Physical therapy is a popular and convenient ancillary service.
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Published 1/1/2017
Peter Pollack

Ancillary Services Offer Opportunity for Improved Care, Value, and Pay

Expanding one's practice brings challenges, opportunities
"Why do we need to understand ancillary services?" asked Peter L. Althausen, MD, MBA, speaking at the annual meeting of the Orthopaedic Trauma Association. According to Dr. Althausen, providing ancillary services can help enhance the care orthopaedists provide to patients and can also offer ways for physicians to supplement their incomes.

Dr. Althausen, whose practice has long engaged in robust ancillary service development, noted that a number of ancillary opportunities may be open to orthopaedists, including the following:

  • physical therapy (PT)
  • magnetic resonance imaging (MRI)
  • durable medical equipment (DME)
  • ambulatory surgery centers (ASCs)
  • orthopaedic urgent care
  • physician-owned distributorships (PODs)
  • skilled nursing facilities

He noted that even hospital-employed physicians can benefit from ancillary services.

"All of the money that these orthopaedic-related services bring to the hospital should be considered when you renegotiate your salary," he explained. "Hospitals systems often fight a pay raise or cut salaries based on the claim that employed physicians lose them money, but many additional revenue streams are driven by the work we do as orthopaedic surgeons. Understanding those revenue streams can also be used to argue for increased service line reinvestment or research support.

"The success of physician-owned ancillary services is predicated on the fact that as physicians we operate all entities with our patients' best interests in mind," Dr. Althausen cautioned. "Sound ethical and moral business practices are paramount. Hospitals and entities that lose money as physicians control more of the patient episode of care will try to portray physicians as greedy or dishonest. We must protect ourselves and our patients at all times."

"Lots of orthopaedic patients require PT," said Dr. Althausen. "Physician-owned physical therapy is legal in most states, but patient choice is required to adhere to the Stark Law. You must offer patients options, but employing your own therapists is advantageous because they work closely with you, follow your care plans, and have access to your medical records. The care is more coordinated, and some may argue safer and more targeted.

"PT space is inexpensive," he continued. "You simply need a warehouse and a couple of tables. But PT generates an average of $148,000 per year for each doctor in large group practices."

Dr. Althausen noted the importance of employing employing quality therapists and incentivizing them properly.

"If you pay people to work hard, they will work hard and do a good job," he said.

He also recommended not expanding the PT service beyond what the practice can support, using therapy aides instead of therapists for basic tasks, sharing athletic trainers with local high schools, and not hiring a management company to run the operation.

"Management companies love to tell you that they're smarter than you about managing, but they're not; they just take 10 to 20 percent of your revenue," said Dr. Althausen.

"Although MRI reimbursement is on the decline, physician-owned MRI continues to be very successful," he said. "There are lots of options, from leasing to owning. You can buy a full-size MRI machine or an extremity MRI. Extremity MRIs are affordable, they're smaller, and you can get people in and out of them very quickly. Patients love the immediate access."

Dr. Althausen said that MRI can generate $57,000 to $97,000 per physician per year, but noted a few factors that can affect financial yield.

"You can only bill a technical fee for MRI," he explained. "You cannot bill a professional fee, unless you're a radiologist."

In addition, he suggested contracting for a reduced rate with a private radiology group for MRI reads, maintaining a flexible schedule to better address the needs of children and athletes, and offering a cash pay option.

DME, Dr. Althausen argued, is a very simple way to address ancillary services in a practice.

"As orthopaedic surgeons, we use lots of DME. Think of all the walking boots, knee braces, and knee mobilizers that you order. Do not let the hospital get that business," he advised. "And if you're a trauma surgeon who works for a hospital, realize how much money you're making for the hospital. In most cases, DME has a profit margin of more than 60 percent."

According to Dr. Althausen, DME can produce $37,000 to $146,000 in revenue per physician per year, with an average of about $58,000. Keys to success include regular negotiations with vendors for better prices, preoperative packets that can include items such as crutches and knee braces, custom bracing options, and orthotics and prosthetics.

"With improvements in regional anesthesia, more trauma cases can now be done at outpatient centers," noted Dr. Althausen. "It is estimated that in 5 years about 80 percent of orthopaedic surgical cases will be done as outpatient procedures. Outpatient surgery centers can generate $30,000 to $330,000 per physician per year, depending on insurance contracts and how well you manage things."

Dr. Althausen's tips regarding ASCs include employing your own anesthesiologist, using regional anesthesia when appropriate, employing generic implants when possible, and again, avoiding use of an outside management company. As with physician-owned PT and MRI, there are many rules for ASCs.

"You have to do 30 percent of your eligible cases to meet Medicare safe-harbor guidelines," he noted. "Multiple studies have shown reduced infection rates, better outcomes, lower costs, and decreased infection rates at outpatient surgery centers. Surgeons love working in their own facilities with their own staff. ASCs are a great option because they can be beneficial to the patients, physicians, and the healthcare system"

Orthopaedic urgent care
"Many practices around the country are opening dedicated orthopaedic urgent care centers," said Dr. Althausen. "They can see patients faster than in the emergency department, and provide quicker access to orthopaedic surgeons. In ours, we're seeing up to 70 people per day, and generating direct revenue of $2.5 million per year from the urgent care itself. Surgery, follow-up care, and referrals to specialists in our office account for an additional $7.5 million."

Dr. Althausen pointed out that the independent orthopaedic urgent care center can have a significant impact on overall costs to the healthcare system. In a study published in the Journal of Orthpopaedic Trauma (December 2016), Dr. Althausen and his colleagues found that in the first year of operation, their urgent care center saw 13,000 patients. Average patient charges saved more than $7,500 per visit compared to the ED, resulting in an overall savings to the community of more than $97 million in 1 year.

According to Dr. Althausen, urgent care centers may consider having extended and Saturday hours as well as using physician assistants and nonsurgical orthopaedists, strict clinical oversight to maintain quality of care, self-management, and appropriate marketing.

In essence, PODs are a service through which a physician group distributes its own implants. Dr. Althausen explained that in some cases, the legality of PODs has come into question, so he advised that physicians who set up a POD tread carefully to avoid conflicts of interest. He stated that his practice does not operate a POD, but noted that several large groups have successfully done so.

"Essentially, it means that you act as your own rep and your own distributor, and you get a percentage of the implants that you use," he noted. "Many physicians have no idea of the dollar amount in implants their practice utilizes each year, but our office used more than $18 million last year, and even a small percentage of this total would translate to a large income. This is big business for existing implant manufacturers and distributors and they have a lot to lose. Such companies have a lot of money and lawyers who are willing to challenge the very notion of PODs. As a result, this ancillary should be examined very closely with legal counsel prior to taking it on."

Skilled nursing facilities
"When it comes to value-based care, the hardest thing to control is your patients," said Dr. Althausen. "Post-acute care consumes 50 percent of the cost of current hip fracture episodes of care. It is the number one target for value-based healthcare programs like the Comprehensive Care for Joint Replacement, Surgical Hip/Femur Fracture Treatment, and Bundled Payments for Care Improvement initiatives. This is an emerging ancillary opportunity and a chance for the case surgeon to take control during the post-acute care phase. However, it will take an investment; you have to buy a building and employ nursesā€¦things you may never have done before. But this could be a very valuable opportunity, and potentially a $2 million to $4 million business per year for a large orthopaedic group. If operated well, such a facility could provide top notch patient care at reduced costs with direct physician oversight, which is beneficial to patients, physicians, and the healthcare system.

"All of these ancillary services depend on surgeons behaving in an ethical manner," Dr. Althausen added. "They can be a valuable source of income for the physician in private practice and a vital part of any negotiation for those who are hospital-employed. Either way, don't let that income source get away from you. Capture and control as much of the episode of care as you can, utilize it to your best advantage, and always be on the lookout for new opportunities."

Peter Pollack is the electronic content specialist for AAOS Now. He can be reached at

Bottom Line

  • Ancillary services may serve as valuable sources of income for physicians in private practice, and a vital part of any negotiation for those who are hospital employed.
  • Ethics is a key factor in the success of any ancillary service. All entities should be operated with the best interests of patients in mind.
  • Orthopaedists may consider offering a variety of ancillary services, including PT, MRI, DME, ASCs, orthopaedic urgent care, PODs, and skilled nursing facilities.
  • In some cases, the legality of PODs has come into question. PODs should be considered carefully and include the advice of legal counsel.