The best-selling book Barbarians at the Gate: The Fall of RJR Nabisco, by Bryan Burrough and John Helyar, chronicles the ascent and demise of F. Ross Johnson, CEO of RJR Nabisco. It’s a fascinating read about the depths of human greed, with a most appropriate title.
Orthopaedic surgeons in private practice are facing tumultuous times and are under siege, much like the citizens of Rome were. We struggle to balance declining reimbursements in the face of ever-increasing overhead costs. In the $2 trillion healthcare industry, government payments account for a huge percentage of revenues. Medicare itself makes up 31 percent of physician revenues.
Congress still has not replaced the Sustainable Growth Rate (SGR) formula, choosing instead to implement a series of temporary fixes and to revisit the issue annually, as the cost of a permanent fix increases. Physicians are supposed to be happy with flat or 1 percent increases in Medicare fees, even as our rents increase and our employees expect cost-of-living raises. Now, physicians are being told to accept the inevitable wave of electronic medical records (EMRs) and electronic prescribing or face penalties (payment reductions) from Medicare in the future.
One long-time ally in this struggle for the survival of a private practice is the local hospital, which has a decades-long symbiotic relationship with orthopaedic practices. Orthopaedic surgeons bring patients to the hospital, cover emergency call, and support outpatient orthopaedic care. The hospital benefited from the income it received in billing for the orthopaedic procedures and surgeries; private practice orthopaedic surgeons and their patients benefited from the multiple resources the hospital provided.
The average orthopaedic surgeon generates upwards of $2 million to $2.5 million of hospital billing for inpatients. The economic reality was that orthopaedists needed hospitals to be there and deliver quality care for our patients while hospitals needed orthopaedists to keep the operating room schedule busy and the beds filled.
Unfortunately, things have started to change. In response to declining reimbursements for orthopaedic services, surgeons have developed ways to generate ancillary revenue. Surgery centers that directly compete with hospitals for outpatient orthopaedic cases have sprung up. The good news is that these centers can be financially very rewarding to surgeons. The not-so-good news is that the revenue shift comes at the expense of the hospital.
In addition, orthopaedists around the country are negotiating with hospitals for stipends to take call. What was once seen as a community responsibility is now viewed as a financial liability.
Hospitals are starting to react as well. More hospitals are hiring their own physicians, starting with intensivists and hospitalists. Hospitals are realizing that direct control of physicians as employees leads to cost controls and, more importantly, the control of ancillary income. As hospitals hire orthopaedic surgeons, they can openly compete with the surrounding community private practice surgeons.
With the advent of coordinated care contracting (covering an episode of care with a single payment for both physician and facility), hospitals are setting themselves up as the natural drivers of this trend as they seek to control all parties involved.
Community-based surgeons used to think that their relationships with local hospitals were key to managing third-party reimbursement. But hospitals have realized that if they hire surgeons, they can control all aspects of patient care. Hospital associations are continuing to push for a ban on physician-owned hospitals and outpatient surgery centers to further cement that control.
Fueling this evolution is the growing debt that graduating physicians have accrued to pay for their educations. They see hospital-based jobs as a secure future. The sad fact is that once a physician is employed by the hospital, he or she gives up much of the autonomy to make medical decisions, which can now be scrutinized by the hospital administration. The employed physician’s financial security shield lasts only as long as his or her contract. And as the needs of the hospital change, so may the terms of the contract.
Orthopaedic surgeons must remember that we are members of the AAOS, not the American Hospital Association. Our Academy should do everything it can to promote the practice of orthopaedic surgery, not hospital administration.
Orthopaedic surgeons must focus upon the principles of practice management and practice development. We must understand that our strongest allies and defenders should be our patients, not an employment contract with any one facility. We should be actively involved in revenue enhancement, learn negotiating techniques, and develop lines of ancillary revenue that are good for our patients and our practices.
Hospital-based employment is a new reality that must be explored and understood. The AAOS Practice Management and Health Care Systems Committees have developed an insightful and helpful primer on Hospital Employment of Orthopaedic Surgeons that any surgeon should read before signing a contract with a hospital employer.
Orthopaedic surgeons should remember the lessons of ancient Rome when betting their futures on careers as hospital employees. Although private practice may be difficult and the hospital may appear to be an attractive bastion of security, their agenda may not be in our best interest.
Thomas J. Grogan, MD, is an orthopaedist in private practice in Santa Monica, Calif., and chair of the AAOS Practice Management Committee. He can be reached at firstname.lastname@example.org