So, I'm having a conversation with myself last night about this 800# Gorilla thing. I share some of our discussion below. No, I'm not schizophrenic…but I do have these voices in my head from time to time. Perhaps you'll join in on the conversation and post comments back. Let's get a dialogue going. This is a BIG issue with no easy answers.
Al 1- OK, so what we predicted has come to pass. VSP, the world's largest optical retailer, now owns Marchon, Officemate and half of EyeDesigns. Oh, and they own your lab, too.
Al 2- Wait a minute, did you say "world's largest optical retailer."
Al 1 – Yes, that's what I said. What other optical retailer has 25,000 provider locations?
Al 2 – Yeah, but that's not true…those provider locations are all independent. VSP doesn't own them.
Al 1 – They don't? Tell that to the O.D.s in California that now have 90% of their business coming from VSP. Who owns their practice? Can they tell VSP to take a hike? I don't think so.
Al 2 - Wait a minute. Hmm. Are you, like, talking about what I think of as "the Walmart effect." That's where a company, in their desire to land the big contract, gets dominated by one purchaser who ultimately drives them out of business.
Al 1 – Yep. Think about it. So, this 800# Gorilla that we call VSP controls 1 out of every six pairs of eyes but, worse, in some markets they totally dominate the patient base of private optometrists. They're not the largest customer…they're almost the only customer.
Al 2 – Sounds dangerous.
Al 1- Yeah, it's certainly a concern. Especially since VSP (and other managed care plans) use the eye doc as their product. VSP doesn't make anything, really. They just sell the eyedocs exams and products at a discount. And to get the contract, they simply negotiate a fee for the provider's exams and the provider basically takes it in the shorts. VSP won't allow the doc to make up for the loss of margin on other services…every VSP patient is basically entitled to a discount on everything.
Al 2 – So, what you're saying is that VSP, in a pretty quiet way, has managed to take over the patient base of most private practices?
Al 1 – That's what I'm saying. Now, one can also argue that VSP has been good for private optometry…after all, they control 55 million pairs of eyes ostensibly for the benefit of private optometrists. And they say that they're going to help the private optometrist manage and improve their business.
Al 2 – Yeah…and VSP is owned by optometrists, right?
Al 1 – That's a good question. I'm not sure who owns VSP. Supposedly, they're a not-for-profit. But the Supreme Court is having something to say about that. And I can't remember the last time I heard of a NFP making a $735 million acquisition.
Al 2 - $735million. Congratulations to Al Berg and Larry Roth (owners of Marchon) for the coup…they deserve it. But who pays this money? Seems to me that each provider has to fork over about $30,000. That's a lot of dough. Who's money is it?
Al 2 – That's a good question. Hmmm, if VSP's sole "product" is selling eye exams and eyewear products at a discount to employers and consumers; and optometrists are the ones providing that discount; then it seems to me that optometrists are providing the $735 million to buy Marchon). And to pay that money back, will VSP be digging deeper into provider's pocketbooks?
Al 1 – Well, I don't know. That certainly remains to be seen. But what I do know is that optometrists are working on slimmer and slimmer margins; the result of increasing managed care write-offs.
Al 2 - Yeah, but it's a good investment, right? If Marchon was generating $525million and netting, let's say, 10%, then that's $52million a year in net profit. So, that's appears to be a good investment and the providers will get a dividend, right?
Al 1 – Well, slow down there. That's not true. VSP doesn't pay a dividend to it's providers.
Al 2 – Hmmm, so now VSP owns one of their largest frame suppliers; controls where they get their lab work done; controls the largest software vendor…and even owns half of the company that supplied their office design. Is this "Big Brother?"
Al 1 – Well, maybe. But that's OK…after all, VSP is a non-profit focused on helping private optometrists improve their business, right?
Al 2 – Well, it seems to me if that was the case, they'd pay providers more then 60% of Usual and Customary Exam fees and would let the optometrist improve their margins. After all, just last month you showed me that even the best optometrists have just kept up with inflation over the past decade.
Al 1 – Yeah…but VSP knows what to do with their money better then they do. They're making investments with the money of private optometrists and buying Marchon, Officemate, EyeDesigns and Labs. What's next…heck…they're going to take over eyecare in China and the rest of the world; building on Marchon's world-wide structure.
Al 2 – That's OK…the providers get to vote for their board of Directors, right?
Al 1 – I don't think so.
Al 2 – Yeah…but the optometrists get a dividend on their membership in VSP…a return on their investment in providing VSP with it's margins, right?
Al 1 – I don't think so.
A2 – Yeah…but the optometrists get patients that would have otherwise gone to the chains, right?
A1 – Well, only if you assume that every consumer wants what the chains provide and every optometrist is incapable of competing otherwise.
Al 2 – Hmmmm…
Al 1 – Hmmmm…