HMOs & LASIK: Behind the Alliances 
Where ties between managed care, vision plans and corporate providers might take the market.
By Gil Weber, M.B.A., Consulting Editor, Davie, Fla.

Among the predictions about the LASIK market that haven't passed the test of time, two stand out. One: In such a fragmented industry, no one entity would be capable of initiating and driving change. Two: Managed care would have minimal, if any, impact.

We know now that corporate LASIK providers became a dominant force, driving the market and surgical demand with rampant price slashing. Furthermore, their efforts to align with HMOs and vision plans have helped them reach that point. But how did refractive surgery, a benefit still defined as "not-covered" in most health plan benefits

In this article, we'll examine how and why these alliances have formed and what effect they may ultimately have on the industry and you.

Creating a benefit where none existed

In various combinations, these entities have teamed to create refractive surgery benefits where none existed. So far, alliances between HMOs/vision plans and corporate LASIK centers have evolved in two distinct stages:

• Stage 1. This is a pure discount phase. The entities negotiate a discount from "usual and customary" or, sometimes, a not-to-exceed price, and the patient pays 100% of the discounted fee. For this, there is no (or miniscule) premium impact on patient or employer, and no (or miniscule) cost to the health plan. In the truest sense, these discount arrangements really aren't managed care because the service isn't insured by premium. So it's quite different than, say, a funded benefit covering in full an annual vision exam with refraction and a defined pair of eyeglasses once every 24 months.
  The traditional vision plans, such as VSP, Cole Vision, and Clarity Vision found it a natural progression of their competitive business to go to payers with discounted refractive surgery offerings. VSP teamed with TLC Laser Eye Centers; Cole partnered with LCA-Vision; and Clarity Vision partnered with Laser Vision Centers International.
  Aetna/U.S. Healthcare is fairly typical of many managed care plans across the country in the offering of LASIK as a discounted "perk" for members. "We've just put most of our HMO members into the Cole Vision and Vision One discount programs," says Catherine Palmier, M.D., director of the company's Southeast Region. "They'll be entitled to a 15% discount on laser vision correction through participating ophthalmologists."
  Whether such arrangements ultimately prove to be beneficial to physicians remains to be seen. What's clear, however, is that these traditional vision plans are influencing not only who'll provide the service but also how much they'll charge for it. And that influence extends beyond the managed care population to the general public. Some of the corporate LASIK companies are branching out into other, mostly untapped business alliances, entering into discount fee arrangements with nonophthalmic corporations. For example, in September, ICON announced an agreement with Paramount Dental Plan to offer preferred LASIK pricing to Paramount's dental plan population in Florida. So when Paramount markets its dental plan, ICON's refractive surgery deal goes with it.
• Stage 2. In these types of alliances, the procedure becomes an insured benefit. Patients and/or employers fund the benefit (i.e., a rating element in the monthly premium), and it becomes a cost for the health plan to manage, just as with any other covered service.
  A few labor unions have managed to bargain for LASIK (typically in situations where job performance or safety can be enhanced by the procedure), and a few self-insured employers have opted to add LASIK coverage to attract and retain valuable employees. However, these seem to be the exception. It's rare to find a payer willing to even partially cover the cost of what's clearly a cosmetic procedure done in lieu of the patient using perfectly viable eyewear. So any major move toward stage 2, certainly any move involving significant health plan funding, is probably off in the future.
  Still, the corporate LASIK companies aren't sitting still and waiting for something to happen. They're creating opportunity. "With our Corporate Advantage program (special rates for employees of major companies) we're looking ahead," says Elias Vamvakas, chairman and CEO of TLC. "When these companies begin to offer full or partial coverage for laser vision correction, we'll already have a relationship with them."

More downward pressure on prices?

We've definitely seen an increase in the number of alliances formed by HMOs, vision plans, and LASIK centers, which has resulted in a corresponding rush to promote the procedure. And that's driven an increase in surgical volume.

But, of course, there's a dark side. Initially, when only one or two HMOs in town offer the benefit, patients would gravitate toward those plans. Discounts from "usual and customary" were modest and acceptable for most physicians. Certainly, at that point there was nothing approaching bloodletting. However, as more and more alliances are formed and more HMOs offer the discount benefit, the situation will become increasingly difficult for independent physicians.

Once every HMO in town offers a discounted refractive surgery benefit through its vision plan or through a corporate LASIK center, patients could start choosing refractive surgery based not on which HMOs offer access to a discounted benefit but, rather, on which offers the lowest price. And once that begins, where does it lead? The vision plans go back to the refractive surgeons and say, "If you want to remain in the plan you have to increase the discount from 15% to 20%, or the maximum allowable charge drops from $1,500 per eye to $1,300." With prices where they are already, you can see where this is going.

A light at the end of the tunnel

One might be inclined to think that the game is over -- that these alliances have added insult to injury, crippled the marketplace and robbed the independent refractive surgeon of all pricing power. In the short term, obviously, plenty of independents are struggling. And not all will survive this current assault.

The corporate laser centers have a competitive edge compared to most independent surgeons in building managed care alliances. Their capitalization, public presence and geographic distribution are attractive to HMOs and employers. In addition, their apparently lower cost structures fit more readily into the pricing structures mandated by the vision plans that, for the most part, bring the discounted concept to HMOs and self-insured employers.

But that's not to say that the corporate laser centers are the winners. It's pretty clear that not all of them will be profitable delivering services at impossible prices. For most, huge increases in surgical volume haven't translated into profitability. Certainly, the physician-friendly LASIK centers are now talking about the need for higher prices.

And the possibility still exists that the current price gouging is all part of a strategy by some corporate players to overwhelm the independent surgeon and seize dominant market share with the ultimate goal of raising prices to profitable levels.

That's at best a marginal long-term strategy. Why? Because despite those who do shop for "cheap" LASIK, a good portion of the public is beginning to recognize the importance of having the procedure performed by their doctor, not by someone they meet for the first time while lying on the operating table. Hand in hand with that trend will most likely come increased willingness to pay the fair market price, even if it means going outside the arrangements set up by their HMOs or employers.

That's not to say that tomorrow everything will be wonderful, and the golden days of LASIK will return. We won't see widespread $2,000-per-eye pricing again. But it's reasonable to predict that once everyone admits they can't make a profit at the prices currently being offered, even the corporate LASIK centers will return to a reasonable range.

New and better alliances

For the high-quality independent surgeons who survive these difficult times, especially if they're linked to a physician-friendly LASIK center, the future is promising. It's likely that we'll see some shakeout in the corporate LASIK business, and some players will disappear.

We'll also see variations on the alliances model that will link state-of-the-art laser facilities and independent ophthalmologists. These working relationships can be taken to the HMOs and self-insured employers, and deals can and will be cut. But they'll be executed at more rational price points than we're seeing today.

Gil Weber, an Ophthalmology Management consulting editor, is a nationally recognized author, lecturer and practice management consultant to the managed care and ophthalmic industries. He's served as managed care director for the American Academy of Ophthalmology. You can reach him by calling (954) 915-6771, e-mailing gil@gilweber.com or visiting www.gilweber.com.