Raising laser eye surgery prices will drive profits in “New Normal”

There is an industry we’re all familiar with that is characterised by:

  • a commoditized service differentiated mainly by customer experiences
  • a high level of safety and reliability of result
  • a high barrier to entry for competitors
  • a dependency on a relatively high load factor to reach break-even
  • low marginal cost (every new customer after break-even cost little to serve)
  • any excess capacity has zero-shelf-life (once it’s gone, it’s gone for good)
  • high fixed costs, much of it spent on specialised labour
  • high technological turnover
  • close governmental regulation

You might imagine I’m talking about the cataract and refractive surgery business, and you’d be half-right. But in fact, I’m talking about the airline industry. Stay with me, you’ll see the connection.

About a month ago, IATA director general Alexandre de Juniac said: “The imposition of social-distancing measures on commercial flights would mean an end to “cheap travel” It is clear that if social-distancing is imposed inside the aircraft, it will neutralise a huge proportion of seats – at least a third – for short- and mid-haul aircraft.”11

Imagine that. An industry that operates on a 70% load factor that is forced to curtail capacity by 33%. That’s an equation that won’t add up, unless airlines raise prices – hence de Juniac’s remark regarding “an end to ‘cheap travel’”.

It’s the most basic equation in all of business:

Net profit = sales revenue − total costs.

Basic economic theory will tell you that when supply is low, prices increase; and when demand is low, prices decrease. The Coronavirus crisis, however, throws a spanner in the works of basic economic theory. Not only are we experiencing a demand-side crash, due to lockdown and the second-order effects of declining household incomes and residual fear around contracting the virus, we are also facing a supply-side contraction, due to regulations (i.e. social distancing) aimed at protecting the public.

Leisure travel, like refractive and private cataract surgery, is a discretionary expense. So, what’s going to happen to the travel industry?

Duncan Craig, Travel Editor for the Times and The Sunday Times, says:

Aviation will find a way to take off again, but in the short term only the most fervent travellers will want to subject themselves to the thermal scanning, the disinfection tunnels, the intrusion, the hassle, the cost, the risk. We’re going to see a clear demographic demarcation of travellers, either self-imposed or driven by punitively priced or unobtainable insurance. Could flying become a young (and healthy) person’s game?

There will be positives: the eradication of ghost flights and phantom levels of protection; an end to entitled, pin-in-the-map, bottomless-prosecco-style binge travel. The trend will be towards fewer, longer and more meaningful holidays. The term “trip of a lifetime” may even be reclaimed from cliché.12

Noel Josephides, Director of the Association of Independent Tour Operators (AITO) writes:

“There is an immense will to travel — and I don’t think there’s any country like the UK for the love of it — but it will be more expensive (author’s emphasis). I don’t see how it can’t be. If companies aren’t getting forward bookings, then sooner or later you have to start cutting your headcount, and the sheer uncertainty will lead to a much smaller sector. Prices will rocket because there will no longer be the advantage of mass travel on cheap flights. Initially, supply will be affected, and we’re not sure in which age group demand is going to come back. The 60 and 70-year-olds who have the money to travel may not feel so confident about a Greek island that has only two hospital beds, for example.13

Unsurprisingly, Andrew Dunn, founder of Dunn luxury travel company, is by contrast optimistic: “It is extraordinary that from April 1 to 23 we had a surprisingly high number of inquiries — nothing like what it would have ordinarily been, but we thought that it could be zero. People have been inquiring about ski holidays, the Indian Ocean, Kenya, Tanzania, Costa Rica and the Caribbean.”

As I wrote back in March, luxuries are recession-proof.

Well, unlike refractive and private cataract surgery, economies consider public air transportation vital to keep commerce going. That’s why, when airlines get into trouble, national governments rush to their aid with billion-dollar bailouts.

Ergo, airlines continue to function and are able to raise prices while keeping them reasonably accessible to affluent leisure and business customers even when they literally have no business doing so.

Moving on from the travel industry, when’s the last time you heard of a refractive or cataract surgery clinic getting a bailout?

I’ll pause while you recover from laughing out loud.

When squeezed profit turns into massive losses

So, what is the refractive surgery clinic to do when faced with unyielding fixed costs while surgical volume tumbles? Profit turns into a loss.
I agree with ophthalmology business consultant, John Pinto, when he wrote in Healio, on April 7th:

… the accompanying table presents realistic expected case and adverse case models for ophthalmic gross charge production in the average U.S. practice through the balance of 2020. This is divided into general and retinal categories because of differences in non elective vs. elective components; glaucoma might be expected to fall somewhere in between. Elective plastics and LASIK cash flows will be much more deeply affected. (author’s emphasis)

Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Expected case: General 60% 10% 10% 15% 30% 50% 65% 80% 85% 90%
Adverse case: General 50% 5% 5% 10% 20% 40% 50% 60% 70% 70%
Expected case: Retina 80% 40% 40% 50% 60% 70% 70% 80% 90% 90%
Adverse case: Retina 60% 30% 30% 40% 50% 60% 65% 70% 80% 80%

Note: Figures shown in each cell are the percent of baseline gross professional fee charges expected, before factoring in the usual third-party payer adjustments and delays to yield net revenue received on average about 25 days down-calendar. This does not include fast-diminishing old accounts receivable from services rendered, earlier. While I believe that the “expected” and “adverse” estimates are approximately correct, it is important to understand that the U.S. and the world were heading for a recession and market correction already, and this, combined with jittery patients (who could be expected to delay routine care until well into 2021), may make the tabulated figures overly optimistic (author’s emphasis).14

Ok. That’s pretty scary. Using Market Scope’s average reported (premium) LASIK price of $2142 per eye in Q4-2014 (the last figures I have), I’ve modelled Pinto’s figures using our 5-Steps Practice Growth System. I’ll share my model soon, but in the meantime, I see the need to significantly increase prices to break-even. Using the following assumptions

  • Charging an average LASIK price per eye of $2142 per eye through the end of May
  • A gross profit margin of 40%

2020 LASIK volume percentage of 2019 would be as follows:

Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Expected case: LASIK 55% 5% 7% 12% 25% 45% 57% 70% 77% 80%
Adverse case: LASIK 0% 0% 3% 6% 12% 22% 27% 35% 37% 40%

Break-even at the expected case projection requires a LASIK price increase to $3120/eye (a 45.6% increase). Break-even at the adverse case scenario requires a price adjustment to a whopping LASIK price of $7150/eye (a 233.8% increase).

I, like all of you, hope to see the expected case (or better) scenario play out. Raising LASIK and cataract surgery prices to counter the adverse case will certainly lead to a shrunken market of financially suitable candidates. However, I’d recommend you prepare for the adverse case scenario, and get ready to see significant volume reductions and raise your prices accordingly. The alternative is massive losses that will most certainly lead to widespread insolvency. We’re already seeing 6% of ophthalmologists in the US ceasing to practice as a result of this crisis. That number will surely rise.

It goes without saying that my dire predictions above do not account for a second wave (and possible further lockdown), which experts predict is highly likely.

Are there alternatives to raising eye surgery prices by significant percentages?

In the last 20 years that I’ve advised this industry, I’ve identified only 5 fundamental ways to prevent loss or create profit:

  • increase your leads
  • increase your lead conversion rate
  • increase your appointment conversion rate
  • increase your average price/eye
  • decrease your fixed costs

Social Distancing Waiting Room Model

Let’s take each in turn and see if you’ll be able to make it work.

  1. The problem with the top 3 routes is that they require a) a market that can purchase your core offer, b) the capability to reduce friction and serve them quickly (ideally within 7 days) and c) months to implement. Three factors are likely to contribute to a lower relative volume of leads, lower conversion rates and lower close rates than you’re used to:
    1. in the inevitable recession that’s coming, average household incomes (especially among your younger consumers) will decrease, and discretionary income will decline even faster
    2. prospects (especially older consumers) will be either scared to venture into the world or be restricted to do so given their vulnerability to the virus
    3. envisioning a reduction in capacity due to social distancing will slow everything down – which increases waiting time which further depresses conversion rate, appointment conversion rate and surgical volume.
  2. You could increase your prices. Laser-only services can initiate a near-immediate or gradual price increase on procedures. Indeed, it’s likely the quickest lever you can pull. Unfortunately, the Millennial market that comprises the bulk of laser eye surgery patients will be hardest hit by this crisis – economically. Mixed services that offer laser and premium IOLs can potentially emphasise the latter, which for most is a more profitable procedure. Although, as I’ve mentioned, the older market will have its specific challenges to deal with, which may make that plan a problem.
  3. You could decrease fixed costs. That’s a tough one. Yes, you can reduce your headcount, and many of you will. That will likely result in a reduction of service quality and capacity, which is incompatible with higher prices. It’ll be much tougher to cut footprint (mainly because it results in lower capacity, which will already be at a breaking point) or the need to service equipment (which is potentially the riskiest option of all).
    1. You could also make your fixed costs go further by extending your hours. Of course, this only applies to your footprint. If you choose to go this route, you’ll need to increase headcount, which only serves to increase your fixed costs. Furthermore, if you’re the only surgeon in your practice, are you really going to work more than you already do?
    2. You could also stretch your fixed costs by virtualizing aspects of your practice that used to be face to face. For example, Vance Thompson, a surgeon in South Dakota offered up this idea at a recent Vivior Webinar, detailing everything his practice plans to make virtual (everything shaded). I think it’s brilliant. However, it takes planning, new standard operating procedures, training, and technology investments. Still, it’s still a worthwhile approach, and will likely be the way of the future.

The quickest and most profitable of your alternatives is to increase your eye surgery prices

For some of you, this will be music to your ears. After meeting thousands of eye surgeons over the years, I have yet to meet a refractive or cataract surgeon who’d prefer to do more surgery for less money. Making more profit per case and seeing fewer cases is what you’ve been craving.

Yet, you may remain sceptical that you’ll be able to sell anything in this economy if you raise prices.

To you, I pose this question: “What matters more, how much you make or how much you keep? What’s more important, revenue or profit?”

If you didn’t answer “profit”, then this post isn’t for you.

Look, your leads have likely fallen off a cliff since lockdown began. You’d be lucky if you’ve retained even 20% of your pipeline.

Here’s the rub. This crisis didn’t create a weakness in your pipeline. It exposed it. Most of your pipeline wasn’t even real. Lockdown only gave 80% of the prospects in your funnel an excuse to reject you without feeling bad for doing so.

How often has your phone team had a pleasant conversation with a charming prospect who failed to convert into an appointment?

Way more often than you’d wish, I’m sure.

The issue is this: there are no poor prospects. Only poor marketers and poor salespeople. If you’re really honest with yourself, you know that when the lockdown hit most of your prospects tucked tail and ran, ignoring your follow up calls after they told you they’d think about it.

So, this crisis exposed your weakness in marketing and sales. It didn’t create it. So why should you increase your prices now?
How does increasing eye surgery prices affect your profit?

Here’s what increasing your prices, just a little, can do for your gross profit

Increasing your price

A typical gross profit on a LASIK surgery is ±40%15. That means that you could absorb a 43% volume drop if you were to increase your average price by 30%. For example, raising your price from the US national leverage of $2142 to $2786 is a 30% increase. Depending on the shortfalls you experience in your area, you may need to go lower or significantly higher than 30%, but raise it you must.

There is also a sound argument that biasing your focus to lens-based surgery like premium IOL and refractive cataract procedures might be the means to raise average revenue per patient. That’s an accessible option if you’re fortunate to have a mixed-service facility.

A compelling argument for this approach is that Gen-X, Baby Boomers and Traditionalist candidates will likely be more economically resilient than the Millennial market. One drawback, however, is the self- and government-imposed isolation methods that will challenge the older segments of these populations.

But who’s going to pay for increased eye surgery prices?

There are many knowledge workers currently working full-time from home while saving money on restaurant, entertainment, transportation and travel expenses.

Have a look at your patient database. If you feel you have people in that list that are like these people below, you’ve got a good shot:

  • Recession-proof workers – like medical professionals, mental health workers, accountants, insurance providers, firefighters, law enforcement, judiciary workers, public utility workers, marketers, educators, IT workers, grocers, attorneys (especially those specialising in divorce and bankruptcy) and engineers.
  • People who own businesses and high-level workers in booming sectors selling in-demand products and services during lockdown and beyond – like e-commerce sites, logistics and delivery, pharmaceuticals, information technology (especially video conferencing), video gaming and streaming entertainment, supermarkets, pet stores, liquor stores, funeral homes, fitness equipment suppliers, and home improvement.
  • Traditionally high-earners (37% of LASIK patients made $100K USD and over in 2009) with access to credit and the older affluent with the ability to draw on low-risk investments and savings accounts
  • And finally, anyone else that finds your life-changing services a steal at the price that you charge, and would happily pay double for it. Everyone who’s ever said “my eyesight is priceless” and means it. All of those quietly affluent consumers that might not flash their wealth for all to see, but are in fact doing just fine, thank you, and might even be thriving in a recessionary economy.

They’ll pay.

Remember, even in the worst of times, you cannot have losers without winners. As long as modern capitalism remains alive and well, there will always be “haves” and “have-nots”.

Hell, I’ve made a career of marketing the most premium laser eye surgery (one of our oldest clients in London charges as high as the equivalent of $4063 – nearly double the US national average) and cataract surgery clinics in the world. I assure you, they, and their accumulated cash reserves after years of operating at higher than average profits per case, are among the best positioned to accelerate (i.e. spend money on marketing) out of this crisis when the patients come back.

Laser eye surgery and private cataract surgery is grossly underpriced in 2020

Follow the list of procedures on this chart from top to bottom and try not to weep.

Costs of Various Surgeries in the US

While I’m conscious that many systemic drivers artificially inflate health care costs, I am also abundantly aware that most entrepreneurial eye surgery providers have – when it comes to pricing – acted as their own worst enemy.

Look at how you give your value away. You provide a life-changing service, affecting one of our most precious gifts – our eyes.

The average refractive surgery price hasn’t seen grown significantly for 20 years

Average Price of Refractive Surgery US

Answer me this: If I gave you a million dollars, would you give me your eyes? What about 2 million? 3? Ok, ok, how about 10 million…

It’s blindingly obvious. You wouldn’t part with your eyes for any amount.

It’s equally evident that short-sighted laser eye surgery discounters have likely dug everyone a hole that you now have a once in a lifetime opportunity to climb out of.

As the volume decreases in a high fixed-cost business, raising your eye surgery price will be your lifeline

When the patient is crashing, lifestyle advice is not on the table. You must take emergency measures.

Yes, you’ll need to re-invest in marketing that sells your value, not your low price. You’ll need to re-invest in sales training that converts without resorting to discounts. You’ll need to re-invest in customer service excellence that matches the transformative impact of your core service. And finally, you’ll need to do everything to minimise the amount of time every patient spends inside your office.

But while you’re planning all of that, don’t forget that operational improvements are not an option when there isn’t enough business to keep you solvent.

It’s time to value yourself so that your market perceives you as valuable

It’s time to become a premium supplier.

And, here’s the bonus, when you become a premium supplier, you’ll often lose your worst prospects first. The ones that expect the world while wanting it cheap. The ones that value every penny so much that they make you pay for it in blood.

The other bonus is they will go and eat up your competition’s time and resources.

How should I raise my eye surgery prices?

If you’ve read this far, I know you’re up for this. Over the past 20 years, we’ve raised laser eye surgery prices while consistently driving more revenue for our clients. It’s one of the things we’re best at. Contact us today for a compatibility call, and we’ll show how you can make the most of the “New Normal”.

Ask for our “Marketing Execution Plan” and we’ll know how best to guide you towards raising your eye surgery prices after COVID-19.

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