BBI Contributing Editor

At last count, TLC Laser Eye Centers (Bethesda, MD and Toronto, Ontario, Canada) operated more than 50 centers in the U.S. But according to Gary Jonas, executive vice president for strategic growth, the company plans on opening five additional sites (including Albany, New York, and Palm Desert, California) in the near future and more after that. "The market has barely been tapped," he said. "Last year, there were only 1 million eyes done. Projections for this year are about 1.4 million. With a total of probably 280 million potential eyes, there's certainly enough business for everyone."

TLC also has signed up more than 50 million patients via third-party payers or corporate vision plans. "These patients receive somewhat of a reduced price," Jonas said. "So we're focused on the middle and high end of the market."

Jonas conveyed, though, the importance of higher-end providers generating a quality message to consumers. "You can recruit an ophthalmologist fresh out of medical school and have him perform 1,000 procedures within six months. And yes, by then he has some experience. But it's not the same experience as a surgeon who has been involved with refractive surgery for 15 years and can handle complications well," he said. In fact, Jonas noted that "a good part of our practice in many cities is dealing with complications from the lower-end providers."

Competitor Michael Henderson, president and CEO at LASIK Vision (Vancouver, British Columbia, Canada), scoffs at the notion that lower-priced centers compromise on quality. "We don't consider it discounting. We call it proper pricing," Henderson explained. As a result, "we feel it will be difficult for other providers to charge a premium, because the quality is the same. Other providers will insist the quality is different, but the general public is not stupid."

Henderson conveyed that "we wanted to be the largest LASIK provider in Canada before we entered the U.S." Having achieved that goal with 15 centers in Canada, the company opened its first American clinic, in Bellevue, Washington, in January. LASIK Vision has also announced plans for rapid expansion in the U.S. this year, including 16 centers by the end of the second quarter, many of them in California. "Prior to now, the American market was not ready for LASIK. Although the market is massive, the acceptance of the product was not there," Henderson said.

Henderson expects LASIK Vision's $999-per-eye price in Bellevue to continue at all new U.S. centers. The company will also purchase 100 VISX excimer lasers for the U.S. market. It currently uses 19 of Bausch & Lomb's Technolas 217 lasers in Canada.

In February, ICON Laser Centers (Toronto, Ontario, Canada) and VisionAmerica (Memphis, Tennessee) commenced a joint partnership agreement to open 30 centers domestically. Five of the centers opened within the first 30 days. Going forward, "we'll be opening two centers a week over the next two months because all these centers already exist," said Ernest Remo, vice chairman at ICON. "These VisionAmerica centers are simply being changed to the ICON model. Our model is advertising for what we define as value LASIK." Not surprisingly, ICON's motto is "excellence at an affordable price." By charging an average price of only $750 per eye, Remo believes other providers will be forced to reduce their fees.

"We are a consolidator," Remo said. "We're looking to put 100 centers into 100 markets over the next 18 months. We're going to do that by making acquisitions in those markets." Moreover, he said, once other providers "go through the trauma of changing their methodology to a similar value-LASIK model, there will be further consolidation in the industry."

Amy Carlson is the ambulatory surgical care coordinator for the VisionAmerica site in Memphis, Tennessee. She said the company has increased marketing with billboards, radio, and newspaper. Local providers, however, "have been pretty stable with their pricing," Carlson observed. She noted, though, that two VisionAmerica centers already have lowered prices to $1,000 an eye. "We're still at $4,280 for both eyes here. But we have been talking about cutting the price," she said. In any event, she believes patient education in LASIK is key for the industry to prosper.

"We believe this is a good time for providers to grow because consumer demand continues to expand at a very healthy rate," commented Joseph Dzialo, executive vice president at LCA-Vision (Cincinnati, Ohio), which has 24 vision centers, including two in Canada and one in Europe. "Surprisingly, though, we do better in regions where there is more competition because these are the areas where more consumer education is going on. A more knowledgeable patient base is healthy for us."

Earlier this year, LCA-Vision opened three new centers (Tampa, Florida; Maple Grove, Minnesota; and Beverly Hills, California) and expects to open about 10 additional clinics by the end of 2000. The company charges $2,995 for bilateral surgery. "It doesn't trouble us at all that some providers charge less," Dzialo said. After all, "part of the way to unleash tremendous consumer demand is to increase the affordability to the patient, as long as patient care is not comprised."

And while Dzialo applauds VISX's recent decision to reduce its licensing fee from $250 to $110 an eye, "VISX now requires providers to pay for other services, which had been free up to now. This includes an increase in laser maintenance costs, which run about $55,000 per year, and paying for enhancements, which for some providers can run as high as 20% of any given surgeon's business. So it's not as large of a savings as it appears on the surface."

Aris Laser Vision Institute (Los Angeles, California) is an international network of about 30 refractive centers in Japan, Mexico, and the U.S. According to Kerry Assil, MD, international medical director, providers "need to be very mindful of what segments of the population they are targeting, before they expand." Aris is pursuing "the very highest possible care, so it will not be the lowest-tier population." Assil added that "if you're the best surgeon in the world and can prove that to the consumer, you should command the highest price points." Conversely, "if you just graduated from residency last year and have never performed LASIK, you better be willing to charge rock-bottom prices if you want anyone to come through the door." In essence, he said, "a lot of the price pressure, frankly, is coming from doctors who don't have much experience but want to provide care."

Assil, who also serves as medical director at the Sinskey Eye Institute (Santa Monica, California), predicts that the consumer will become sensitive to both price and quality. "So those providers who can be both competitive in price and prove that they have great skills and experience will do fine," he said. But for those providers who desire to charge more, "you better make sure that you truly deliver 'above average' across the board, otherwise you are pricing your ego rather than your skills or capability."

In January, NovaMed Eyecare (Chicago, Illinois) entered a new core regional market, the Southeast, with locations in Atlanta, Georgia, and Chattanooga, Tennessee. For calendar 1999, the company performed 13,366 procedures, up 163% from 5,083 in 1998. "Our goal for 2000 is to do 30,000 procedures across our whole system, which basically comprises six core regions in the United States," said Ron Eidell, executive vice president and CFO. "Our strategy is to build strong regional positions with lots of points of access for consumers."

Eidell said it helps that NovaMed already offers an array of ophthalmic services for bolstering strong regional brands. "Our first choice to install a laser is in one of our 12 surgery centers, which all have excess capacity," he said. "We then drive the volumes through those surgery centers." However, instead of reducing prices as a result of increased competition, this high-end provider actually raised prices last year in all markets. Fees were raised again during 1Q00 in two markets. "We now charge anywhere from $2,150 to $2,500 per eye," Eidell said.

Eidell predicts that with the growing trend of price reduction, the LASIK market could eventually bifurcate. "Those at the high end will charge premium prices based on the quality of the doctor, the quality of outcome, the local branding and involvement with research," he said. For instance, "we've got the largest non-university, ophthalmic-only research organization in the United States."

Larry Pearson is president and chief operating officer at Laser One (New York). This company's first center opened in Manhattan last September. "We'll probably open a second center in the New York area within the next six months," Pearson ventured. He also welcomes the local competition, as long as it is quality competition. "The advertising needs to be educational to the consumer," he said. When such guidelines are followed, "typically, you see an increase in demand for services for everyone."

Clear Vision Laser Centers (Denver, Colorado) has 52 centers, with 11 of its 26 lasers mobile. Since January, three new centers have opened (Jacksonville, Florida; Lakewood, Colorado; and Kalamazoo, Michigan). An additional 10 centers are expected to open by year's end. To be successful, "you need a combination of superior strategy and superior execution. Without both, you'll end up with disaster," cautioned chairman and CEO Don Wingerter.

"We're pretty much sticking with the fundamentals," Wingerter said. "However, as with any business, you sort of price along your learning curve. We're also going to be bringing our margins down." The price per eye currently ranges from under $1,300 to about $2,200. "We're moving more from the high range to the mid-range," Wingerter said.

The impact of the International Trade Commission's ruling that Japan-based Nidek did not infringe on VISX's patent "will certainly send a signal that there is far less risk to install a Nidek than ever before," Wingerter said. "But it's not that the risk goes away. However, most doctors don't pay much attention to the [patent infringement] risk, even though it is real."

Aris Vision's Assil commented, "VISX already has such a huge installed base and has now finally started to demonstrate a modicum of sensitivity to the marketplace and the consumer, so the company has the opportunity to remain king. But whether VISX remains king will depend on its ability to continue delivering cutting-edge technology that is comparable or superior to the competition. VISX must also continue to provide an economic package that makes sense." Still, Assil said he wouldn't be surprised if by the end of this year Nidek had a total U.S. installation base of 100.

Clear Vision's Wingerter believes the provider market "will narrow very, very rapidly" over the next few years. "There will be far fewer providers, but those providers will be far more efficient," he said. "But there can be no sacrificing quality. Patient outcomes have to be everything."

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