Instrumental Investing
Buyers of new technology say it's affordable and key to growth.
BY CHRISTOPHER KENT, SENIOR ASSOCIATE EDITOR

Although most of us do business in a more respectable fashion, we still have to deal with the same issue: not spending more than we can afford. In the case of a doctor's office, this often translates into wondering whether a new piece of equipment costing tens of thousands of dollars will pay for itself -- or whether it will just end up cutting into an already fragile bottom line.

To help shed light on what often seems a perilous journey, we interviewed ophthalmologists from practices of different sizes to find out about their experiences purchasing three high-tech instruments: the IntraLase laser, which creates a LASIK flap without using a blade; the Optos Panoramic200, used to perform a 200° retinal exam that doesn't require dilation; and the Heidelberg Retina Tomograph (HRT II), which uses confocal scanning laser ophthalmoscopy to produce three-dimensional images of the optic nerve head.

We asked the doctors a number of questions, including what made them decide that the technology was important enough to take the financial risk, what factors figured into their buying decision, and whether the investment paid off.

Moving Away from the Blade

Michael Gordon, M.D., who practices in San Diego, Calif., and Vance Thompson, M.D., who practices in Sioux Falls, S.D., both purchased an IntraLase femtosecond laser. This instrument changes the nature of one of the central aspects of LASIK: how the flap is created. It's an expensive item, but both doctors felt it was a worthwhile investment, and an offering that patients were likely to find appealing.

Dr. Gordon saw at least three good reasons to purchase the IntraLase. "Primarily, I thought a laser-generated flap would lead to a better, safer result," he says. "But I also observed that the biggest factor causing patients to avoid surgery is fear, and fear of a blade is at the top of the list. This instrument eliminates that concern." Dr. Gordon also believed that the IntraLase would enhance his practice's image in the minds of his patients. "The all-laser approach -- along with wavefront-guided ablations -- sends a very powerful message. These are the ultimate in new, safer, more effective technology."

Dr. Thompson says the issue of safety was foremost in his mind. "At the outset I didn't know whether the IntraLase would increase my accuracy or improve my outcomes," he says. "But with blades I'd seen partial flaps, free caps, buttonholes, total epithelial sloughing, and flaps that were too thick. I knew I wouldn't have that kind of result with the laser."

Gauging Feasibility

Nevertheless, because it was such a new technology, the financial issues made Dr. Thompson nervous. "I decided to make the purchase based on the prediction that at least half of my established patient base would be willing to pay an extra fee to have a laser flap. I thought that if patients understood that a blade is used in standard LASIK, and that they had a choice to have the flap made with a laser, they would choose the laser.

"I didn't want to feel pressured to increase my volume to make it work financially," he adds.

To decide what to charge for the new service, Dr. Thompson estimated what his volume was going to be and factored in the cost of staff time. Dr. Gordon also felt it was important -- and feasible -- to charge extra for this service. "We estimated the number of procedures we'd do each month and divided this into our anticipated monthly costs; then we added a small profit margin. We believed that 60% to 70% of our existing patients would convert to the all-laser procedure, even at this price."

Managing the Peripherals

Neither doctor anticipated any additional costs. Training is provided by IntraLase, and while both doctors planned to market the new offering, they simply changed the message in their existing advertising. "I already budget for newspaper, radio and TV ads, press releases, patient seminars, referring doctor seminars, patient newsletters, referring doctor newsletters, our Web site, education for the people who answer the telephone, and staff education," says Dr. Thompson. "I just shifted my focus to really hammer home the message of laser flap making."

Creating space for the new laser was also manageable for both doctors without additional expense. Dr. Gordon was able to fit the IntraLase laser right next to his existing VISX laser; Dr. Thompson had to put it in a
separate room from his LADARVision laser, but the space was already available.

Competition wasn't a big concern for either practice. "I didn't worry about what other local practices were doing," says Dr. Thompson. "I wanted to do what was best for my patients. Frankly, I'd love to see all of refractive surgery, including my competitors, use the laser flap maker because it's safest for the patient."

A Happy Ending

Dr. Gordon is pleased with the result of his investment. "Things have gone better than we expected, both financially and in terms of surgery outcomes and patient acceptance," he says. "Initially we estimated that 60% to 70% of our existing patients would convert to all-laser LASIK at the price we decided to charge. We now do more than 90% of all LASIK cases with the IntraLase." He also reports that using the IntraLase has cut his enhancement rate by 30% to 50%.

Dr. Thompson also says the IntraLase has cut his enhancement rate in half. "We believe that's because the laser flap is planar, unlike the flap made by a blade, which is meniscus-shaped -- thinner in the center and thicker at the edges."

He does say that the laser has not made procedures go faster. "It's probably made me a tinch slower, but not much," he says. "On the other hand, it's made my job more pleasant. My coronary arteries are much more relaxed!

"Buying the IntraLase turned out to be a home run," he says. "From day one more than 90% of our patients have chosen the laser over the blade. In fact," he adds, "it's helped my bottom line because I've expanded my territory. People are coming a long way for laser flaps."

Obviously, both doctors feel that the financial risk involved in investing in new technology is well worth it. "In fact," says Dr. Thompson adds, "After the excimer laser, the IntraLase is the most impressive technology ever to happen to my practice."

Detection without Dilation

Donald Mirate, M.D., who practices in Valdosta, Ga., Richard Fichman, M.D., who practices in Manchester, Conn., and Walter Holland, M.D., who practices in Statesville, N.C., all decided to invest in the Panoramic200 instrument from Optos, allowing them to offer their patients a retinal exam that doesn't require dilation. Optos makes the instrument available on a pay-per-use basis (although it's possible to purchase it outright). This option lowers the financial risk to a practitioner considerably -- although it doesn't eliminate it entirely. (There's a monthly minimum use charge.)

Dr. Mirate says he first saw the Optomap exam in an optometrist's office. "I realized right away that this instrument offers a combination of earlier detection of retinopathy and an easier retinal exam for both the physician and the patient. Consequently, I expected the Optomap to improve the quality of service we offer, and also attract patients. Of course," he adds, "this would tend to improve net revenues."

Dr. Holland says his practice purchased the Panoramic200 because they saw it as an excellent patient education tool. "It allows us to view the retinal image in the presence of our patients, giving them insight into their retinal morphology and pathology, if any is present."

Dr. Fichman saw it as something of a philosophical issue. "Going to a doctor's office can be a joyless experience," he says. "Dilating in particular, followed by an exam with a bright light, having to bring along a friend to drive them home . . . it's an ugly experience. This was brought home to me when a friend's wife refused to be dilated."

Running the Numbers

Even with the pay-per-use option, all three M.D.s were concerned about financial consequences. "Before signing the contract with Optos, I performed a brief market survey of our patients," says Dr. Mirate. "I asked them how they liked having their eyes dilated, and how much they would pay for an alternate way of examining the retina without routine dilation.

"I discovered three remarkable things: First, all patients truly detest being dilated. Second, 70% of our patients would gladly pay money out of their own pocket to avoid it if possible. Third, willingness to pay didn't necessarily depend on my perception of their income level."

To decide how much to charge for the exam, Dr. Mirate conducted a survey of his patients. "We asked them: 'If you had to pay for this exam on your own, would you be willing to pay XX dollars?' We changed the amount each day to find the pricing point."

Dr. Mirate urges caution when making these kinds of calculations. "We took numerous additional costs into account, including software licenses and maintenance for additional PCs in all exam rooms," he says. "Many doctors -- and salesmen -- neglect to include expenses like these when calculating returns on fees charged.

"Unless you have a spare room, free insurance, free electricity, free labor, free storage media and retrieval and so forth immediately available -- not likely -- you have to include your current overhead rate in your calculations to determine your break-even price point."

Dr. Fichman decided to begin by charging a very low fee. "I thought the folks in my blue-collar town wouldn't pay a lot for this test, so I started by charging $15 for the exam. This was below the per-use charge -- plus we had technician costs and the expense of wiring the office and the hardware we had to buy. Basically, we had to digitize all the exam rooms. However, I had wanted to move the office into the electronic age anyway, so I was happy to make that investment. But with all these extra expenses, I assumed I'd lose money."

The Investment Pays Off

All three doctors say their concerns were groundless. "Things are going as planned," Dr. Mirate says, "and constantly improving. This equipment started earning its keep after the first month."

Dr. Fichman had begun by charging less than the per-use fee. He says it quickly became obvious that he didn't need to take a loss. "People were so happy with the exam that we soon doubled the $15 price to $29. Now I'm making money on the exam." Offering the Optomap exam also had a positive effect on his patient base. "There's a whole subset of people who would have gone to Lenscrafters for an undilated exam; they're coming to me instead."

Dr. Holland says that patients have been very accepting of both the technology and the additional charge for the exam. "Patients who are driving appreciate the opportunity to avoid dilation. They also appreciate the opportunity to view the retina with the doctor as we explain the findings, taking some of the mystery out of the exam for them."

Dr. Holland appreciates the clinical value of the instrument as well. "It's allowed us to detect and archive retinal pathology such as choroidal nevi that can be hard to detect using routine ophthalmoscopy. In most cases we're comfortable with the extensive view of the retina provided by the Panoramic200 and don't feel dilation is necessary."

Of course, all three doctors are aware of the technology's limitations. "It's not the right exam for a peripheral retinal tear," Dr. Fichman notes, "but if you know what you're doing, it's very useful. And it has some advantages over indirect ophthalmoscopy. Naturally, some patients end up needing a dilated exam, but after experiencing this they don't seem to mind."

On the Trail of Glaucoma

Michael B. Brenner, M.D., F.I.C.S., who practices at the Mulach Brenner Eye Center in Long Beach, Calif., and Martin R. Weinberg, M.D., who practices in Teaneck, N.J., both chose to add the HRT II to their practices.

"I became increasingly aware that subtle changes in the optic nerve could be significant, and the subtlety was such that humans couldn't compete with the technology any more," says Dr. Weinberg. "The new technologies were reproducible, accurate and amenable to demonstrable statistical analysis of change. I wanted to have this technology so I could take my practice to the next level."

Dr. Brenner's motivation was similar. "We've needed a more sensitive method to detect and follow glaucoma for some time," he notes.

Having decided that the investment was necessary for clinical reasons, financial issues came to the fore. "My goal was to advance the practice, not my bank account," says Dr. Weinberg. "Nevertheless, I was concerned; could I afford something like this in the face of declining reimbursements?"

To decide, Dr. Weinberg did his homework. "Our practice had a number of patients who would benefit from this technology, so I was able to calculate approximate monthly and annual usage and reimbursement. I checked with all our major carriers to see what pre-exclusion and limitations of usage might exist. I went into the purchase with eyes wide open, aware of all the regulations."

Dr. Brenner decided that it made the most financial sense for his practice to buy the equipment outright. "We found that at least 25% of our patients have an indication for undergoing confocal scanning laser tomography, which isn't hard to understand in light of the fact that an estimated 50% of Americans who have glaucoma remain undiagnosed." Two other factors influenced Dr. Brenner's decision: "I knew we could take a Section 179 deduction in the tax year of purchase. Even more important, use of the HRT II is reimbursable under CPT code 92315. This gave us a unique opportunity to add diagnostic abilities to our office while greatly enhancing our billable services."

Both doctors foresaw few hidden costs in connection with the purchase. For one thing, in both practices, the doctors perform this kind of exam themselves. "I have a very tertiary referral practice, which limits its volume," Dr. Weinberg explains. "That eliminated any concerns about needing extra staff. Also, training was provided by the company, and creating extra space was never an issue because the instrument is compact; I knew it would fit into one end of the room."

Dr. Brenner's situation was similar. "Extra staff wasn't an issue because in our practice the M.D. does all the testing. It's quick and efficient, and it allows concurrent diagnostic evaluation in front of the patient. The only expense I foresaw was paper and ink."

Deciding what to charge for the exam wasn't an issue either. "Most of these patients are managed-care patients, so the fee structure is predetermined," Dr. Weinberg noted. "By and large, reimbursement is sufficient to cover the cost of financing the instrument. However, the HRT II isn't inexpensive; if your patients didn't have coverage, you'd have to charge them a fair amount."

Dr. Brenner noted that he did plan to put some money into external marketing. "The technology was incorporated seamlessly into our daily practice patterns, so internal marketing wasn't really necessary. However, we did invest in external promotion and continuing education seminars for referring optometrists and primary care physicians. Doing so enhanced our referral base for glaucoma consultation and co-management."

Was It Worth the Risk?

Dr. Weinberg reports that the instrument has paid for itself without any difficulty. "Reimbursement has been sufficient, and Heidelberg provides helpful supplemental materials offering guidelines for claims documentation. I may have more glaucoma patients than the average practice, but I'd be surprised if an HRT II in a typical established practice didn't pay for itself. And I haven't encountered any unexpected expenses.

"Sometimes I use the HRT without reimbursement," he adds. "It doesn't take a lot of time to perform scans, and the benefit to our practice is extremely high in terms of the quality of care I can deliver."

In terms of paying off the equipment, Dr. Brenner says the instrument exceeded his expectations. "According to my calculations, we've paid for the equipment in full in less than 9 months, performing an average of 10 bilateral studies a week. I expected it to take a year."

To Buy or Not To Buy

In the final analysis, several of the doctors we interviewed offered advice to other M.D.s who are considering major purchases.

"Get your staff involved," says Dr. Holland. "Staff are the first contact with the patient; they're your best advocates for introducing new technology. They translate our enthusiasm for this technology to the patient."

"Offer your patients the best," says Dr. Fichman. "Offering integrity takes care of itself. I'm successful now because I've invested in new equipment. Patients can perceive that. They go to where they'll get really excellent medical care.

"Also, look at your quality of life. If you're trying to do things on a shoestring, you might make more money, but are you enjoying it? My staff is happy and proud and our patients are happy. So when I'm at the office I'm in a much better mood than if I ran our practice on a shoestring."

Perhaps the most concise advice about investing in the latest technology comes from Drs. Brenner and Thompson: "Just do it!"