Pcli spokane wa

CASE 17 Pacific Cataract and Laser Institute: Competing in the LASIK Eye Surgery Market*

Dr. Mark Everett, clinic coordinator and optometric physician (OP) of the Pacific Cataract and Laser Institute (PCLI) office in Spokane, Washington, looked at the ad that Vancouver, Canada-based Lexington Laser Vision (LLV) had been running in the Spokane papers and shook his head. This was not the first ad nor the only clinic advertising low-priced LASIK eye surgeries. Dr. Everett just could not believe that doctors would advertise and sell laser eye surgery based on low price as if it were a stereo or a used car. The fact that they were advertising based on price was bad enough, but the price they were promoting–$900 for both eyes–was ridiculous. PCLI and its cooperating optometric physicians would not even cover their variable cost if they performed the surgery at that price. A typical PCLI customer paid between $1,750 and $2,000 per eye for corrective laser surgery. Although Dr. Everett knew that firms in Canada had several inherent cost advantages, including a favorable exchange rate and regulatory environment, he could not understand how they could undercut PCLI's price so much without compromising service quality.

PCLI was a privately held company that operated a total of 11 clinics throughout the northwestern United States and provided a range of medical and surgical eye treatments including laser vision correction. Responding to the challenge of the Canadian competitors was one of the points that would be discussed when Dr. Everett and the other clinic coordinators and surgeons who ran PCLI met next month to discuss policies and strategy. Dr. Everett strongly believed that the organization's success was based on surgical excellence and compassioned concern for its patients and the doctors who referred them. PCLI strived to provide the ultimate in patient care and consideration. Dr. Everett had joined PCLI in 1993 in large part because of how impressed he had been at how PCLI treated its patients, and he remained committed to this patient-focused value.

He was concerned, however, about his organization's ability to attract laser vision correction patients. He knew that many prospective PCLI customers would be swayed by the low prices and would travel to Canada to have the procedure performed, especially because most medical insurance programs covered only a small portion of the cost of this procedure. Dr. Everett believed strongly that PCLI achieved better results and provided a higher quality service experience than the clinics in Canada offering low-priced LASIK procedures. He also felt PCLI did a much better job of helping potential customers determine which of several procedures, if any, best met the customers’ long-term vision needs. Dr. Everett wondered what PCLI should do to win over these potential customers–both for the good of the customers and for the good of PCLI.

Pacific Cataract and Laser Institute

Pacific Cataract and Laser Institute (PCLI) was founded in 1985 by Dr. Robert Ford and specialized in medical and surgical eye treatment. The company was headquartered in Chehalis, Washington, and operated clinics in Washington, Oregon, Idaho, and Alaska. (Exhibit 17/1 shows a map of PCLI locations.) In addition to laser vision correction, PCLI provided cataract surgery, glaucoma consultation and surgery, corneal transplants, retinal care and surgery, and eyelid surgery. Dr. Ford founded PCLI on the principle that doctors must go beyond science and technology to practice the art of healing through the Christian principles of love, kindness, and compassion. The organization had defined eight core values that were based on these principles. These core values, shown in Exhibit 17/2, guided PCLI's decision making as it attempted to fulfill its stated mission of providing the best possible “co-managed” services to the profession of optometry.

Exhibit 17/1: Map Showing PCLI Clinic Locations (Clinics designated by a♦; Anchorage, Alaska, clinic not shown)

Co-management involved PCLI working closely with a patient's optometrists, or OD (for doctor of optometry). In co-managed eye care, family ODs were the primary care eye doctors who diagnosed, treated, and managed certain diseases of the eye that did not require surgery. When surgery was needed, the family OD referred patients to ophthalmologists (e.g., PCLI's eye surgeons) for specialized treatment and surgery. Successful co-management, according to PCLI, depended upon a relationship of mutual trust and respect built through shared learning, constant communication and commitment to providing quality patient care. PCLI's co-management arrangements did not restrict ODs to work with just PCLI, although PCLI sought out ODs who would use PCLI as their primary surgery partner and who shared PCLI's values. Many ODs did work exclusively with PCLI unless a specific patient requested otherwise. PCLI–Spokane had developed a network of 150 family ODs in its region.

Exhibit 17/2: Pacific Cataract and Laser Institute's Core Values

• We believe patients’ families and friends provide important support, and we encourage them to be as involved as possible in our care of their loved ones.

• We believe patients and their families have a right to honest and forthright medical information presented in a manner they can understand.

• We believe that a calm, caring, and cheerful environment minimizes patient stress and the need for artificial sedation.

• We believe that all our actions should be guided by integrity, honesty, and courage.

• We believe that true success comes from doing the right things for the right reasons.

• We believe that efficient, quality eye care is provided best by professionals practicing at the highest level of their expertise.

• We believe that communicating openly and sharing knowledge with our optometric colleagues is crucial to providing outstanding patient care.

• We believe that the ultimate measure of our success is the complete satisfaction of the doctors who entrust us with the care of their patients.

PCLI operated its 11 clinics in a very coordinated manner. It had seven surgeons that specialized in the various forms of eye surgery. These surgeons, each accompanied by several surgical assistants, traveled from center to center to perform specific surgeries. The company owned two aircraft that were used to fly the surgical teams between the centers. Each clinic had a resident optometric physician who served as that clinic's coordinator and essentially managed the day-to-day operations of the clinic. Each clinic also employed its own office support staff. PCLI's main office in Chehalis, Washington, also employed patient counselors who worked with the referring family ODs for scheduling the patient's surgery and a finance team to help patients with medical insurance claims and any financing arrangements (which were made through third-party sources). Dr. Everett was the Spokane clinic's resident optometric physician and managed the day-to-day activities of that clinic. Actual surgeries were performed in the Spokane clinic only one or two days a week, depending upon demand and the surgeons’ availability.

* This case was prepared by John J. Lawrence and Linda J. Morris, University of ldaho, for the sole purpose of providing material for class discussion. It is not intended to illustrate either effective or ineffective handling of a managerial situation. The authors thank Dr. Mark Everett for his cooperation and assistance with this project. The authors also thank the anonymous Case Research Journal reviewers and the anonymous North American Case Research Association 2000 annual meeting reviewers for their valuable input and suggestions.

Copyright © 2002 by the Case Research Journal and John J. Lawrence and Linda J. Morris.

Laser Eye Surgery and LASIK

Laser eye surgery was performed on the eye to create better focus and lessen the patient's dependence on glasses and contact lenses. Excimer lasers were the main means of performing this type of surgery. Although research on the excimer laser began in 1973, it was not until 1985 that excimer lasers were introduced to the ophthalmology community in the United States. The FDA approved the use of excimer lasers for photorefractive keratectomy (PRK) in October 1995 for the purpose of correcting nearsightedness. PRK entailed using computer-controlled beams of laser light to permanently resculpt the curvature of the eye by selectively removing a small portion on the outer top surface of the cornea (called epithelium). The epithelium naturally regenerated itself, although eye medication was required for 3 to 4 months after the procedure.

In the late 1990s, laser in-situ keratomileusis, or LASIK, replaced PRK as the preferred method to correct or reduce moderate to high levels of nearsightedness (i.e., myopia). The procedure required the surgeon to create a flap in the cornea using a surgical instrument called a microkeratome. This instrument used vacuum suction to hold and position the cornea and a motorized cutting blade to make the necessary incision. The surgeon then used an excimer laser to remove a microthin layer of tissue from the exposed, interior corneal surface (as opposed to removing a thin layer of tissue on the outer surface of the cornea as was the case with PRK). The excimer laser released a precisely focused beam of low temperature, invisible light. Each laser pulse removed less than one hundred-thousandth of an inch. After the cornea had been reshaped, the flap was replaced. The actual surgical procedure took only about 5 minutes per eye. LASIK surgery allowed a patient to eliminate the regular use of glasses or contact lenses although many patients still required reading glasses.

Although LASIK used the same excimer laser that had been approved for other eye surgeries in the United States by the Ophthalmic Devices Panel of the FDA, it was not an approved procedure in the United States, but was under study. LASIK was offered by clinics in the United States, but was considered an “off-label” use of the laser. “Off label” was a phrase given to medical services and supplies that had not been thoroughly tested by the FDA, but which the FDA permitted to be performed and provided by a licensed medical professional. Prescribing aspirin as a blood thinner to reduce the risk of stroke was another example of an off-label use of a medical product–the prescribing of aspirin for this purpose did not have formal FDA approval but was permitted by the FDA.

The LASIK procedure was not without some risks. Complications arose in about 5 percent of all cases, although experienced surgeons had complication rates of less than 2 percent. According to the American Academy of Ophthalmology, complications and side effects included irregular astigmatism, resulting in a decrease in best corrected vision; glare; corneal haze; overcorrection; undercorrection; inability to wear contact lenses; loss of the corneal cap, requiring a corneal graft; corneal scarring and infection; and in an extremely rare number of cases, loss of vision. If lasering were not perfect, a patient might develop haze in the cornea. This could make it impossible to achieve 20/20 vision, even with glasses. The flap could also heal improperly, causing fuzzy vision. Infections were also occasionally an issue.

Although PRK and LASIK were the main types of eye surgery currently performed to reduce a patient's dependence on glasses or contact lenses, there were new surgical procedures and technologies that were in the test stage that could receive approval in the United States within the next 3 to 10 years. These included intraocular lenses that were implanted behind a patient's cornea, laser thermokeratoplasty (LTK) and conductive keratoplasty (CK) that used heat to reshape the cornea, and “custom” LASIK technologies that could better measure and correct the total optics of the eye. These newer methods had the potential to improve vision even more than LASIK, and some of these new processes also might allow additional corrections to be made to the eye as the patient aged. Intraocular lenses were already widely available in Europe.

LASIK Market Potential

The market potential for LASIK procedures was very significant, and the market was just beginning to take off. According to officials of the American Academy of Ophthalmology, over 150 million people wore glasses or contact lenses in the United States. About 12 million of these people were candidates for current forms of refractive surgery. As procedures were refined to cover a wider range of vision conditions, and as the FDA approved new procedures, the number of people who could have their vision improved surgically was expected to grow to over 60 million. As many as 1.7 million people in the United States were expected to have some form of laser eye surgery during 2000, compared to 500,000 in 1999 and 250,000 in 1998. Laser eye repair was the most frequently performed surgery in all of medicine.

Referrals were increasingly playing a key role in the industry's growth. Surgeons estimated that the typical patient referred five friends and that as many as 75 percent of new patients had been referred by a friend. A few employers were also beginning to offer laser eye surgery benefits through managed care vision plans. These plans offered discounts from list prices of participating surgeons and clinics to employees. Vision Service Plan's (VSP) partners, for example, gave such discounts and guaranteed a maximum price of $1,800 per eye for VSP members. The number of people eligible for such benefits was expected to grow significantly in the coming years. PCLI did not participate in these plans and did not offer such discounts.

LASIK at PCLI

The process of providing LASIK surgery to patients at PCLI began with the partnering OD. The OD provided the patient with information about LASIK and PCLI, reviewed the treatment options available, and answered any questions the patient might have concerning LASIK or PCLI. If a patient was interested in having the surgery performed, the OD performed a pre-exam to make sure the patient was a suitable candidate for the surgery. Assuming the patient was able to have the surgery, the OD made an appointment for the patient with PCLI and forwarded the results of the pre-exam to Dr. Everett. PCLI had a standard surgical fee of $1,400 per eye for LASIK. Each family OD added on additional fees for pre- and postoperative exams depending on the number of visits per patient and the OD's costs. Most of the ODs charged $700 to $1,200, making the total price of laser surgery to the patient between $3,500 and $4,000. This total price rather than two separate service fees was presented to the patient.