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Laser Spine Institute's ad-centered business model generated a 34.3 percent net profit margin from 2006 through 2009. Source: Bloomberg
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May 4 (Bloomberg) -- For-profit laser spine centers such as the Laser Spine Institute advertise out-patient, non-invasive surgery and promote the operations at seminars in hotel meeting rooms. Not regulated like hospitals are, the centers are performing what some experts warn are ineffective, expensive and potentially dangerous procedures. Malpractice cases are mounting. Bloomberg's Kevin Thrash reports.(Source: Bloomberg)
Chart: Laser Spine Institute
For Laser Spine, the business model generated a 34.3 percent net profit margin from 2006 through 2009 eclipsing even the Internet giants 24.8 percent for that period. Photographer: Christopher Furlong/Getty Images
Bonnie Balch searched online for a back surgeon and found a pitch she called irresistible: Laser Spine Institute LLC promised to ease her pain and have her out the door in a few hours.
Instead, her October 2008 surgery at the Tampa, Florida- based center left Balch incontinent, with a dangerous spinal fluid leak, she said. Still in pain, she was off work for almost a year and needed a second surgery elsewhere to get relief.
They should have told me they couldnt help me, said Balch, 63, a Longmont, Colorado, flight attendant. They are in it to make money. Her insurer paid Laser Spine $90,176 for the operation, a follow-up procedure and some subsequent care.
Balch sued Laser Spine, alleging malpractice, in December 2009, one of 15 cases filed against the company in the past 18 months.
The lawsuits reflect growing complaints about a new area of medicine: high-volume, doctor-owned spinal surgery centers that market directly to patients on Google Inc.s search site and others. For Laser Spine, the business model generated a 34.3 percent net profit margin from 2006 through 2009 -- eclipsing even the Internet giants 24.8 percent for that period.
Laser Spine and its competitors, part of a boom in outpatient clinics operated by entrepreneurial physicians, sell a high-tech version of procedures that have been around for years -- despite a lack of independent research to show that their variations lead to better outcomes. The company commands higher prices than laser-less rivals, driving up the cost of health care. Its number of malpractice claims per 1,000 surgeries is several times the rate for all U.S. outpatient surgery centers, based on insurance industry data.
Already Available
It strikes me as somewhat of a scam, says Jeffrey Arle, a neurosurgeon at the Lahey Clinic near Boston who has treated former Laser Spine patients. Hes one of nine surgeons from across the U.S. who told Bloomberg News that the companys laser surgery was either unnecessary or inappropriate for many patients who get it. My conclusion is they are offering patients a version of what is already available in the regular medical care system.
Laser Spines in-house surveys show positive outcomes for more than 87 percent of patients, though the institute has had trouble recruiting academics to examine those results, said Jimmy St. Louis, the companys chief operations officer. Its staff screens those who respond to its ads rigorously, he said, and only 10 percent of them end up getting an operation. The companys standards for safety and quality of care help determine its pricing, said Dotty Bollinger, its chief medical operations officer.
Works Every Day
We know it works, Bollinger said of the surgery. We see it every day. Laser Spine declined to discuss Balchs claims, which it has denied in court filings.
Laser Spine often charges $30,000 for each procedure, according to interviews with several patients and copies of billing records. Thats twice as much as Aetna Inc., the third- largest U.S. health insurer, will pay for laser-less surgery. Its more than twice the average reimbursement for spine procedures at Regent Surgical Health, a Westchester, Illinois- based company that operates 15 outpatient centers, according to Matt Lau, Regents corporate controller.
Laser Spines surgeons, some of whom are investors in the 6-year-old company, perform as many as 5,000 operations a year, using small tubes called endoscopes that are equipped with video cameras. They insert the lasers separately, through catheters.
Out of Bankruptcy
Founder James St. Louis, 56, was just a year out of personal bankruptcy when he began seeking investors for the company in 2003, court records show. Now he owns multimillion- dollar homes in Pinellas County, Florida and Aspen, Colorado. He declined an interview request.
The institute, which rewards employees with trips to the Bahamas when they hit sales and customer-satisfaction targets, has established surgical centers in Scottsdale, Arizona; Philadelphia; and Oklahoma City as well as Tampa. It now bills itself on the web as the largest spine center in the world and it had sales last year of $109 million, says Jimmy St. Louis, the COO and the founders son.
From 2006 through 2009, Laser Spine earned net income of $98.9 million on revenue of $288 million, a 34.3 percent profit margin, according to testimony that chief executive officer Bill Horne provided last year in a lawsuit. In that case, Joe Samuel Bailey, an Arkansas businessman and the chairman of a rival spine center, alleges that St. Louis stole his business plan. St. Louis and Laser Spine have denied that allegation in court.
Distributions to Investors
The company has distributed at least $77 million to a small group of shareholders, according to an opening statement made by Baileys lawyer in the same court case. Another document in the case indicates that James St. Louis was slated to receive a 25 percent interest. That would entitle him to $19.25 million from the distributions. Bollinger said the 25 percent figure is not accurate. She would not disclose individual stakes.
Other investors include the private equity unit of Dallas investment firm EFO Holdings LP, managed by William Esping, and two founders of OSI Restaurant Partners LLC, whose properties include Outback Steakhouse.
In 2009, Goldman Sachs Group Inc. valued Laser Spine at as much as $428 million, as part of the companys consideration of an initial public offering, Horne testified in Baileys lawsuit. Bollinger said in an e-mail that this estimate and others provided by bankers were rough guesses and not reliable.
Aetna wont cover operations at Laser Spine and some of its competitors, citing a lack of research to confirm their safety and effectiveness. Cigna Corp., the seventh largest U.S. insurer, wont pay for the laser portion of the surgery. Other insurers provide less than full coverage.
Second Mortgages
Some patients, desperate for pain relief and a short recovery period, say theyve tapped retirement accounts or taken out second mortgages to pay Laser Spine.
Theyre not always satisfied with the results. Fifteen former Laser Spine patients -- whose cases came up in court records, in the institutes materials and in online back-pain forums -- said in interviews that their operations provided only fleeting relief, or no relief at all, from their back pain.
The 15 malpractice claims since October 2009 came during a period in which the company performed about 7,500 procedures, based on its 2010 estimates. Nationally, outpatient surgery centers received about six malpractice claims for every 20,000 surgeries, according to data from Zurich North America, a commercial property and casualty insurer.
Bleeding Internally
Balch and others say that after their operations at Laser Spine they were told to get dressed and leave -- though Balch had suffered a spinal fluid leak and another patient was bleeding internally from two lacerated arteries, according to records in two malpractice suits. A third went to a hospital in need of emergency surgery just hours later, according to a state inspection report.
Laser Spine executives say they meet state regulatory requirements. The company is a target for malpractice suits because its fully insured, said Bollinger, the medical operations officer. With regard to the claims in those suits, the institute gave Bloomberg News a statement that said: We do not believe it is appropriate to dispute the facts at issue with a patient in the public forum.
Since July 2009, the institute has paid at least $2.8 million to seven patients to settle cases, according to the Florida Office of Insurance Regulation. Some of the cases were settled at the behest of Laser Spines insurer, Lexington Insurance Co., even though institute officials believed the care they provided was appropriate, Bollinger said.
FDA Rules
While the Food and Drug Administration regulates the use of drugs and medical devices, theres virtually no federal oversight for the effectiveness of surgical techniques.
This is an issue with surgery generally, said Robert McDonough, head of clinical policy research and development at Aetna. Surgeons can introduce new procedures that might be significantly different from established ones with no oversight of the claims they make.
Drug-makers ads -- including sponsored links that appear in response to search-engine queries -- must disclose their medications risks, under FDA rules. Ads for surgical techniques have no similar rules. Rather than focusing on possible dangers or complications, one Laser Spine magazine ad pitches the ease of its procedures in a light-hearted way. It shows two topless women in bikini bottoms, their backs to the viewer. One of them wears a Band-Aid. Who just had back surgery? a caption asks.
Bollinger said the company informs patients about possible complications at many stages of their decision-making process.
Slow State Action
While state regulators have the authority to enforce standards of care, theyve been slow to act against one laser- surgery practitioner, Lawrence Rothstein, said Gregory C. Gibson, a Centerville, Ohio, lawyer. Gibson represents plaintiffs in some of the 36 lawsuits that have been filed against Rothstein since 2006; 18 of them are pending.
The State Medical Board of Ohio hasnt acted on patients complaints about Rothstein, Gibson said. Joan Wehrle, a spokeswoman for the board, declined to comment. The board keeps complaints and investigations confidential until any disciplinary action is taken, she said.
Rothstein, who developed his own laser-spine surgical techniques, acknowledges there were some bad outcomes from his surgery, said his brother, Steven Rothstein, a lawyer. He denies that any were the result of substandard care, Steven Rothstein said. Former patients allege various harms from their surgeries, including seizures, incontinence and lost sexual function. Several say they now need braces to walk.
Only License Needed
Theres little government oversight regarding which doctors can do spine surgery -- all they need is a medical license, whether their training is in orthopedics, foot surgery or pediatrics. Rothstein is an anesthesiologist.
In 19 of the cases against him, plaintiffs also named North American Spine, a Dallas-based company that uses Rothsteins techniques. While North American is paying Rothstein $3.5 million over five years to use his methods, it no longer allows Rothstein to perform them, said Chris Lloyd, the companys chief executive officer. Lloyd cited bad outcomes from some of Rothsteins procedures.
North American Spine, which lists on its website two surgery centers in Texas, plans new facilities in New Jersey, Los Angeles, Mexico, Italy and Spain this year, Lloyd said in an interview. Its one of several Laser Spine competitors that include the Laser Spine Center in New York and the Texas-based Minimally Invasive Spine Institute.
Outside the Model
Laser Spine and other companies operate outside the traditional model of medicine, in which patients are referred to specialists by other doctors. Instead, the centers reach customers directly via online marketing and seminars conducted in hotel conference rooms. Laser Spine plans 26 such seminars through the end of this month.
The number of U.S. Medicare-certified ambulatory surgery centers -- those that focus on outpatient procedures -- grew to 5,260 in 2009 from 3,512 in 2002. All but 4 percent of them are for-profit entities.
Like Laser Spine, 90 percent of U.S. ambulatory centers include doctors as investors, according to the Ambulatory Surgery Center Association.
Doctor-investors may lower their standards for deciding when to operate, according to researchers from the University of Michigan in a study in the journal Health Affairs last year. Looking at five common procedures at Florida surgery centers, they found that once doctors became investors, the number of surgeries they performed increased by 87 percent.
Financial Incentives
Doctors at the same facilities who werent investors experienced little change in caseload during the same three-year period, the study found. The increased surgery use that follows ownership acquisition may be attributable to the financial incentives of the investment, the authors wrote.
At Laser Spine, incentives are offered to patient coordinators, according to a lawsuit filed in December by a former employee. Theyre paid commissions based on the number of surgeries booked or sold, former coordinator Migdalia Noble claimed in the suit.
Sales commissions -- and bonuses such as Bahamas trips -- are based on both the volume of surgeries booked and the patients satisfaction, said Jimmy St. Louis, the COO. About 50 people made the last trip to the Atlantis resort, he said.
Centers that specialize in spinal surgery compete for an estimated $73 billion a year that Americans spend seeking relief from back and neck pain, based on 2008 data from researchers at the Dartmouth Medical School in Hanover, New Hampshire.
Competing Online
The competition extends to the web, where Laser Spine probably spends as much as $100,000 a month to have its site show up prominently among search engines results, said Meg Biscup, who oversees marketing for the Biscup Spine Institute. The Fort Lauderdale, Florida-based institute, which does minimally invasive procedures, is operated by her husband, Robert Biscup. Laser Spine executives declined to discuss what they spend on marketing.
A recent Google search of Biscup Spine Institute returned a link including the words Safe Outpatient Procedure. Clicking it took users to Laser Spines website -- evidence that Laser Spine paid the Mountain View, California- based search engine for key words related to Biscup, Meg Biscup says.
Googles Policy
Laser Spines Bollinger said an advertising vendor corrected this process error after Bloomberg News asked about it. Google says it responds to complaints regarding advertisers use of others trademarks in two ways. In Australia, Brazil, China and elsewhere, Google doesnt allow use of others trademarks in both ad text and key words. In the U.S., as in most other countries, it investigates trademark complaints involving ad text only.
James St. Louis was driving two beat-up old cars and was out of money in 2003 as he recruited investors for his planned spine center, according to a deposition given by Bailey, the Arkansas businessman who is chairman of North American Spine.
St. Louis now has seven cars, including a Cadillac and a Hummer, registered to his Florida address. Its a 12,900-square- foot waterfront mansion that he bought in 2008 for $10.3 million. He bought another home in Aspen, Colorado, last year, paying $8.3 million.
His 2001 bankruptcy filing in Alabama listed assets of $527,660 and liabilities of $4.32 million. The next year, he took a job at the Hudson, Florida-based Bonati Institute, a minimally invasive spine center that claims to be where laser spine surgery began.
Patented Techniques
Founder Alfred Bonati later accused St. Louis of stealing patented surgical techniques in a 2008 federal lawsuit. The case was settled and both sides declined to comment on it.
Bonati was ordered last year to pay $11.8 million to William Clark, 72, a former patient whose complaint said he underwent at least eight procedures at the center that left him in constant pain. Clark developed an infection that spread to his bones and will never walk again, his complaint said. The award was made by a three-member board of arbitration in Pasco County, Florida.
Bonati, who claims a patient-reported success rate of 93 percent, did not respond to requests for comment.
Each spine center offers its own variation on a theme: disc surgery done through a tiny incision that the surgeon snakes an endoscope into.
Two Steps
About 80 percent of Laser Spines patients get the same two-step procedure, according to Robert Gruber, a physician who directs spinal diagnostics at the center in Tampa: First the surgeon burns off sensitive nerve endings in the joints between vertebrae, a process known as ablation. Then, he removes herniated disc material or bone spurs that press on nerves and cause pain -- a decompression, or laminotomy.
Both techniques have been in use for years. The innovations that Laser Spine and its rivals offer are to use endoscopes to keep the incisions small, and lasers for the ablations. Traditionally, surgeons have used electrical current from radio waves or other energy sources for the burning.
The evidence that ablation -- the laser-assisted process that gives the institute its name -- helps patients is pretty weak, says Roger Chou, a physician at the Oregon Health & Science University in Portland who is the director of the American Pain Societys clinical guidelines program.
Even in studies showing some benefit, the benefit is small and doesnt last that long, Chou said. Nerve endings can regenerate over time. Its difficult to find a clinical basis for Laser Spines procedures, he said. It sounds like a shotgun approach.
Decompressions Benefits
Surgeons consider the second procedure, decompression, more beneficial for certain patients. Its generally successful in treating 60 to 70 percent of patients with spinal stenosis -- a narrowing of the canal that holds the spinal cord and nerves -- said Jon Lurie, a spine doctor and researcher at Dartmouth- Hitchcock Medical Center in Lebanon, New Hampshire.
Spinal stenosis is our bread and butter, said Laser Spines Gruber. Still, unaffiliated surgeons have treated former Laser Spine patients who didnt need the procedure and shouldnt have gotten it, said Choll W. Kim, a San Diego surgeon who founded the Society for Minimally Invasive Spine Surgery.
Their marketing is so powerful, Kim said. Many of us have seen patients that needed something different and got the Laser Spine surgery.
One man with adult scoliosis, a curvature of the spine that required more extensive surgery, received two decompression operations at Laser Spine, said surgeon Donald S. Corenman of Vail, Colorado.
Major Surgical Fix
That didnt give him relief, Corenman said. His problem is he needed a major surgical fix.
Corenman said hes treated 20 patients who needed more help after their surgery at Laser Spine, including Balch, the flight attendant who experienced the spinal fluid leak. Left untreated or unrepaired, such leaks can lead to intense headaches, higher risk of infection, and in rare cases, meningitis.
Laser Spine repaired Balchs leak and then sent her back to her hotel room for three days, according to her complaint. She should have been admitted to a hospital and restricted to a bed for 24 hours, Corenman said. Her spine began leaking again, she said in an interview.
Ultimately, Corenman performed spinal-fusion surgery on Balch -- a procedure that often requires the use of screws and plates as well as at least six weeks of recovery. Its precisely the operation shed hoped to avoid when she chose Laser Spine, she said. Shes one of six former Laser Spine patients who said in interviews that they later underwent fusions.
Cited Four Times
Florida regulators cited the company for deficiencies at least four times since September 2007. The citations include using unsterile equipment; failing to report adverse events at the facility, including performing the wrong procedure on a patient; and instances in which patients with complications were sent to back to their hotel rooms -- on a stretcher in one case -- or told not to go to a hospital. The company corrected all deficiencies in each instance, according to state records.
In one incident, cited in a Nov. 6, 2008, state report, an emergency room doctor at a Tampa-area hospital called the institute at 1 a.m. to report a patient who had spine surgery the previous day needed immediate surgery because of a hematoma -- that is, a collection of blood outside a blood vessel -- that was pressing on a nerve root.
The physician assistant who answered at the institute instructed the doctor to send the patient back to his hotel room and have him return to Laser Spine in the morning, according to the report. The doctor refused; the patient received successful surgery at the hospital, the report says.
Paying a Premium
Many Laser Spine patients say they knew they were paying a premium for the surgery, but did so because of the promise of a quick and easy fix for their back or neck pain.
Dale Henderson of Orrington, Maine, paid $30,000 out of pocket for an ablation and decompression surgery at Laser Spine on Oct. 7, 2008 and $25,500 for a second decompression a week later, according to copies of his bills. He said he received a discount on the second procedure.
Medicare patients treated at Laser Spine pay $17,900 of their own funds to cover a facility fee that Bollinger said the government insurer wont pay to free-standing ambulatory care centers. For hospital-based outpatient spinal decompressions, Medicare pays an average facility fee of $3,535.
The company bills Medicare patients for the higher fee because the government pays only a fraction of reasonable charges, Bollinger said. Laser Spine charges more because it provides more service and medical staff than others, she said.
Coffee Bar
In the companys Tampa waiting room, patients lounge in leather recliners, taking in a floor-to-ceiling view of Tampa Bay. Catered meals are available, as are beverages from a coffee bar. Photographs of patients line the wall.
Its amazing, says Glen Magee, a restaurant owner in Kentwood, Louisiana, of the results of his 2008 surgery at Laser Spine. He said he felt better immediately after the surgery than he had at any point in the past 20 years.
Patients testimonials appear by the dozens on the institutes website. One of them is Charley Shirley of Marietta, Georgia, whos quoted saying I feel like a new person. That quote came just two days after his surgery. His relief didnt last, he said in an interview.
A year or so later, I was still aggravated with lower back pain, said Shirley, who works for Accor SAs Motel 6 chain. He subsequently underwent a spinal fusion operation in Atlanta, which he described as moderately successful.
Hulks New Surgery
Its unclear whether wrestler Terry Hulk Hogan, who also provided a testimonial for Laser Spine, experienced lasting relief. In December, though, Hogan publicly reported that he was having major spinal fusion surgery at a different facility. He declined an interview request.
Patient Hulon Taylor said he met his Laser Spine surgeon, Craig Wolff, less than an hour before he went into the operating room on Feb. 19, 2009.
The institutes website describes Wolff as a surgeon with esteemed credentials who has been revolutionizing the field of orthopedic surgery for over 20 years.
It does not mention that in 2005 the state Board of Medicine filed an administrative complaint against Wolff, charging him with operating on the wrong side of a patients spine. The complaint was settled last year; Wolff received a letter of concern from the board, paid a $10,000 fine and agreed to attend continuing education classes. He neither admitted nor denied the allegations.
No Medical Error
The action against Wolff occurred before he arrived at Laser Spine and was an administrative error not a medical one, the institute said in a written statement. Wolff declined to comment.
When Taylor, 61, arrived at Laser Spines Tampa headquarters, he says, all he knew about the surgery was what the staff told him: It would take 45 minutes and he would be back in his hotel room that evening.
Taylor never returned to his hotel room. After the surgery, he told staffers that his stomach was really hurting, he said in an interview. He said Wolff came by and indicated it was just gas. The nurses told him to get dressed, it was time to go, he said.
As he put his clothes on, he fainted. He remembers waking up at Tampa General Hospital.
Taylor suffered life-threatening injuries to two arteries from the surgery, according to the attending surgeons report at Tampa General. He lost so much blood to internal bleeding that he suffered a heart attack, medical records show.
Billed Insurer
Someone from Laser Spine came by the hospital while he was recuperating and returned his $15,000 deposit, Taylor said. Still, the company billed his insurer and collected $36,940 for the surgery, payment records show. In all, his insurer paid $174,056 for the back surgery and subsequent emergency surgery and recovery at Tampa General, according to billing records.
Taylor was unable to return to his job as a foreman for the local utility company near his home in Bonifay, Florida. He sued Laser Spine and recently settled. While the terms are confidential, the companys insurer told the state it paid $200,000 toward the settlement. The insurer does not have to disclose whether Laser Spine contributed any funds.
Have a good day and a Band-Aid didnt cut it for me, Taylor said in an interview. That is too good to be true.
To contact the reporter responsible for this story: David Armstrong in Boston at
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