AAOS Now

Published 6/1/2013
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Jennie McKee

Orthopaedic Practices Face Mounting Financial Pressures

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

Many private orthopaedic practices may find significant challenges to maintaining financial solvency in the future, according to research presented during the 2013 AAOS Annual Meeting by Alberto D. Cuellar, MD. Dr. Cuellar’s Scientific Poster, “The Economic Conundrum of Private Practice Orthopaedic Surgery,” was selected as the overall best poster by the Central Program Committee.

The study analyzes more than a decade of historical financial data from a multispecialty orthopaedic group. During that time, although the number of patient visits per physician increased, the practice’s net income per patient dropped. Income declined less for professional plus ancillary services than it did for professional services alone, suggesting that providing ancillary services may play an important role in stabilizing a practice’s bottom line.

According to Dr. Cuellar, this study raises larger questions about the factors that may affect orthopaedic practices across the country as they attempt to maintain financial solvency and provide orthopaedic care in the future.

Conducting the study
Dr. Cuellar obtained annual financial data (1998–2011), including revenue and costs, from a multi-specialty 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).

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 hospital, Dr. Cuellar’s study did not include financial data from either.

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

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.

Linear regression analysis showed 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 (Fig. 1).

According to Dr. Cuellar, the trend of decreasing net income for professional services may be leveling off at a negative 70 percent, and decreasing net income for all services may be leveling off at a negative 50 percent when compared with index years.

A growing trend?
“The United States has the highest level of healthcare spending in the world, both per capita and as a percentage of gross domestic product,” noted Dr. Cuellar. “In addition, U.S. medical inflation remains high—at 4.2 percent. Yet physicians in this study group did not show increased revenue for services that reflected that medical inflation rate.”

Dr. Cuellar found that the group’s annual revenue per patient visit changed minimally, despite recent reductions in Medicare reimbursement. 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, he noted, government and insurance companies are compelling medical practices to meet increased regulatory and administrative requirements—many of which are uncompensated or not fully compensated. “Practices essentially pay for compliance with funds from net income,” he said.

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. “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 (P273), visit http://aaos.posterview.com

Disclosure information: Dr. Cuellar—Biomet, Stryker.