EyeOR

An Interview with Jay Greiling, President of EyeOR Inc.

5 Questions

1. Tell us about the business plan for EyeOR and why you started a company like this?
2. How is the business going so far?
3. What do you think about the future at EyeOR?
4. Most progressive refractive surgeons already have ASC ownership and thereby access to cost-effective care?how do you work with this surgeon?
5. What does the future look like for EyeOR? Any other plans for this company outside of in office surgical suites?

1. Tell us about the business plan for EyeOR and why you started a company like this?

We started the company back in 2003 when it looked like Staar was going to achieve FDA approval on their VisianICL. We saw many surgeons start to prepare for the introduction of this new phakic implant only to find that the Medicare facility they operate in was going to charge anywhere from $1,200 to as high as $2,400 per procedure for these elective phakic implant procedures. At that rate and with an average procedures charge to the patient of $3,500 to $4,000, the profitability is much less than with LASIK procedures.

When adding the cost of these new presbyopic implants and phakic devices, most often, the surgeon profit per procedure was under $1,000. Knowing these new intraocular refractive procedures have to compete with the Laser based refractive cases; the surgeons were looking for and needed a better alternative.

The other issue was patient informed consent and education with these new procedures. When a patient for the phakic implant or clear lens presbyopic procedure was told that they had to check into the hospital or surgical facility, there was a higher level of resistance to these new premium refractive procedures.

Conversely, when told the procedures are performed right in the same room or place that the LASIK procedures are performed...the conversion of patients through this process of informed consent was greatly improved.

Bottom-line is that patients are much more comfortable in the office suite than they are in a hospital type setting. The VisianICL, the ReStor, the ReZoom, the Crystalens are all procedures that can be performed within this new environment. A safe and comfortable setting for these new procedures was just as important to the patient and the practice as the profitability of these new technology implants for phakic and presbyopic application.

2. How is the business going so far?

As of this month; January 2007, we have four in-office surgical suites operational and through the AAAHC accreditation process. These new surgical suites are providing the progressive refractive practice with cost effective intraocular procedures in their office based locations either right in the same room as their LASIK suite or adjacent to the LASIK room.

In all locations, we have achieved the AAAHC accreditation standard of care...the same accreditation agency that credentials Medicare facilities. We have been told by many that the standards for accreditation with AAAHC are actually higher in many ways, than those established for Medicare surgical facilities. To this end, many Medicare facilities have not achieved the AAAHC level of accreditation.

In addition to these four facilities, we have contracts established and in process at another 35 locations across the country. These clients are somewhere along the way in this project with EyeOR.

The goal with every client we work with is to achieve the AAAHC accreditation. We are proud to report that to date, we have not missed...all centers we have brought to that level, have achieved the accreditation from AAAHC. Some initially achieved the first six (6) months of accreditation and then went on to achieve a maximum three (3) year accreditation status for their facilities.

3. What do you think about the future at EyeOR?

Well, presently we consult for the development of the facilities at these practices. We bring them from concept of development to accreditation and then to operational status.

I will tell you that we had hoped to be further ahead at this point. Our original projections were to have at least 100 centers established by the end of 2007. I don't believe we will achieve this goal on number of centers by the end of this year, but we are still very confident that we can achieve this number sometime in the following year.

The market numbers still support this growth industry and we still believe that the surgeon community will embrace this new approach. As stated in several magazines and trade journals, the up-take on the new phakic and presbyopic implants is a little slower than originally projected.

With over twelve months now after introduction, the new phakic implants and presbyopic lenses will start to take hold in the market. We believe that the trends will still support over 40% annual growth rates over the next five to ten years with these new presbyopic and phakic refractive lens procedures and technologies. This trend will continue to increase most significantly in the progressive refractive practices and in these practices; we will provide the best alternative for the surgical suites.

Our projections are still strong and we are confident we can reach the 100 suite number by mid to late 2008.

After we hit a critical mass of 50 centers, we will have a strong number of these new intraocular refractive procedures ramping up in our centers. At that point, we will establish a strong buying group and develop a network of surgeons who will help us provide:

• Network of experience and education.
• Leverage on surgical cost of goods.
• Marketing and center of excellence expertise and consultation with all centers will provide a stronger focus on improvement of care and increase patient recruitment into these surgical facilities.
• Expansion of procedures and insurance covered procedures in our EyeOR centers.
• Managed care contracting with our centers for ophthalmology.

We also will enhance the standard of care through a strong Medical Advisory Board built upon the leaders in surgical ophthalmology. This initiative has already begun and our goals and objectives for EyeOR are to have strong governance from this surgeon board. Our network of surgical administration and operational management will no doubt contribute to strong governance and steerage into the "standard of care" issues and managed contract negotiations for our future applications to this business.

Probably the most difficult task for us right now is patience. The market is really just beginning. Original projections were a little aggressive, but again, we know the age demographic changes in this country and how they are already impacting the medical and surgical market. The next ten years will show strong trends to new market and customer demands in the senior care industry. The graphic you see to the left shows that projections for Refractive Lens Exchange will grow from about 25,000 procedures this past year to well over 325,000 procedures in the year 2010.

Rest assured: the Boomers are coming and like many other markets, eyecare will never be the same. We are excited about the future at EyeOR and the future of ophthalmology in this new era of baby boomers coming into the surgical age of eyecare.

By 2010 there will be over 500,000 presbyopic intraocular procedures performed annually in the US and growing at rates over 30% annually from there forward. We need to make sure they can be performed cost-effectively and with the best standard of care setting possible.

The graphic above is taken from the MarketScope data published in October, 2005 and well before the CMS ruling on Medicare reimbursement on these new intraocular refractive procedures existed. As you can see, the conservative estimates now show that the combination of the multifocal and accommodative implants for presbyopia along with the phakic implants will contribute well over 400,000 procedures annually by 2010 in the domestic market.

It is difficult to determine the number of these procedures in 2005 and 2006, but best indicators tell us that we may have hit about 15,000 phakic implants and over 50,000 presbyopic implants in this past year, 2005. Obviously, a strong growth expectation between now and the following five years ahead.

Again, we need to make sure these new intraocular refractive procedures can be performed by the progressive refractive surgeons in as cost-effectively and with the best standard of care setting possible.

That is what EyeOR is all about.

4. Most progressive refractive surgeons already have ASC ownership and thereby have access to cost-effective care?how do you work with this surgeon?

Well, you raise a good question. In some cases, this surgeon is not our typical customer. In several cases however, we have contracted with surgeons who do have their own ASC facility or ownership in such a facility. There is interest by these surgeons for the development of the EyeOR in-office suite for their non-Medicare intraocular refractive procedure cases and other unique applications that can be very cost-effective and have a dramatic effect of quality of patient care in their office setting.

The motivation again is to reduce the cost per procedure in this refractive procedure and to reduce the animosity in these new refractive patients who need the intraocular approach to correct their vision issues. The Medicare patient would not be the ideal patient for the EyeOR center?however; we have some clients looking at these patients as well.

Our patient base is most often the clear lens non-Medicare patient who wishes to have a phakic implant for vision correction or have a presbyopic implant to reduce their dependence on glasses and other forms of vision correction. The EyeOR suite also provides the progressive refractive surgeon with an operating room suite for the potential additional procedures required in some of these intraocular refractive cases. Procedures like lens repositions, piggy-back implantation, Toric implant, AK, LRI astigmatic procedures and other laser based refractive procedures (i.e. ? CK, PRK, Astigmatic LASIK, etc.) to augment the initial intraocular case performed in the ASC or other Medicare facility with the Medicare patient.

Again, these secondary procedures are normally charged against the practice as if they were primarily scheduled in the Medicare facility. So, if you have to perform one of these secondary operations on a patient that has to undergo a lens repositioning, you may find the surgeon charged an additional $1,200 for the room at their Medicare facility. In these cases, the surgeon is now totally upside-down on the cost to charge with this patient. With the EyeOR suite available to the surgeon, the cost on lens repositioning might be scheduled on a day with other procedures and LASIK cases in their office based location. The secondary procedure can be done at a cost-effective level and provide the patient a much more comfortable environment in the office.

Most recently, this month the Center of Medicare (CMS) issued another ruling for the use of Toric implants in the Medicare patient. This recent CMS ruling will allow the surgeon to charge for the use of the Toric implant as a premium device and procedure that is not reimbursed as a standard Medicare covered item. This new ruling will allow many of our EyeOR surgeons to start considering the use of the Toric lens in combination with other astigmatic procedures in the combination of Medicare ASC facility and then in the EyeOR in-office surgical suite.

The EyeOR model provides a cost-effective alternative to the Medicare facility in that you can most often perform your refractive intraocular procedure for under $500. Our experience has shown that with enough volume and purchasing power, the costs can be reduced to under $300. We have run the numbers on our model with the surgeon only performing the astigmatic procedures with customary charges and have concluded that if you perform 150 procedures in year one, the EyeOR center is over breakeven performance against a fully burdened Profit/Loss (P&L) statement in a fully functional and accredited AAAHC suite.

The following first year P&L represents our low breakeven analysis for an EyeOR suite performing 70 procedures in a mix of Phakic implants, Refractive Lens Exchange and Incisional astigmatism procedures.

As you see from the example above, we did 10 incisional procedures at $350 per patient and another 10 RLE eyes or 5 patients. In addition to this, we did 50 Phakic implant procedures, or 25 patients in total. This is an average of 2 surgical patients per month for phakic implantation and less than one per month in RLE and AK/LRI procedures. Look at the numbers and when you add up all the costs associated with getting to an EyeOR surgical suite in year one?you have a positive cash flow and produce a per procedure charge most likely less than you could obtain from the local hospital or ASC facilities.

Our goals again are to work with the practice and look at all considerations; financial as well as operational. We run a five year P&L against the anticipated charges and costs associated with operating this in-office surgical suite from EyeOR. We take into account all staff and manpower costs, surgical supplies, implants, accreditation, consultation, and operational issues. Our analysis finds that most often, we can see a profit in year one on about 60 presbyopic procedures or a combination of phakic and presbyopic procedures on the year?s operation. When you add the new Toric implants and possible charges for incisional astigmatic procedures, you can see a significant increase in revenue against costs on operations.

To your question, most surgeons with ASC facilities either own them outright as a sole proprietorship or most often as a partnership with other ophthalmology practices or other medical surgical disciplines. In the later case, the surgeons involved in the partnerships are most often tied to a certain facility ?cost to charge? ratio that results in charges to them over the $1,000 level for these new presbyopic and phakic implant procedures. This, once again, leaves them with less profit per case compared to LASIK and still forces them into informed consent with these refractive patients for admission into the hospital environment.

Case in point is that we have two surgeons who are operational in EyeOR suites right now that also have access and ownership in ASC facilities. You can listen to Dr. Paul Dougherty?s answer on this question in our web site video player. He is extremely happy with the idea of an EyeOR suite for the same reasons discussed in this interview question. His video interview is found at www.eyeor.com and within the testimonials page. Just go to our web site and hit the testimonials button, you can play the video without any downloads or special software from your computer.

5. What does the future look like for EyeOR? Any other plans for this company outside of in office surgical suites?

Our opinion is that we will see more and more Medicare cataract patients elect to have the new premium implant and technology procedures. These new ?Boomer? patients will began to elect to accept the increased charges and pay more to increase the level of vision care and outcomes.

In turn, these same patients will be more demanding for those outcomes promised and will not easily be convinced that these new procedures and outcomes outweigh the fact that they must now be admitted to a hospital or ASC facility they have never been to. The EyeOR suite allows the progressive refractive surgeon to control the experience and provide the patient an extremely better level of comfort in performing these new innovative procedures. Our limited experience has shown us that this is true and we think it will continue to grow and develop over the next five to ten years for these same reasons.

We also believe that the progressive ophthalmology surgeon, who wishes to expand their care in the refractive market, will embrace this new form of care. The new presbyopic and phakic implants are a totally new market and as such require a whole new level of education and informed consent with the potential patient. EyeOR is presently not that heavily involved in this process at the practice level where we consult. We see our relationships developing where we will become more involved in this level of support to the practice and assist them in developing and exploring this new area of refractive surgery.

In fact, EyeOR has teamed up with Glacial Multimedia in developing a unique approach to the refractive practice interested in expanding the way they educated, inform, and meet their patients? needs in this new and changing era of refractive surgery. We have a totally new approach to the practice and will continue to grow this segment of our consultative business with the addition of the Glacial organization at EyeOR.

You can see a little example of the work that Glacial Multimedia has done in the ophthalmology market by linking to their site through the EyeOR site. Go to www.eyeor.com and then click on Marketing. Our partnership with Glacial is linked to their site at this location and they have displayed many of the web sites and marketing packages they have in ophthalmology listed and viewable from this link location.

Education of not only the patient but the staff and administrative personnel at our new EyeOR centers in the practice will also become a strong focus of EyeOR over the next year. Our web site now has a shopping cart area under development. Our intention is to develop this section and provide our practices with a ?continued educational? objective to educate and strengthen the staff training and accreditation standard at the practice on a continual basis. To this end, we will have several new educational modules that will become available to our clients for continued education in their new office based centers.

These new educational modules will be designed to keep our staff education current and within the safety and standard of care codes designed within the AAAHC standards and good practice performance norms within our industry. EyeOR is dedicated to this area of growth as we understand that we have developed a new operational model and many of the nursing personnel and administrative staff is not long on operating room experience. We have a mini-operating room with the EyeOR suite?and like the operating room; this will require a good standard of care educational strategy going forward. The operation of this new EyeOR suite will be a continued work in progress. Our goal in the educational module product is to provide each of our clients an opportunity to become a ?center of excellence? in their market for these new procedures in a new office based setting.

As mentioned above, we want to assist our clients in their practice strategic plan for recruitment and marketing to the new ?Boomers? within the target audience for the intraocular refractive procedures. Glacial is one form of our assistance and through them and with other traditional forms of marketing and advertising, EyeOR will work with the practice on some other initiatives to help improve patient recruitment and increase patient volume in this new surgical facility. Some other areas to this end would be:

• Presbyopic consultation and informed consent
• Marketing to the Boomers, it?s a different world.
• Partnering resource to practices within the EyeOR network.
• Buying group development.
• Networking with Administration and Operating Management.
• Education of patients and staff on CE basis.
• Primary vision care enhancement programs and unique partnerships with Boomers.
• IMS strategic planning with Glacial and other resources.

Again, we are excited about the future at EyeOR and in ophthalmology right now. Having served in this industry for the past two decades, I can?t remember a time that has witnessed more change and more opportunity in our field, than right now.

We have a changing market right before our eyes?and our future looks bright. I hope that we might have the opportunity to discuss how EyeOR might work with you and your vision for your future in this brave new world of eyecare and surgical correction of vision.

Thank you for your consideration.

Jay Greiling
President
EyeOR, Inc.

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