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BLOG: Orthopedic business language: The derivation of kappa, part 2
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In last month’s blog, we defined the equation: Opportunity = Delivery + Neglect, where “opportunity” is the total daily orthopedic value created in our local markets, “delivery” is the total daily orthopedic value delivered — what we do; take care of patients — in our local markets and “neglect” is the total daily orthopedic value left untreated in our local markets.
After defining the market equation, we developed a full analysis of opportunity, and its component parts: pathology; payer; and practice equity. For a chance to read or review that discussion, click here. In summary, opportunity is understood to represent all of the orthopedic value in a local market that is available for treatment, regardless of whether patients seek care. In this blog, we will focus on the delivery side of the equation, which includes two terms, delivery and neglect. The delivery side of the equation is typically more interesting to us as private practitioners, because, unlike the opportunity side of the equation, our practices have an active role in managing and manipulating these quantities.
If opportunity can be represented by the term TDOVCm, or the total orthopedic treatment opportunity that is created every day, then there must be a corresponding term for the amount of orthopedic care that is actually delivered by all practices in a given market every day. That term is “total daily orthopedic value delivered in the market,” or TDOVDm. TDOVDm is the critical concept that organizes our business framework and is therefore deserving of a unique symbol, which is represented by κ (kappa). κ is an orthopedic-specific term that correlates with total addressable market (TAM), a key business concept that chief executive officers use to organize, manage, and measure their companies’ success.
At first blush, it may seem that TDOVCm equals TDOVDm, meaning that the opportunity and delivery sides of the equation balance. However, we know this to be untrue. In fact, much of the orthopedic value created every day is not treated, but rather neglected. For a variety of reasons that we will explore, many people have an orthopedic disease for an extended time before seeking care for their complaints. Therefore, a true balance of the orthopedic market equation would be:
TDOVCm = κ + Neglect
In a perfect world, neglect would be of small magnitude. Patients with minor complaints could easily treat themselves, while patients with more bothersome complaints would face no significant barriers to engaging in orthopedic care. The result would be high patient engagement and overall better community health.
Unfortunately, we recognize neglect is high. The barriers to successfully obtaining orthopedic care are enormous: difficulty in gaining an appointment; high (and increasing) out of pocket costs; and the natural tendency of many patients to procrastinate when it comes to seeking better health, among many other reasons. So, we must recognize the neglect component is large, which causes further orthopedic and medical problems, more expensive treatments and inefficiencies in our practices due to the creation of uneven staffing demands during uneven demand cycles (eg, January delivery of care is lower than December delivery of care simply due to resetting of insurance deductibles).
Quantifying the delivery
As stated above, TDOVCm is generated every day. Within each market, practices seek to treat this volume of orthopedic opportunity. Building a practice to treat this pathology is far from a passive process. The practice management process is complex. It requires obtaining facilities and managing the personnel, supplies, systems, and contracts necessary to provide orthopedic care, which requires large sums of capital, planning and risk. Without an intellectual approach, sustained success is unlikely.
Due to these complexities, it is useful to apply an industrial construct to the task of efficient practice management. As in a factory, the practice has a production workforce (providers with available appointments) and a mechanism to fill that capacity (appointment team). Once a patient engages the practice, providers use practice-supplied ancillary processes to diagnose and treat the problems borne by these patients. Revenue is not only derived from the output of the workforce, it is also importantly derived from the ancillary mechanisms themselves. This realization of compounded revenue production doubly reinforces the need for the appointment team to load the “factory” with the elements of TDOVCm most beneficial to the practice every day, especially considering there is a finite capacity of patient volume the practice can manage.
Reproduced in Figure 1 is the graph of TDOVCm, explained and published last month, and summarized in the review of opportunity at the beginning of this post.
If the goal of our practices is to maximize the volume of orthopedic value we deliver every day and there is a limit to the number of patients that can be seen, then it becomes apparent from the diagram above that carefully selecting the encounters to be seen is of critical importance. In other words, if you can only see four of the encounters represented in Figure 1, then it is intuitive that you would choose the four of highest apparent mass. This is referred to as “maximizing κ.”
Max κ is our goal. Max κ requires preferentially scheduling encounters where the patients derive significant orthopedic benefit (large x axis component), payer relationships are strong (large y axis component) and the practice derives significant equity from each encounter (z axis component). In contrast, we should meticulously avoid encounters that do not treat active pathology, have poor payer relationships and generate little practice equity.
Figure 1. The entity closest to the origin has a relatively small x measure (perhaps representing an ankle sprain), but has a large y measure (a strong payer). By contrast, the eighth entity from the origin has a large x measure (perhaps a displaced fracture), but has a small y measure (a weak payer). By combining these two variables, we can appreciate a good visual representation of the revenue opportunity for each potential orthopedic encounter created in the market during the past 24 hours.
Few words about neglect
Doctors, in aggregate, routinely get blamed for performing excessive tests and procedures that are not needed. Policy pundits speculate the cost of U.S. health care could be dramatically reduced if the system stopped “paying doctors to do more, but rather to provide better quality.” Lost in this narrow focus is the other side of the coin: the large quantity of untreated or neglected pathology— people who do not seek care or obtain little care. A casual stroll around a suburban shopping mall provides clear visual evidence that neglected pathology far outweighs excessive care. There are many reasons for this, but the media focus on lack of health care insurance as a prime cause. If that were true, then the 90% of Americans with health insurance would be represented by 90% of Americans displaying good health, which is not the case. Far more likely is that millions of Americans with good insurance coverage do not seek care for their complaints. The hurdles to health care are many and all parties must share in the blame, not just doctors. But, to the extent that doctors cause some of those hurdles, we must recognize and correct them. Antiquated, customer-unfriendly appointment processes that do not take maximal advantage of mobile/internet-based technology, clinics that run hopelessly behind and only during bankers’ hours, and overreliance on poorly designed appointment algorithms that have no feedback loops and are never corrected are a few of the many inefficiencies and frustrations that keep millions of people who would benefit from our services from seeking care.
Putting it all together
Now that we have fully defined each of the components of the orthopedic market equation, we can see how they relate to each other diagrammatically (Figure 2).
As doctors, our primary obligation is to the health of people in our local health care markets. The diagram above is useful in terms of helping us to understand how we can affect each of the three core components of the market equation. A sound and comprehensive business strategy necessitates actively working in all three areas.
TDOVCm can be thought of as “population health,” something that we are morally obligated to consider. How can an orthopedic surgeon participate in population health? Sponsoring community health events that raise awareness of good musculoskeletal health (such as 10k races), emphasizing the proper wear of protective equipment at all levels of athletics, standing on the sidelines during athletic events, emphasizing safety in motorcycle, ATV and motor vehicle usage, and speaking about the hazards of intoxicants are a few ways we can satisfy our duty and responsibly shrink the size of the opportunity side of the equation.
In terms of neglect, we can have a positive effect by actively working with hospitals, payers and patient advocacy groups in our markets to increase access to care, regardless of arbitrary, man-made problems — such as price opacity — and by designing appointment mechanisms that are simple for patients to use and available at any time they desire, among many other strategies. Shrinking the neglect area of the diagram will pay large dividends to patients, as well as our practices.
Finally, in terms of κ, or total orthopedic delivery of care, we need to ensure our practice resources are used efficiently and that we always strive to maximize the work product we are delivering throughout the day. That means using a cognitive system to stratify access to our clinics based on expected return on investment for each encounter’s pathology, payer relationship and practice equity. Cognitive appointment mechanisms now exist that can accurately provide “decision support” to appointment staff, ensuring that patient appointments are smart-routed to the correct service line, level of provider, location and urgency of care to maximize productivity. “Max κ” should be an integral part of our practices’ mission and vision statements.
Just as orthopedic surgeons rely on their technical language to improve clinical understanding and facilitate good care, private practice doctors would benefit from understanding business language. However, business language that is useful to executives in retail and manufacturing industries needs to be refined to speak to the challenges orthopedic surgeons face in managing their practices. For this reason, we have defined useful terms and introduced a conceptual framework that is specific to the orthopedic surgery market. To survive and thrive as private practitioners, we need to focus on all three of the orthopedic market variables — minimizing unnecessary TDOVCm (opportunity), minimizing neglect and always maximizing κ!
John “Jay” Crawford, MD, is a partner at Knoxville Orthopaedic Clinic and founder of nextDoc Solutions, a software company that builds custom apps for orthopedic surgery practices. His primary interest is helping private-practice orthopedic surgeons discover and implement strategies to ensure robust and sustainable business performance in a consumer-driven health care environment.