Optical Clinics Behold The Vision Splendid
Sydney Morning Herald
Monday October 11, 1999
A revolutionary eye surgery technique, aimed at cashed-up patients who prefer to live without glasses, may reap big profits, writes Margot Saville
Refractive eye surgery, or laser vision correction, has emerged as the new growth area in elective surgery, with the key players in the industry positioning themselves for the anticipated surge in demand.
The driving force behind demand for the procedure, which costs about $2,000 per eye, is aging baby-boomers hoping to shed the ``nerdy look" by undertaking the surgery, which promises to let you throw away your glasses.
Marketed as a lifestyle choice, promotions feature attractive thirtysomethings swimming, surfing and dating without being hampered by cumbersome glasses.
In the US the numbers choosing the treatment are doubling annually, with near to 1 million people done to date.
Based on the US experience, the potential market in Australia for refractive eye surgery is nearly 2 million people an $8 billion market.
To date, fewer than than 1 per cent of this potential market has opted for the surgery, but the tantalising growth prospects have key industry players jostling for position.
Local operators predict growth of 10 per cent to 30 per cent next year, generated partly by a renewed boost in advertising centred on financing packages enabling patients to pay off the surgery ``at only $3 a day".
Publicly listed Primary Health Care had one refractive eye clinic when it went public last year. And recently it bought the Bondi Junction practice of opthalmologist Dr John Elder for a rumoured several million dollars.
Primary Health Care declined to comment specifically on the purchase but its chief operating officer, Mr James Bateman, said it saw refractive eye care ``as being another arm of our existing opthalmology services that we are providing for patients".
The company is following the US model of ``one-stop shops" for medical care, with a general practice medical centre set up alongside optometrists, orthoptists (physiotherapists for eyes) and opthalmologists, as well as pathologists, radiologists, and so on creating a supermarket for health care.
Another player, the Eye Institute in Chatswood, with 10 opthalmologists of whom three specialise in laser surgery, expects to perform about 2,000 refractive eye treatments this year, predicting that will grow 15 per cent next year.
The institute's general manager, Ms Alison Kent, said its research showed refractive eye surgery was the most ``competitive and commercially driven as well as controversial sub-speciality of opthalmology".
Marketing for the procedures is targeted at 25 to 45-year-old white-collar workers with high disposable income.
Ms Kent said refractive eye procedures were the biggest income earner in the practice, adding that the surgery took 10-15 minutes an eye. The institute conducts the laser-based procedure three days a week, averaging 16 to 20 eyes a day.
The market for refractive surgery was growing ``very, very quickly", she said. ``A few years ago, most people hadn't heard of the procedure, but now there's more advertising, and we get a lot of Internet inquiries. Most of the people who have the surgery here nominate lifestyle reasons for doing their eyes, for instance wanting to play sport."
For corporate investors, the key attraction of this sector of the medical market is the user profile wealthy individuals who are not bothered by the lack of medical insurance cover in this area. As a result, strong growth is anticipated as people become more relaxed about undertaking the procedure.
But the wait to see if private health funds will begin to provide cover in the area has prompted some potential users of the treatment to bide their time, for now although once it becomes clearer that the health funds will not budge, demand is expected to surge.
``People are obviously sitting back and waiting for the health funds to cover it but the funds can't afford it and Medicare never will," said Mr Dean Powrie, managing director of Laser Sight Centres, the largest Australian vision correction group. Politically, it is far cheaper for the Government to provide glasses than pay for surgery, he said.
Laser Sight does more than 300 procedures a month, with capacity to perform 600 to 800. Mr Powrie is predicting growth of as high as 20 per cent next year as the group benefits from a forthcoming payment plan enabling patients to pay for the surgery over a period of four years, with no deposit.
Like most big industry players, it is looking to team up with other clinics, as well as studying the opportunity of expanding into Asia.
In the US the strong growth in this field, coupled with big investor demand, has resulted in at least three large groups going public in recent years, with several more waiting in the wings.
Investors there are enthusiastic about a business model where the product is a medical service marketed to image-conscious members with high disposable income. At the same time, no-one has to deal with the red tape of cost-cutting insurance companies.
The largest North American operator, TLC Laser Eye Centres, now boasts annual revenues approaching $C150 million ($155 million), with its share price rising from $C5 when it listed in 1996 to more than $C30 now.
As the Australian medical sector becomes increasingly corporatised, this scenario may become common here, too. There are 29 refractive clinics in Australia, mostly in Sydney and Melbourne.
Just under half of last year's 25,000 procedures were performed in Sydney, with an estimated 6,000 done in Melbourne.
Numbers were fairly flat in 1998, due to some adverse media publicity about the older-style laser techniques. As that recedes from the public's memory, and the clinics commence a new round of marketing campaigns, numbers are increasing.
Growth is also being fuelled by changes in government regulations for example, the 1993 move by the NSW State Government to pass the Medical Practice Act, which allowed companies to own medical practices for the first time.
The refractive eye surgery procedures are relatively straightforward. Patients are treated during a brief visit to a clinic and, as non-insurable elective surgery, there is no negotiating with insurance companies.
Business manager Mr Robert Muir at Vista Laser Eye Clinics, which has surgeries in Sydney, Melbourne and Canberra, says that at a set-up cost of nearly $2 million per clinic, the ``break- even point is 50 to 60 patients a month, which includes a minimal amount of spending on advertising".
On these figures, costs were $1,400 to $1,500 an eye, he said. He estimates that next year's throughput will be up one-third on this year. Vista Laser Eye was also putting in a ``$3 a day" plan, which was only a little more than the cost of contact lenses, he said.
Adding to rising demand for the medical procedure are recent technological changes that make the surgery almost painless.
The current procedure, laser in-situ keratomiseusis (LASIK), is straightforward, with some post-operative grittiness not unusual but little lingering discomfort. The US Food and Drug Administration has only recently approved the LASIK treatment, although it has been in use in Australia for the past three or four years.
The earlier procedure, known as photo-refractive keratotomy, involved a laser-based surgical procedure to correct vision by reshaping the cornea. Because it is done on the surface of the eye, some pain is involved, with some patients feeling a stinging reaction for up to six weeks afterwards.
Some unfavourable media commentary also stopped many from choosing the surgery, but concerns here have now faded with the newer LASIK procedure.
What remains to be answered is just how much the wider community is prepared to pay to live without glasses.
© 1999 Sydney Morning Herald