GENERATING NON SURGICAL INCOME
Revenue diversification is essential for orthopedic practices to thrive. This presentation emphasizes the significance of creating ancillary revenue streams, exploring common ancillary lines, and highlighting the impact on private practice sustainability. Physicians are urged to carefully plan and execute ancillary strategies to avoid long-term financial challenges. Learn about ancillary revenue's vital role in contemporary orthopedic surgery practices and the potential pitfalls to navigate.
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GENERATING NON SURGICAL INCOME John R. Corsetti, M.D. New England Orthopedic Surgeons Springfield, MA
Disclosure I have nothing to disclose
Goals of Presentation Convey the importance of creating ancillary streams of revenue Outline the most commonly used ancillary lines Raise awareness that not all ancillaries work in all practices Use 4 common ancillaries to demonstrate the process Heighten awareness that private practice viability is increasingly dependent on ancillary revenue streams. Take Home Take Home: Ancillary revenue is vital to the success of orthopedic surgery practices today, but planning and execution must be done precisely, or a potentially long term negative cash flow situation can be created.
4 Ancillaries to Discuss Physician Assistants/Extenders Personnel, group based Personnel, group based Ambulatory Surgery Center Hospital JV v. Group Hospital JV v. Group Medical Legal Individual Individual Physical Therapy Service, group based Service, group based
Decisions, decisions Physical Therapy Surgery Center (ASC) DME Co-management Agreement Urgent Care Center On Call Compensation Physician Extenders Medical Legal MRI/Ultrasound
ASC CoMgt PT CallComp UCC ORTHOPEDIC SURGICAL PRACTICE MRI Legal DME PA s
Ancillary Revenue Lines Separate businesses from orthopedic surgical practice, about which you know very little as a physician. Ancillary must meet need for highest quality, uncompromised patient care FIRST FIRST Theory: Theory: Physician managed patient care is, in general, better run, more efficient, Physician managed patient care is, in general, better run, more efficient, more profitable, and is associated with better patient satisfaction and perhaps more profitable, and is associated with better patient satisfaction and perhaps outcomes than large organization managed patient care. outcomes than large organization managed patient care.
What is Ancillary Revenue Money earned by the creation of lines of business outside of the core Money earned by the creation of lines of business outside of the core practice of orthopedic surgery, defined as the billing for services practice of orthopedic surgery, defined as the billing for services provided by a physician for patient care provided in either the office or provided by a physician for patient care provided in either the office or operating room settings operating room settings.
Passive v. Active Income Doctors are piece workers Time is limited, and efficiencies can only be pushed so far Active Income: Active Income: revenue generated by the active participation of a physician. Is limited by hours worked and efficiencies of workplace Passive Income Passive Income: revenue that does not require the active involvement of the beneficiary, from activities that are outside of the core purpose of the beneficiary. Independent of hours worked, patients seen, surgeries done Independent of hours worked, patients seen, surgeries done
The Death and Taxes of Medicine Reimbursements Decrease $$ while Overhead Increases $$ Overhead Increases $$
Why is Ancillary Revenue Important? Form of income diversification Hedge against the vagaries of reimbursement Income is potentially scalable ( proportional growth ) Recruitment and retention of high quality doctors Insulation from inevitable production variability (group and individual) Allows for physician control of patient care Allows for physician control of patient care
Ancillary Revenue Trend 1995 5% of total income 2015 40% of total income Note: employed physician (v. private practice) model is rapidly growing.
More Persuasion.. MEDICARE HIP AND KNEE REIMBURSEMENTS, 1992 MEDICARE HIP AND KNEE REIMBURSEMENTS, 1992- -2015 2015 1992 1998 2007 2015 $2,416 $2,215 $2,165 $2,123 $1,990 $1,837 $1,824 $1,816 $1,718 $1,697 $1,689 $1,689 $1,465 $1,465 $1,407 $1,407 TOTAL KNEE TOTAL HIP REV TKA REV THA
What About Inflation? Adjusted for the CPI, TKA and THA reimbursement TKA and THA reimbursement dropped 44% dropped 44% from 1992 from 1992- -2007 2007 From 2007 until the present, reimbursement is roughly flat, ignoring the CPI!! With the CPI that s roughly another 20% reduction. Conclusion: Efficiency and increased volume cannot maintain income Conclusion: Efficiency and increased volume cannot maintain income against declining reimbursement and rising costs. against declining reimbursement and rising costs.
What about Increasing Volume? CHARGES AND COLLECTIONS 2012 CHARGES AND COLLECTIONS 2012- -2014 2014 Collections Charges Column1 13% 8% 3.25% 1.10% SPORTS JOINTS FOOT HAND -7.50% -7.60% -9.60% -19%
Adding Ancillary Services Adding a new business line, about which you may know nothing .. Plan carefully .. Be humble .learn, look around, ask questions Mistakes can be costly and irreversible Errors can damage group culture, take years to resolve So, how do we avoid errors .
Due Diligence A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential. Costs, revenue, operational, legal/regulatory Costs, revenue, operational, legal/regulatory
Elements of Due Diligence Equipment alternatives and financing options All start up costs Careful volume projections ..assess upward and and downward scalability Assess reimbursement, including potential changes over time Analyze operational issues Detailed legal/regulatory analysis Opportunity cost analysis (often forgotten!) Effect on Relationships/Balance of Power Effect on Relationships/Balance of Power
The Medical Community as an Ecosystem Many entities coexist: The Hospital Radiologists Physical Therapists Brace shops Critical to carefully analyze how your ancillary service will alter the medical Critical to carefully analyze how your ancillary service will alter the medical ecosystem , and how the resultant changes in the ecosystem will effect your ecosystem , and how the resultant changes in the ecosystem will effect your practice. practice. Pigs get slaughtered Pigs get slaughtered
Stark and Anti-Kickback Laws Stark Stark: prohibits physician referrals of designated health services for Medicare and Medicaid patients if the physician has a financial relationship with the entity. Exceptions exist, one is ASC. Civil penalties for violation Civil penalties for violation Anti Kickback Anti Kickback: prohibits the knowing and willful solicitation, receipt, offer, or payment of any remuneration .to any person in return for referring or inducing to refer an individual to a person for the furnishing of any item or service for which payment will be made .. ASC safe harbor Can t get paid for referrals Can t get paid for referrals Criminal penalties for violation Criminal penalties for violation
Buy In for Ancillaries Separate business line, so some cost of entry is appropriate. Ballpark 1-2x yearly profit/partner is fair. Buy in can be dollars dollars or time time. Often limited negotiability as prior hires have set precedent Remember that a bad deal can become a good deal for the remainder of your career!!!
No Ancillary Revenue? Income entirely dependent on the vagaries of reimbursement for work units No way to maintain income except increasing volume Personal Opinion: I would question the long term financial viability of a private Personal Opinion: I would question the long term financial viability of a private group without ancillary streams of revenue group without ancillary streams of revenue.
Ancillary #1: Physician Extenders Physician assistants, nurse practitioners, non operative physicians PA expected growth rate of 40% from 2012-2020 Ortho, family medicine and ER medicine most PA demand Options for Structure 1 physician-1 PA Specialty Specific Practice Float
Physician Assistants in Orthopedic Practice Primary goal Primary goal: to improve practice efficiency by increasing both nonoperative and operative volume, while maintaining quality of care and patient satisfaction Patients should perceive the PA as an integrated part of the care team, rather than independent of the treating physician. In some demographics, PA s can develop their own patient following, independent of a particular physician.
Physician Assistants: Revenue Increase revenue by Direct billing and collection for services (new and rechecks, globals) Surgical bookings Providing nonoperative orthopedic care Increasing operating room volume/efficiency Increase utilization of fixed overhead while surgeon operates Are PA s part of Overhead ? In an efficient model, a PA with total comp X can bring in 3-4X in collections
Physician AssistantsPitfalls and Considerations Is there a backlog of patients, or will PA cannibalize physician schedules? Can PA s be trained at a high enough level to allow for independent practice? Intra-practice cultural problems from disparate compensation. PA remuneration: pay for volume can lead to poor quality Practice needs to create model for revenue distribution Need clear guidelines for scope of practice, protocols for management, etc. Supervision and close physician relationships are key.
PA HiringDue Diligence Example Costs of recruiting, support staff, space, CME, salary, phone, benefits, etc. Evaluate patient demand, increased surgical volume, ?build in decrease in physician revenue, training/ramp up period Understand your referral pattern and demographic, MAY NOT work in your area Ancillary referral revenue (brace, PT, MRI, etc) Evaluate specific payor mix (that applies to PA) to generate revenue model Build worse case, best case and likely case scenarios
Non Surgical Physicians Physiatrists, Non-operative Orthopedists/Podiatrists, Rheumatologist, Sports trained Internist Expensive physician assistant versus practice asset Same advantages as PA .allow surgeons to practice at top of license ? Better patient satisfaction than PA Manage non operative problems to discharge Name recognition of recent retirees, can be a draw Physiatrists can fill an ASC, feed spine surgeon Same due diligence analysis Same due diligence analysis
Non Surgical Physicians Generally not partnered , will generate lower revenue Create reimbursement formula, generally related to production Effective use of fixed overhead .real estate and personnel Surgeons use office space only 50-75% of time Only Win Only Win- -Win business arrangements are durable Win business arrangements are durable
Ancillary #2: Ambulatory Surgery Center Best friend or worst enemy 1/3 profitable, 1/3 not profitable, 1/3 who cares Meticulous planning and execution essential NOT a no brainer Big money proposition can take down a group if done poorly
Our Story 10 surgeon group (2001), 6 ASC surgeons (sports, hand, foot) High volume surgical practice with growth potential No competitive groups in the area Outpt ASC at main hospital, but multispecialty, +/- efficiency No Brainer right???? No Brainer right????
Our Story.. Analysis Analysis Payor mix .2 major insurers, one hospital owned High proportion of govt insured in area Excellent relationship with hospital management Wanted and needed a scalable facility, big dollar proposition Concerns Concerns Pro Forma ..profitable, but not wildly so Erode hospital relationships, create competitive environment Split facilities .introduce inefficiencies Concerned about reimbursement decline over time
Our Story.. Approach Approach Cooperative discussions with hospital to pursue JV Recruitment and retention argument Worked to create a classic win-win Outcome Outcome Took over an underproducing hospital owned 4 room ASC Brought it to 4000 cases/year Built an 8 room facility, Ortho only Negotiated management agreement
Lessons learned.. Physician owned ASC is not always the best option Specifics of your demographic, hospital relations, payor mix, regulatory environment, etc. must be carefully analyzed Detailed, realistic it right! realistic8 year pro forma must be constructed ..May need consultant to do Cooperative deal with the hospital set stage for further deals (ER coverage, Trauma Program, 2 OR rooms for Joint Program) Had we chosen to compete with hospital ..???
ASC Considerations Physician Owned v. Joint Venture Planning: done with 3rd party consultant or hospital team. Physician Owned Centers: Create competitive environment with hospital Require large capital outlay, all risk assumed by investors Even if the expertise exists, what about the time to manage?? Can create intra-group conflict income distribution, device use, other issues Declining reimbursement can be a major threat in narrow margin markets But: most control, highest potential profit But: most control, highest potential profit
ASC Joint Venture Model Enhances hospital relationship .other deals to be done Co-management, trauma, inpt coverage Spreads risk Use hospital resources for management Deep pockets ..can build a more robust, scalable center Regulatory Environment can be overwhelming without deep pocket backing
ASCWorking with the Hospital Hospitals and orthopedic groups have aligned goals: High volume, efficient, profitable center providing high level patient care with excellent patient satisfaction Creation of a win-win, in which both parties feel successful in the negotiation, is the goal.
ASC.Summary Myriad of ownership structures available Outside consultant advisable Compete v. cooperate Understand risk and manage it carefully No such thing as a no brainer
Ancillary #3: Medical Legal/Forensic Medicine Black Box, underbelly of medicine We have no training or expertise, fish out of water Different language, set of rules, goals Conflict resolution not patient care Hostile, adversarial environment filled with lawyers trying to make you look bad rather than seeking truth So, why do it??? So, why do it???
Medical-legal practiceWhy do it? Intellectually challenging Makes you a better doctor Develop a new skill set that can be useful - always good to feel comfortable in a courtroom Hedge against reimbursement declines, totally market based , scalable Impossible to avoid having to render opinions to legal entities Revenue is not W2, and can be saved in retirement vehicles pre tax (SEP-IRA, DB)
Medical-legal Independent Medical Exams (IME s) Disability Ratings Med Mal (defense v. plaintiff) Personal Injury evaluations (defense v. plaintiff) Any matter in which someone will pay you to render a forensic opinion Any matter in which someone will pay you to render a forensic opinion
Medical-legal AAOS Standards of Professionalism Standards of Professionalism http://www3.aaos.org/member/profcomp/ewtestimony_May_2010.pdf Guidelines regarding Subject matter knowledge Qualifications Compensation
Medical Legal Developing a Referral Base Takes 3-5 years to cultivate Personal Injury law firms are excellent client source IME clearing houses Insurance companies Courses exist to train in both being an expert witness and developing a business Word-of-mouth is the best advertisement
What Do I Charge? Annual practice income/2000 hours = hourly rate (starting point) (starting point) Analyze the market: What are other doctors charging? Experience counts True Market : supply/demand, quality costs more (foreign concepts to doctors!) Group needs to decide how this revenue is treated, can be tricky
How do I learn? Quality should be paramount .do this like everything else, with the utmost rigor and attention to detail. Academy or privately run courses exist and are recommended American Board of Independent Medical Examiners Certified Independent Medical Examiner (fairly uncommon)
Medical-legal Individual v. Practice based Nights/weekends/off hours v. work day Paid by 1099, not W2 Allows you to set up a separate retirement account pre tax Can be a game changer
Analysis Costs Opportunity cost (time, life) Time away from patient care, transcription costs Revenue Hours per week x hourly rate Operational Staff to organize/schedule, billing Regulatory Academy guidelines, words are forever!
Ancillary #4: Physical Therapy Practice associated physical therapy improves quality of care Major patient and physician satisfier One stop shop , coordination of care
