When my wife and I relocated from Louisiana to San Francisco in 2013, non-surgical fat reduction was just hitting its stride after coming on the market in 2009. And while I was a plastic surgeon and preferred offering a surgical option to my patients, I understood that it was important to also offer patients a non-surgical option. So I decided to invest in two machines to “treat twice the fat in half the time.” It was a good investment. I think I’m still the only plastic surgeon in San Francisco with two machines. Aside from passive revenue, it also provides a marketing edge.
But not all aesthetic device stories have a happy ending. Over the last 8 years, I’ve come to understand several things about aesthetic devices. Not necessarily all bad but certainly a reality check. Here are important things to know before buying, or for me, not buying again.
They either work or don’t work
Depending on the aesthetic device you purchase, over time you find they either work as advertised, or they don’t. Unfortunately, either outcome has its own downsides. For example, if they don’t work and don’t generate the patient flow you hoped for, they end up in the role of a really expensive doorstop.
If they do work, word spreads quickly, everyone purchases the device and competition heats up. With a commodity such as an aesthetic device that works no matter where you get treatment (similar to an MRI – it produces the same quality study no matter what up-to-date radiology facility you use), the differentiator becomes price. Often times, that means you have to lower your price to attract patients to your facility as opposed to the facility next door. As your price comes down, so does your profit margin. Next thing you know, you’re a hamster on a wheel providing enough treatments just to make the monthly mortgage payments.
The ongoing expense
Aside from the hundreds of thousands of dollars for the machine, there are consumables. And if there are no consumables, there’s still the monthly payments on the road to owning your device. And even if you’ve paid off your aesthetic device (or both of them in my case), there’s still the annual warranty that can be as high as $15,000 per year. Taken together – the consumables, the mortgage, the warranties – how much are you really making at the end of the day?
You start to wonder if you’ll ever have a positive return on investment. Prior to 2020, no one considered the possibility of having zero revenue when many aesthetic practices were shutdown during the pandemic. Now a public health emergency that could stifle revenue has to be a consideration. Sure the financing companies may provide a forbearance option for monthly payments, but that’s not the same as forgiveness! There’s a balloon payment waiting for you at the end of the forbearance period.
That’s why I prefer injectibles. For full disclosure, I’m a speaker and consultant for Merz. But I’m not promoting injectibles because of that relationship. From a purely business perspective, injectibles offer patients a non-surgical option that don’t require a capital investment or mortgage.
You order the injectibles, you treat the patient, you pay for the products. No ongoing mortgage. If fewer patients are coming in, you can adjust your injectibles order and owe less the next month. But for a device, whether patients are coming in or not, you’re still on the hook for that monthly payment.
Beware of promotions
Whenever someone holds forth on a particular topic, much like I’m doing right now, you have to wonder, was there something in their past that made them this way?! Some trauma or adverse experience? And the answer is yes.
About a year after purchasing my two non-surgical fat reduction devices with the help of a financing company, my accountant asked to see the amortization schedule of the 5 year lease-to-own plan (the amount of principal and interest paid with each monthly payment). The principal and interest are treated differently for tax purposes so it was natural for him to request this documentation. I didn’t have it. The financing company didn’t automatically provide it at the time of purchase, which looking back on it, should have registered as a red flag. I requested it and after reviewing, my accountant noticed the loan was negatively amortized. While the financing company (who I can’t name because of a non-disclosure agreement) told me I didn’t need to make any payments for the first 6 months while I was building up my patient base (I was thinking, wow, what great guys, so understanding!), they were still charging me interest during those first 6 months and didn’t disclose it ahead of time.
This is the definition of negative amortization in that, with time, the cost of the loan isn’t going down, but is going up. On the one hand, as part of the promotion, they told me I didn’t owe anything for the first 6 months. But on the other hand, they were adding unpaid interest to the principal of the loan during those first 6 months.
When my accountant and I scheduled a conference call to discuss, they didn’t feel it was inappropriate to 1) negatively amortize the loan or 2) not disclose the added interest ahead of time. FYI, the Federal government considers negative amortization predatory lending and it’s illegal in 25 states.1 When we disagreed with their assessment, the call ended with the financing company yelling at my accountant.
Enter NBC Investigates.2 Many cities around the country have a local TV station that answers consumer inquiries or complaints about potential wrongdoing by a business. While not every complaint makes it on TV, they do investigate every complaint. Several days after the local NBC affiliate contacted the financing company, they agreed to a new amortization schedule created by my accountant. His new schedule reduced my overall loan by $12,000 (the compounded interest during those first 6 months), allowing me to pay it off early. To this day, the financing company still calls me every few months asking if I need help with any capital purchases. Clearly our little spat didn’t lead to a “do not contact” flag on my account in their database.
Dedicated staff during treatment
Moving on. The other expense that is hard to quantify is lost productivity. For many aesthetic devices, a staff member is required to be present during the entire treatment session, ie any laser treatment. That takes the staff member away from other tasks. Granted, at least they’re involved in a service that is generating revenue. But depending on the state you’re practicing in, this calculus doesn’t always work out. For example, in Louisiana, a medical assistant or aesthetician that makes $15 to $20 per hour can administer the laser treatment. But in California, a nurse who routinely makes $45 to $60 an hour is required to provide the treatment. For this reason, you may be better off investing in a device that doesn’t require the continued presence of a staff member for the entire treatment.
Does owning an aesthetic device ever make sense?
The only situation where aesthetic devices may provide long term profitability is within a large company or chain of aesthetic centers. With their size, these large groups or franchises can negotiate a lower rate for the initial device and subsequent consumables. But these facilities are also the first to lower the price of the service to improve margins through volume. Can your independent, solo practice afford to do the same?
For those who accept the dogma that aesthetic devices should be considered a loss leader – an effective way to get patients in the door for other better margin services – I have one question. How many loss leaders can you afford in your practice? From a business perspective, loss leaders are better tolerated in a large company with enough margin on bigger ticket items to make up for the losses that represent a smaller portion of revenue. Perfect example: the hospital that employed me in Louisiana purchased a laser/IPL device for my practice when I started there in 2007. They negotiated a rate $50,000 below asking because they paid cash. In retrospect, it fit the description of a loss leader perfectly. But a healthcare facility that generates a billion dollars a year is better suited for a loss leader than an independent aesthetic practice.
So what should you do
The decreasing margin of aesthetic machines due to mortgages, warranties and consumables is partially responsible for the increasing presence of surgical procedures being performed by practitioners not typically associated with surgical procedures. The truth is, surgical procedures tend to have better margins. That’s certainly true in my practice where I have an in-office operating room so that surgeon’s fees, facility fees, anesthesia fees and implants can all be vertically integrated into one cost center. If it’s true for my practice, other physicians, regardless of training, are coming to the same realization.
While the tensions between board certified core aesthetic physicians and non-core physicians isn’t the topic here, it’s clear that market forces and finances are pushing this trend. That’s why I no longer view with distain the pediatrician who treats his patient’s parents with Botox! Knowing how pitifully pediatricians are reimbursed, it’s no surprise they have to find alternative means to pay the bills.
However, is it morally reprehensible for your practice to evolve outside of your traditionally trained, certified scope for the purposes of paying the bills? This debate will never be resolved, but this is our new reality. Purchasing more aesthetic devices isn’t in my future. And with the difficulty in generating a profit, other practitioners may feel the same pressure to leave devices behind and expand further into injectibles and the surgical procedure space.
