Article

Going Broke on Cataracts?

The growing imbalance between overhead and revenue has surgeons fearing the worst. What’s your next move?

Business-savvy cataract surgeons are punching their calculators and shaking their heads over the results. The costs of equipment, malpractice insurance, staff, office space, marketing and other overhead expenses are beginning to outweigh a shrinking stream of Medicare reimbursement dollars.

In fact, new research shows an unexpected drop in the number of cataract surgeries being performed — at a time when more patients than ever need the procedure. At least one top surgeon has actually quit his cataract practice. Others say they may soon follow.

Although ophthalmologists disagree over the severity of the problem or how to address it, most concede that their practices will remain viable only if they drastically change their focus — by offering refractive surgery and spending more time on comprehensive eye care, for example.

At risk are millions of visually impaired patients — and the lifeblood of ophthalmology. Here, surgeons and experts review this increasingly important issue from economic, ethical and management perspectives.

Looking for options

Of course, declining cataract surgery reimbursements has been a concern for at least 15 years. The average Medicare reimbursement for one hospital-based procedure has decreased from about $1,925 in 1986 to $772.78 in 1999.

But many surgeons now believe continuing cutbacks are pushing them past the break even point. And they see no relief in sight, with further cuts expected to reduce the average Medicare reimbursement for a hospital-based procedure to $663.72 by 2002.

"As an almost exclusive cataract surgeon, I could no longer make it financially," said Paul Arnold, M.D., who sold his practice in Springfield, Mo., last spring. "I had no hope that the Medicare allowable for cataract surgery would recover to a fair, just or market level in the near future. So I quit."

Dr. Arnold is in good company.

"My accountant says the best thing you can do is close your doors," says Charles H. Bechert II, M.D., F.A.C.S., a leading cataract surgeon in Ft. Lauderdale, Fla. "I'm using my IRA dollars for salary and working for the good of my health. I might have to bail out."

What's troubling is that Drs. Arnold and Bechert are among high volume surgeons who typically succeed because they do enough cases per hour to maintain profit margins. Efficiency and surgical volume have safeguarded them somewhat in the past. But, apparently, not so much anymore.

Dr. Bechert adds that, without an ASC, "cataract surgeons can't survive." He says the couple extra hundred dollars profit that you get with an ASC keeps the high volume surgeons alive and might make up for their losses. Still, he points out, "you're not taking home cataract surgery fees; you're taking home ASC facility fees. Basically, you're not getting paid for your labor, you're getting paid for parts."

Regardless of whether Dr. Arnold’s salary came from labor or parts, he was an efficient, high-volume surgeon with his own ASC. So, why did he have to call it quits? Dr. Bechert says that when all is said and done, it’s basic economics.

"It doesn't matter how many you sell, what matters is how much you sell them for. You might sell a million watermelons, but what good is that if you only get 25 cents for them."

So, of course, the picture looks even dimmer for lower-volume surgeons who can't generate the revenue streams necessary to develop their own ASCs and improve their financial position amid declining rates.

A closer look at the numbers

What will be the impact of the changing economics of cataract surgery? Surgeons speculate that more patients with cataracts will struggle to find a surgeon to remove their clouded crystalline lenses. And the quality of surgery could suffer.

"We’ll see increased liability and a lack of the good doctor-patient relationships that are key to patient comfort and satisfaction," said Dr. Bechert. "Plus, patients will be undergoing surgery in unfamiliar settings further away from their homes. You’ll see more surgical complications and longer waiting times for surgery."

"It may take years before the patient outcry reaches the ears of policy makers, but the problem is already here, and it’s getting worse all of the time," added Dr. Arnold.

Ophthalmologist researcher David Leaming, M.D., performs an annual survey of 5,000 surgeons for the American Society of Cataract and Refractive Surgeons (ASCRS). He estimates a 4% decrease in cataract surgery volume between 1997 and 1998, dropping from 2.14 million to 2.04 million. (These numbers include extracapsular cataract extraction and phacoemulsification procedures. A total of 1,434 surgeons, or 29%, responded to the most recent survey.)

"This marks the first time in many years that the total number of cataract procedures decreased," he wrote in the June issue of the Journal of Cataract and Refractive Surgery in June.

Meanwhile, the need for cataract surgery is expected to keep increasing as more patients age.

The American Association of Retired Persons estimates that 39.4 million people in the United States will be 65 or older by 2010, rising from 34.7 million in 2000. The number is expected to reach 69.4 million by 2030. With increasing life expectancy, researchers at the National Eye Institute have estimated that the number of cases of blindness from cataracts may double by the year 2010. (Report of the Lens and Cataract Panel.)

Why a decrease in surgeries now?

Dr. Leaming speculated that the number of cataract surgeries were down in 1998 because high-volume surgeons were performing more refractive surgery. (His survey identified a 161% increase in laser-assisted in situ keratomileusis [LASIK] procedures alone.)

In his report, Dr. Leaming wrote that he expected the number of cataract procedures to go back up as "the load is shifted to the lower-volume cataract surgeons. For a few years, one would expect to see more cataract surgery complications as lower-volume cataract surgeons increase their volume."

But his speculation is just one of many views. Some surgeons expect an opposite trend — low volume surgeons opting out of cost-prohibitive cataract surgery and referring their cases to high-volume surgeons. If that occurs, however, what will happen if more high-volume surgeons continue to turn away from cataract surgery as well?

"If last year’s decrease in cataract surgery is not a statistical aberration and is replicated over the next few years, then the issue of access to cataract surgery and ‘economic rationing’ must be raised," said J.C. Noreika, M.D., M.B.A., of Medina, Ohio.

"The government needs to look at this ethically and morally," adds Dr. Bechert. "We’re not going to be able to keep going this way much longer, and patients don’t want to be treated like numbers, herded in and out. People just aren’t going to get care. Something dramatic needs to be done now."

Rhetoric or reality?

It’s important to note that neither the Leaming study, nor any other research, has identified lack of access to cataract surgery as a current problem in the U.S. health care system. And, in fact, some argue that most surgeons will continue to make cataract surgery worth their while for the foreseeable future, despite the challenges on their balance sheets.

Claims that Medicare cuts will create an access problem could represent rhetoric more than reality, critics say, as more surgeons vent frustration and work to reverse Medicare’s continuing assault on their fee schedules.

"I don’t think there would be a problem if every high-volume surgeon stopped operating today," said Karl Stonecipher, M.D., of Greensboro, N.C. "There are ample ophthalmologists to do these surgeries."

"We’re not going to have an access problem in cataract surgery," added Dan Durrie, M.D., of Overland Park, Kan. "Smart, efficient surgeons who can offer quality care will see the potential and pick up the slack."

Nancey McCann, Director of Government Relations for ASCRS, is one of many officials in ophthalmology lobbying against Medicare cuts. But she doesn’t believe pointing to lack of access is a viable strategy. "Lack of access is a hollow threat," she said. "We’re crying wolf. It’s what we keep saying but it hasn’t been a problem. Even if you did cut access, reimbursement might only stay the same."

One who tried to make it work . . . And failed

Despite continuing debate over these issues, everyone in ophthalmology agrees on one thing — that Medicare has cut too deeply into cataract reimbursements, sparing other physicians of similar, severe reductions. And more ophthalmologists than ever are publicly discussing the possibility of pulling back from cataract surgery.

"With high volume comes increasingly high overhead that makes the economics of cataract surgery almost impossible to manage," said one high-profile cataract surgeon who asked to remain unidentified. "I’m looking at acquiring second generation refractive lasers and technology that is nearing the FDA approval stage. The decisions I make in this area will determine whether or not I’m doing cataract surgery in 2 years."

Dr. Arnold’s story is an example of what can happen when a surgeon decides that he’s had enough. The 46-year-old was at the peak of his career when he decided cataract surgery wasn’t worthwhile anymore. He sold his practice about 6 months ago.

Dr. Arnold had been a busy cataract surgeon, performing about 1,000 surgeries per year. His efficient state-of-the-art eye center, a blueprint for success, included an ASC, an optical dispensary and an ophthalmic pharmacy.

"Our Achilles’ heel was our 90% dependence on Medicare," wrote Dr. Arnold in a letter announcing his resignation. "In spite of being busier than I could stand to be, the Arnold Eye Care Center was losing money in 1998 and ‘99."

Dr. Arnold tried to change the situation by working with other officials in ophthalmology and on Capitol Hill. He also served as a delegate to the American Medical Association, helping to iron out more equitable Medicare formulas for all medical doctors.

"I did the national work because I wanted to fight the battle," he said. "But I came to realize that reimbursement wasn’t going to go up in the foreseeable future."

After crunching the numbers that drove his practice, he found that his reimbursement for cataract surgery during the previous 10 years had fallen to:

  • one-quarter of what it had been when adjusted for consumer price index increases
  • one-fifth of what it had been when adjusted for operating income per patient
  • one-seventh of what it had been when adjusted for operating income/full time employee (because of salary growth in his practice).

Meanwhile, Dr. Noreika has done calculations that are even more troubling. The M.B.A. ophthalmologist, recognized as an authority on practice management issues, compiled data several years ago to show how much in inflation-adjusted dollars ophthalmologists were actually receiving for each cataract surgery they peformed.

"Given my prior data, I would venture that, in 1985 dollars, the reimbursement in 2002 will be closer to $375 per case," he said. "This is important because an optometrist seeing three patients an hour and selling glasses to each of them can net, on a per-hour basis, more dollars than the average hospital-based cataract surgeon doing two cases every 45 minutes. Ouch!"

Are ASCs and refractive surgery the answer?

Many surgeons are getting involved in ASCs and group practices to minimize overhead expenses and help increase their profitability. But many can’t go that route as easily because:

  • they don’t have the financial means
  • they’re located in areas that are not populated enough to easily facilitate group practice
  • they face restrictive state laws governing the development of ASCs.

As a result, as many as 41% of respondents in the Leaming survey say they still exclusively use the less-lucrative hospital setting for cataract surgery.

Many surgeons believe they can protect their practices from fee erosion by turning to refractive surgery. The obvious lure of this elective service is that surgeons can use it to increase revenue because patients pay fees out of their pockets.

"I would tell cataract surgeons to get into refractive surgery," said David Karcher, Executive Director of ASCRS. "Make refractive surgery part of your armamentarium and go with the flow. If refractive surgery grows in your practice, then let it take over. Get out of cataract or do only a few out of the good of your heart." (See "A Case for Switching to Refractive Surgery.")

But some experienced surgeons urge you to proceed with caution. Switching from cataract surgery to refractive surgery poses its own risks and is far from an ironclad guarantee of future success, they say.

Among the challenges are:

  • overhead associated with gaining and maintaining access to a laser (by purchase, lease or use of a laser center or mobile laser)
  • revamping a geriatric, Medicare-driven practice to one that needs to use consumer business strategies to attract a younger, demanding private-pay patient base
  • the possibility that refractive surgery fees will drop because of competitive pressure from discount laser surgery centers.

Why some say to stick with cataracts

Dr. Durrie, who works in a group practice that performs 7,000 cataract surgeries and 7,000 refractive surgeries per year (Hunkeler Eye Center), said his group earns more income per case on cataract surgery than refractive surgery. The key, he said, is to add refractive surgery — but not at the expense of decreasing or eliminating efficient cataract procedures.

"If you decrease the amount of cataract that you’re doing and replace it with refractive procedures you’re making a move that’s less profitable," he said.

Because of overhead associated with Pillar Point Fees, equipment and other items, Dr. Durrie said a refractive surgeon at the Hunkeler Eye Center earns only $175 per case.

But the same surgeon earns about $740 per cataract surgery, he said. (See a "A Case for Sticking with Cataract Surgery")

The viability of refractive surgery depends on the very specific characteristics of each individual practice and the surgeons’ willingness to change. Dr. Durrie offered the following insights for building a refractive practice without losing existing cataract surgery volume:

  • If you’re a general, comprehensive ophthalmologist: Developing a refractive surgery practice is easier because patients who might want refractive surgery are already coming to your practice. You can do low-cost, in-house marketing. But for every surgery you do, you’ll add five exams to your office schedule. Make sure you can handle the added workload. You don’t want patients waiting an hour to see you. Patient satisfaction is key. Think about bringing in a partner or a consultant who can advise you on how to restructure.
  • If you’re a surgical specialist who doesn’t offer primary care: You’ll need to invest in marketing. If you get patients through referrals, make sure you understand all of the legal guidelines. If you chose to use community marketing and advertisements, this effort is going to cost quite a bit. And make sure you have set up adequate support systems (adequate time, equipment and staff) before you begin.
  • If you want minimize financial risk: Get into refractive surgery co-management with a surgeon in your area, just as an optometrist would. You can refer all the patients out — collecting an average $400 co-management fee — and provide the follow-up care. Or you can start by referring most of the patients out and performing a few procedures yourself, easing into it. This way, you’re sending patients to an experienced, well-known surgeon and you’re getting involved gradually. (See "Before You Rush into Refractive Surgery")

A balanced approach

Rather than make major changes, many experts recommend that you try better management of your existing practice. By closely reviewing costs, time and revenue associated with different procedures, you can decide where your emphasis should be.

Experts recommend looking at business models for more aggressive optical dispensing, increased contact lenses and ancillary services, such as oculoplastics. Concentrating more on primary care is also a good strategy because reimbursements for office visits continue to look safe under continuing Medicare cuts.

And above all, the experts say, increasing efficiency in all areas of practice will help significantly.

"You must perform enough cataract procedures during the allotted time to make it profitable," said Dr. Durrie. "For example, seeing a full morning schedule of office patients will be more profitable than using this same time period to do three or four cataracts. This will continue to be the case, as surgical fees fall and office visit fees increase."

One ophthalmologist who seems to have mastered the balanced approach is Frank Weinstock, M.D., in Canton, Ohio. In recent years, he has branched into several new areas, including refractive surgery. As a result, he feels he can sustain his practice on 40 cataract surgeries per month.

"Our practice is still growing," he said. "I recommend trying to maximize efficiency in your office, plus combating wasted visits, staff time and chair time. Also, maintain quality surgery techniques to minimize complications and extra office visits. Try to expand in other areas of your practice that may be profitable. And stay involved in strategic planning for your practice’s future."

What the future will bring

At this point, no one can say for sure what continuing cutbacks in cataract surgery will ultimately bring, whether it be lower quality of surgery, lack of access to surgery or fewer surgeons. But the challenges will keep mounting as overhead costs pile up and reimbursements continue to decrease.

"Maybe we’ll see some positive change when members of Congress have to drive 55 miles for cataract surgery," said Karcher, the ASCRS Executive Director.

But for now, surgeons are going to have to do the best they can to hold on.

How Uncle Sam Takes Away Freedom Of Choice

Guy E. Knolle, Jr., M.D., and his wife and partner, Sue Ellen Young, M.D., of Austin, Texas, are among the increasing number of surgeons who don’t see any potential for growing their practices with cataract surgery. They see this as a result of the federal government’s unwillingness to give patients financial freedom of choice.

"If Medicare (or any third party payer) is not willing to pay the surgeon the fee he or she requests, the patient should be allowed to pay the balance of the fee, if the patient chooses to do so," said Dr. Knolle.

"But of course, Medicare does not allow that. Medicare patients are strictly forbidden from paying anything beyond Medicare’s reimbursement rate."

As the former president of ASCRS, Dr. Knolle worked long and hard to get this prohibition lifted. But . . .

"The federal government will not change that restriction," he said. "Every time reimbursements are cut, it represents further erosion of patients’ freedom to obtain the level of care they desire. More importantly, many patients don’t even realize this is happening. It’s organized medicine’s responsibility to educate the public on this issue."

 

A Case For Sticking With Cataract Surgery

Daniel Durrie, M.D., of the Hunkeler Eye Center in Overland Park, Kan., says you can earn more revenue doing cataract surgery — if you do it efficiently in your own ambulatory surgery center. Below is the overhead-revenue analysis he has used to reach his conclusion.

Cataract Surgery: By adding a procedure reimbursement of $740 and $960, he totals $1,700 on the plus side. On the minus side, he lists $112 for a co-management fee that goes to the referring doctor. Overhead is rolled into the existing infrastructure, saving on costs. For example, marketing for new cataract surgery patients costs nothing, he says, because of his practice’s reputation and word-of-mouth referrals.

LASIK: On the plus side is a $2,000 private payment from the patient. On the minus side are the following costs per procedure: Equipment, $625; Pillar Point fee, $250; facility costs, $250; marketing, $300; co-management $350. As a result of these expenses, Dr. Durrie says the surgeon is left with $175 per procedure.

Before You Rush Into Refractive Surgery

Many ophthalmologists urge you to be realistic about refractive surgery, which many tout as the one procedure that will save surgeons from financial distress.

"I believe in refractive surgery but it’s not an economic substitute for cataract surgery for a majority of ophthalmic practices" said Dr. J.C. Noreika, M.D., M.B.A. "Refractive surgery will rapidly become a commodity because it has no economic support to provide a floor for its pricing. Based on a purely competitive model, the price for the procedure will fall quickly as increased competition to capacitate facilities and laser machines increases."

Cataract surgery, on the other hand, does offer fixed fees through Medicare, as low as they may be.

"As is the case with most successful technologies, the early-adapters will capture the lion’s share of the benefit of refractive surgery," Dr. Noreika continued. "If a practice is failing, it is unlikely that the adoption of LASIK will save it. It is difficult to see how the investment in learning the procedure, procuring access to the instrument, and advertising the availability of the service to attract patients in a more competitive marketplace in which the price for the procedure is going down is the economic "home run" that some physicians foresee."

Another major factor is that you need to significantly change your practice style when offering consumer-driven refractive surgery. You’ll need to focus on new training (for the surgeon and staff), new equipment and developing a customer service mindset — not to mention changes in patient management and follow-up.

"Refractive surgery takes a lot of time and effort," said Richard Eiferman, M.D. of Louisville, Ky. "It’s not a good fit with the geriatric cataract practice. Refractive patients are very demanding and take much more time. You need to dedicate your office to it or, if you have a multi-surgeon practice, dedicate separate staff to it. I wouldn’t recommend going into it unless you first ask yourself hard questions about these issues."