Al Cleinman's Blog

Determining the Recession's Bottom and Being Opportunistic

Jeff Johnson is a very interesting optometrist.  He doesn't see patients.  He doesn't teach optometry.  He's not even in the profession.  No, for the past six years this very bright man has been a Senior Research Analyst for Robert W. Baird and Company, a leading wealth management and private equity firm with client assets of more than $66 billion. Dr. Johnson follows the ophthalmic industry, among other health categories, writing about eye care stocks and the industry's performance from an investment perspective. 

During his talk, he shared an interesting assessment.  According to Dr. Johnson, the dental industry..and by extension the ophthalmic industry...appears to trough six months following the low-point in unemployment.

So, based on his assessment, with unemployment still climbing and likely not to peak until later this year, it's reasonable to plan that the current growth that most of our clients are experiencing will deteriorate in early 2010.  What Dr. Johnson is saying is that the impact of this recession is delayed for most of our industry.

I'm not sharing this to be a gloom and doomer.  No, for me, this spells opportunity.  What are you doing to be prepared?  Many of our clients have maintained an assertive and diligent practice-building stance for the past year as we've entered the downturn.  And many are seeing growth way in excess of 10%.  This growth appears largely fueled by managed care, as employees at risk of losing their jobs use up their benefits.  This phenomena may lull you into a false sense of security.

What you can't do is let up as the economy improves...because, according to Dr. Johnson, the impact of the recession will be delayed.  That's the bad news.  He also stated that health care is usually the last to be impacted in a recession and the first to recover.  That's good news!

What are you doing to take advantage of the opportunities? 

An Rx for Insurance Costs

Why has the cost of health care risen so dramatically in our country?  Why is it that our health care system is ranked only 37^th in the world (just above Slovenia and below Costa Rica)?  Why is it that our heath care costs are the highest in the world?  It’s this author’s opinion that our performance as a society is the result of a combination of employer-based insurance combined with a treatment-oriented payment system.  As a result, we’ve removed healthcare decisions from the very people who use the service. 

 

Well, I’m not one to wait for the government to accomplish anything.  So, a few years ago, we set out to take a stab at reducing our healthcare costs).  And we’ve succeeded!  Since 2006, we’ve reduced our firm’s per employee health insurance bill by 41%.  Yep…a 41% decline during a period when health care costs have increased by about 20%.  Oh, and while we were at it, we took about $3000 per employee from the good hands of “allstate” (read “the insurance company”) and gave it directly to our employees.   And we accomplished this daunting task without any impact on quality of care or access (indeed, our team has more access than under the previous plan).

 

How?  By doing what we need to do as a country.  By placing health care decisions directly in the hands of the system’s users.   We simply implemented a Health Savings Account (HSA) system.

 

An HSA changes the dynamic from “big brother pays the bill” to “the cost comes out of my wallet.”  That’s a not-so-subtle and very impactful change.

 

 If you’re not familiar, here’s how an HSA works:

 

·         The Company adopts an HSA plan, which is basically a high deductable insurance policy combined with a pre-tax savings account.

·         The plans generally start with a $2000 deductable (single) and go up to $5000. 

·         Employees are encouraged to deposit funds (pre-tax) into their HSA account to cover their deductable and can do so up to a pre-determined limit.

·         Employees then pay their health costs, up to the amount of their deductable, directly out of their own account.

 

Now, in our case, back in 2006, we were paying $4334 to cover 100% of primary insurance.  We provided no spousal or family coverage, although employees had access to it.  With 23 employees, that’s almost $100k a year for insurance.  Ouch! 

 

But my problem with typical insurance is that it generally provides “first dollar coverage.”  In other words, excluding small co-pay, typically 100% of the bill is covered by the plan.  “Great,” say the employees.  “Ouch” say the employers.  The reality is that typical insurance isn’t covering the risk associated with medical care…the vast majority of payments are for “first dollar coverage.”  Said another way, in our particular case, we saw $100k going out the door to an insurance company and less than $10k a year in aggregate medical costs (we’ve a pretty young population) being actually paid to medical providers.  The excess dollars went to fund the expenses of less healthy populations and the profits of the insurance company.

 

We wanted our employees to take more responsibility for their own health and to drive down the cost of insurance.  This was important to the employees, too, as they have a profit-sharing plan.  It’s amazing what happens when you provide incentives.  Here’s what we did:

 

a)      We began a process of reducing our premium coverage from 100% to 75% over a five year period with the first year providing 100% coverage (so the employees could get used to the system).

b)      We initially adopted a $2000 deductable HSA, which caused our insurance premium to drop from $4334 to $2700 for a gross savings of $1664.  

c)       We took much of the savings and gave it directly to the employees as a deposit to their HSA account ($1000).  We saved $664 a head.

 

The result of our initial pass at this was very positive.  Most employees didn’t use up their deductable because they saw the $1000 sitting in their account and spent it carefully…it is, after all, their money. 

 

So happy was everyone with the result, the following year we upped our deductable to $5000.  The result was that our insurance costs dropped like a rock to $1339.  The employee, in keeping with our plan to reduce coverage, sprung for an additional $149 (for the whole year) for their portion, making the total insurance bill $1488 as compared to the $4334 we started with…for a premium savings of 38%...taken right out of the mouths of the insurance giants.   In turn, we deposited $1200 directly into the employee’s HSA account.  Now, a $5000 deductable can be a bit scary to employees.  So here’s how we mitigated the employee’s risk:

 

a)      First $1200 of deductable covered by employer ($$$ directly deposited in employee’s personal HSA Account)

b)      Next $1200 of deductable covered by employee ($$$ deposited at employee’s option)

c)       Any cost in excess of $2400 up to the $5000 deductable is covered by us. 

 

Our calculation was that the risk associated with self-insuring the excess deductable over $2400 was the equivalent of paying $10,000 for a $50,000 risk…very expensive.  It was a risk we were willing to take.  Over time, we will increase our deposit to the employee’s HSA to $1500 and eliminate the excess coverage; allowing the employee time to build up their HSA account.

 

The result is a win-win.  We’ve saved a fortune in insurance costs and many of our employees have, by now, saved enough to cover their $5000 deductable.  They look at their savings account balances with the clear understanding that it’s THEIR money.   And they spend it accordingly. 

 

While I can’t hope to change the healthcare system, I can take action to change its impact on my firm and our team.  For additional information about HSA’s, contact your insurance broker.  Cleinman Performance Network members will find a whitepaper on the subject on your Resources website.

 

 

Strategic Blunders

I'm on a multi-day "walk-about."  Sometimes I like to jump in my car and go where the road takes me.  With gas at $4.00 per gallon, I'm not deterred.  I'm currently on my way to the New Hampshire/Canadian border, traveling through the White Mountains of New Hampshire.  Why?  Because I enjoy driving "the road less traveled."  It's interesting to look around the corner and down the road.

I just came upon a large store in a small town.  This is a New Hampshire country version of a big-box retailer.  They sold such items as Arctic Cat snowmobiles and ATVs...big business in these parts.  They had a big parking lot and a nice facility.  Pretty impressive.  What first caught my attention...literally jumped out at me from the side of the road...was a huge sign:  "NOBODY SELLS FOR LESS."  It was a very big, multi-colored sign.

As for the store?  It was empty.  Shuttered.  Out of business.  Gone.  Poof!

Hopefully, my message is clear.

Happy trails,

Al Cleinman

WOW of the Week!

A couple of weeks ago, I purchased a new chainsaw.  Yes, it's a guy thing.  There's nothing better for one's psyche (and, frankly, one's heart) then to spend a few hours cutting down trees.  I'm confident that, for many of you, the vision of Al Cleinman cutting wood isn't something you'd expect.  Well, the fact that I bought a chainsaw doesn't have much to do with this story...or does it?

This morning I received a handwritten note:

________________

Mr. Cleinman,

Thanks for purchasing a Stihl saw from our Oneonta store.  Stihl's the #1 selling saw, world wide, and I'm sure your S260 will give you many years of dependable service.  Please think of us should you need parts or additional outdoor power equipment in the future. 

Thanks again,

Bob Spohn

________________

My message is simple.  The owner of this small company took the time to send me (he really didn't write the note himself, but who cares) a hand-written note about the purchase of a CHAINSAW!.  Not exactly a product purchase for which one would expect to receive such a communication.  I've made $50,000 purchases and didn't get a handwritten note.  This guy has impressed me.  He's created, with this one action, a customer for life.  In fact, if you ever need a chainsaw, or tractor or bush hog, I encourage you to contact Bob Spohn at the Sharon Springs Garage in either Sharon Springs or Oneonta, New York.  I'm confident that Bob and his team will take care of you.  His number is 518-284-2346 (hint: I'm now an ambassador for this business). 

John Naisbett, the great prognosticator who wrote the book Megatrends back in 1980, coined the term: "High Tech...High Touch."  He taught us that the more that technology invades our world, the more important personalized service and communications becomes.

When was the last time you wrote (or had one written for you) a personal note to a patient or a referrer?  What might happen to your referral volume if you started personally thanking your patients for investing in your services?   

Thanks for listening,

Al Cleinman

I bet you can!

I'm vindicated.  A few weeks ago, I had a discussion with an eyecare industry publisher who told an audience of industry leaders "let's face it, eyewear is just a prosthetic device."  I argued that words like those set the industry back by twenty years.  Ours is an industry just waiting to "pop" I said, we just have to get out of our own way and start practicing what we're preaching.  Well, this article in Saturday's Wall Street Journal certainly backs up my claim...while medical optometry is certainly an opportunity, don't leave the eyewear opportunity "on the table."  There are gobs of people that enjoy "face candy" (and I'm one of them). 

One simple sales tool is to wear cool eyewear.  You've heard me say this before.  But many of you either a) don't wear eyewear; or b) wear boring stuff; or c) don't see the efficacy of fitting your staff with the latest and greatest.

So, I'm making a bet.  I'm laying down the gauntlet.  I say fit everyone in your office (yes, you too, doc) with leading...even bleeding...edge eyewear.  Break out the reds and greens.  On with the wide temples.  Out with the timeless rimless "non-eyewear." 

Lead the charge.  Make it happen.  Let your team go wild with eyewear.  I'll bet you a bottle of wine at your next Cleinman Performance Network meeting that you'll dramatically increase your eyewear sales.

Prove me wrong...I dare you!

Al Cleinman

   

Life After Lasik:
A Clear-Eyed Urge
To Wear Glasses

Specs Are Looking Hot
On Runway Models;
The No-Rx Frame-Up

By RAY A. SMITH
April 26, 2008; Page A1

Los Angeles eye surgeon Robert K. Maloney was shocked when he bumped into a former patient who was wearing glasses.

"I was horrified," says Dr. Maloney, who had performed Lasik surgery on the man to correct his farsightedness. "I went up to him gingerly and asked, 'Is everything OK?'"

1

Associated Press

Glasses Trendmakers

The patient, Steve Wallace, says, yes, his vision is fine -- he just likes wearing glasses. "It's a fashion statement," says the 66-year-old owner of Wally's, a Los Angeles wine store. "It's my signature." People "come up to me and ask, 'Where did you get your glasses?'"

Lasik surgery, a common procedure to correct vision defects by reshaping the cornea with a laser, was supposed to make spectacles unnecessary for many people. In a Botox era obsessed with youth and physical perfection, the surgery wasn't seen as just corrective, but also cosmetic: Ditching the four-eyes look was part of the payoff.

But amid a push by glasses makers, as well as fashion designers with their own eyewear lines, nonprescription glasses have become a hot accessory. Earlier this year, designers including Michael Kors and Carmen Marc Valvo featured models wearing bold rectangular glasses in their runway shows. "I cannot recall ever seeing models in specs on major runways before this year," says David Wolfe, a fashion-industry consultant who has tracked the trade for decades.

Designers have never been shy about outfitting models with scarves, shoes and bags from their collections. But "they never made passes at models with glasses," says Mr. Wolfe, who needs glasses to see and is a big fan of the trend.

A model for Michael Kors during Fashion Week in New York, Feb. 6.

The LensCrafters chain, once known for dowdy ads touting discounts and quick service, now uses supermodels like Heidi Klum to hawk its wares in fashion magazines like Vogue. It has redecorated stores with chandeliers, flowers and leather benches to make shopping for glasses seem less medical. Another addition: full-length mirrors to let customers check out their complete look.

Ads in magazines ranging from GQ to New York are no longer limited to designer sunglasses. Prada and Gucci are among the brands featuring models posed wearing retro-looking rectangular frames (think Buddy Holly). High-end eyewear brand Oliver Peoples now releases four collections a year, up from two two years ago, hoping customers will want to change frames as often as they, perhaps, switch handbags.

All this appears to be working. While trade groups and retailers say they don't track sales of non-Rx glasses specifically, upscale eyewear retailer Morgenthal Frederics estimates sales of glasses with nonprescription lenses at its seven stores are expected to rise 50%, to 500 pairs this year, compared with 2005.

Eyewear boutique Robert Marc, with eight stores in Manhattan and one in Boston, says that in the past two years, it has seen a fivefold increase in requests for glasses from people who don't actually need them to see.

Luxottica Group SpA, owner of more than 6,000 eyewear stores world-wide, including LensCrafters and Pearle Vision stores, says U.S. store managers have reported steady increases in sales like these. Buyers are quite frank about not needing a prescription, particularly in cities like New York and Los Angeles and mainly among artists, architects and other creative types.

Even clothing stores such as American Apparel are selling retro nonprescription glasses. Creative director Iris Alonzo says three years ago, its eyewear collection was 90% sunglasses and 10% vintage nonprescription glasses. Today, it's 60/40.

"We started out selling a few frames, telling customers they could have the frame filled with their prescription," she says. "When sales started going up, we realized that half the people buying them don't even need a prescription."

Lasik surgery itself is suffering a slowdown amid the weaker economy. Volumes peaked in 2000 at about 1.4 million procedures, according to research firm Market Scope LLC, which expects a 17% decline this year. At the same time, the Food and Drug Administration is taking a closer look at complaints from a number of patients who experienced aftereffects including blurred vision. (See related article².)

A model for designer Carmen Marc Valvo during New York's Fashion Week.

None of that matters to Lauren Messiah, a nearsighted 27-year-old Web site marketer in Los Angeles who wears contact lenses -- and then wears fake eyeglasses at the same time. Earlier this year, after noticing models wearing glasses during runway shows in New York and Los Angeles, she bought several pairs of inexpensive nonprescription glasses in different colors. Wearing glasses helps her look more like "boss lady" in meetings, she says, and it's cheaper than buying loads of designer prescription frames.

On top of that, having a selection of frames on hand makes it easier for her to match her outfit. "If I got blue cat-eyed glasses, well, I can't wear blue cat-eyed glasses every day," she says.

Sometimes, putting on unneeded glasses isn't about fashion at all. Dr. Maloney, the Los Angeles surgeon, notes that some patients keep wearing glasses after Lasik surgery because they're part of a person's established look. Dr. Maloney says that in 1999, he performed Lasik on Drew Carey, the comedian and new host of "The Price Is Right" on CBS. But Mr. Carey kept wearing his signature glasses on TV or whenever he's in character.

Mr. Carey didn't reply to requests for comment.

Ocular fashion statements aren't always cheap. Jeffrey Brody had successful Lasik surgery three years ago, but he couldn't resist buying a $400 pair of trendy nonprescription glasses from a Robert Marc store in New York last fall. "They dress up what you're wearing and finish off a look," says Mr. Brody, a director of business development for a New York rug company. He just bought two more pairs for spring.

Morgan Cullen, a 27-year-old fashion model and aspiring actress, wears nonprescription black rectangular Lacoste glasses in her portfolio to broaden her career prospects. "Uneducated people think models are dumb," says Ms. Cullen, who has 20/20 vision and whose father is an optometrist. Glasses, she says, "make people take you more seriously."

Write to Ray A. Smith at ray.smith@wsj.com³

Independent ODs – Vision Care Market Key Indicators

Industry-wide Growth is Flat but
Independent ODs Don’t Need To Accept Mediocrity.
Performance of Cleinman Performance Network Members Refute Industry Study.

Oneonta, NY -- A recent study completed by Jobson Medical Information and the Vision Council of America found that total vision care market sales from 2006 to 2007 were virtually flat. Alan Cleinman, President of Cleinman Performance Partners noted, "Eye care insurance coverage, demographic trends and personal fashion sense in America suggest the trend for eye care and eyewear sales should be moving upward." Cleinman continued, "In contrast Cleinman Performance Network members, on average, experienced substantial growth over the same time period Jobson studied."

In a comparison of the data released by Jobson and Cleinman Performance Partners it is apparent there is a wide disparity between the industry as a whole and top-performing independent optometrists who are Cleinman Performance Network members.

It is unfortunate that the overall industry results suggests to independent ODs that mediocre is acceptable when all the elements for growth are in place," Cleinman recapped. "There are resources available to independent ODs, especially Cleinman Performance Network members, which can enable them to earn more, work less and in general improve their practices and their lives. I urge all practice owners to look at these numbers and those of their practice and ask themselves if in fact they accept
the perceived status quo and if so why?"

About Cleinman Performance Partners:
Cleinman Performance Partners is a team of specialists who provide business development services to owners of large optometry practices.  Our customized consulting services are tailored to the needs of each health care business and business owner. Cleinman Performance Partners offers results-oriented doctor and staff training workshops taught by bona fide experts. We also founded Cleinman Performance Network, the only organized, national wisdom-sharing network for optometrists.

Sources: VisionMonday, March 31, 2008. Vol. 22 No. 4, page 40.
Internal Cleinman Performance Partners study, April 2008

Contact: Al Cleinman
Phone: 607-431-1001
Email: cleinman@cleinman.com