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Don’t be daunted by LVC’s high entry fee

Delivering refractive surgery is capital-intensive, but there are ways to avoid crushing debt.

Unfortunately, we learn little about business in medical school, and for many of us, it’s running our businesses that consume so much of our time. We must know about taxes, financing, insurance, human resources, accounting — and that’s just scratching the surface. And while we get support for some of these areas from the operational and financial teams in our practices, we get little, if any, help on the complicated decision-making process surrounding new technology acquisitions for our patients and practices.

To do it right — translation — decide on the technology that will help patients, grow the business, and eventually, turn a profit, takes time, experience and good planning.

The decisions you make leading up to acquisition and implementation, and they comprise a full staircase, must be thoughtful and calculated in order to achieve success.

EXISTING GROWTH VS. DE NOVO RISK

If you have a successful and growing cataract business, and you want to buy a technology that is connected to cataract surgery, such as ORA (Alcon), a femtosecond laser, a 3D visualization and guidance platform, you are in a safe arena. But if you want to offer a new procedure in your practice — like LASIK or SMILE (Zeiss), for example — a quick purchase decision could backfire. Where are the patients going to come from to support the added cost of the technology? How many marketing dollars will be needed to jumpstart the project? Adding to the offerings of an existing and growing business is always safer than starting anew.

Regardless of how much you might want a new piece of equipment or how great the procedure is, you need to make sure that your patient base and the demographics from which your practice draws can and will support it and that you have the resources to make it successful within your practice.

Look at your historical patient data. How often have you done that type of surgery before? Then look at your community’s census data. If you are interested in offering LASIK, look at that appropriate age group in your surrounding zip codes along with the median household incomes. A new phaco machine? See what the 60+ population looks like, now and in the future. You will have to do some projecting.

For example, I looked at two pieces of equipment in recent years: a femtosecond laser vs. a new LASIK or SMILE platform. We were doing toric, manual LRI and implanting premium IOLs with accommodating and multifocal IOLs, and those percentages were increasing every year, as was our total cataract volume. Our patients, growing older all the time, liked living without glasses after their cataract surgery. All things point toward continued growth in this sector.

However, as much as I have wanted to perform SMILE or possess a new LASIK suite, our LASIK numbers haven’t increased in a decade. Will a new platform or refractive corneal procedure change that trend? Be a catalyst for growth? Both my gut and mind told me the refractive cataract arena was a safer bet. But that doesn’t mean the femto was the perfect purchase. Insurance companies will not reimburse us for femto. Its use will only add expenses to the practice unless we can engage patients on the benefits of astigmatism and presbyopia correction at the time of cataract surgery so that they embrace the technology. Staff training, OR flow, internal and external marketing all have to be executed well to make it work.

WAYS TO FINANCE

Lease? Buy? Lease to own? Create your own leasing company? The list of variables going into the decision isn’t outrageously long, but it’s long enough for you not to venture on to this step alone; if you haven’t partnered with a financial expert yet and developed a close professional relationship, it is time to do so. This person should be fluent in running a business, with extensive knowledge in capital expenditure, taxes, leasing and corporate governance. In addition, tax law plays a huge role in these decisions as well as practice cash flow. Involving your CPA early in the process is a critical step in deciding how to manage the financial aspects of adding expensive devices.

That said, the following is a brief primer on the various means of technology acquisition.

An outright purchase is clearly most capital intensive, as in most cases these transactions carry significant tax consequences; usually taxes are owed on the capital used to purchase the equipment. The equipment can be depreciated, and while this sometimes offsets the tax burden, it still requires a tremendous amount of liquid capital to do so. Also, even though there may be no charge for the service agreement for one year, the subsequent service contract could cost between $15,000 and $45,000 per annum if the practice opts for it. That expense is usually a deduction and not a capital expenditure.

Sometimes the companies can get more creative and offer financing packages, either internally or a lease-to purchase-agreement, which often is favorable. Sometimes surgeons go to their local bank to obtain capital for an equipment purchase. Many of us have heard of placement programs in which a device, instead of being purchased, is placed in a surgical center and a monthly fee is paid that usually includes a rental fee plus the click fee for the device. Again, though, the surgeon considering such a deal needs to take a careful look at the financial modeling and determine whether it makes sense and what the monthly nut is regardless of how many times the device is used. Creating a separate leasing company is another creative way to own a device but it would also create a deductible expense for the practice.

A LOSS LEADER TURNED INTO AN ASSET

Whenever we look at a device from a business perspective, we always first consider whether it will improve patient care, outcomes and experience. Whether or not it carries an insurance billable component or is noncovered and completely out pocket, we would then look at the projections of how often we would use it. If it’s a diagnostic device that’s not reimbursable, like a topographer, we would not let that deter us because we can’t make good diagnostic decisions without them. Sometimes it acts as a loss leader because the surgeon gains valuable information, like what is the quality and quantity of astigmatism. This information could lead to a recommendation for refractive cataract surgery with a toric or laser arcuate incision, increased revenue to the practice, a happy patient, a new referral and ultimately practice growth.

We have seen our percentage of premium IOLs go up, as well as the percentage of patients who pay cash.

PITFALLS

A couple of points before we close. Don’t chase your competition just for exercise; that’s a waste of time. Do what you do best.

When you evaluate technology, don’t be penny wise and pound foolish. Think of the value to the patient and that will steer you in the right direction.

Success is measured many ways. First, determine how you benchmark your own success … perfect outcomes? Patient experience rendered? Financial rewards? Happiness? Free time? Maybe a combination ...?

Answer these questions first and then set goals to achieve them. OM

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