Improving Orthopedic Profitability


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Improving Orthopedic Profitability as presented by Dr. Tom Grogran.

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Improving Orthopedic Profitability

  1. 1. Improving Orthopedic Profitability
  2. 2. Profit Not a four letter word
  3. 3. General Rules <ul><li>Two approaches to increasing profit </li></ul><ul><ul><li>Enhance revenue </li></ul></ul><ul><ul><li>Cut costs </li></ul></ul><ul><li>Time / work is limited </li></ul><ul><ul><li>Can only increase own work so much </li></ul></ul><ul><li>You can only control what you can control </li></ul><ul><ul><li>Contracts are rarely negotiable </li></ul></ul><ul><ul><ul><li>Contract leverage is rare </li></ul></ul></ul><ul><ul><li>Cost containment is difficult </li></ul></ul>
  4. 4. Changing Times <ul><li>Employer Sponsored Healthcare (ESHC) is evolving </li></ul><ul><ul><li>Covering 80.3% of non-elderly adults </li></ul></ul><ul><ul><li>Down from 85.3% in 1998 </li></ul></ul><ul><li>Total healthcare spending is in excess of $1.8 trillion dollars </li></ul><ul><li>Within ESHC there is a shift toward the employee paying for more in terms of premiums, deductibles and co-pays </li></ul>
  5. 5. Changing Times <ul><li>Insurers continue to try to limit their medical loss ratio </li></ul><ul><ul><li>Restrictive contracting with “proprietary” fee schedules make contracting difficult to manage </li></ul></ul><ul><ul><li>ASO contracts are growing </li></ul></ul><ul><li>Medicare continues to look to limit surgeons fees – joints, hip fractures </li></ul><ul><li>Medicaid (Medi-Cal) is growing in numbers especially through the SCHIP program </li></ul><ul><li>Worker’s Comp reforms are tough to manage </li></ul><ul><ul><li>Surgery Centers took the biggest hit </li></ul></ul>
  6. 6. Changing times <ul><li>Patients are being asked to pay more </li></ul><ul><ul><li>Deductibles, co-pays, exclusions </li></ul></ul><ul><ul><li>More first dollar costs are being put on to patients </li></ul></ul><ul><li>Practices need to be prepared to handle these changes </li></ul><ul><ul><li>Patient Centric care is coming </li></ul></ul>
  7. 7. Understanding Our Craft <ul><li>June 2006 Orthopedic Manpower Report </li></ul><ul><ul><ul><li>24,015 AAOS members – 13,679 responded </li></ul></ul></ul><ul><ul><ul><li>75% of members are fellows </li></ul></ul></ul><ul><ul><li>Workforce is aging – average 49.8 years </li></ul></ul><ul><ul><ul><li>15% under age 40, 5% > age 70 </li></ul></ul></ul><ul><ul><li>Workforce increased by 500 surgeons, but overall density declined </li></ul></ul><ul><ul><ul><li>California added 113 surgeons </li></ul></ul></ul><ul><ul><li>Generalist 29%, specialist 39%, mixed 32% </li></ul></ul><ul><ul><li>Private practice 81% </li></ul></ul><ul><ul><ul><li>31% solo practice, 60% group, 9% multi-specialty </li></ul></ul></ul><ul><ul><ul><li>42% have academic appointment (74% non-comp) </li></ul></ul></ul><ul><ul><ul><li>85% of academicians are specialists </li></ul></ul></ul><ul><ul><ul><ul><li>8% of all orthopedists are academicians </li></ul></ul></ul></ul>
  8. 8. Understanding Our Craft <ul><li>June 2006 Orthopedic Manpower Report </li></ul><ul><ul><li>Fellowships – 28% sports medicine </li></ul></ul><ul><ul><ul><li>Hand 20%, Spine 14% </li></ul></ul></ul><ul><ul><li>8% hand CAQ, but 22% list as specialty </li></ul></ul><ul><ul><li>1 in 10 received research funding in past 5 years </li></ul></ul><ul><ul><li>Hours worked </li></ul></ul><ul><ul><ul><li>Academic 69, HMO 53.9 </li></ul></ul></ul><ul><ul><ul><ul><li>Solo 61.5, group 60.6 </li></ul></ul></ul></ul><ul><ul><ul><li>2 in 3 take trauma call </li></ul></ul></ul><ul><ul><ul><ul><li>Only 25% receive compensation </li></ul></ul></ul></ul><ul><ul><ul><li>Income proportional to hours except in academics </li></ul></ul></ul>
  9. 9. Understanding Our Craft <ul><li>June 2006 Orthopedic Manpower Report </li></ul><ul><ul><li>Payer mix Managed care 32% , Medicare/ Medicaid 33%, Work comp 12%, Private pay 16%, 4% pro-bono </li></ul></ul><ul><ul><li>Average number of cases per month – 32 </li></ul></ul><ul><ul><ul><li>Arthroscopy of the knee still most common </li></ul></ul></ul><ul><ul><ul><li>245 surgeon reported doing at least 4 spinal disc replacements per month </li></ul></ul></ul>
  10. 10. Understanding Our Craft <ul><li>June 2006 Orthopedic Manpower report </li></ul><ul><ul><li>Retirement </li></ul></ul><ul><ul><ul><li>10% of respondents retired </li></ul></ul></ul><ul><ul><ul><li>Mean age 59 </li></ul></ul></ul><ul><ul><ul><li>12% retired before age 65, 46% retired after age 70 </li></ul></ul></ul><ul><ul><li>8% expect to retire within 2 years </li></ul></ul><ul><ul><ul><li>13% of generalists </li></ul></ul></ul>
  11. 11. Benchmarking <ul><li>Data is key in making practice management decisions </li></ul><ul><ul><li>Need information from outside the practice to decide where to focus energy </li></ul></ul><ul><ul><li>Not following other examples </li></ul></ul><ul><ul><ul><li>Rather compare outcomes </li></ul></ul></ul><ul><ul><ul><ul><li>For example – x-ray revenue / costs: Ankle series </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cost fully loaded $6 per film = $18 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Net revenue $72 per series </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Profit $54 </li></ul></ul></ul></ul>
  12. 12. Evaluate New Technologies <ul><li>Cost / Benefit approach to capital investment </li></ul><ul><ul><li>Need to justify investment – return on investment </li></ul></ul><ul><li>PACS system </li></ul><ul><ul><li>Digital based – easy approach to EMR </li></ul></ul><ul><ul><li>Cost: $50,000 plus $2,000 per quarter or $666 per month </li></ul></ul><ul><ul><ul><li>Current x-ray - $6 per film </li></ul></ul></ul><ul><ul><ul><ul><li>Average 80 per day – 1,600 per month = $9,600 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Tech cost $4,000 per month - so real cost $5,600 per month </li></ul></ul></ul></ul><ul><ul><ul><li>Save $4,934 per month or $59,208 per year </li></ul></ul></ul>
  13. 13. Areas of Financial Impact <ul><li>Revenue Enhancement </li></ul><ul><li>Contracting, Collections, Credit cards </li></ul><ul><li>Imaging, Surgery Center, PT </li></ul><ul><li>Cost Control </li></ul><ul><li>Rent, Personnel, Soft goods, Insurance </li></ul><ul><li>Wealth Preservation </li></ul><ul><li>Pension, Tax strategy, Retirement planning </li></ul>
  14. 14. Key: Practice Specific Data <ul><li>Financial variables must be measured </li></ul><ul><ul><li>Practice overhead </li></ul></ul><ul><ul><li>How many employees </li></ul></ul><ul><ul><ul><li>Benefits, 401K, Pension, PTO </li></ul></ul></ul><ul><ul><li>Fully loaded cost per office visit </li></ul></ul><ul><ul><li>X-rays costs including cost per click </li></ul></ul><ul><ul><li>Collections percentage – payer specific </li></ul></ul><ul><ul><ul><li>Credit card utilization </li></ul></ul></ul><ul><ul><li>Contract revenue per work RVU </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><ul><li>Medical Malpractice, Office liability, Worker’s comp </li></ul></ul></ul><ul><ul><li>Soft goods, disposables, braces </li></ul></ul>
  15. 15. Key: Practice specific Data <ul><li>Measure work RVUs </li></ul><ul><li>Understand your revenue per wRVU, cost per wRVU </li></ul><ul><ul><li>Compare your data to other similar practices </li></ul></ul><ul><ul><li>Understand what you need to focus on </li></ul></ul><ul><li>Do not copy other practice styles, refine your practice by comparing data metrics with other similar practices </li></ul>
  16. 16. Work RVU Data <ul><li>National Data - 2006 </li></ul><ul><ul><li>By specialty : # Docs Median wRVU </li></ul></ul><ul><ul><ul><li>Spine 77 9,716 </li></ul></ul></ul><ul><ul><ul><li>Pediatrics 60 7,533 </li></ul></ul></ul><ul><ul><ul><li>Sports 81 8,299 </li></ul></ul></ul><ul><ul><ul><li>Foot / Ankle 42 7,649 </li></ul></ul></ul><ul><ul><ul><li>General 37 5,910 </li></ul></ul></ul><ul><ul><ul><li>Hand 66 8,571 </li></ul></ul></ul><ul><ul><ul><li>Trauma 73 7,891 </li></ul></ul></ul><ul><ul><ul><li>Shoulder 23 8,608 </li></ul></ul></ul><ul><ul><ul><li>Joints 69 8,480 </li></ul></ul></ul>
  17. 17. Focus on Marketing <ul><li>Focus on what you can control </li></ul><ul><ul><li>Determine what area of practice you want to grow or expand </li></ul></ul><ul><ul><li>Identify your marketing target </li></ul></ul><ul><ul><li>Goal oriented approach </li></ul></ul><ul><li>Measure impact of marketing </li></ul><ul><ul><li>Number of patients </li></ul></ul><ul><ul><li>Improved W2 </li></ul></ul>
  18. 18. Goal <ul><li>The Goal of successful Marketing is to have the ability to increase both practice efficiency and profitability without having to increase the amount of work performed </li></ul>
  19. 19. Approach to Marketing <ul><li>Understand your particular type of practice </li></ul><ul><ul><li>Academic, Group, HMO, Solo </li></ul></ul><ul><li>Determine what makes money for your practice and what does not </li></ul><ul><ul><li>Define Profit Centers </li></ul></ul><ul><li>Focus approach to enhance those profit centers </li></ul><ul><ul><li>Determine target for marketing those profit centers </li></ul></ul><ul><ul><li>Detail a marketing game plan to enhance profit centers </li></ul></ul>
  20. 20. Practice Specific <ul><li>Need to understand type of practice </li></ul><ul><li>Need to define goals </li></ul><ul><li>Need a general game plan </li></ul><ul><li>Execute the game plan </li></ul>
  21. 21. Type of Practice <ul><li>Academic </li></ul><ul><li>Integrated Group Model </li></ul><ul><li>Large Group Practice </li></ul><ul><li>Small Group Practice </li></ul><ul><li>Solo Practice </li></ul>
  22. 22. Academic Practice <ul><li>Clinical work, teaching, research </li></ul><ul><li>Revenue models </li></ul><ul><ul><li>Salary </li></ul></ul><ul><ul><li>Salary plus production </li></ul></ul><ul><ul><li>Private practice with “Dean’s” tax </li></ul></ul><ul><li>Alternative Revenue </li></ul><ul><ul><li>University stipend, pension </li></ul></ul>
  23. 23. Integrated Group <ul><li>Large Multispecialty </li></ul><ul><ul><li>Kaiser, Hill Physicians </li></ul></ul><ul><li>Revenue </li></ul><ul><ul><li>Salary </li></ul></ul><ul><ul><li>Salary plus bonus </li></ul></ul><ul><ul><li>Partnership </li></ul></ul><ul><li>Alternative Revenue </li></ul><ul><ul><li>Limited to bonus calculations </li></ul></ul>
  24. 24. Large Group Practice <ul><li>Greater than 12 Docs </li></ul><ul><ul><li>SCOI for example </li></ul></ul><ul><li>Revenue </li></ul><ul><ul><li>Partnership based / tiered </li></ul></ul><ul><ul><li>Production based minus expenses </li></ul></ul><ul><ul><li>Production minus expenses minus partner “tax” </li></ul></ul><ul><li>Alternative Revenue </li></ul><ul><ul><li>Surgery Center, Imaging Center, PT </li></ul></ul><ul><ul><li>Physician Extenders – Fellows, PA, NP </li></ul></ul>
  25. 25. Small Group Practice <ul><li>More than 1 but <12 Docs </li></ul><ul><ul><li>Most less than 6 Docs </li></ul></ul><ul><ul><li>Office manager not CEO approach </li></ul></ul><ul><li>Revenue </li></ul><ul><ul><li>Production based – may be shared equally </li></ul></ul><ul><ul><li>Shared expenses </li></ul></ul><ul><li>Alternative Revenue </li></ul><ul><ul><li>Surgery Center, Imaging Center, PT </li></ul></ul>
  26. 26. Solo Practice <ul><li>31% of all Orthopedic Surgeons Nationally </li></ul><ul><li>Revenue </li></ul><ul><ul><li>Production minus expenses </li></ul></ul><ul><li>Alternative Revenue </li></ul><ul><ul><li>Surgery Center, MRI partnership, PT partnership </li></ul></ul>
  27. 27. Revenue - Contracts <ul><li>Academic </li></ul><ul><ul><li>Medicare, Medicaid, HMO, PPO, capitation </li></ul></ul><ul><li>Integrated </li></ul><ul><ul><li>HMO, capitation, Medicare, Medicaid, Work comp </li></ul></ul><ul><li>Large Group </li></ul><ul><ul><li>Medicare, HMO, PPO, Indemnity, Work comp </li></ul></ul><ul><li>Small Group </li></ul><ul><ul><li>Medicare, PPO, Indemnity, Work Comp, Private FFS </li></ul></ul><ul><li>Solo </li></ul><ul><ul><li>Private FFS, may or may not contract </li></ul></ul>
  28. 28. Marketing Focus <ul><li>Practice Specific </li></ul><ul><ul><li>Academic </li></ul></ul><ul><ul><ul><li>Rely upon host institution </li></ul></ul></ul><ul><ul><ul><li>Develop research ties - consulting </li></ul></ul></ul><ul><ul><ul><li>All contracts, all comers </li></ul></ul></ul><ul><ul><li>Integrated group </li></ul></ul><ul><ul><ul><li>Define subspecialty niche </li></ul></ul></ul><ul><ul><ul><li>Establish research ties – consulting if possible </li></ul></ul></ul>
  29. 29. Marketing Focus <ul><li>Practice Specific </li></ul><ul><ul><li>Large group </li></ul></ul><ul><ul><ul><li>Develop “Brand” approach to marketing </li></ul></ul></ul><ul><ul><ul><li>Surgery Center, PT, Imaging Center </li></ul></ul></ul><ul><ul><ul><li>Direct mail, E mail, Referring provider letters </li></ul></ul></ul><ul><ul><li>Small group </li></ul></ul><ul><ul><ul><li>Individual marketing to patients / providers </li></ul></ul></ul><ul><ul><ul><li>Surgery Center, Imaging, PT participation </li></ul></ul></ul><ul><ul><ul><li>Referring provider letters, web site </li></ul></ul></ul>
  30. 30. Marketing Focus <ul><li>Practice Specific </li></ul><ul><ul><li>Solo practice </li></ul></ul><ul><ul><ul><li>Develop patient to patient network </li></ul></ul></ul><ul><ul><ul><li>Personal interactive web site </li></ul></ul></ul><ul><ul><ul><li>Marketing to sub-specialty niche </li></ul></ul></ul><ul><ul><ul><ul><li>Worker’s Comp </li></ul></ul></ul></ul><ul><ul><ul><li>Contract only when necessary </li></ul></ul></ul>
  31. 31. Conclusions <ul><li>Need to understand where your practice stands </li></ul><ul><ul><li>Need data to compare practice profile against similar practices </li></ul></ul><ul><li>Identify areas to improve financial health </li></ul><ul><ul><li>Fix what you can fix </li></ul></ul><ul><ul><li>Market to your practice style </li></ul></ul>
  32. 32. Thank You