Backbreaker

The Laser Spine Institute's final day started like many others. Prospective patients called in from as far as the coast of Africa for consultations. Families flew in from Canada under the promise they would receive world-class care in the company's glossy $56 million headquarters in Tampa, Fla., where a steady stream of patients arrived for appointments to visit chiropractors, seek second opinions and schedule back surgeries.

That afternoon, Robert Koser, DC, had a potential patient on the line when members of the leadership team told him to wrap up the call. It was time for an all-employee meeting.

Then, the news came in: The Laser Spine Institute, the company that had billed itself as the nation's leader in minimally invasive spine surgery, was closing at the end of the business day, shuttering its 4 surgery centers in Tampa, St. Louis, Cincinnati and Scottsdale, Ariz., and laying off almost 600 employees nationwide who'll long recall March 1, 2019, as Black Friday.

"It was shock," says Dr. Koser, who had worked as a chiropractor for the company since late 2017. "You had people gasping. People were crying. Other people were just really disappointed that they found out like that with no warning essentially."

Since 2005, Laser Spine Institute had become known for the kind of profit margins that would garner envy from any C-suite executive, and its slick marketing strategies drew patients from around the globe. After the company collapsed, Laser Spine CEO Jake Brace said the company received an ultimatum from its lenders: Find an investor to keep the business afloat in the next week or cease operations and liquidate your assets.

How did Laser Spine fall so far, so fast? Interviews with company staffers, analysts and others in the industry provide a glimpse of what happened behind the scenes that led to the epic collapse.

Since its founding 14 years ago, Laser Spine offered patients a tantalizing promise: You'll pay a premium for our care — $30,000 upfront cash payments for laminotomies were common, says a former employee — but we offer a 5-star experience, a 98% patient satisfaction rate and a novel laser approach to back surgery that's better and safer than traditional open procedures with a faster, less painful recovery.

The company took its case directly to the public via powerful marketing campaigns on television, print and beyond, recruiting patients from around the world. At its peak, Laser Spine had 7 facilities across the U.S., but it marketed everywhere.

"Our goal was to find ways for people to go to the website, pick up the phone and call," says Josh Hall, founder of Sage and Sterling Communications and Laser Spine's former director of marketing communications. "Mission 1 was to inform and educate."

Early on, conditions were perfect for Laser Spine. There were no competitors or insurers standing in its way. Not only was Laser Spine the first to offer minimally invasive laser spine surgery — "a unique and novel product offering that patients couldn't find in hospitals, and that made it very attractive," says the former employee, who spoke on the condition of anonymity — but it did so as a strict cash-based business.

Everybody just paid cash. That was a beautiful thing to witness. There was a lot of money coming in. It was fun. And it was clean.
It was concierge medicine at its finest.
— former Laser Spine Institute employee

"Everybody just paid cash. That was a beautiful thing to witness. There was a lot of money coming in," says the former employee. "It was fun. And it was clean. It was concierge medicine at its finest. We didn't have to wait on collections or go back-and-forth with insurers. Patients paid full cost before surgery. No back billing. We weren't reliant on diagnostic codes or CPT codes."

For years, the company's cash-based business model thrived. From its founding in 2005 to 2009, Laser Spine had nearly $300 million in gross revenue and distributed almost $80 million in dividends to its owners, according to court records.

The company began as a joint venture between physicians and business people who were able to "take that marketing background and apply it to medicine," says Rodolfo Gari, MD, MBA, founder of Physician Partners of America, a nationwide practice headquartered in Tampa.

"You had people who lived and breathed marketing," says Dr. Gari. "They were able to create a brand with minimally invasive spine surgery."

The early profits led the company to grow its footprint across the U.S., and that's when the problems began. Officials from Laser Spine and others in the industry point to 3 areas that contributed to the company's sudden fall.

The company took its profitable model in Florida and tried to replicate it in cities across the country. "Moving into a different state had its own set of complications. We ran into compliance and credentialing issues every time," says the former employee.

The ambition to grow the business via the franchise model might have played a key role in the company's demise, says Jay Wolfson, DrPH, JD, a distinguished service professor of public health at the University of South Florida.

"I think that's where some of the breakdown began to take place," says Dr. Wolfson. "Expenses get high. Most people didn't know that they didn't own their own assets such as buildings, land, equipment."

Within about 10 years, the company was in Tampa, Philadelphia, Scottsdale, Oklahoma City, Cleveland, St. Louis and Cincinnati. All that expansion came at a massive cost, including a recruitment effort for the best physicians, specialists and staff. To grow, the company also needed deals for office space and equipment that added to its expenses.

"We went from 100 employees to 1,200 in a very short time," says the former employee. "As the company grew, so did expectations for continued 10% to 20% growth year over year. The pressure was monumental. When you build that level of volume without having a secure foundation, without having the right staff with right expertise, things get really troublesome very quickly.

"It was like building the roof before you've got a floor set," adds the former employee. "We got a little too big for our britches."

This franchise model might have worked during the good days. But when cash flow became a problem and the money from the banks dried up, Laser Spine had no other moves to make and no assets to fall back on, says Dr. Wolfson.

"When you're forced into bankruptcy and receivership and there are no assets, what do you do?" asks Dr. Wolfson. "You stop the bleeding completely. They had no choice. They had to close down."

The company didn't just have problems changing its business model. It also faced mounting costs from litigation.

For years, the company fought a lawsuit from a competing surgical group that claimed the founders of the Laser Spine Institute stole its business idea and owed a large share of its profits. In December, a Florida appeals court ruled against Laser Spine in the years-long legal battle, saying it owed at least $264 million in damages.

Last year, a jury awarded $20 million to the family of an Ohio woman after she died following a procedure at Laser Spine's Philadelphia facility. The family claimed the 50-year-old woman received 6 times more Dilaudid (hydromorphone) than she should have and was prematurely discharged from the facility.

There were hints of financial trouble last year when Laser Spine closed 3 of its 7 facilities: those in Oklahoma City, Philadelphia and Cleveland. Still, no one saw the 4 remaining facilities closing so soon, especially because patients were still receiving care.

"We were doing our best to help patients and guide potential patients to a possible solution for their pain," says Dr. Koser. "It just came as a big surprise."

Surgery was typically a 6-day process for Laser Spine patients, who'd stay at a partner-hotel as they underwent 2 days of testing followed by surgery on Day 3. They rested on the 4th and 5th days, and drove or flew home on the 6th day. Even as the business was crumbling, one thing stood strong: excellent patient care.

"I can't say anything negative about the medical care people received," says the former employee. "We followed up with every patient after surgery. The patient-centered model was what went right."

Dr. Koser is still plotting his next career move, but he has no regrets about his time at Laser Spine. He says he loved being a part of a multidisciplinary team that focused on treating "the patient, not the imaging — which a lot of surgeons do nowadays."

When asked to sum up the sudden fall of the Laser Spine Institute, Dr. Koser offers an answer in a single sentence: "The medicine was great," he says, "but there were obviously some issues behind the scenes as far as the business side and finances that didn't work." OSM