Generating Non Surgical Income - PowerPoint Presentation

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Generating Non Surgical Income

John R. Corsetti, M.D.

New England Orthopedic Surgeons

Springfield, MA

Slide2

Disclosure

I have nothing to disclose

Slide3

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

: 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.

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4 Ancillaries to Discuss

Physician Assistants/Extenders

Personnel, group based

Ambulatory Surgery Center

Hospital JV v. Group

Medical Legal

Individual

Physical Therapy

Service, group based

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Decisions, decisions……

Physical Therapy

Surgery Center (ASC)

DME

Co-management Agreement

Urgent Care Center

On Call Compensation

Physician “Extenders”

Medical Legal

MRI/Ultrasound

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ORTHOPEDIC SURGICAL PRACTICE

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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

Theory:

P

hysician managed patient care is, in general, better run, more efficient, more profitable, and is associated with better patient satisfaction and perhaps outcomes than large organization managed patient care.

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What is Ancillary Revenue

Money earned by the creation of lines of business outside of the core practice of orthopedic surgery, defined as the billing for services provided by a physician for patient care provided in either the office or operating room settings

.

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Passive v. Active Income

Doctors are “piece workers”

Time is limited, and efficiencies can only be pushed so far

Active Income:

revenue generated by the active participation of a physician. Is limited by hours worked and efficiencies of workplace

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

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The “Death and Taxes” of Medicine

Reimbursements Decrease $$

while

Overhead Increases $$

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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

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Ancillary Revenue Trend

1995 5% of total income

2015 40% of total income

Note: employed physician (v. private practice) model is rapidly growing.

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Reimbursement Trends

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More Persuasion…..

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What About Inflation?

Adjusted for the CPI,

TKA and THA reimbursement

dropped 44%

from 1992-2007

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 against declining reimbursement and rising costs.

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What about Increasing Volume?

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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…….

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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

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Elements of Due Diligence

Equipment alternatives and financing options

All start up costs

Careful volume projections…..assess upward

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

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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 ecosystem”, and how the resultant changes in the ecosystem will effect your practice.

“Pigs get slaughtered”

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Stark and Anti-Kickback Laws

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

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

Criminal penalties for violation

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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

or

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!!!

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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 group without ancillary streams of revenue

.

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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

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Physician Assistants in Orthopedic Practice

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.

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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

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Physician Assistants…Pitfalls 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.

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PA Hiring…Due 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

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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

“

N

ame recognition” of recent retirees, can be a draw

Physiatrists can fill an ASC, feed spine surgeon

Same due diligence analysis

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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-Win” business arrangements are durable

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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

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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????

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Our Story…..

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

Pro Forma…..profitable, but not wildly so

Erode hospital relationships, create competitive environment

Split facilities….introduce inefficiencies

Concerned about reimbursement decline over time

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Our Story…..

Approach

Cooperative discussions with hospital to pursue JV

Recruitment and retention argument

Worked to create a classic “win-win”

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

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The Result……

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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

8 year pro forma must be constructed…..May need consultant to do it right!

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……..???

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ASC Considerations

Physician Owned v. Joint Venture

Planning: done with 3

rd

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

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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

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ASC—Working 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.

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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”

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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???

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Medical-legal practice…Why 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)

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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

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Medical-legal

AAOS

Standards of Professionalism

http://

www3.aaos.org/member/profcomp/ewtestimony_May_2010.pdf

Guidelines regarding

Subject matter knowledge

Qualifications

Compensation

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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

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What Do I Charge?

Annual practice income/2000 hours = hourly rate

(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

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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

M

edical Examiner (fairly uncommon)

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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

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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!

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Ancillary #4: Physical Therapy

Practice associated physical therapy improves quality of care

Major patient and physician satisfier

“One stop shop”, coordination of care

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Physical Therapy, Due Diligence

Costs:

Space, therapists, support staff, equipment, build out, finance how

Opportunity cost of space

Revenue

How many patients will be seen, payment per visit expected

Ramp up period to cash flow positive

Do all

payors

allow patients to use your PT?

Effect of declining reimbursements, high deductible plans

Operational/Regulatory

Legal opinion on Stark

Effect on hospital relationship

Effect on referral sources

Legislative issues

Other

How to divide profit

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Physical Therapy

Lots to consider for this “relatively simple” ancillary

Like anything, it can be done poorly or well

Generally one of the most profitable, and best physician and patient satisfiers

Profitable doesn’t mean optimized

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Ancillary Revenue in Orthopedic Surgical Practices

Necessary and growing revenue stream for private practices

Essential for recruitment and retention

Separate business lines that need rigorous due diligence and execution to succeed

Opportunity for cooperative engagement with the hospital

Profitable does not always equate

to optimized

Humility is key! Don’t be afraid of consultants.

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Thank You!