Orthopaedic Practices Face Mounting Financial Pressures

Ancillary services may play key role in a practice’s solvency

Jennie McKee

Many private orthopaedic practices may find significant challenges to maintaining financial solvency in the future, according to research presented by Alberto D. Cuellar, MD, in Poster P273, “The Economic Conundrum of Private Practice Orthopaedic Surgery,” on display in Academy Hall B.

The study analyzes more than a decade of historical financial data from a multispecialty orthopaedic group. Although physicians had more patient visits, the practice realized an increasingly lower net income per patient. Income declined less for professional plus ancillary services than for professional services alone, suggesting that providing ancillary services may play an important role in stabilizing a practice’s bottom line.

This study also raises larger questions about the factors that may affect orthopaedic practices attempting to maintain financial solvency and provide orthopaedic care in the future.

Conducting the study
Dr. Cuellar obtained annual financial data (1998 to 2011), including revenue and costs, from a multispecialty orthopaedic practice. He calculated net income on a yearly basis for professional services (beginning in 1998) and for professional plus ancillary services (beginning in 2000).

“The data were normalized to annual practice volume derived from the total number of patient office visits,” explained Dr. Cuellar. “All data were adjusted for inflation and compared on a year-to-year basis.”

During the study period, the number of physicians ranged from 9 to 13; in 2011, the practice had eight orthopaedic surgeons, two physiatrists, and one pain management specialist. Ancillary services included imaging (radiography, MRI, and bone density), physical therapy, hand therapy, and durable medical equipment sales. Although the group had ownership interests in both an ambulatory surgical center and a hosptial, Dr. Cuellar’s study did not include financial data from either.

Decreasing net incomes
To determine net income per patient visit, Dr. Cuellar first subtracted the cost of doing business (expenses) from the yearly practice revenue to obtain net income, which in this practice was distributed to the physicians as salaries and bonuses. By dividing net income by the total number of patient visits, he obtained the net income per patient visit. All data were adjusted for inflation.

Between 1998 and 2011, the practice had a total of 659,562 patient visits, with 29.5 percent more office visits per physician in 2011 than in 1998. After adjusting for inflation, however, net income per patient visit for professional services decreased 64 percent, and net income for professional plus ancillary services declined 41 percent.

Using linear regression analysis, he identified a 4.6 percent annual decrease in net practice income for professional services and a 4.7 percent annual decrease in net income for all services.

A growing trend?
Dr. Cuellar found that the physicians in this study compensated for net income loss by increasing the number of patient visits. They did this by working more, increasing their efficiency, or both. But inflation, which increased 37 percent during the course of the study, negated the gross financial effects of increased patient volumes.

In addition, the increased regulatory and administrative burdens placed on practices—many of which are uncompensated or not fully compensated—reduce net income.

In this multispecialty orthopaedic practice, noted Dr. Cuellar, the positive effects of ancillary services may help stabilize deteriorating finances.

“The most concerning fact is that net income from the core business of providing orthopaedic services continues to decline,” he said.

He added that “if this model reflects the financial condition of other practices nationwide—and the economic environment worsens—the future ability of orthopaedic surgeons to provide services may be profoundly and negatively impacted.”

To view this as an iPoster, visit http://aaos.posterview.com

Disclosure information: Dr. Cuellar—Biomet, Stryker.

2013 Annual Meeting News
Tuesday through Friday, February 19 – 23, 2013.
http://www.aaos.org/news/acadnews/2013/AAOS7_3_20.asp