It seems like your worst nightmare. You’ve worked hard to establish a solid refractive surgery practice, and have already performed more than 500 bilateral LASIK procedures at $4,500 each. As a result, you’re experiencing a healthy referral pattern, your volume is increasing steadily and the future looks promising.

Then, out of the blue, a refractive surgery "discounter" opens shop in your city, offering LASIK for less than $1,000 per eye. (As low as $400 per eye has been reported.) How can you compete?

Here I’ll tell you why dropping your fees isn’t the answer, and explain why these discounters may be more at risk than you. I’ll also offer some important insights to consider before you respond to this challenge.

Discount laser-assisted in situ keratomileusis (LASIK) originated in Canada and is starting to appear in various U.S. markets. Your natural reaction to this trend may be to drop your fee to stay competitive. But that’s what will make fee compression — the general reduction of fees in a marketplace — a self-fulfilling prophecy.

Fee compression doesn’t have to happen, but if you simply follow suit and drop your fee, then you’re making it inevitable.

Plus, if you choose to participate in that fee-cutting mentality, you have to go all the way and match the low fee. What’s the point of dropping your fee from $4,500 to $3,500 for two eyes? The low-price provider still charges significantly less. Yet, if you do match his fee, you’re telling your market that the discounter is fundamentally equal to you. And that’s not true.

And what are you communicating to all your patients that have already paid $4,500? The message they’ll hear: "I dropped my fee to meet his fee, therefore I’m acknowledging that this is the real value of the procedure. I’ve over-charged people like you for as long as I could, until this new person came into the market and made me honest." Just imagine how negatively this scenario would affect your referral pattern.

On the other hand, if lowering your fee isn’t the answer, what is? To find out, first consider the current status of laser vision correction in the United States.

Like any market, this one is progressing through the following classic stages of development.

• Innovators.
All markets begin with innovators who enter the market at its earliest stages. These are the patients who readily overcome the two primary objections to the procedure — fear and cost. Perhaps they’re contact lens intolerant, or heavily involved in sports, or have a job-related situation driving them aggressively toward the procedure. The innovator also has means to pay for the procedure.
• Early adopters.
This is the second stage of market development. A reasonable percentage of early adopters have the means to pay for LASIK, and the fears they might harbor are overcome by testimonials from a rapidly growing base of satisfied patients. As a result, they also actively seek the procedure.

Right now, the United States laser refractive correction market is somewhere between the innovator and early adopter phases in terms of the patients who are coming through the door. And that’s an important issue relative to whether fee compression is now appropriate.

Normally, fee compression is seen in a very mature market, where consumers don’t put much value on the service anymore. It becomes a commodity, driving market value down.

For example, look at what happened with contact lenses. They were considered "high tech" just a few years ago. Ophthalmologists and optometrists commanded premium fees for them. But, over time, consumers became increasingly aware that contact lenses were a packaged product and that all the brands were produced by reputable, FDA-approved and regulated manufacturers.

Consumers assumed the quality of lenses was pretty much the same, whether purchased from a doctor for $100 or ordered via a toll-free number for $50. Because the quality was perceived to be the same, the point of distribution became less important than the fee.

In addition, the contact lens industry was well along the market development curve, where you would expect this type of fee erosion to occur. It’s a market that, over time, lent itself to becoming a commodity-like product.

Some parties, including the low-price providers, argue that laser vision correction should experience the same "evolution" as the contact lens market. But LASIK isn’t a comparable consumer issue. Here’s why:

• Beginning stages
. Laser vision correction is at the very beginning of the market development curve. Denver, the most highly penetrated United States market for laser vision correction, has a penetration of a mere 0.7%.
• Quality concerns
. This isn’t a package product with uniform quality control from manufacturer to manufacturer. It’s a surgical procedure in which the consumer’s eye tissue is being invaded. The outcome is only as good as the surgeon, so quality can vary dramatically among cases. As a result, no matter how many LASIK procedures surgeons perform, fear will be an ongoing obstacle for patients. Quality will remain a major issue in the decision-making process.

To understand these dynamics, consider how they work in comparable medical services, such as orthodontics. Even though putting braces on teeth is a well-established, low-risk procedure, the fee for braces has remained relatively constant for years, without any serious fee compression. Why is that? The orthodontic community has defended the value of the procedure without any meaningful consumer resistance.

Likewise, fee reduction for laser vision correction isn’t being driven by the consumer — it’s apparently being arbitrarily introduced by the low-price providers.

So, if we’re in the very early stages of the laser refractive correction market, why are the discounters doing this?

It seems safe to assume that they’re certainly not in the refractive surgery business for the same reason that you are. You may view laser vision correction as a good replacement source for the lost income you’ve suffered as a result of reduced reimbursement for cataract surgery. But it’s probably not the only reason you chose to perform refractive surgery. Most ophthalmologists are in practice to service their respective markets by providing quality vision care.

The low-price provider, on the other hand, appears to have a different objective. If you do the math or check their public financial disclosures, you’ll see that they aren’t making any money by implementing this low-fee strategy. When you factor in all the expenses — for surgeons’ fees, staff, facility, equipment, royalties, blades, gases, pre- and post-operative care, etc. — you can see there’s little or no ability to earn a profit on any realistic volume at a bilateral fee of $2,000 or less.

Their goal seems to be to intentionally drive doctors out of the market. It’s no surprise that the low-price providers are using this strategy to rapidly gain market share. But if they drive the doctors out by depressing margins, they accelerate the ability to gain the market share they’re after. And once these discounters gain sufficient market share, they can potentially ratchet the fee back up and increase their long-term margins.

In other words, the discounters’ short-term goal isn’t profit — it’s putting you out of business.

This explanation of the discounters’ approach may seem unreasonable to those of us who must generate enough revenue to cover expenses and generate a profit. But you must remember that in today’s corporate environment, share value is determined more by market opportunity than corporate earnings.

Many discounters are more interested in creating share value than in the values usually associated with delivering medical care.

Only by depriving these corporations of this market opportunity can you eliminate them as a threat to you, your practice and your patients.

Now that you know money is no object to these discounters, how do you compete? By offering your patients quality and affordability.

Stress the differences between what you do and what the discounter does, not the similarities.

Let’s look at what sets you apart.

• Community commitment
. Your practice has a long-term commitment to vision care and your community. You’re not some corporate "doc in a box" selling eye surgery.
• Personal attention
. You specialize in providing superior, personalized care — not a cattle call for customers. You’re managing the patient’s total eye health, not providing a single commodity service.
• Continuing care
. You offer individual follow-up and problem resolution — not an 800 number that makes the patient go through some infinite voice mail system that never reaches a human being.
• Expert staff
. You have a dedicated, professional staff.
• Successful outcomes
. You have an outcomes history and can openly share that with your patients.

Emphasize quality when talking to a patient: "You know, I understand the fee they’re charging is less, but frankly I’m just not sure what I could remove from the service I deliver to you — what quality I could take away — to perform the procedure at that fee. But I do know that we’d both be uncomfortable if I reduced the quality of my service in any way."

As the refractive surgery market matures, you can continue to thrive by positioning yourself properly. For example, envision your practice as the Nordstrom of department stores — and the discounter as the K-Mart. Automatic, impersonal service and lack of high-quality clothing characterize a K-Mart. But Nordstrom is in the business of providing the highest quality product and service at a reasonable fee — just like your practice. And Nordstrom not only stays in business, it prospers.

The finer stores make the most extravagant purchase affordable by providing a credit card. These stores know that cost becomes less of an issue when the quality the consumer wants is made affordable through installment payments.

By the same token, you need to make your fee affordable for your patients. On the surface, you may feel it’s impossible to compete on affordability. But the truth is that most patients are as incapable of writing a $2,000 check as a $4,500 check.

The average consumer determines affordability on a monthly payment amount, not total cost. The average credit card has only $1,000 available credit, still not enough to pay many of the discounters’ procedure fees for both eyes.

The answer is to present an effective patient financing program that features an affordable monthly payment, instead of a procedure fee that’s not affordable. You’ll place your procedure within the reach of many more patients than the discounter can, even with his lower, one-time fee.

Most important, you’re communicating to your patients that they don’t have to settle for less when they can afford the best. Most candidates for refractive surgery will always gravitate toward quality, especially when it involves someone operating on their eyes.

In the end, it’s up to you to decide whether fee compression will devastate the laser vision correction market. You will only let it happen, and even help it along by cutting your fees to match, or you can fight it by positioning your practice as the quality, affordable provider in your market.

Remember, you’re not dealing with a typical competitor. The discounters aren’t competing with you for market share, they’re there to get you out of the market. How you react will determine the future of your practice and this industry.

A growing number of ophthalmologists are feeling the effects of discount LASIK. Here’s a brief sampling of their experiences. (We’re keeping the ophthalmologists’ names confidential to protect their privacy.)

One surgeon reported that a competing discount refractive surgery practice in New York City was performing LASIK procedures for only $800 per eye. The surgeon said the low-price provider is well-trained and earns $300 for each surgery. The LASIK discounter is apparently able to manage on such a slim profit margin because he doesn’t have an office and has low overhead, the reporting surgeon said.

"I really hope LASIK is not ruined like cataracts were by guys trivializing the surgery, but I’m not optimistic," said the concerned surgeon.

In Montreal, one surgeon said three other ophthalmologists, apparently seized by discount fever (brought on by a corporate competitor), recently slashed their bilateral LASIK fees to compete solely on price. The fees dropped from $1,900 to $1,500 to $1,000 (only $650 in U.S. currency).

"We have just experienced in Montreal what, I believe, is LASIK’s equivalent to Black Friday on the stock market," he said.

Meanwhile, the average bilateral fee by veteran ophthalmologists in Montreal has been about $4,400.

Despite this disheartening trend, however, most ophthalmologists tell us they don’t plan to fight price wars.

"It makes no sense to get into a price war over LASIK," said one surgeon from the Midwest. "Consider this: Assume that your LASIK costs (fee for a laser center, leasing costs, etc.) are $1,400 and you discount your price from $2,000 to $1,500. Your 25% discount reduces your profit margin 83%.

"You have to work six times as hard to make the same amount of money! Is that worth it? If you are forced to discount below your costs, you lose money. That can’t be worth it."

U.S. surgeons who practice near the Canadian border seem to be most vulnerable to discount fees, considering discount LASIK is strongest in Canada. But some U.S. surgeons in places farther away have also faced discounts, although not as steep as the ones in Canada. One ophthalmologist in Phoenix is going against a provider who offers LASIK at $999 per eye.

For a look at how this type of competition plays out in a more mature market, a surgeon In Melbourne, Australia, explained that he had seen LASIK dip to $995 per eye before rising back up to $1,400.

"The discounters generate a new market in addition to the ‘regular’ end of the market —people for whom price is more important than reputation," said the surgeon. But "all the discounters seem to have put their price up after a few months."

He advised surgeons in the United States and Canada to "sit tight and don’t match the discounters. Your volume might drop a bit for a while. But if you halve your fees, you have to do approximately 250% as many cases just to get where you were before you discounted."

— Andrew Caster, M.D. Beverly Hills, Calif.

Don’t try to capture the entire refractive surgery market — especially that small percentage of potential patients who are consumed by fees. No matter how low the fee they pay, they invariably think they’ve paid too much and haven’t gotten enough for their money.

These are the people who will chisel away at you, not only over fees, but over everything. They’re always going to be miserable — a never-ending problem. Frankly, these are also the people who are most likely to sue you. And you’ll spend so much time with them that, in the long run, you won’t find treating them worthwhile, financially or professionally.

Not only will you get zero referrals from them — they may tell anyone who’ll listen how shabbily they were treated. Your best bet is to let them go to the low-price provider. You have nothing to lose by not treating those people because of the potential increased risk and negative publicity they represent. So let the low-price provider deal with them and their inevitable lawsuits — it’s a sure way of helping the discounters disappear.

— William Curtis

William W. Curtis, managing director of The Hillside Group, has more than 25 years of business development and financial services experience in the medical industry. Mr. Curtis can be reached at The Hillside Group’s Ocala, Fla. office: (800) 401-9631or e-mail wcurtis@hillsidegroup.com.