Laser surgeons turn eye to price

THE BALTIMORE SUN

"Deep discounting," "special introductory offer" and "convenient mall location" -- strategies long used to entice American consumers -- are now being employed to sell something customarily discussed in the hushed tones of doctors' offices: eye surgery.

Laser vision correction, however, is not ordinary eye surgery. It's an elective procedure, seldom covered by insurance. Thus surgeons have turned to the selling points of the retail world -- price and easy access -- to persuade consumers to spring for it.

"It's a discretionary expenditure," said David Harmon of St. Louis-based Market Scope, publishers of a newsletter called Refractive Surgical Market. "It competes with cars and boats and new PCs."

It's a bizarre atmosphere and a bazaar atmosphere as medical marvel collides with consumer commerce.

The collision may be louder in Baltimore than anywhere else. The Baltimore market is being watched as a test of two concepts that push the boundaries of medical marketing:

Heavy discounting backed by price-focused advertising.

When one laser center lost its star surgeon to a rival chain, it responded by aggressively promoting a price of $2,995 for both eyes, for a procedure that generally costs about $5,000. Another competitor countered with a price of $2,950 and ads that promise "The Best Price in Baltimore -- Guaranteed!" It has made price a subject -- and sometimes a matter of negotiation -- in many patient-surgeon conversations.

"They come in with their newspapers, and it says '$3,000' right on it," complained one surgeon, Dr. Sheri Rowen. "You don't have to meet the price to hold the patient, but you have to come closer to it. I've had to come to a point where there's a compromise, which makes me feel like a used-car salesman, and I hate that."

A surgery center in a mall.

Visual Freedom Center opened one of the first mall-based laser centers in the country last month at The Mall in Columbia, in a new wing with Godiva chocolate, Lady Foot Locker and Yankee Candle Co. With a glass-fronted operating room, surgery on a Saturday afternoon draws more than two dozen watchers. Some carry shopping bags. Some sip cafe latte from cardboard cups. There are gaping kids in full soccer uniform, complete with shinguards.

"You don't expect to go shopping at Nordstrom's and then get your eyes done," said Jennifer Southam of Co- lumbia, a prospective patient who had come to observe. "It's sort of California-esque."

LCA-Vision, Inc., a Cincinnati-based national chain with a discount operation in the Baltimore market, said volume at its centers in Towson and Annapolis was up 151 percent for the three months that ended in September, compared with the corresponding period a year earlier. (Volume at all their centers open a year was up 51 percent.)

Even with the $2,995 fee, the company makes as much profit as before on each eye corrected, said Larry Rapp, chief financial officer. And with volume up, he said, the centers earned back the added promotion costs in about two months, and the two discount centers are more profitable than ever.

Long-term questions

LCA now plans to test the discount model further at five centers in California.

Others, however, are skeptical about how the discount model will work over the long term, and see Baltimore as a key test.

"Particularly the investment types that are backing the laser centers, they've paid a lot of attention to this [Baltimore] market," said Harmon.

The stakes are large.

Irving Arons, managing director of Massachusetts-based Spectrum Consulting and publisher of the newsletter Executive Laser Briefing, estimates the target market for laser correction -- those who can benefit from the procedure and can afford the out-of-pocket costs -- at 60 million people in the United States.

Fewer than a million Americans have had laser correction, barely 2 percent of the target market. But the numbers are growing rapidly -- the industry expects to reshape nearly a million American eyes this year, up from about 450,000 last year, at a cost of more than $2 billion dollars.

Newer technique works well

Driving the growth is the introduction in the United States in late 1995 of laser-assisted in-situ keratotomy, known by its acronym, LASIK.

Surgeons have been working for decades to perfect a method of eliminating eyeglasses by reshaping the cornea, the transparent front of the eyeball. Earlier efforts could be painful, took months to bring improvement, and sometimes resulted in eye problems.

Then came LASIK. By slicing a flap in the cornea before the laser is used, LASIK largely eliminated the pain.

The procedure takes just a few minutes. While some patients do have eye problems as a result, the complication rate is lower than for earlier procedures. And patients can see better immediately, producing what some analysts call "the wow factor."

While the development of LASIK made vision correction attractive to consumers, another set of factors was making it popular with eye surgeons. Managed care and Medicare cost controls were pushing down the cost of other eye procedures, particularly cataract surgery, the bread-and-butter of ophthalmologists.

"We had a period of doom and gloom in ophthalmology," Rowen said. " 'Oh, they're cutting cataracts. Oh, they're cutting cataracts.' It's cut, cut, cut. Then, this laser comes along, and you go, 'Hello!' "

As LASIK bloomed over the past three years, two publicly traded chains, LCA and TLC Laser Centers, took a lion's share of the business. Eye doctors with individual practices rented laser time at centers or hospitals. Some eventually bought their own lasers (the machines cost about half a million dollars, and the laser-makers collect a $260 royalty fee for each zap) and began marketing their services.

LCA was the first chain in the Baltimore market. Almost as soon as the Food and Drug Administration approved use of the lasers, LCA signed a deal with Greater Baltimore Medical Center. Its center opened on the GBMC campus early in 1996.

The LCA center prospered, and it opened a second in Annapolis. LCA's chief surgeon, Dr. Anthony J. Kameen, established a strong reputation, one that persisted even as more doctors started doing laser correction.

"Tony got in first. You can't catch up to Tony," Rowen said. "He set himself in a separate league." Kameen is now closing in on his 10,000th eye, which he expects to do sometime next month.

The dynamic changes

Then, at the beginning of this year, LCA's rival, TLC, the largest of the laser chains, decided to open in Towson as well.

When TLC comes into a market, it lines up a network of optometrists to provide referrals; the optometrists, in return, are paid a fee for pre-operative and follow-up care, according to Stephen Kilmer, director of investor relations for Ontario-based TLC.

Then, Kilmer continued, "If there's already a surgeon who dominates that market, we'll approach them to come with us. They'll have the choice of either coming with us or competing with us."

Kameen chose to join TLC. LCA had a problem.

"All of a sudden, they went from leading the market with the busiest surgeon to not having busy surgeons and having two centers," said Harmon, the analyst and newsletter publisher. "The answer they came up with was to cut the price."

Kameen "was our No. 1 user," said Rapp, the LCA financial chief. "We said, 'How can we get our center up to profitability again?' Everybody wanted to know about price sensitivity, so we said, 'Let's try it.' "

About the time Kameen opened the TLC center in July, LCA rebranded itself as LasikPlus, and started advertising the $2,995 price.

The bold pricing threw the market into further confusion.

Stock analysts warned of a possible national "price war," and the share prices of the laser center companies and manufacturers dropped. The price war doesn't seem to have developed, said David Therkelsen of Dain Rauscher Wessels, but the stocks haven't rebounded.

"The market wants some clarification on what profitability will turn out to be for the center companies," he said, "and that will take a couple of quarters."

Discounts not everywhere

Some centers, including TLC, resolutely stuck to prices at $5,000 and above. "It takes more than one player to be in a war," said Kilmer.

Dr. Morton F. Goldberg, chief of the Wilmer Eye Institute at Johns Hopkins, fastidiously avoids terms like "discount" or "sticker price," much as he would avoid a contaminated scalpel. "We feel the level of expertise our specialists offer justifies the professional fee," he said. "People know our price and are seeking the world's best surgeons. We are busier than ever."

On the other hand, Baltimore Laser Eye Center opened in Pikesville, trumpeting its lowest price guarantee. "It's in response to the dramatic market change," said Bob Brodney, chief operating officer of the Washington and Baltimore Laser Centers.

"Our fee is $3,450. It was $5,000, but it's been reduced for several weeks now," said Joyce Covington, marketing director for the Parris-Castoro Eye Center, a surgeon-owned laser center in Bel Air. "We do want our volume to grow."

Others started negotiating on a patient-by-patient basis.

"What you see is a lot of panic. You see one person drop their price, then several moderate-volume guys get scared," said Sewell Gelbard, president of QVS Technology Group, an Illinois firm he describes as "a refractive marketing and business development company."

While LasikPlus is reporting success, other centers, including the higher-priced ones, say their volume is up as well, as all the advertising increases awareness of the procedures.

"We find it helps us," said TLC's Kilmer. "Even the price advertisement helps us. People hear an ad, then go to their primary eye provider, and he says, 'Go to TLC.' "

Said Gelbard, "The price-cutters have been able to reach a market nobody else had. Very few people in their early 30s have that kind of money, even with financing."

Others say price cutting can create a market buzz for a new center, but is not a viable long-term strategy. "Price cutting has not worked," said consultant Arons. "What it really comes down to is that when you're going to have surgery on your eyes, you want the best surgeon."

Brodney, the COO of centers with a low-price guarantee, argued, "The barriers of fear and pain have been overcome at this point. The last great barrier is price."

Kmart and Nordstrom

Gelbard is one of several analysts who believe that different laser centers will settle into different ends of the market: "My sense is that you're going to see some of these volume shops. You'll see two markets -- the Kmart and the Nordstrom's."

Dr. Robert Johnston, an eye surgeon who is chairman and president of Visual Freedom Centers, isn't exactly Nordstrom, but he is next door. He opened a center in The Mall in Columbia last month, after developing the first mall center in February at Fair Oaks Mall in Virginia.

He is betting that the barrier is not price -- Visual Freedom center charges $4,900, but has a $500-off introductory offer in Columbia -- but fear and inconvenience.

He began to put his business plan together in 1996, but it took him a while to refine it. And the malls were not exactly fighting to get him as a tenant.

"It was a less-than-warm reception, but not an outright rejection," he recalled. "It took a certain amount of sales pitch to convince them that we weren't going to gross people out."

When he was about to launch the first Visual Freedom Center in Fair Oaks, "The night before we opened, I sat the staff down and said, 'This is a big experiment.' The next day, the opening day, we had a person on his way to pick up contact lenses in the mall. He canceled the order, turned around, came into our center and scheduled the surgery. That's when I knew it was going to work."

Taking a look

Mall surgery wouldn't make sense for, say, coronary bypasses. But laser vision correction looks simpler than it sounds -- it takes less time than a haircut -- so it is generally done in picture-window surgery rooms, albeit generally in medical office buildings rather than shopping centers. To counteract fear of the surgery, the public is invited to watch as a surgeon slices a flap in the cornea, peels it back and zaps the eye with laser pulses.

One recent day in the mall, surgery drew, as it often does, a modest crowd.

"I love this. Where's the baby delivery room?" asked Bernard Margolis of South Africa.

Evelyn Hauser of Owings Mills, standing with her husband to watch, is amazed the surgery is over so quickly. "Oh, my God, look -- she's done."

The patient, Connie Baron of Columbia, stands up, smiling. After a few minutes in a recovery room, she comes out into the storefront area, wearing dark glasses. Staff members hand her two wine glasses with Visual Freedom Center logos, saying, "This is your last pair of glasses."

She said she chose the center because her doctor, Dr. Jeffrey L. Wexler, practices there, and didn't mind at all having her surgery in a shopping center. In fact, she said, "I'd rather be in a setting that's more relaxed than a hospital setting."

When shoppers stop in to watch surgery, "patient information specialists" are ready with brochures and other information -- and with a quick eye test to see if the person might be a candidate for surgery.

About 40 percent of the patients in Fair Oaks -- where surgeons do 400 cases a month -- were mall walk-ins, Johnston said.

Therkelsen, the stock analyst, thinks the mall idea may grow. "This procedure has very quickly become almost a retail-oriented system. There is potential to see more of that."

Johnston conceded, "No doubt there are naysayers out there," although he said hardly anyone complains directly to him that a mall is not an appropriate setting for eye surgery. "I do acknowledge one phone call from a fellow graduate of Johns Hopkins who said I was giving Johns Hopkins a black eye."

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