost of care will only exacerbate the eventual abruptness of the adjustments.
These few remaining years of relative reprieve are being used by the wisest ophthalmologists and administrators to learn how to see more patients with fewer resources and prepare for a more frugal, but still highly survivable and fulfilling, future.
Here then, in this column and the next, I will update a number of megatrends coming over the horizon.
The grand consolidation
Institutionally, across America, and applying a degree of simplification, we now see four basic, progressive market stages, from least to most consolidated:
- Markets in which ambulatory care providers are still largely in private, independent practices and hospitals are sticking to their core, inpatient mission.
- Markets in which the local hospitals are just starting to proceed down the stage 1 to 4 continuum, but we do not yet see significant provider consolidation and employment under a hospital umbrella. Only hospitalists, some PCPs and a few high-admitting specialists are employee-MDs in such markets.
- Markets in which the hospitals have become the employer of a substantial cross-section of the provider base (especially admitting surgeons) but have not yet developed insurance products, except perhaps for their own employees. In most cases, they have not yet folded ophthalmology into their stable of providers.
- Markets in which one or more hospitals employ essentially all of the providers in the community and have developed insurance products. They are now a vertically integrated health delivery system and are prepared to accept risk contracting (prepaid care contracts).
The country is moving inexorably from stage 1 to stage 4, but with very different pacing in each market. Today, the majority of markets are in stages 1, 2 and 3. Ten years from now, we will see most markets at stage 3 and stage 4. Surgeons in their last few years of practice today need not worry about where their market presently stands in this continuum. For mid-career and younger surgeons, understanding your local institutional staging and trajectory is critical.
From medical arts to medical engineering
Control over patient care will continue to shift from physicians to non-physicians, including third-party payers. Record keeping will get even more exacting and fussy than it is today. Over the next decade, electronic health records in ophthalmology will become essentially universal. As a result, testing criteria, utilization rates and disease treatment pathways, which are now quite divergent from one provider to the next, will converge greatly under pressure from payers. Payers will apply algorithms to comb for adverse (read: “costly”) utilization patterns and dismiss outliers from their provider panels. Organized medicine will remain too disorganized to counterbalance this decades-long shift in power.
From costly humans to industrial efficiencies
Ophthalmic care will become more depersonalized at several levels. As the average practice size grows larger, patients will shift from being in the personal care of “Dr. Smith” to being in the care of “Smith-Jones Eye Institute.” Ophthalmologists who prefer to stick to surgery will thrive. In contrast, comprehensivists will see the sickest portion of their patient base siphoned off to subspecialists and the healthiest portion of their patients shifted to mid-level providers. Sally’s familiar smile at the front desk will be increasingly replaced each year by online patient portals and kiosks. Being worked up by a technician with broad skills will eventually yield to patients walking themselves from station to station.
Dearth of ophthalmic provider-equivalents
In the past decade, the U.S. population has grown by about 11%, while 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 as much as 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 a state-by-state OD scope-of-care liberalization, will backfill the MD gap.
Succession planning getting harder
A generation ago, ophthalmologists found an abundant pool of potential young 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. This trend will represent an opportunity for larger eye clinics to grow market share through practice acquisition.
One concurrent frustration of senior surgeons who are trying to find young buyers for their practices is that newer grads are already loaded up with debt and notoriously risk avoidant. In recent years, many new grads are perfectly happy as durable associates. So I think an interesting trend we will see more of in the years ahead is a business model in which the retiring doctor continues to own his or her practice (and/or ASC) and enjoy a passive income from employee providers.
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 fully committed from the less so, even after open access and mobile centers were developed. We are now in the middle years of a long-lingering era in which consumer reluctance to take on new debt and/or balloon discretionary spending, and a population aging into a demographic range more suitable for lens-based refractive surgery, will mean that high-volume, well-run LASIK-only centers will struggle and the diminishing number of low-volume LASIK boutiques will be snuffed out one by one.
Besieged lay leaders grow or are left behind
The technical skill breadth and career commitment necessary to run even a small practice has been growing rapidly over the past decade and will continue to do so in the decade ahead. This is one of the key drivers for the development of larger practices because small practices can no longer afford to hire on their own the brains of the requisite administrative talent. In the increasing number of small-practice mergers I am exposed to, two perfectly great but out of their depth office managers are being replaced by one administrator or executive director. One of the more common motivations for a small-practice owner to merge with a larger competitor is that his office manager can no longer keep up.
Integrated MD-OD delivery systems
The best-compensated eye surgeons in America work closely with optometry. They do so through either co-management relationships or traditional employment arrangements. In both situations, control over access to surgical cases is improved, and the surgeon’s workday is narrowed to more 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 owner-ODs. By 2024, group ophthalmology practices without material optometric staffing will be rare.
Accountable care organizations, medical homes and a PPMC resurgence?
In the early 1990s, a moderate recession was winding down, health care costs were 13% of the GDP, and it was called a crisis. “Hillarycare” and a rush to prepaid medicine ensued. These responses to health care cost inflation were abandoned for two reasons: The economy sprang back to life, reducing health care’s cost bite, and there was a consumer backlash to HMO care. Efforts to resurrect prepaid health care and utilization reform are under way today. For “HMO” substitute “ACO,” and for “PCP gatekeeper” substitute “medical home.”
Also in the 1990s, so-called physician practice management companies (PPMCs) were launched in the same conditions seen today: a soft economy, fast-rising health costs and fear of top-down federal reform. Flaws in the enterprise model of most PPMCs 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. Rather than top-down Wall Street efforts, bottom-up consolidation by larger regional practices would be more expected and is now gathering steam.
All of the earlier efforts to change the paradigm of health care fell away as the economy roared back to life in the late 1990s. Because no similar economic roaring is anticipated, we may well see new business and care delivery models emerge this time and stick, which will run counter to private practice interests.
With changes such as these on the horizon, who will want to practice a decade from now? Many. Probably most. Those with bureaucratic or pliant minds will accommodate readily to these demands. Those who work for larger institutions will be shielded more than entrepreneurs in private practice. Those who entered the profession 30 years ago have been slowly accommodating to the accelerating encroachments.
And, of course, those who are just entering practice today do not know any better. They do not remember a time when the patient record was a 5” × 7” card on which was written, “Patient doing fine,” a time when allowable fees were whatever the doctor charged, and “revenue cycle management” was a noontime walk to the bank to deposit the checks.
Tune in next month, when we will cover the second half of these predicted megatrends.