Published 7/1/2008
Thomas J. Grogan, MD

It’s time to digitize your archives

Control costs, increase profits by eliminating paper records

The practice of orthopaedic surgery is far more complex today than when I finished my residency. I work in a private practice setting with a group of other solo practitioners, and we have a cost-sharing arrangement. When I joined the practice, many established practices were just beginning to understand how computer technology could help them become more cost efficient and profitable.

Computers first gained acceptance as a way to improve billing efficiency. Most of the physicians in my group were reluctant to make the shift to computerized billing and scheduling until I demonstrated that the cost of the computerized system was actually less than the cost of maintaining employees to type the various claim forms. The computerized billing system, once established, provided two immediate benefits: improved speed in getting billings out and cost savings in not having to hire extra employees.

From working hard to working smart
In the 1980s and 1990s, making a living as an orthopaedic surgeon was fairly simple and straightforward. Preferred provider and health maintenance organization contracts (and even Medicare) paid relatively well. Patients had small copayments or deductibles, and insurers—including the government—paid well for surgery. To increase revenue, orthopaedic surgeons simply saw more patients. Practice management was more a function of controlling volume (revenue) than battling cost containment.

Now it is different. Orthopaedic surgeons are suddenly “cost centers” being managed by third-party payors, including Medicare. Initially, as revenues began to fall, surgeons added income sources such as in-office imaging and physical therapy. But when overhead reached more than 50 percent of revenue, a dollar saved became more valuable than a dollar earned.

If overhead is 60 percent of revenue, the reality is that any dollar saved is actually worth $1.20 to the practice. Today’s successful surgeons have accepted the reality that it is easier to put more dollars into W2 income by controlling costs than by trying to do more work.

The digital assist
One way to control costs is to continue the transition into the digital age. In our office, we have taken the approach of looking at each individual cost center as a possible entrée into the digital world. We began by considering the cost of radiographic film and processing and determining whether converting to a picture archive and collection system (PACS) made sense. (See “
Moving into the digital age,” AAOS Now, February 2008.) Because this approach is saving us money, we decided to extend it to other cost centers such as chart storage.

In my more than 20 years in practice, I have seen approximately 31,000 new patients. Each of those new patients has generated a paper chart. In addition to several thousand charts in my office, approximately 20,000 paper charts are in a storage facility approximately 10 miles away. It costs $407 per month ($4,884 per year) to store those paper charts—not counting the cost of time when a chart must be retrieved from storage. We therefore decided to investigate archiving the paper charts in a digital database. Archiving charts into a digital database not only eliminates the storage costs, but also keeps patient records on hand in the office forever.

Calculating the savings
The first step to converting to a digital archive system is to assess the current cost of paper chart storage and calculate potential cost savings. In my case, storage facility fees were almost $4,900 per year.

Digital archiving of medical records has recently become much simpler. A high-speed digital scanner that does two-sided imaging is now about the size of a toaster and costs about $1,000. Scanning each chart takes just a few seconds. Once the chart is scanned, a computer program (which costs about $1,200) stores each chart based on the patient’s medical record number, name, and birth date. In less than two minutes, the chart is scanned and entered into the archiving data base. At a rate of 30 charts per hour, scanning and archiving all of the stored charts would take approximately 650 hours. We paid one of our employees and temporary summer help $15 per hour; in 8 weeks, they had scanned all of our charts. The total cost of the labor was just under $10,000.

The total cost to archive all my patients’ charts—including the cost of a scanner, the archive program, and labor—was $12,090. Having paid this cost once, however, I now save more than $4,800 per year in storage fees. My breakeven point is in approximately 2½ years, after which those savings drop to my W2 income.

Given that my practice overhead is 42 percent, I really have saved $8,275 of collected revenue per year. Simply by converting to a digital archive system, I reduced my overhead from 42 percent to 41.6 percent of revenue. Every little bit helps.

Archiving documents not only decreased the amount of paper in my practice, but has real cost savings that will simply drop to my bottom line. By approaching individual cost centers within the practice and applying digital technology, I am confident that my practice will become more profitable than ever. And in these tough times, that’s a bold statement to make!

Thomas J. Grogan, MD, is a member of the AAOS Practice Management Committee. He can be reached at tjgrogan@aol.com