This Thanksgiving, as we consider all of the wonderful people and experiences in our lives; as we sit around our dinner table and enjoy all the abundance for which we’ve worked so hard; and as we consider the less fortunate; I ask you to step back and take stock. And I ask you to consider the choices that you’re making on a daily basis.
I have spent the majority of my career as an advocate for private practice optometry; a profession to which I owe a huge debt of gratitude. While not an optometrist myself, I have immersed myself in the business of optometry for the past forty years. I am truly thankful for all of the wonderful experiences that I have had and the many friendships that I have developed. I am thankful to have been provided an opportunity to work on so many challenging and important projects for my clients.
It is based upon my gratitude to the profession that I continue to sound the bell for reform; which I’ve done since the inception of this blog in 2008. It’s no longer “business as usual” and what follows should explain why I see dramatic change in your future.
The following is an excerpt from my closing remarks to the members of Cleinman Performance Network during our most recent series of meetings.
Abba Eban, the great Israeli politician and diplomat, once said: “History teaches us that men and nations behave wisely once they have exhausted all other alternatives.” As we look at history and project certain events to the future, it’s clear to me that there are forces at work of which we must pay very close attention. Let’s look at some pieces of the puzzle.
- Back in 1955, a group of California Optometrists decided to create the first pre-paid, not-for-profit vision plan. Over the ensuing 40 years, VSP evolved into every state and then consolidated into a single company. In the 1970s, VSP opened their first lens laboratory, followed by the creation of their frame line in the early 1990s. Then, in 2001, VSP launched Eyefinity to provide e-commerce solutions. Four years ago, the 800# Gorilla acquired Marchon, then the 2nd largest U.S. frame distributor. As part of the Marchon acquisition, VSP also acquired the leading optometry office software system, Officemate, the platform upon which almost 40% of optometry relies. In the past two years, VSP has opened facilities of their own to directly handle the employees of such firms as Cisco and just recently announced its plan to sell eyewear directly to members via their Eyeconic website. Today, VSP is almost completely vertically integrated and claims control over 56 million of your patients.
- In the early 1990s, two of Pennsylvania’s Blue Cross/Blue Shield licensees consolidated to form a company now known as Highmark. Shortly thereafter, the firm acquired Davis Vision, then one of the largest providers of Vision Plans. To control costs, critical to their low-end insurance product, they built their own labs and imported their own frames. The firm went on to acquire the third largest U.S. frame manufacturer, Viva, in a vertical integration move and deliver total control over their eyewear product. In 2006 they followed with the acquisition of Eye Care Centers of America. Today, Highmark’s Vision Works has 400 units and is the 3rd largest U.S. retail chain while Davis is the third largest vision plan delivering services to 35 million Americans.
- Back in 1995, just seventeen short years ago, a frame manufacturer by the name of Luxottica acquired Lenscrafters, then the high cost mall-based provider of eyewear with a brand based upon one-hour delivery. One year later, Cole Vision, which, at the time, operated about 1000 tenant stores within major retailers like Sears and Penneys, acquired Pearle Vision, to become the largest U.S. eyewear retailer. Luxottica went on to acquire Cole and began the journey, through vertical integration, to move from being the high cost producer to the low cost leader. Today, the world’s largest eyewear retailer, with 5500 U.S. optical and sun locations, can deliver eyewear direct to the consumer from the manufacturing level, at costs fractional to yours. Luxottica Retail and its EyeMed vision plan now claim control over 100 million consumer members.
- Back in June, Wellpoint, an independent licensee of Blue Cross/Blue Shield, closed on its acquisition of 1-800 Contacts. Wellpoint is known around the country under such brands as Anthem, Empire and Unicare in addition to its Blue Cross moniker. What makes this acquisition interesting is not that 1-800 has a new owner, but that its new owner provides general health insurance to 62 million Americans…many of whom will buy their contacts direct from their insurer.
- Recently, Humana, which covers more than 11 million mostly Medicare lives (read “medical eyecare”), announced that it was going to “bring doctors in-house.” Humana is going to directly provide health care by placing over 2,600 physicians directly on its payroll. According to Humana’s CEO, “We are completely convinced that integrated health care, as far and as fast as we can take it, is critical to the next chapter of what happens—especially for the Medicare business but potentially for the entire business.”
Is not the writing on the wall? This situation reminds me of another piece of history experienced first-hand by my father. During the night of June 5th, 1944, my dad, together with 156,000 other soldiers and sailors on hundreds of ships, lined up below the horizon off the cast of Normandy. Then, in the early morning of June 6th, under cover of fog, the beaches of Normandy swarmed with U.S. troops. Within the week, 5000 ships and hundreds of thousands of soldiers followed in their footsteps, creating the greatest invasion in history. The Germans didn’t know what hit them…they didn’t see it coming and actually thought it a diversion…they got caught flat-footed…and less than a year later it was all over.
Are we not at the dawn of a new Normandy? While this one won’t involve bloodshed of the usual sense, it potentially involves annihilation for some and opportunity for others. Here’s what I see:
Health care in the United States represents almost 20% of our Gross Domestic Product, the highest in the world and almost 33% higher than our nearest benchmark, Switzerland. While the U.S. spends the most on heathcare, life expectancy in the U.S. is lower than that of 50 other countries. Not one week after the Supreme Court upheld Obamacare, I received notice that my health insurance plan was going to increase its premiums by 19%! Healthcare inflation is out of control.
Combine this with a total national debt that exceeds the GDP of the rest of the planet…in other words, as a society, we owe more than the rest of the world produces. That says that something’s gotta give. Healthcare is the number one expense category with the highest inflation rate. Does that not add up to the need for healthcare cost containment? Does that not speak to lower reimbursements and legislative intrusion?
What’s driving these out of control costs? In simple terms, much of our health care cost increases are driven by systemic inefficiency, malpractice concerns and greed. While, overall, vision plans are a small part of the health care pie, because they are owned by for-profit institutions, they are going to continually seek cost-containment as a competitive attribute. And of every dollar spent by full service vision plans, near as I can tell, approximately 60% of those dollars are for eyewear. Frames, lenses and contact lenses. For VSP alone, this amounts to well over $1 billion. $1 billion sent your way to buy eyewear for their members…through you. Is it not clear what the next strategic step will be?
Let’s look at the picture.
- Eyewear represents at least 50% of every dollar of vision plan expenditures.
- The three major players in vision plans currently purchase eyewear from you, effectively, and, as paltry as the reimbursements seem, they provide you with the lion’s share of the profit margin in these transactions.
- Two of the three major plans are vertically integrated all the way to the retail level. Luxottica controls 5500 locations in the U.S. while Davis controls 400. And what of VSP? One might make the claim that they actually control over 25,000 locations in the U.S. and they do so without direct ownership or capital investment in bricks and mortar.
- Each of these players has a delivery system that’s tied together electronically.
- Each of these players has already developed web-based delivery of eyewear.
- Together, these players have relationships with the majority of the U.S. population.
In simple terms, this picture begs the question…what do they need you for? While vision plans need some of you to deliver an eye exam, the reality is that they do not need your involvement in the delivery of eyewear. Ladies and gentlemen, as I see it, the forces of D-Day are clearly lined up beyond the horizon, preparing to storm your beach at the proper time…removing your eyewear profits for transfer to their own accounts. They do so under the cover of darkness…the fog of PR initiatives designed to make you feel that they’re out their fighting for you. I cry “bunk.”
Mark my words…the day will come when VSP and other vision plans say “thank you”, perhaps provide you with a small exam fee increase…and remove eyewear from your vision plan income stream.
Now, it is not my intent to paint a picture of gloom and doom. I’m not here to scare you or suggest that you seek an alternative profession. I’m not suggesting that the end is near. Indeed, I believe that the coming decade will be full of opportunity for those optometrists smart enough and assertive enough to think strategically and execute against the opportunity created by market disruption. During the coming decade, market turmoil will be the norm…giving rise to opportunity.
Forewarned is forearmed.