NOV 2013

EyeWorld is the official news magazine of the American Society of Cataract & Refractive Surgery.

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26 EW NEWS & OPINION November 2013 Insights Michael Porter and the plight of ophthalmology by J.C. Noreika, MD, MBA J.C. Noreika, MD, MBA I t was slick. The preoperative examination was efficient, the technicians friendly. The surgeon did a brief exam, confirmed the diagnosis, and answered a few questions. Then he was gone. As I wrote a check for $120, the date of surgery was set. On the morning of surgery, I was greeted at the front desk and was told that today's fee, reflecting a professional discount, was $980. I wrote another check. The surgery lasted 15 minutes including the administration of local anesthesia. Instructions were given, prescriptions called in and follow-up scheduled for 10 days hence. I was left to wonder where it all went wrong. You probably guessed this was not cataract surgery. I had a fractured molar. The process of the extraction and placement of bone chips went as described. Eleven hundred dollars cash for services rendered; the eventual implant will cost thousands more. Not to denigrate the oral surgeon's skill, but this wasn't sophisticated microsurgery revitalizing our most essential sensory organ. Why has the reimbursement for modern medicine's most sublime advance been discounted to a fraction of the price of pulling a tooth? In 1986, I was introduced to Michael Porter, a young academic and assistant professor at Harvard Business School. In 1979, the Harvard Business Review published his seminal "How Competitive Forces Shape Strategy." Business school curricula still pay homage to his work. Porter advanced the thesis that five competitive forces define an industry's structure: the rivalry of participants; the entrance of new competitors; the substitution of services providing greater utility and value; the power of suppliers; and the power of buyers. Remuneration for ophthalmic services and especially cataract surgery has eroded precipitously. The rationale lies not in the numbers. There are 330 million citizens in the United States, roughly 660 million eyes. In 2010, more than 40 million people were age 65 or older. There are roughly 16,000 ophthalmologists, perhaps 10,000 who regularly perform cataract surgery. There is one ophthalmologist for every 41,250 of the nation's eyes and one cataract surgeon for each of 8,000 eyes over age 65. These ratios are increasing. Spectral continued from page 25 OCT lets us evaluate these layers much more dramatically," Dr. Kim said. EW Reference 1. Schuman JS. Spectral domain optical coherence tomography for glaucoma (an AOS thesis). Trans Am Ophthalmol Soc 2008;106:426-458. Editors' note: Dr. Kim has no financial interests related to this article. Dr. Schuman has financial interests with Massachusetts Institute of Technology, Massachusetts Eye and Ear Infirmary, and Carl Zeiss Meditec (Jena, Germany). Contact information Kim: Stephen.j.kim@vanderbilt.edu Schuman: SchumanJS@upmc.edu Porter might contend this analysis suggests Supplier Power accruing to ophthalmologists. The price and profitability of the profession should be high since well-positioned suppliers dictate the terms of the transaction. At the extreme, eye surgeons can limit the availability of the service. Microsoft deftly wields this power by supplying Windows operating systems to computer manufacturers. Consumers demand the software while judging the machine a commodity. Because other forces nullify the profession's advantage, such power is not evidenced in ophthalmology. Porter warns against cherry picking among these forces. All five must be considered when assessing an industry. Some, though, are more important than others. For example, treatment of a cataract by a substitute is unlikely despite technologic advance. Even if, as some proponents claim, the femtosecond laser levels the playing field among cataract surgeons, patients might resist having their family doctor operate on their eyes. Only a medical cure for cataract would be a game changer. Established rivals? This important source of competition is seen in ophthalmology-dense urban areas. History shows that few competitors were required to rapidly drive down the price of LASIK surgery. But with 30 million people soon to join the ranks of the newly insured, in- ternecine competition is unlikely to dictate price. Organized optometry covets the eye surgery arena as attested by lobbying efforts across the country. It confronts significant barriers to entry including high fixed costs to provide state-of-the-art care, time for training, malpractice liability, marketing expenses and the requisite repricing of licensure including continuing education costs. Although its goals may be accomplished through legislation and personal risk, the odds remain long. That leaves Buyer Power. Customers don't get any bigger than the United States government. Only nuclear-powered utilities are as highly regulated as medicine. Porter states that government is not a "sixth force" of competition. Instead, it defines an industry's attractiveness by manipulating the five competitive levers. He posits that "the five forces reveal why industry profitability is what it is." Ophthalmology holds advantage in Supplier, New Entrant, Substitute, and even Existing Rivals Power. Yet it cannot exploit its inherent advantage because it is deeply fragmented relative to its buyers and depends on an oligarchy of customers for the bulk of its revenue. Despite a lack of feasible substitutes for eye surgeons, the government has contorted the competitive landscape by concentrating extraordinary buying power. It makes the rules and dictates price. The cession of medicine's power began when Medicare was enacted nearly 50 years ago. Today, the annual Sustainable Growth Rate drama flaunts the futility secured through physicians' atomisation. Perhaps current efforts to consolidate physicians may contain the seed of unintended consequence. Assuming Porter correct, coalescing suppliers of care may tilt the competitive environment ever so slightly to the practitioner. We can only hope. EW Editors' note: Dr. Noreika has practiced ophthalmology in Medina, Ohio, since 1983. He has been a member of ASCRS for more than 30 years. Contact information Noreika: JCNMD@aol.com

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