Editor’s note: Ho Sun has discussed the 2011 version of equipment startup costs. Although in this post he says he could have done some things differently. And here’s another post on how he funded his equipment.
Howie has posted the 2014 edition for buying equipment.
One of our colleagues in our google group went to the exhibit hall at three days straight at last November’s American Academy of Ophthalmology conference to test and demo equipment to outfit his new office.
This colleague, who wishes to remain anonymous, has graciously allowed us to share his experiences purchasing equipment in the post below.
Although he got a lot done at the conference, you don’t have to go to AAO to buy your equipment, you can always shop from the comfort of your own home if you know what you want, or test drive at a local colleague’s office, but AAO is a good chance to demo equipment and speak with sales reps.
Finally, both Ho Sun and Howie purchased Zeiss equipment for major items. Although their products work well, a lot of doctors in our google group have had numerous and multiple complaints about Zeiss customer service so the post below lists some products alternative to Zeiss, until their customer service improves.
Start-up equipment costs at AAO 2017, distributor margins, negotiations, GDx graveyard, ADA tax credit, etc
All along my plan has been to make the majority of my start-up equipment purchases at AAO given the deals to be had, and I’ve had plenty of time to factor this into my timeline. I wanted to catalogue my experiences and lessons learned mostly for the sake of those that will come after me, as so many of you have graciously done before and from which I am now benefitting [greatly]. I’ll include actual prices as much as possible as I always appreciate seeing real numbers when talking about this kind of stuff.
I also learned more than I expected about the relationships between manufacturers and distributors, distributor margins, etc that may be of interest to those of you well into solo practice. I’m going to try and organize things as if I were explaining the process of equipment purchasing to a resident finishing their training (no prior experience or knowledge of how the system works).
As a preface, my plan was to spend about $160-170k on equipment, which includes outfitting one [awesome] lane. My vision is to follow Ho Sun’s model of having no techs and working primarily out of one room for the foreseeable future. I’m also going to state up front that I’m a Haag-Streit junkie and willing to pay a premium for their quality, customer service, and reputation. I’ve always been of the mind that you should buy what you ultimately really want at the outset and take good care of it.
Manufacturers and Distributors
Most equipment manufacturer’s (Haag-Streit, Reichert, TopCon) don’t sell direct to the end users (us ophthalmologists). It would be too inefficient for every manufacturer to have a distribution force to actually complete each individual sale, install the equipment, etc. It would also make handling inventory very difficult. The solution to this is for the manufacturers to sell through distributors (Lombart, Walman, etc) who sell equipment for a number of manufacturers. This way, for someone like me trying to outfit an entire office, I can go through a distributor and have one point person versus 5 or 10. This of course does add a middleman to the process, which costs money.
There are also exceptions to this paradigm and some of the manufacturers do have their own distribution force and sell directly to the end user. I believe Zeiss does this, but I wouldn’t know, because I didn’t buy a single thing from them (Ho Sun, your original “Boycott Zeiss” blog post is still having an impact…). Also, I found out that Haag-Streit sells the majority of their equipment through distributors, but essentially sells the Lenstar direct. I’m not entirely sure why, but perhaps because it is such a ‘blockbuster’ item it makes sense for them to distribute it themselves?
I also had the fortunate opportunity to be in a buying group for the HS Octopus perimeter, organized through the ASCRS listserv. In this case, we also bought directly from HS and they cut out the middleman, even though they typically sell the Octopus through distributors. This no doubt angers the distributors when they find out about it, but in the end it increases HS margins, and if they sell enough through a buying group it is worth it to them. They are also able to offer the end users a better deal by cutting out the distributor, so it’s really a win-win (unless you’re a distributor).
The Octopus buying group was formed a week or two before AAO, so it was nice to have the details of this deal in place before traveling to New Orleans. Through the same contact at Haag-Streit I was also able to get quotes on various Lenstar models and get a good handle on how much this would ultimately cost me.
OCT negotiations, GDx graveyard
On Saturday once I got in to the exhibit hall I went straight to TopCon to check out their Maestro OCT, which includes a fundus camera and automated capture. (Editor’s note: here’s a great post about comparing different brands of OCTs) This would be the single biggest-ticket item I was looking to purchase, so I wanted to get a feel for it right away. The Maestro was my OCT of choice because it includes a built-in fundus camera which is quite appealing as I start from scratch. The sales guy gave me the usual spiel. I was most interested in their normative databases, which they now have for both macula and nerve (previously a knock on the Maestro).
The ease of use and the automated capture really is amazing, he took awesome images (OCTs of both mac and nerve and fundus photo) of both my eyes after hitting one button in about 3 seconds per eye, this was undilated under the exhibit lights. The biggest cons I noted were less than perfect repeatability for the glaucoma nerve segmentation readings (it’s no Spectralis) and a somewhat underwhelming anterior segment mode (I’m not planning on using this much). These are trade-offs I’m willing to make at this point to conserve capital, also knowing that this device will likely be obsolete in 5-7 years and at that point I’ll probably spring for something with OCT-A which will hopefully continue to fall in price as SD-OCTs have.
Incidentally, I found out that TopCon (which I think is kind of a stupid and cheap-sounding company name) is derived from Tokyo OPtical Company Of Nippon.
Negotiations ensued. I told the TopCon guy I wanted to do some more looking before I signed anything, but that I wanted to know what their best offer was (which of course wouldn’t be their best offer). He took me over to an adjacent distributor booth and introduced me to one of their sales guys. The show price for the Maestro was $45,000. The distributor immediately told me that TopCon had a $4,000 offer going for trade-ins of used OCTs (i.e. Stratus) or GDx machines. Before I could even protest that I didn’t have one, the sales guy checked with some higher-up nearby and told me he had a GDx that he would give me to give to TopCon for the rebate (I’ll never see this GDx).
A bit later I got to talking to one of the TopCon executives about this whole idea of trade-ins, which I never really understood. I always [incorrectly] assumed that they were resold or donated to developing countries or something. Not so. He explained that the whole point, in addition to incentivizing someone to buy a new product by offering them a lower effective price, was to get these old instruments off the market. The manufacturers actually want the old instrument only to pry the serial number plate off of it, because they figure no one would buy something without a serial number (I might…). They merely want to get the instrument out of circulation so that there isn’t an oversupply (which is less of an issue with a GDx because nobody uses them anymore, but I could see it making sense as OCT machines converge to some theoretical limit of the technology). I asked him what happened to the actual instrument after the serial number is removed, and he wasn’t completely sure, but suggested that there are likely warehouses and/or landfills scattered around the world full of serial number-less GDx machines and Stratus OCTs. Interesting, if not somewhat morbid.
Back to negotiating for the Maestro. They were also willing to throw-in a computer viewing license along with free training and installation, which should be expected. They wouldn’t budge on a second year warranty, which they valued at $4,500 (which is insane). This also wasn’t that important to me, although I may be naive. I plan on going naked on all equipment extended warranties based on the group’s collective advice.
Somehow we got to talking about instrument tables and the TopCon sales guy made the mistake of pointing out the TopCon AIT-250 table, which is awesomely wheelchair accessible (google it). I wanted it, and for free (well not free, but at zero additional cost to me if I got the Maestro). He actually hemmed and hawed which I wasn’t expecting, apparently the show price on the AIT-250 was $1750. I didn’t know these tables were so expensive. That made me want it for free even more, which I basically told him. The TopCon guy asked the distributor to split the cost of the AIT-250 between the two respective companies to do the deal, and they agreed (the TopCon guy had to get approval from a higher-up, which again surprised me, I would’ve thought they had more leeway to sweeten a deal in order to sell a big-ticket item).
At this point they wanted me to sign a purchase order, and the TopCon guy was a bit aggressive about it being that day. In my experience this tactic is always a bluff, if they will offer it to you on a Saturday they will offer it to you on Monday. Also, if they don’t, there’s probably something super shady about the deal and they don’t want you to have time to think about it (think timeshare salespeople). I politely declined and said I would have to think about it.
After that I went over to the Lombart booth to meet my area’s sales rep and see what they could offer. He was kind of mostly helpful with answering questions and I gave him a shopping list I had prepared in advance. I was looking to get a lot at AAO: slit lamp, chair and stand, OCT, indirect (I wanted a Keeler wireless), phoropter (used Reichert plus cyl), Reichert Avia tono-pen (the tono-pen XL is an abomination to me and I loved the Avia in residency), portable slit lamp (I vowed to never buy one of those glorified Mag-Lites with the attached magnifying lens), down to a set of trial lenses, the Welch Allyn transilluminator light, etc. I had expected that some of these smaller items might be thrown in with bigger ticket items. I also wanted pricing on a used Reliance chair and stand in addition to a used Haag BQ slit lamp (stop judging me for wanting a BQ, like I said I’m only doing this for one lane, and I’ve been exiled to 16x mag for over 2 years).
I received the Lombart quote later that night and was annoyed to see that they wanted $500 for a Lombart set of trial lens….really? It’s got to cost them under $50 to make and they’re going to nickel and dime me on a $50,000 quote? (Quote didn’t include the Maestro) I was also surprised by their quote for a used Haag BQ at $14k, granted it was an LED-converted one. However, this didn’t include a tonometer, which costs an additional $2k (which he didn’t tell me). Not helpful. I found out I could buy a brand new BQ at the show for $18,678 with a tonometer. That means the incremental cost to get a new BQ was only $2,678, or stated another way the used BQ was valued at 85.6% of the new price. I know Haag-Streit slit lamps keep their value but come on…
I also found out that the Lombart quote for a used Reliance chair and stand was priced at something like 97% of their respective new show price. Basically I could buy a new HS chair and stand, exactly the model and color I wanted, for the same price (and also at the price I had budgeted for based on the prior year’s research). On another item he also quoted me well above the minimum allowed show price (see below), which is “nuts” according to a sales guy for another distributor.
The next day I emailed the Lombart rep a few more questions…he replied with some incorrect product information, not to mention poor grammar and spelling (a pet peeve of mine). I was wholly unimpressed with Lombart throughout the show. I also found out that Lombart recently sold out to private equity, so I can’t imagine their customer service getting any better as the suits try to squeeze more profit out of them.
I talked to countless manufacturers and distributors throughout AAO. Some of them were quite open, especially once I got them talking (and trying to sell me stuff). I was particularly interested in learning what kinds of margins distributors have on various pieces of equipment.
It quickly became clear that distributor margins change based on the overall cost of an item. For instance, for items in the $5,000 to $10,000 the average distributor margin was about 15% at the minimum allowed show price.
I’m sure just about everyone innately understands this, but their margins are lower on bigger ticket items (5k and up) and higher on small items ($300 Volk 30D lens etc). Nobody is going to sell something for $10 if it costs them $9 to obtain it ($1 margin, but 10%), but they very well may sell something for $100,000 that costs them $90,000 to obtain ($10,000 margin, but again 10%).
I was also interested to learn that on some of the dumb smaller things like the stereo fly test, they didn’t have insanely high margins, even at a show price of $250 or whatever (I didn’t end up getting one, I just wanted to know their margins). This of course means that it is the manufacturer making a fat 80 or 90+% margin on these items, because there is no way that thing costs more than $10 or $20 to make.
At the minimum allowed show price the distributor margin on a new Haag-Streit BQ was 14% (lower than I would have guessed on an $18,000+ slit lamp).
The distributor cost for the Maestro was ~$38,000, with the minimum show price of the previously stated $45,000, so again a margin of 15%.
In general, it seemed that for items above $5k the margin at the show hovered around 15 to 20%, with the retail price being around a 30% margin.
Also, with the AAO deal of getting the Reichert Avia at $3,099, the distributors actually had a negative margin of a few percent. I’m sure there is some behind the scenes deal where Reichert makes the dealer whole and then some, probably a sliding scale based on how many units they sell.
It’s also interesting to think about these margins in light of the $4,000 phantom GDx rebate, which is effectively cutting into TopCon’s margins and not the distributor. The distributor makes $7,000 on the sale, but I only pay $3,000 over their acquisition cost. The manufacturer induces me to buy at a lower price and also graveyards one more GDx or Stratus, in exchange for $4,000.
I would love to know what the manufacturer’s (TopCon) margin is on the Maestro, but it’s probably hard for them to even know, because so much must go into developing a unit like that. I’m sure once a unit has hit steady production they can derive an incremental cost of production number that doesn’t really factor in the initial R&D costs. I would imagine on something like an OCT the manufacturer’s margin is quite a bit higher than the distributor, maybe 30 to 50%? This is pure speculation in trying to think about what it must cost to produce each unit, in addition to the cost of subsidizing lackluster products throughout the company, marketing, etc. Anyone with more knowledge please chime in.
This got me wondering why exactly there is a show minimum allowed price (MAP), which I find rather annoying. I like the rawness and clearly defined interests present in a negotiation (I’ve been known to enjoy haggling with used car salesmen). This minimum show price distorts one’s ability to negotiate.
I learned that distributors used to routinely bludgeon each other down to 6% margins to get somebody’s business. This ultimately led to distributors going out of business and increased volatility in the marketplace, which was bad for everyone (ophthalmologists included). To stabilize things the manufacturers banded together and instituted these minimum allowable prices. It’s important to note that not every item at the show has a MAP, and so the distributors have more room to move on these. For instance, the Keeler portable slit lamp had a MAP, but the Kowa one didn’t.
And obviously used items don’t have a MAP, so distributors can do whatever they want on these. I believe this knowledge is critical in negotiating an equipment deal….the dealer may not be able to sell you an OCT for less than a certain amount, but you better believe they can sell you any number of used items at or below cost, in order to get the sale (and the guaranteed margin on the big-ticket item). The manufacturer can also throw in all the usual extras like set-up and training, warranties, and software licenses because these have a relatively low incremental cost to them.
ADA tax credit
One of the sales guys also told me about Section 44 of the IRS code (Form 8826). Basically, it’s a tax credit for making a facility more wheelchair accessible, under the Americans with Disabilities Act. An entity can get a tax credit (not deduction) for 50% of improvements made to make a facility wheelchair accessible, up to $5,000 a year, with a $250 “deductible”. Example: spend $10,000 on wheelchair accessible equipment, get a tax credit for $4750 (essentially cash in your pocket at tax time).
From the ADA website: https://www.ada.gov/taxcred.htm
“To assist businesses with complying with the ADA, Section 44 of the IRS Code allows a tax credit for small businesses and Section 190 of the IRS Code allows a tax deduction for all businesses.
The tax credit is available to businesses that have total revenues of $1,000,000 or less in the previous tax year or 30 or fewer full-time employees. This credit can cover 50% of the eligible access expenditures in a year up to $10,250 (maximum credit of $5000). The tax credit can be used to offset the cost of undertaking barrier removal and alterations to improve accessibility; providing accessible formats such as Braille, large print and audio tape; making available a sign language interpreter or a reader for customers or employees, and for purchasing certain adaptive equipment.”
An exam chair, when made wheelchair accessible, classifies for this credit. This includes the slider on the back of the chair to move it out of the way so a wheelchair can access the slit lamp. If this isn’t enough for you (some might say only the chair slider should count for this), the manufacturers, Reliance included, have caught on and make “low” versions of the various models. For Reliance this is noted by an “L” tacked on to an item #, for example “FX920L”. The low versions are designed so that the footrest is nearly on the floor when the chair is fully lowered and thus more accessible to those with disabilities (and old people in general). As with any sort of business tax deduction, there are many shades of grey and the rep did qualify things by saying that I should consult with my accountant, and that some accountants are more aggressive than others with regard to these types of deductions (credit in this case).
Haag-Streit’s Reliance 7900 stand is also made wheelchair-accessible (denoted with a “WC” in the item number) by allowing the slit lamp carrier arm to get lower to the ground so you can examine someone in a wheelchair. So both the chair and stand fall under this Section 44 tax credit. The minimum show price for a Reliance FX920L chair was $6091 and for a 7900WC stand $5059, or $11,150 for the pair. With the tax credit you can get a $5000 tax credit if both are bought in the same year, so the effective price for a brand new Reliance chair and stand comes in at $6150 (plus sales tax).
Now that I had a much better understanding of how the system works, I was ready to negotiate an equipment deal. In drawing up an order I decided to start with Walman. I much preferred dealing with the Walman rep compared to Lombart….the Walman guy was just fun to talk with and had a very impressive knowledge of all the products they sold. This stood in stark contrast to the vibe I got from Lombart.
It was clear that in order get the best pricing you need to bundle as much as possible and focus on cutting into distributor margins where you can, i.e. used items and items with no minimum show price. The distributors obviously understand this as well. When I told the Walman guy I was looking to place a rather large order, he was quick to start throwing things in at no charge (i.e. Welch Allyn battery handle, Finnoff transilluminator, trials lens set, trial frames, Reliance chair mover-slider thing, Reliance stool (everybody throws these in)). I also got him to sell me a used Reichert plus cyl phoropter at his supposed acquisition cost ($2500).
We went to TopCon together to have them draw up the purchase order for the Maestro. Since Saturday I had learned that the only thing better than an AIT-250 table thrown in is an AIT-350 table (it’s bigger, with room for 3 instruments), so I insisted on this. TopCon and Walman agreed to split the cost on it (~$2000 supposedly). Now of course that is what they would sell it to one of us for, not their cost. And the cost to Topcon (manufacturer) is lower than the cost to Walman (distributor), so Walman took more of a hit on this than TopCon (it probably cost TopCon maybe a few hundred bucks to make one of these, if that?). I also got another computer viewing software license, which I probably won’t use, but why not? We got the purchase order drawn up and signed with TopCon.
Once everything in my order was totaled we were close to $90,000. I was able to get him to come down a bit from there. They will also throw out some crazy high shipping charge ($2,000+)….this should be aggressively negotiated, and you may be able to get it to zero. At this point you could also use the quote to play the distributors against each other and whittle away at the total.
When we were finalizing things the Walman rep said something to the effect of “You’re not going to try and pay for all of this with a credit card, are you?” I sheepishly replied that I was (love me some points, and of course I would pay off the balance immediately). He said these prices included a cash discount. I told him I needed to hit some spend amounts to get credit card sign-up bonuses (thanks Howie!). I knew if I could put 30k on various cards I would be good to cover sign-up bonus required spending, so I offered that amount. He [very] reluctantly agreed to allow this (they can’t say no for fear of ruining a big deal). So basically the distributor has the ability to allow you to pay for everything with a credit card, but they don’t like it [obviously] because it cuts into their margin. And at margins of 10-15%, 2.5% is quite significant. I think one possible tactic for someone who doesn’t enjoy negotiating as much as I do is to insist on paying for everything with a credit card (I felt like I had already squashed his margins enough, and could see it in his face that he wasn’t going to let me put everything on cards) and also to get free shipping on the order…. these points are probably the lowest-hanging fruit.
Additionally, Haag-Streit is going to let me pay for my Lenstar entirely on credit cards, so I think manufacturers are more apt to allow this (no doubt because of their higher margins). The same would hold true for the Octopus, but I decided to finance it at 0% for 12 months through an offer Haag-Streit has with Stearns bank. The only additional cost is a $199 documentation fee, and for this nominal sum and the lost credit card points I like the idea of freeing up an extra $20,000 in case my initial cashflow projections are way off. Also, you have to pay the sales tax up front or they will finance that at their regular interest rates.
Buying a bunch of equipment at AAO is totally feasible and from what I can tell you can get the best pricing of the year. For me the biggest advantage was that I was able to get a lot of new equipment for prices I had expected to pay for used stuff. In addition, everybody is looking to move inventory before their year-end numbers get tallied. I think you can also get better deals by placing one large order with a distributor because they are willing to eat in to their margins on used or smaller items (with no minimum allowed price) in order to get their manufacturer-guaranteed margins from the bigger ticket items.
It is an exhausting endeavor, and I felt like I was post-call for a few days after I left AAO….I had trouble falling asleep each night while thinking about all the negotiations and numbers etc. Definitely don’t plan to go to many clinical lectures at AAO if you’re going to go this route.
I also have to reiterate how much I preferred dealing with Walman versus Lombart. It was a night and day difference; I highly recommend Walman. If you would like individual contact info for the awesome rep I worked with please let me know.
Here are some price ballparks for equipment purchases for starting up since I found them so helpful when planning this endeavor:
SD-OCT: TopCon Maestro with fundus camera will cost me $41,000 after $4,000 phantom GDx rebate, plus AIT-350 table throw-in
Haag-Streit Octopus 900 Basic: $22,000 (includes table, computer, printer, install and training, 2 stools, additional 1 year of warranty, unlimited EyeSuite Review licenses)
Haag-Streit Lenstar Pro: $32,000 (includes install and training, Toric Planner, 1 stool, unlimited EyeSuite Review licenses, lifetime software updates)
Exam chair and stand: $11,150 for new Reliance stuff, less $5000 tax credit = $6150 effective cost
Slit lamp: you could get a used TopCon on Ebay for probably $1500-$3000 versus a new Haag LED BQ at AAO for $18,678, all depends on what you want and how much you have in the budget
YAG laser: I ended up getting a used Coherent 7970 for $7000 out-the-door through Laser Locators a few weeks after the show
Keeler All-Pupil BIO: $2837
Reichert Avia tonopen: $3099 at show
Sales tax!: Obviously depends on your state…. probably best to include a separate line item in your budget for this based on your estimated total spending, otherwise it’s an unwelcome surprise (and there’s no way around it, as far as I can tell)