Knowing your costs can help you decide
Orthopaedic practices face a number of challenges today. Reimbursements continue to decline at the same time that new technology is becoming available to help deliver state-of-the-art care to our patients.
As a solo practitioner, I face the ongoing challenge of balancing the adoption of new and exciting technologies with not going broke. In deciding whether to digitalize our X-ray system, I found that knowing my costs was key to making the decision.
In my active practice on the west side of Los Angeles, I see an average of 1,800 new patients each year. I share office space with four other orthopaedic surgeons, as well as a podiatrist. We have a common radiography unit, organized essentially as a coop. Each month, the expenses for operating the unit—including costs for a technician, machine repair, processor, and film—are totaled and divided among us, based on the percentage of actual exposures.
On average, I am the busiest contributor because 41 percent of the total number of exposures are done on my patients. Therefore, I pay 41 percent of total expenses. Needless to say, I had a vested interest in determining whether switching to a filmless radiography in a picture archive and collection system (PACS) would be cost-neutral or, better yet, a positive to the net of my practice.
The first step in evaluating whether a PACS makes financial sense for a practice is to determine what the actual cost of providing radiographs is. Actual costs in the practice need to be tracked on a unit basis, because true cost savings can only be revealed if the actual costs are known.
In our analysis, the total cost (including technician, film, processor fees, maintenance, floor space rental, and other costs) to take an X-ray exposure averaged $2.50 per exposure. Thus, a three-view foot series costs $7.50 to produce.
We were then able to determine that the cost of film, jackets, processing, and repair was 62 cents per exposure.
The benefit of moving from film-based radiography to filmless radiography in a PACS is that the practice can still use its regular X-ray tube, but special cassettes are used to digitize the information directly onto a computer hard drive. The images can then be viewed on a computer screen in the examining room with the patient, conveniently saved on a CD disc that the patient can take home, or sent via e-mail to other providers.
The system we selected costs approximately $50,000, including the PACS unit, seven remote work stations using a wireless intranet, instillation, and training. The service contract offered several grades of service, depending on the level of support desired.
The highest level of support is 18 percent of the manufacturer’s suggested retail price per year, or $9,000 for our system.
We amortized the acquisition cost of the PACS over 5 years at 9 percent interest. This meant that the yearly cost for the system was $12,000, plus the $9,000 for the service contract, or $21,000 per year. So the break-even point in our particular practice (at our current cost per exposure of 62 cents) was 34,000 exposures per year.
Because the average patient has three exposures per X-ray episode, this means approximately 12,000 X-ray studies per year, or approximately 1,000 X-ray studies per month. Our group currently averages more than 45,000 exposures each year, which exceeds the minimum required to be revenue-neutral under this change to a PACS. In fact, despite the acquisition cost, our group will save close to $20,000 per year by shifting from traditional film and processing to the filmless radiography of a PACS.
Given the Medicare reimbursement rate for total joint arthroplasty of approximately $1,500 each and a 45 percent overhead to run the practice, we will save the equivalent of 30 total joint replacements worth of work to take home the same W2 income. Real savings—real help.
It’s your turn
We recommend that any practice considering a move into the new technology of the future first make sure that the move is both cost-efficient and effective. The best way to do this is to understand your current practice expense structure, to determine costs per radiographic session, and to break that down into cost per exposure.
Once you complete the data work, you can make an informed decision about whether it is wise and cost-effective to move forward with a system such as the PACS we selected.
Thomas J. Grogan, MD, is a member of the AAOS Practice Management Committee. He can be reached at firstname.lastname@example.org