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Physician-owned ancillary care facilities can provide financial boost
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With physician compensation for professional services under constant scrutiny, especially in a fragile economy it may be beneficial for orthopedists to open physician-owned ancillary care facilities as a way to bolster their practice’s bottom line. A number of practices have found success in opening up ambulatory surgery centers and/or providing advanced imaging, occupational health and physical therapy.
Physician management and close physician involvement in day-to-day operations are keys to profitability, according to Carlos A. Prietto, MD, a partner and orthopedic surgeon at Orthopaedic Specialty Institute Medical Group of Orange County, Calif. On site are MRI, physical therapy (PT) and an ambulatory surgery center (ASC); off site is an orthopedic specialty hospital. “We have structured ourselves with a managing partner and a management committee that works closely on all aspects of the practice,” Prietto said. There are also subcommittees for items such as human resources, IT and space planning.
Close management
The management team and subcommittees meet on a regular basis, Prietto said. “We also watch and follow contracts with payers. We actively negotiate with the payors for our practice, primarily as it relates to physician services, but also for MRI, PT and the ASC.”
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Image: Orthopaedic Specialty Institute |
All of the partners are actively involved in the ancillary services. The management committee members also receive compensation, he said.
For an MRI investment to be successful, a practice needs to schedule a minimum number of appointments per day, whether it is a solely or jointly owned service. “We use our own MRI,” Prietto said. “One radiology group reads all of the studies. Not only are our films good, but our interpretations are of very high quality.”
One challenge, though, has been reimbursement for PT, which has decreased over the years. As a result, the medical group monitors the PT practice very closely and follows that practice relative to the norms for the area. Margins have decreased over the past 4 to 5 years, Prietto said.
“We also want to make sure that our quality is good without being overstaffed,” Prietto said. Coding needs to be appropriate and accurate, too.
To market ancillary services, the medical group has a website and some of the physicians have individual pages within the site. “A number of our doctors are also involved in sports medicine and take care of teams,” Prietto said. “Although a lot of this is pro bono work, but people see us out on the field and then often come to us for care.”
Quality management
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“Within our own practice, we control the quality of our ancillaries,” said Stephen S. Burkhart, MD, the managing partner at The San Antonio Orthopaedic Group, in Texas. “If you send a patient out for physical therapy or for an outside MRI, sometimes the quality is lacking.”
Among the group’s ancillary services are imaging (X-ray, MRI, CT), PT and occupational therapy (OT), electromyography (EMG) and an ASC, either at the main site or at any of their six satellite facilities.
“The ancillary revenue streams can add a significant amount to your overall income,” Burkhart said. “However, we don’t market our services to other doctors.”
By having 21 surgeons, The San Antonio Orthopaedic Group has “the critical mass to support the ancillaries and the critical mass to effectively negotiate contracts,” Burkhart, who is an Orthopedics Today Editorial Board member, said. Favorable contracts are easier to negotiate for the group practice because of its name recognition and number of locations. “Large employers want their people to be able to be seen near their home or their work place,” Burkhart said.
Staffing for ancillary services provided by the group practice has also allowed access to be more flexible. “Our MRI facilities are open until 11 p.m.,” Burkhart said. “The MRI technicians from the hospital desire the extra income, so they’ll come in and work a 4-hour evening shift. These technicians are pretty easy to find.” The ASCs also attracts employees because of the guaranteed hours: a 40-hour work week with no emergency cases.
“None of us know what is really going to happen under health care reform,” Burkhart said. “But by having the critical mass to branch out into these different areas of ancillary care, I think this will help you survive in private practice. However, it’s going to get tougher and tougher to do.”
The Stark law is phases of federal legislation that governs self-referral for Medicare and Medicaid patients. The first phase (clinical laboratory services) took effect in 1992, and the law now covers 11 health services, including imaging, durable medical equipment (DME), prosthetics, orthotics and PT. According to David M. Glaser, JD, a health care attorney at Fredrikson & Byron in Minneapolis, Minn., the Stark law “primarily creates restrictions on the methodology for distributing income. Stark also limits the ownership structure for ancillaries, These restrictions, though, should not deter physicians from operating ancillaries.”
Stark misconceptions
Glaser said that as long as a physician is supervising a service consistent with the way Medicare expects the service to be supervised, and at a centralized location controlled by the physician 24 hours a day, 7 days a week, “you should generally be good to go.” However, he noted that one of the largest misconceptions of Stark is that the money needs to be divided evenly, such as among all the individual physicians in a group. In reality, monetary distribution “does not have to be equal, it just can’t be based on who ordered the service.” Hence, income can be divided based on professional productivity, seniority or preassigned shares.
Some individual states have similar anti-self-referral laws, with New Jersey, Florida and California being fairly restrictive. In contrast, states like Iowa, South Dakota and Wyoming have few limits on self-referral. Regardless, effective January 1, the Stark law requires that any group practice relying on the “in-office ancillary exception” offering MRI, CT or PET provide a written notice to patients that they are free to go elsewhere for such service. Patients must also be given a list of at least five other suppliers that offer the same modality.
“I would recommend giving the notice to all patients, not just Medicare patients,” Glaser said.
Similarly, in January, the Maryland state appeals court tightened the noose of self-referral for radiation therapy, MRIs and CT scans by siding with a 2007 lower court decision. “This makes it very difficult for physicians in Maryland to own an MRI in their practice,” said Glaser, who feels the ruling is misguided. “There’s a serious lack in logic. People have talked about self-referral as a terrible thing. Any professional industry by definition involves self-referral. You’re going to that profession to ask if you need its help.”
Jack M. Bert, MD, an orthopedic surgeon at Summit Orthopedics in Saint Paul, Minn., said there are currently 38 states that require a certificate of need (CON) from the state health department to add an ancillary service to a practice.
“The top three ancillary services available are ASCs, MRI and PT departments,” he said. “However, hospitals are lobbying very aggressively to not allow physicians to own their ancillary services.”
Mergers
Meanwhile, an umbrella merger, whereby ancillary services are owned by two or more individual physicians or physician groups in a loose association, can be lucrative, although a common pension plan and a common provider number are required, Bert, Orthopedics Today Business of Orthopedics Section Editor, said. One advantage of an umbrella merger “is it gives you the ability to negotiate contracts with insurers, with some negotiating clout.”
Summit Orthopedics has a solely owned ASC, a joint-venture ASC with a hospital, several PT departments, an OT department, numerous MRI locations and a center for DME. To be successful, Bert recommends a pro forma analysis be performed as a way to determine if a market exists for a particular ancillary service.
“For example, if you are in a highly managed-care environment, most of these contracts may specifically state that you need to do your surgery, PT and MRIs at the managed-care market facilities from which you receive your referrals,” Bert said. “This is a huge problem across the country. So make sure that you look at your payer relationships and your payer contracts, so you know if you can sustain a viable ancillary service market volume.”
When negotiating with payers, ancillaries may need to be discounted “to make them inviting to those payers,” Bert said. Appropriate staffing levels for ancillary services are also critical. “You don’t want to overstaff,” Bert said.
Quick care clinics
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Keith D. Bjork, MD, is a founding partner at Amarillo Bone & Joint Clinic in Amarillo, Texas — the main clinic of which houses a prompt care clinic that started about 6 years ago. “My partner and I discovered that as we became more in demand, there weren’t enough clinic hours to see all the patients requesting our services,” Bjork said. “The prompt clinic concept was basically developed as a way to capture more patients quickly and efficiently by a qualified orthopedic provider under our direct supervision. Patients and referring physicians benefit by improved access to our specialty clinic, and we are able to provide immediate surgical and nonsurgical management of most orthopedic problems. Urgent orthopedic problems are seen by the prompt clinic and immediately brought to the main clinic for definitive management by one of our four orthopedic surgeons.”
Bjork said the prompt clinic has been profitable, but with a sizable initial investment. “You basically need to create a full-service orthopedic office, and that can cost several hundred thousand dollars to set up correctly,” he said. “A digitized radiographic system and electronic medical record that communicates with the main clinic is critical to the success of the quick care clinic concept. The prompt clinic provider must be well trained and in close communication with the main clinic physicians.”
Having the right personnel in place and hours of operation that are convenient for patients are important as well. “When urgent orthopedic care is required, the staff needs to complete and initial work up and then deliver the patient quickly and efficiently to the main clinic,” Bjork said.
An in-office MRI is shared by both clinics. “It is imperative that the insurance companies approve your imaging facility and that your provider contracts/agreements are in place in order to be paid appropriately,” Bjork said. “Patients love our one-stop shop.” For instance, a patient with an injured knee can be seen in the prompt clinic as a walk-in, have an initial evaluation and X-rays, followed by MRI if clinically indicated. If the problem is surgical, the patient can be triaged to the main clinic for surgical scheduling. The entire process saves the patient and insurance provider time and money.
“We are living in an era of cost containment and it is our responsibility to provide accurate diagnoses and efficient care,” Bjork said. “We also partner with a local hospital system that owns two surgical hospitals.
“Most physicians who are involved in ancillaries will say that a good percentage of their income actually comes from ancillary services. We strive hard to ensure that these ancillary services are efficient and cost-effective to the patient. We strictly abide by the laws governing physician ownership of ancillary services, and accept the ethical responsibilities associated with that ownership. As a byproduct, there are profits to be made, but not at the expense of quality or service.” – by Bob Kronemyer
- Jack M. Bert, MD, can be reached at Summit Orthopedics, 17 Exchange St. West, 307 Gallery Medical Building, Saint Paul, MN 55102; 651-223-9204; e-mail: bertx001@tc.umn.edu.
- Keith D. Bjork, MD, can be reached at Amarillo Bone & Joint Clinic, LLP, 3501 Soncy, Suite 129, Amarillo, TX, 79119; 806-468-9700; e-mail: kbjorkmd@aol.com.
- Stephen S. Burkhart, MD, can be reached at The San Antonio Orthopaedic Group, 400 Concord Plaza Drive, Suite 300, San Antonio, TX 78216; 210-489-7220; e-mail: sburkhart@satx.rr.com.
- David M. Glaser, JD, can be reached at Fredrikson & Byron, P.A., 200 South Sixth St., Suite 4000, Minneapolis, MN 55402; 612-492-7143; e-mail: dglaser@fredlaw.com.
- Carlos A. Prietto, MD, can be reached at Orthopaedic Specialty Institute Medical Group of Orange County, 280 S. Main St., Suite 200, Orange, CA 92868; 714-634-4567; e-mail: capchino@cox.net.
What do orthopedic surgeons need to know before adding ancillary services to their practice?
It isn’t all about the money
Here’s a paradox: Income is not the most important reason to add ancillaries. If you are serious about adding ancillaries, first take a long look at what you can accomplish. Supplementing income is often the first thought, but if that is your only goal think twice. There is so much more to be gained.
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First, visualize the entire arc of the patient experience from the time you receive a referral until you release the patient. If you can control every critical phase of that arc then you will gain greater control over your outcomes. Better outcomes mean stronger referral relationships and more patients. Take stock of what aspects of that care you now control and which are controlled by others. Now prioritize — which ancillaries would allow you to better control the outcome for your particular patients? The one that sticks out to many is the operating room. Controlling the schedule, equipment and personnel touching your patient can make a big difference. Perhaps imaging would stand out for some and physical therapy for others. Make your first ancillary the one that makes the biggest impact, and then add others in priority order. Choose to control the patient experience and you will enhance your outcomes and drive referrals to your door.
Don’t dabble
Don’t dabble in an ancillary. Make it as perfect as you make your surgery.
Avoid ancillaries not on the critical path to success for your patient. After you carefully plan the ancillary service you have to convince your partners to use it. Unless they can see a direct benefit to their patients it will be hard to change their practice pattern. Some ancillaries such as nutraceuticals or outpatient pharmacy may be important health care services, but if your partners don’t see a direct link toward better outcomes they may not utilize the service even if they invest in it. It takes time and effort to demonstrate that the new ancillary is effective.
How does it look?
Finally, think about how your ancillary service would look on the front page of the local newspaper. If you can envision the public being proud, then you are on the right track. If it sounds like you may supply the critics with ammunition to deride the “greedy doctors,” then come up with a different plan.
Ancillaries are an investment of time, money and reputation. Think it through carefully so that you maximize your control over the patient outcome. If you give the patient a fabulous care experience then you will have a successful ancillary. I am not saying you should ignore the financial side. You have to win the financial game to win the clinical game. They go together, but if you do it only for the money you’ll never have enough.
John W. Dietz Jr., MD, is an
orthopedic spine surgeon at OrthoIndy and Indiana Orthopaedic Hospital (IOH).
He is the chairman of the board for IOH.
The game is changing; We have a revenue problem
In today’s challenging practice environment, the generation of revenue is more critical than ever to assure a successful practice. In the past, revenue production was tied primarily to orthopedic work product. To put it simply, if the average orthopedic surgeon desired an increase in take home pay, he or she only needed to see additional patients or perform more operative cases. The cost to operate a practice was relatively insignificant compared to the revenue provided by payers for orthopedic work. Even when payers began to clamp down on reimbursements; surgeons countered by focusing on cutting costs to maintain a healthy profit margin.
It is about revenue
The game is changing. Third-party payers are under pressure to limit reimbursement to physicians in order to keep premiums affordable. Medicare has taken the lead in holding the line on increasing reimbursements even to match inflation. The Sustainable Growth Rate (SGR) formula in fact, if fully applied this year, would decrease reimbursements for all physicians more than 25%. Although it is unlikely Congress will go along with such a radical reduction, even the most optimistic physician expects flat-to-slightly-negative reimbursements for services in the near future. At the same time office expenses continue to rise, our staffs still want raises, rents, soft good, supplies, and even the cost of insurance are expected to continue to climb. The ability to control costs by becoming more efficient in the office is becoming much more problematic. In short we do not have a cost problem, we have a revenue problem.
The answer has to be to find a way to leverage what we do as orthopedists and develop lines of ancillary revenue that will enable our practices to not only survive, but to thrive and grow. Remember that orthopedic-related health care accounts for 12% of all health care spending. One out of every $8 spent on health care is ordered by an orthopedic Surgeon. Put another way, 20,000 practicing orthopedic surgeons control over $300 billion in spending in the United States. To put this power into context, the gross domestic product (GDP) of the United States in 2011 is estimated to be $15 trillion – as orthopedic surgeons we will be responsible for 2% of the total GDP of the United States. We simply need to learn how to leverage this power to help our practices.
More time for care
Adopting lines of ancillary revenue means learning to monetize your patient base by adding goods and services related to orthopedics, but not provided directly by the surgeon. We all know that X-rays taken in the office can be a boost to the practice bottom line. What we need to learn is how to adopt other revenue producing modalities such as: ultrasound; MRI; brace and splint sales; nutraceuticals; developing a surgery center; acting as an implant distributor; use of physician assistants, nurse practitioners, and athletic trainers; and other creative solutions serve to make our practices more profitable and thereby more sustainable. By boosting ancillary income we will again have more time for direct patient care and a much healthier personal lifestyle.
Thomas Grogan, MD, is a practicing
pediatric orthopedist in Santa Monica, California and the chair of the American
Academy of Orthopaedic Surgeons’ Practice Management Committee.