Major Ophthalmic Industry Trends

By John Pinto

1. We're in a healthcare bubble market.

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 now allows us to spend one-sixth of our total national output on health care, is on the verge of significant retrenchment. Over longer timeframes, U.S. healthcare costs will likely be rationalized down to the ±12% of the gross domestic product seen in most other industrial nations, compared to 18% or more today.

2. This is the new normal.

As expressed by Microsoft's CEO, Steve Ballmer, as we entered the Great Recession, “We're certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage (debt) in the economy.” If Mr. Ballmer is correct, rather than an orthodox rebound in consumer spending, patients will be holding onto their discretionary dollars and no longer using their homes as ATMs. Household savings rates will continue to increase, which will impede the anticipated shift to patients paying out-of-pocket for more of their care.

3. Dearth of ophthalmic provider-equivalents?

In the past decade, the U.S. population has grown by about 11%, whereas 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 working less hours. Additionally, 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. And because seniors can consume as much as 10 times the eyecare services of younger patients, this will result in a leveraged increase in the demand for ophthalmic care. Count on 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 state-by-state scope-of-care liberalization, will back-fill the MD gap.

4. Succession planning gets harder.

A generation ago, ophthalmologists found an abundant pool of potential successors willing to pay a goodwill premium to take over their practices. Today, there are more jobs than applicants in most markets. This supply versus demand imbalance continues to soften practice buy-in, buy-out and divestiture terms. Some practices are being sold for little more than adjusted book value or are simply closing down.

5. Ophthalmology practice is becoming vastly more complex.

New legal and regulatory demands are around every corner, with higher penalties for error. Payer contracting nuances abound. There are abundant new clinical procedures to stay current with and fast-accelerating technology upgrades are getting harder and more costly to keep up with. Patient demands are rising. Count on more of the same for the rest of your career.

6. Integrated MD-OD delivery systems.

The best compensated eye surgeons in America work closely with optometry. They do so either through comanagement relationships or through traditional employment arrangements. In both situations, control over access to surgical cases is improved, and the surgeon's workday is narrowed to 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 opto-metric 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.

7. EMR is inevitable.

There is now an industry-wide sense of inevitability about going paperless, which was not present a few years ago. Adoption of electronic medical and health records is still moving at a glacially slow pace in ophthalmology. Only about 10% of practices have made a full conversion. By 2020, more than 75% will have taken the plunge, based on current sentiments. Doctor and staff satisfaction will slowly rise from today's uncertain approval, as software and systems improve.

8. Our post-recession trajectory.

As this is being written, a growing minority of economists view that our country's return to weak positive growth is a false dawn brought on by unsustainable federal stimulus. If this camp is correct, we will experience a broad, U-shaped recovery with a much longer trough than we have had thus far or even a multidip W-shaped recovery. Such ups and downs will be dispiriting for providers and problematic for owners and managers who rush their development efforts ahead of a more lasting economic resurgence.

9. Pareto was right.

The well-known “80-20 rule” is being played out in the distribution of surgical cases and overall ophthalmic market share. A small percentage of high-volume surgeons and surgical institutions are harboring a slowly growing majority percentage of patient care. This is good news for larger institutions and a few hard-working surgeons, not so much for fringe players. A winner-take-all trend will emerge over the next decade.

10. Value-based healthcare purchasing will thrive.

At present, the vast majority of health care provided in America is paid for on a fee-for-service basis. If the provider serves the patient, he or she is paid irrespective of outcomes or cost-effectiveness. Based on government and private payer planning now underway, fee-for-service may be replaced, or at least materially supplanted, in ways that could reward highly efficient and high-quality providers, and punish others. The concept of value-based health care purchasing is that buyers should hold providers of health care accountable not just for units of service, but for both the cost and quality of care. Value-based purchasing brings together information on the quality of health care, including patient outcomes and health status, with data on the dollar outlays going towards health. It focuses on managing the use of the health care system to reduce inappropriate care and to reward the best-performing providers. This nascent and potentially disruptive strategy stands in stark contrast to longstanding efforts to apply unit price discounts, which can reduce costs, but lead to higher utilization rates and no net increase in favorable health outcomes.

11. Solo and small practices will continue to thrive.

The death knell for solo practices was rung loudly, starting two generations ago. Today, a new generation of worrywarts assumes that the end of boutique, momand-pop practice is nigh. Not so, I believe. Small, nimble outfits can, with effort and intelligence, often deliver a unit of patient care for less cost than their mega-competitors, in which there can be frustrating diseconomies of scale.

12. Custom surgical care continues to proliferate.

The typical client is now implanting well more than 10% of cataract cases with custom IOLs. Fifty percent rates are not unheard of. To some extent, this trend is being accompanied by “change fatigue” on the part of some surgeons, who, with everything else in their world changing rapidly, have reached personal limits on their ability to adopt and adapt.

13. Patient expectations and frustrations won't decline.

As baby boomers age and increasingly populate your waiting room, their expectations for Lexus service at Chevrolet pricing will be a growing fact of practice life. They will expect a customer experience that is educational, entertaining and thrifty, and all at a time when you and your management team are trying to pack in the masses and trim the fat. Do the best you can and paint on a smile. You and your staff will continue to bear the brunt of patient frustrations, which in a fairer world, would be borne not by you but by their employer, their insurance company and their elected government officials.

14. Profit margins continue to decrease.

Depending on the triple trajectory of health reform, Medicare fee adjustments and the macro economy, surgeons will continue to accommodate to higher cost margins and lower profits. Gross mitigation, in the form of optical shops, ASCs and related ancillary development, is a tapering opportunity. Most practices that could readily develop such entities have already done so, which means that raw efficiency and marginal output gains are the easiest strategies still under your direct control. Adding optometric providers as durable associates, although harder and riskier, remains the most under-utilized mitigation opportunity at present. nMD