Why your eye surgeon wants you to get a multifocal lens that Medicare won't cover for your cataracts

Hint: there's roughly a 98-99% gross profit margin from factory to doctor's office.

Get ready an up-close-and-personal look at the economics of one corner of modern American medicine.

Hope you have a barf bag handy.

Two weeks ago, I posted about an ophthalmologist who pushed my mother to have cataract surgery for $5,000 to $9,000 per eye though she had no real vision problems. Some of you asked why she was being told to pay so much. After all, Medicare covers the cost of cataract surgery for a few hundred dollars an eye.

But physicians also wrote in, explaining companies have introduced newer “multifocal” lenses that improve vision, reducing the need for reading glasses when implanted. Medicare won’t cover those, as not needing reading glasses is considered optional.

The lack of coverage is a feature, not a bug, for ophthalmologists. Because Medicare isn’t involved, they do not face price caps on procedures with the newer lenses. So they can make far more money on the multifocals. Many seniors will (understandably) pay thousands of dollars to save or help their vision, and they’re unlikely to quibble over the price.

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(Unreported Truths is price capped — at pennies a day. Join the team.)

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I wondered about the economics of these lenses and operations — and, luckily enough, received this note from someone at a company that makes them:

I’m an employee at a cataract lens manufacturing company.

We (as do our competitors) make several types of “high technology” lenses designed to give multi-focal capability and reduce halos and starbursts…

The medical profession is highly incentivized to push these high technology lenses as they make a huge premium on these lenses as our US medical insurance coverage only covers monofocal lenses - meaning one will likely still need glasses.

High technology lenses will allow in most cases to reduce or eliminate the need for glasses, but at a premium cost and often Lasik [laser corrective surgery on the cornea of the eye] is needed for full correction.

I expect the next ophthalmologist will also “push” a high technology lens on your mother. Ask about the cost of a monofocal lens and surgery - I would expect this to be on the order of a few hundred dollars…

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Naturally, I was intrigued. I emailed back with questions and added, "If you have any specific figures for either the old or new lenses, I'd be VERY interested..."

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(Pound for pound cost more than gold. Way, way more.)

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Then I forgot about it. (One of the downsides of being a one-man show with too many juicy medical investigations!)

My correspondent didn’t - and wrote back this morning, explaining the economics in some detail. Pablo Escobar would appreciate the markup here, which looks to be close to 100 to 1 from manufacture to retail (the retailer being your friendly neighborhood eye doctor).

I have reprinted the note, changing only for length and to remove any identifying details. My comments, which are minor, are in brackets and unitalicized.

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1. The salesperson has some flexibility in how they can price a lens to a physician. This is dependent on the market and how much competitors may play in the market segment.

An example:

A multifocal lens is manufactured for on the order of under $50. If the delivery device is included (fancy syringe for delivering the lens into the eye) it can add a few dollars.

The sales person then upcharges to the surgical center for likely $500 to $1200. This pricing can depend on volume at the site and/or how much pressure the competition is applying to that particular market.

The surgeon then increases the price to the patient to $3000 to $5000 per eye…

In most cases the surgery suite is capturing this profit of $2k to $4k per eye. Of course, often the surgeon is paying to rent the surgery room - I don’t know this cost - but this is often why you see cataract surgeries completed in “offices” maybe not much more than a strip mall … so the surgeons can keep more of this money in their pocket.

In both cases a monofocal or multifocal lens surgery the surgeon will be with the patient on the order of 5 to 8 minutes. If the surgeon is on his game … they will have 2 surgery rooms, doing lens implant in one room, while the staff is prepping the 2nd room for the next patient … thus doing 7+ lens implants/hour.

Not every patient is going to get a high tech multifocal lens … so they are not likely grossing $35k an hour … but they conceptually could, if they can convince patients they need the expensive lenses…

Most patients with cataracts seem to be very happy with their multifocal lenses … but it simply can’t replace what you are born with. [Of note, I did receive emails from readers who generally said the multifocals had improved their vision — along with a couple of horror stories.]

The patient is going to be responsible for paying the difference of the cost of a monofocal lens paid for by Medicare about $200 and the $5k for the multifocal lens as this is considered a “cosmetic upgrade” in our medical environment …

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[The writer then went on to respond to some specific questions I’d asked: Does the more complex lens may require a more complex insertion procedure?

Also, from the manufacturer's point of view, are the new lenses only trivially more expensive to make, so the extra cost to the physician/patient is nearly all profit?]

No, wish it was that way … would make you feel better about spending this additional money. Multifocal or monofocal - same procedure … 5-8 minutes. Actually, sometimes the high tech lenses can actually be shorter procedure time as we “like” to sell these in preloaded delivery systems - versus a manually loaded system for the monofocal lens … doesn’t make sense - but it’s the way marketing works.

This is correct, monofocal vs multifocal cost the same - within pennies to make.

There is significant intellectual property on the development side. New lens development can take on the order of 5-7 years. The regulatory filing worldwide is also not a cheap or quick endeavor … thus, we start with the most lucrative markets … usually USA and Japan, EU, China etc.

On the manufacturing side, we use lathes to the “technology” into the lens… these lathes hold tolerances at the picometer level, and surface finish on the order of nanometers … believe it or not, the cell phone cameras lenses have a smoother surface finish.

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(When eye surgery goes wrong!¹)

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[Perhaps most upsetting: If you as a patient believe your physician has a real understanding of the technology he is selling you at great profit and putting in your eye… guess again.]

Alex - we routinely hear … “the patient trusts the doctor, the doctor trusts the manufacturer”

However, in my experience no one asks any questions, the doctors or the patients.

I’m always surprised the doctors rarely come to understand how we make the lenses, maybe 10 surgeons a year will ever come to understand how the lenses are manufactured.

The next generation of lenses - 10+ years out will have infinite focal lengths.. they will be fluid filled lens (think breast implants for eyes) and as eye muscles expand and contract it will change your focal lengths.

All said, for my money, I will get a natural colored lens (blue blocker) monofocal lens, I would consider paying for a toric lens to improve my astigmatism.

Glasses are cheap, and I’m just not sold that the multifocal lenses are what I want mine to be… I want high resolution… the more we split the light going to the eye, the more energy we lose, it’s just physics…

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There you have it.

Roughly:

The manufacturing cost is $50 to $100, the manufacturer sells the lens for $500 to $1000 to the doctor, the doctor sells the lens and a five- to ten-minute procedure to the patient for $3000 to $5000 (or $10000 in high-cost, wealthy markets like Manhattan).

So you can see why an ophthalmologist would want to recommend the surgery to every possible patient. $35,000 an hour is serious money. Even at the low end of the profit estimates, a surgeon who sets aside one day of surgery a week to perform 25 procedures is grossing $50,000 in profit that day — $2.6 million per year.

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(That’s way more than an Unreported Truths subscription.)

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As an added bonus, no one aside from a few engineers really understands how the newer technology works at the chemical/cellular level, though thankfully it does work and is generally safe.

There’s nothing illegal about any of this.

But pushing seniors to spend several thousand dollars to implant lenses that offer a marginal improvement over the ones Medicare will provide for free is a dubious game. Multiplied across every specialty, every drug, every hospital, it helps explain how the United States now spends roughly double per-capita what other rich countries do on healthcare yet winds up with a shorter life expectancy.

As the reporter Michael Kinsley famously wrote, “the scandal isn't what's illegal, the scandal is what's legal.”

When he wrote that sentence in 1986, he was talking about Wall Street.

Today the words seem to apply even more to healthcare.

1. Just to be clear, those are gummy eyeballs.