Improving Orthopedic Profitability

Improving Orthopedic Improving Orthopedic ProfitabilityProfitability

ProfitProfit

Not a four letter wordNot a four letter word

General RulesGeneral Rules• Two approaches to increasing profitTwo approaches to increasing profit

– Enhance revenueEnhance revenue– Cut costsCut costs

• Time / work is limitedTime / work is limited– Can only increase own work so muchCan only increase own work so much

• You can only control what you can controlYou can only control what you can control– Contracts are rarely negotiable Contracts are rarely negotiable

• Contract leverage is rareContract leverage is rare– Cost containment is difficultCost containment is difficult

Changing TimesChanging Times• Employer Sponsored Healthcare (ESHC) is Employer Sponsored Healthcare (ESHC) is

evolvingevolving– Covering 80.3% of non-elderly adultsCovering 80.3% of non-elderly adults– Down from 85.3% in 1998Down from 85.3% in 1998

• Total healthcare spending is in excess of Total healthcare spending is in excess of $1.8 trillion dollars$1.8 trillion dollars

• Within ESHC there is a shift toward the Within ESHC there is a shift toward the employee paying for more in terms of employee paying for more in terms of premiums, deductibles and co-payspremiums, deductibles and co-pays

Changing TimesChanging Times• Insurers continue to try to limit their medical loss Insurers continue to try to limit their medical loss

ratioratio– Restrictive contracting with “proprietary” fee schedules Restrictive contracting with “proprietary” fee schedules

make contracting difficult to managemake contracting difficult to manage– ASO contracts are growingASO contracts are growing

• Medicare continues to look to limit surgeons fees Medicare continues to look to limit surgeons fees – joints, hip fractures– joints, hip fractures

• Medicaid (Medi-Cal) is growing in numbers Medicaid (Medi-Cal) is growing in numbers especially through the SCHIP programespecially through the SCHIP program

• Worker’s Comp reforms are tough to manageWorker’s Comp reforms are tough to manage– Surgery Centers took the biggest hitSurgery Centers took the biggest hit

Changing timesChanging times• Patients are being asked to pay more Patients are being asked to pay more

– Deductibles, co-pays, exclusionsDeductibles, co-pays, exclusions– More first dollar costs are being put on More first dollar costs are being put on

to patientsto patients• Practices need to be prepared to Practices need to be prepared to

handle these changeshandle these changes– Patient Centric care is comingPatient Centric care is coming

Understanding Our CraftUnderstanding Our Craft• June 2006 Orthopedic Manpower ReportJune 2006 Orthopedic Manpower Report

• 24,015 AAOS members – 13,679 responded24,015 AAOS members – 13,679 responded• 75% of members are fellows75% of members are fellows

– Workforce is aging – average 49.8 yearsWorkforce is aging – average 49.8 years• 15% under age 40, 5% > age 7015% under age 40, 5% > age 70

– Workforce increased by 500 surgeons, but overall Workforce increased by 500 surgeons, but overall density declineddensity declined• California added 113 surgeonsCalifornia added 113 surgeons

– Generalist 29%, specialist 39%, mixed 32%Generalist 29%, specialist 39%, mixed 32%– Private practice 81%Private practice 81%

• 31% solo practice, 60% group, 9% multi-specialty31% solo practice, 60% group, 9% multi-specialty• 42% have academic appointment (74% non-comp)42% have academic appointment (74% non-comp)• 85% of academicians are specialists85% of academicians are specialists

– 8% of all orthopedists are academicians8% of all orthopedists are academicians


– Fellowships – 28% sports medicineFellowships – 28% sports medicine• Hand 20%, Spine 14%Hand 20%, Spine 14%

– 8% hand CAQ, but 22% list as specialty8% hand CAQ, but 22% list as specialty– 1 in 10 received research funding in past 5 years1 in 10 received research funding in past 5 years– Hours workedHours worked

• Academic 69, HMO 53.9Academic 69, HMO 53.9– Solo 61.5, group 60.6Solo 61.5, group 60.6

• 2 in 3 take trauma call2 in 3 take trauma call– Only 25% receive compensationOnly 25% receive compensation

• Income proportional to hours except in academicsIncome proportional to hours except in academics


– Payer mix Managed care 32% , Medicare/ Payer mix Managed care 32% , Medicare/ Medicaid 33%, Work comp 12%, Private Medicaid 33%, Work comp 12%, Private pay 16%, 4% pro-bonopay 16%, 4% pro-bono

– Average number of cases per month – 32Average number of cases per month – 32•Arthroscopy of the knee still most commonArthroscopy of the knee still most common•245 surgeon reported doing at least 4 spinal 245 surgeon reported doing at least 4 spinal

disc replacements per monthdisc replacements per month

Understanding Our CraftUnderstanding Our Craft• June 2006 Orthopedic Manpower June 2006 Orthopedic Manpower

reportreport– RetirementRetirement

•10% of respondents retired10% of respondents retired•Mean age 59Mean age 59•12% retired before age 65, 46% retired after 12% retired before age 65, 46% retired after

age 70age 70– 8% expect to retire within 2 years8% expect to retire within 2 years

•13% of generalists13% of generalists

BenchmarkingBenchmarking• Data is key in making practice Data is key in making practice

management decisionsmanagement decisions– Need information from outside the Need information from outside the

practice to decide where to focus energypractice to decide where to focus energy– Not following other examplesNot following other examples

•Rather compare outcomesRather compare outcomes– For example – x-ray revenue / costs: Ankle seriesFor example – x-ray revenue / costs: Ankle series– Cost fully loaded $6 per film = $18Cost fully loaded $6 per film = $18– Net revenue $72 per seriesNet revenue $72 per series– Profit $54 Profit $54

Evaluate New TechnologiesEvaluate New Technologies• Cost / Benefit approach to capital investmentCost / Benefit approach to capital investment

– Need to justify investment – return on investmentNeed to justify investment – return on investment• PACS systemPACS system

– Digital based – easy approach to EMR Digital based – easy approach to EMR – Cost: $50,000 plus $2,000 per quarter or $666 Cost: $50,000 plus $2,000 per quarter or $666

per monthper month• Current x-ray - $6 per film Current x-ray - $6 per film

– Average 80 per day – 1,600 per month = $9,600Average 80 per day – 1,600 per month = $9,600– Tech cost $4,000 per month - so real cost $5,600 per monthTech cost $4,000 per month - so real cost $5,600 per month

• SaveSave $4,934 per month or $59,208 per year $4,934 per month or $59,208 per year

Areas of Financial ImpactAreas of Financial ImpactRevenue EnhancementRevenue Enhancement

Contracting, Collections, Credit cardsContracting, Collections, Credit cardsImaging, Surgery Center, PT Imaging, Surgery Center, PT

Cost ControlCost ControlRent, Personnel, Soft goods, InsuranceRent, Personnel, Soft goods, Insurance

Wealth PreservationWealth PreservationPension, Tax strategy, Retirement Pension, Tax strategy, Retirement planning planning

Key: Practice Specific DataKey: Practice Specific Data• Financial variables must be measuredFinancial variables must be measured

– Practice overheadPractice overhead– How many employeesHow many employees

• Benefits, 401K, Pension, PTOBenefits, 401K, Pension, PTO– Fully loaded cost per office visitFully loaded cost per office visit– X-rays costs including cost per clickX-rays costs including cost per click– Collections percentage – payer specificCollections percentage – payer specific

• Credit card utilizationCredit card utilization– Contract revenue per work RVUContract revenue per work RVU– InsuranceInsurance

• Medical Malpractice, Office liability, Worker’s compMedical Malpractice, Office liability, Worker’s comp– Soft goods, disposables, bracesSoft goods, disposables, braces

Key: Practice specific DataKey: Practice specific Data• Measure work RVUsMeasure work RVUs• Understand your revenue per wRVU, Understand your revenue per wRVU,

cost per wRVU cost per wRVU – Compare your data to other similar Compare your data to other similar

practicespractices– Understand what you need to focus onUnderstand what you need to focus on

• Do not copy other practice styles, Do not copy other practice styles, refine your practice by comparing data refine your practice by comparing data metrics with other similar practicesmetrics with other similar practices

Work RVU DataWork RVU Data• National Data - 2006National Data - 2006

– By specialtyBy specialty: : # Docs# Docs Median wRVUMedian wRVU• Spine 77 9,716Spine 77 9,716• Pediatrics 60 7,533Pediatrics 60 7,533• Sports 81 8,299Sports 81 8,299• Foot / Ankle 42 7,649Foot / Ankle 42 7,649• General 37 5,910General 37 5,910• Hand 66 8,571Hand 66 8,571• Trauma 73 7,891Trauma 73 7,891• Shoulder 23 8,608Shoulder 23 8,608• Joints 69 8,480 Joints 69 8,480

Focus on MarketingFocus on Marketing• Focus on what you can controlFocus on what you can control

– Determine what area of practice you Determine what area of practice you want to grow or expandwant to grow or expand

– Identify your marketing target Identify your marketing target – Goal oriented approachGoal oriented approach

• Measure impact of marketingMeasure impact of marketing– Number of patientsNumber of patients– Improved W2 Improved W2

GoalGoal• The Goal of successful Marketing is The Goal of successful Marketing is

to have the ability to increase both to have the ability to increase both practice efficiency and profitability practice efficiency and profitability without having to increase the without having to increase the amount of work performedamount of work performed

Approach to MarketingApproach to Marketing• Understand Understand youryour particular type of practice particular type of practice

– Academic, Group, HMO, SoloAcademic, Group, HMO, Solo• Determine what makes money for your practice Determine what makes money for your practice

and what does notand what does not– Define Profit CentersDefine Profit Centers

• Focus approach to enhance those profit centersFocus approach to enhance those profit centers– Determine target for marketing those profit centersDetermine target for marketing those profit centers– Detail a marketing game plan to enhance profit Detail a marketing game plan to enhance profit

centerscenters

Practice SpecificPractice Specific• Need to understand type of practiceNeed to understand type of practice• Need to define goalsNeed to define goals• Need a general game planNeed a general game plan• Execute the game planExecute the game plan

Type of PracticeType of Practice• AcademicAcademic• Integrated Group ModelIntegrated Group Model• Large Group PracticeLarge Group Practice• Small Group PracticeSmall Group Practice• Solo PracticeSolo Practice

Academic PracticeAcademic Practice• Clinical work, teaching, researchClinical work, teaching, research• Revenue modelsRevenue models

– SalarySalary– Salary plus productionSalary plus production– Private practice with “Dean’s” taxPrivate practice with “Dean’s” tax

• Alternative RevenueAlternative Revenue– University stipend, pensionUniversity stipend, pension

Integrated Group Integrated Group • Large MultispecialtyLarge Multispecialty

– Kaiser, Hill PhysiciansKaiser, Hill Physicians• RevenueRevenue

– SalarySalary– Salary plus bonusSalary plus bonus– PartnershipPartnership

• Alternative RevenueAlternative Revenue– Limited to bonus calculationsLimited to bonus calculations

Large Group PracticeLarge Group Practice• Greater than 12 DocsGreater than 12 Docs

– SCOI for exampleSCOI for example• RevenueRevenue

– Partnership based / tieredPartnership based / tiered– Production based minus expensesProduction based minus expenses– Production minus expenses minus partner “tax”Production minus expenses minus partner “tax”

• Alternative RevenueAlternative Revenue– Surgery Center, Imaging Center, PTSurgery Center, Imaging Center, PT– Physician Extenders – Fellows, PA, NPPhysician Extenders – Fellows, PA, NP

Small Group PracticeSmall Group Practice• More than 1 but <12 DocsMore than 1 but <12 Docs

– Most less than 6 DocsMost less than 6 Docs– Office manager not CEO approachOffice manager not CEO approach

• RevenueRevenue– Production based – may be shared equallyProduction based – may be shared equally– Shared expensesShared expenses

• Alternative RevenueAlternative Revenue– Surgery Center, Imaging Center, PTSurgery Center, Imaging Center, PT

Solo PracticeSolo Practice• 31% of all Orthopedic Surgeons 31% of all Orthopedic Surgeons

NationallyNationally• Revenue Revenue

– Production minus expensesProduction minus expenses• Alternative RevenueAlternative Revenue

– Surgery Center, MRI partnership, PT Surgery Center, MRI partnership, PT partnershippartnership

Revenue - ContractsRevenue - Contracts• AcademicAcademic

– Medicare, Medicaid, HMO, PPO, capitationMedicare, Medicaid, HMO, PPO, capitation• IntegratedIntegrated

– HMO, capitation, Medicare, Medicaid, Work compHMO, capitation, Medicare, Medicaid, Work comp• Large GroupLarge Group

– Medicare, HMO, PPO, Indemnity, Work comp Medicare, HMO, PPO, Indemnity, Work comp • Small GroupSmall Group

– Medicare, PPO, Indemnity, Work Comp, Private FFSMedicare, PPO, Indemnity, Work Comp, Private FFS• SoloSolo

– Private FFS, may or may not contractPrivate FFS, may or may not contract

Marketing FocusMarketing Focus• Practice SpecificPractice Specific

– AcademicAcademic•Rely upon host institutionRely upon host institution•Develop research ties - consultingDevelop research ties - consulting•All contracts, all comersAll contracts, all comers

– Integrated group Integrated group •Define subspecialty nicheDefine subspecialty niche•Establish research ties – consulting if possibleEstablish research ties – consulting if possible


– Large groupLarge group•Develop “Brand” approach to marketingDevelop “Brand” approach to marketing•Surgery Center, PT, Imaging CenterSurgery Center, PT, Imaging Center•Direct mail, E mail, Referring provider lettersDirect mail, E mail, Referring provider letters

– Small groupSmall group• Individual marketing to patients / providersIndividual marketing to patients / providers•Surgery Center, Imaging, PT participationSurgery Center, Imaging, PT participation•Referring provider letters, web siteReferring provider letters, web site


– Solo practiceSolo practice•Develop patient to patient networkDevelop patient to patient network•Personal interactive web sitePersonal interactive web site•Marketing to sub-specialty nicheMarketing to sub-specialty niche

– Worker’s CompWorker’s Comp•Contract only when necessaryContract only when necessary

ConclusionsConclusions• Need to understand where your Need to understand where your

practice standspractice stands– Need data to compare practice profile Need data to compare practice profile

against similar practicesagainst similar practices• Identify areas to improve financial Identify areas to improve financial

healthhealth– Fix what you can fixFix what you can fix– Market to your practice style Market to your practice style

Thank YouThank You

Health & Medicine

Improving Orthopedic Profitability