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Craig Callewart, MD, a spine surgeon with Methodist Hospital for Surgery in Addison, Texas, talks about how the upcoming fiscal cliff deal will impact spine practices and the steps surgeons can take to shape healthcare policy in the future.

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Q: What do spine surgeons need to know about the looming fiscal cliff discussions?

Dr. Craig Callewart: The government runs out of money in a month and the debt ceiling comes at that time. There's no way for the government to pay its obligations and no feasible way to prioritize what checks are going out, so it's expected that providers who dedicated their services for Medicare and Medicaid patients won't be paid. We all need to be prepared for several weeks of less or no pay.

Q: Are there any plans on the national level to mitigate these negative affects?

CC: There is really no plan "B"; they just aren't going to pay and we have to have our finances in order so we can withstand weeks of non-payment or slow payment. There are two things spine surgeons can do to mitigate the impact: one would be to make sure that coding is done on time and bills go out promptly so that insurance companies will pay on time, which will maximize cash flow; the other piece of the equation is to minimize expenses, so many surgeons will chose to defer certain expenses, such as profit sharing plans that are part of the retirement package.

Q: How have these changes and uncertain economy had an impact on private practice spine surgeons?

CC: For most spine surgeons, approximately a third to a half of their expense is employee related. Right now, I'm debating whether to hire a new employee. I have deferred that decision because my personal income tax will increase and now I'm expecting to have low cash flow in February and March. Now, instead of employing another person, I'm choosing to pay overtime or use part time employees. I think most spine surgeons will feel a significant hit and increase on tax expense, mainly because deductions are going to be phased out above certain income thresholds.

It remains to be seen exactly which deductions will be phased out and at what income thresholds; it's the wild card role waiting for the rules and regulations to be written. Payroll taxes are returning to their full force and that will be another hit. This also contributed to my decision not to take on another employee, which is contrary to what Washington wishes to happen.

Most of us are the prototype for what Washington wants to empower; small businesses are where economic growth is expected to happen. Yet the current tax environment penalizes us for working hard and being productive. Sometimes I wonder whether it's worth it to keep working this hard and taking on new patients, which is stressful when the federal disincentives continue to increase.

Q: Over the next few years, will spine surgeons be able to keep their practice doors open?

CC: It's harder to maintain the amount of income for the work powers invested. More and more of my colleagues are selling their practices to the hospitals or other ventures. I also watch many of my colleagues trying to create a medical device so they can quietly withdraw from the practice of medicine; most of these people are at the prime of their career, which is sad for the country.

Q: Is there any way spine surgeons can have an impact on healthcare policy? How have you become involved?

CC: For better or worse, I have worked six sessions in our state legislature, which equals 12 years. Most legislators, both at the state and federal levels, are attorneys with very little experience in medicine or business, yet they are making decisions that generally impact us all. Physicians are beginning to wake up and run for political office. I would encourage those of us who can still make a change to become personally involved with our local legislatures, Congressmen and Senators, and work on their campaigns.

One of the points I try to bring across to them is we don't really have a healthcare access problem in America as much as we have a healthcare payment problem. Most don't understand the concept that a lot of us do charity work because it's a foreign concept to a business man, but that's the basic tenant of medicine. The real problem is the patient system needs to be fixed.

Lowering payments doesn't reduce expenditure; oftentimes it has a paradoxical effect of increasing expenditure because surgeons and hospitals work harder to cover their expenses.

Q: What advice do you have for surgeons who are looking to maximize their time and impact on elected officials?

CC: If surgeons try to reach their representatives during the heat of the battle when bills are being considered, it's hard to deliver the message unless the physician has strong working relationships with that elected official. The time to initiate that relationship is during the campaign process or during session breaks. A key thing to do is find out who their healthcare associate or liaison is and get to know that staffer. Visit with them and teach them; they are often very young people and greatly ambitious, but don't have much experience in healthcare.

Right now, it's coming down to crunch time. Our elected officials need to hear from us, otherwise they will hear from other government agencies.

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The recent fiscal cliff deal has many implications for surgeons both professionally and personally, including tax increases. Roll backs from the Bush Tax Cuts include a 4.5 percent tax rate increase for wealthy Americans and separate from the fiscal cliff deal there will be a 3.8 percent surtax on investment income that was part of the original Patient Protection and Affordable Care Act. However, the way these cuts will impact surgeons remains to be seen.

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"At this point, there is no real immediate impact to orthopedic surgeons as a whole," says Sean Weiss, vice president and chief operating officers of DoctorsManagement. "However, our nation faces significant fiscal challenges and with healthcare costs currently accounting for over 17 percent of our GDP, physicians have to find a way to correct inefficiencies within the system."

Over the next several weeks, Congress will continue to discuss healthcare spending before raising or maintaining the debt ceiling. Here, industry experts discuss the impact of these spending decisions on orthopedic surgeons and what they can do to prepare for a successful future.

1. Surround yourself with expert advisors. Most surgeons are excellent clinicians, but they don't always make the best decisions outside of their core competencies. This means smart surgeons will surround themselves with trusted financial, business and legal advisors to navigate the coming years.

"In a study we conducted, doctors were among the top 1 percent of income earners, but they weren't creating wealth," says Steven Abernathy, co-founder of The Abernathy Group II Family Office. Our experience shows that medical doctors are pretty good decisions making inside the practice of medicine, but the decisions they are making outside of medicine are destroying their wealth."

Warren Buffett coined the term "circle of competence" to describe an individual's area of expertise; people are dominant and make good decisions within their circle, but often fall short when they venture outside the circle's confines. Surgeons can remedy this situation by finding experts outside of their circle of competence who can help with important decisions going forward.

"Doctors are stepping outside of their circle of competence when they make business decisions," says Mr. Abernathy. "They are clearly among the most intelligent category of human beings and highly focused on medicine; however, when your life is completely devoted to medicine you can't be an expert in other areas such as finance business tax and law. We've compiled information from organizations who have interviewed thousands of medical doctors, lawyers, accountants, estate planners and financial professionals, and the biggest mistakes we see are surgeons aren't seeking out competent advisors in finance, law, and tax, and they aren't integrating their advice to deliver the best outcome."

The successful surgeons of the future will be those who have surrounded themselves with experts in key areas who coordinate their advice to further advance the surgeon's career.

2. Plan for cost cutting. Look ahead into the future and begin planning now for cost cutting initiatives that will be necessary down the road. Even though your practice might be sustainable at the current time, don't let new taxes and reimbursement cuts catch you off guard.

"I think we are in for an up and down year as far as the economy but that only strengthens my view that physicians and their medical business staff must be diligent in their efforts to find ways to increase revenues and improve upon operational efficiencies, all while minimizing risk," says Mr. Weiss. "It can be done."

One new tax that will go into effect this year as a result of the fiscal cliff deal will be the 2 percent payroll tax. Surgeons who own their offices will feel the impact.

"It doesn't sound like a lot, but that's taking about $120 billion out of the economy, and people will have less to spend," says Brian R. Gantwerker, MD, of The Craniospinal Center of Los Angeles. "Things will get tighter if a debt ceiling deal is not reached and we should prepare for that. We can prepare by coordinating care with patients, and getting needed surgeries before this hits and having a contingency plan in your practice for cost cutting, employee hour cuts and lease renegotiations. The sky isn't falling yet, but we should prepare like it's going to."

All these steps will make a big difference when planning for the future. "The certainty that medical doctors don't want to embrace is that these cuts are coming. We just don't know when," says Mr. Abernathy. "Our advice is that every medical doctor should plan for cuts now before they come. Decision theory clearly shows that the best decisions are made with the proper research and logic, yet without the emotion created by anger or urgency. Start research and fact finding now when there is no anger, emotion or urgency.  Intelligent decisions are best made when you are calm and able to apply logic in determining what is best for you."

3. Advocate for permanent Medicare rates. The American Taxpayer Relief Act of 2012 provided only a temporary solution to the Medicare physician pay cuts, scheduled at 27.5 percent on January 1. While physicians avoided the cuts on the short term, they will continue to loom over fiscal discussions until a new resolution is reached.

"We need a permanent solution to this issue as well as to some of the others as it is critical to the health of patients and the U.S. economy," says Mr. Weiss. "Every time we get one of these 'short term' patches it prevents the medical community from improving the quality of care we provide our patients and impacts our ability to streamline operations and improve efficiency."

The Medicare conversion rate will be static for 2013, but individual procedures have seen relative value unit decreases, which continue to impact reimbursement. Private payors are also cutting reimbursement with black box edits to deny multiple procedure coding during a surgery.

"The problem we have is that until the sustainable growth rate is addressed with a permanent fix, we are only kicking the can down the road and delaying the inevitable," says Mr. Weiss. "The current administration cannot continue to spend without significant repercussions on this economy. There have to be cuts in the entitlement programs if they are to survive and if this country is to avoid becoming another Greece."

4. Invest in infrastructure. Mr. Weiss advises his clients to invest in infrastructure instead of other ventures today because infrastructure will remain a solid investment through uncertain times. Surgeons can invest in their own practices or ambulatory surgery centers if they aren't tied into a hospital contract.

"Regardless of how strong your financial situation is right now, that can change on a dime," says Mr. Weiss. "I encourage physicians to invest in the infrastructure of their practices as well as to ensure they have done all they can to minimize risk."

Surgeons can minimize their risk going forward by making sure their staff is properly trained, compliant, clinically competent and deliver great customer service. Leave the business management to trained professionals and focus on providing good quality care.

5. Conduct a practice valuation. Surgeons who own their own business should hire an outside company to perform a valuation; it will likely prove handy in future negotiations. If the practice decides to sell to a hospital or merge with another group, the true value of the practice is an important negotiating tip.

"It is critical for physicians to understand the value of their practice," says Mr. Weiss. "This can be done through either a comprehensive practice analysis or valuation of the group."

Surgeons can improve their practice revenue by going after denied claims. Either fix mistakes made by practice billers or insist the insurance company fulfill their contract.

"It is the role of the MBAs at insurance companies to keep profits as high as possible for shareholders which, in plain English, translates to denying claims and hoping the physician's staff does not appeal," says Mr. Weiss. "Truth is approximately 30 percent of all claims submitted to an insurer are denied regardless of whether or not the claims are accurate. This is because statistically, less than 25 percent of all physician practices appeal their claims."

6. Audit claims internally. Physician practices leave money on the table if their claims are under-coded and are at risk of fraud if they are up-coded. With the heightened regulatory environment in Washington, it's imperative that surgeons remain compliant and double check their claims on a regular basis.

"With the stepped up enforcement on the part of the federal government as well as the insurance carriers, physicians must be able to substantiate the levels of service they bill for as well as support the medical necessity of procedures performed," says Mr. Weiss. "As much as physicians do not like to hear they need to have their coding and documentation audited, it is a critical piece to ensure compliance and prevent unnecessary recoupments."

Most physician practices would prefer to hire an outside company upfront to find and fix issues than to wait until a Medicare/Medicaid auditor knocks at their door. If there is consistent under-coding, fixing those issues can drive additional revenue into the practice at a time when it's needed most.

7. Make capital purchases cautiously. Capital purchases, including new medical device systems, can be an outstanding or disastrous investment during uncertain economic times. Assess your practice and market before making these purchases to predict whether you'll see a return on investment.

"I am telling my clients that if they need a new piece of equipment to do a break-even analysis to make sure the equipment is paid for in a reasonable timeframe and that the outlay of money does not hinder operations in other areas," says Mr. Weiss. "The bottom line is, if you need modern equipment and you call yourselves the pioneers in your area of the country then you need the latest equipment to do that. Medical professionals and physicians have to be smart and that means fighting off the urge to do nothing or to do too much. Right now it is all about balance."

Surgeons should also be aware of tax deduction changes for capital expenditures. For physicians who are running their own practices and have capital expenditures for office equipment and medical equipment, they were able to deduct the first $125,000 of that from their business income; now it's the first $25,000.

8. Take a service agreement instead of hospital employment. The healthcare industry is consolidating and in many markets that means hospitals employ physicians. Hospitals and health systems are purchasing physician practices and extending contracts to new specialists at an alarming rate, but a few years down the road this model may not be sustainable any longer.

"Hospitals are hiring young medical doctors for $120,000 to $150,000 per year plus signing bonuses," says Mr. Abernathy. "This creates physicians who are employees of the hospital and poses a problem for new doctors who struggle to pay back $300,000 medical school debt while raising a family.  

When experienced surgeons decide to sell their practice to the hospital and become full employees, they sell their patient base, electronic medical record systems and employees to the hospital as well. These contracts may come with non-compete clauses and if the surgeons decide not to extend their contracts after the first expires, they'll have to rebuild their practice from the ground up, oftentimes in a different community.

"We advise our clients to consider a physician service agreement (PSA) instead of employment contracts," says Mr. Abernathy. "Many intelligent doctors prefer PSAs so they keep their own patient records, IT and employed staff. Then the doctors can say 'no' to the second hospital contract and keep their practice. You have to structure a PSA agreement in advance because once you sign the employment agreement, you may not be able to recover your practices assets from the hospital."

9. Ensure your practice is ERISA compliant. Most employers have purchased 401(k) plans that include themselves as well as practice employees. However, the Employee Retirement Income Security Act has change laws regarding these accounts purchased before 2009 and businesses must ensure compliance.

"If your 401(k) falls into this category and you haven't had it audited by a registered fiduciary, you could be in violation of an ERISA law and you may be fined or sued," says Mr. Abernathy. "It isn't onerous, but it's necessary. The surgeons who own the practice and offer the 401K plan for their employees are considered 'Plan Sponsors' and are legally responsible for the Plan's efficient operation and protection of their employees.  The Plan Sponsor must offer a diverse set of investment alternatives, and educate their employees about the investments available in their 401K plan or risk being sued."

Even medical practices that think they might be on a solid path could wake up to find their pensions completely decimated if they invested with someone such as Bernie Madoff and/or failed to intelligently diversify their retirement plan. "If you are the plan manager, you are responsible for offering your employees an approved, diverse set of investments," says Mr. Abernathy.

10. Contact Congressional representatives about key healthcare issues. Physicians and specialty groups have been notoriously unorganized in the political arena, and other special interest groups have prospered. However, several key provisions place hardships on physicians, who need to have a voice at the table as well.

"I think it's important to decide what our priorities are going to be in terms of preserving the quality of care we deliver to patients," says Dr. Gantwerker. "Surgeons can reach out to Congress persons and let them know that their actions in Washington DC aren't okay. In a community, we can take a leadership role as well. Physicians are looked on as ethical leaders and should be approached for answer, especially patients have questions about what is going on in Washington, DC., and we as physicians should let patients know what is doing on from a medical perspective. We should be available also to talk to Congress when elected representatives have questions."

When contacting a Congress person, tell your representative you're a member of their district and explain the negative impact legislation could have on patient care. "If you are a specialist, that carries extra weight because we represent a very important end point for patients," says Dr. Gantwerker. "They will listen, we just have to have the guts to go and say it."

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