As physician fees continue to be pressured by Medicare and other payors, it becomes more important than ever for physician practices to look at ancillary services as a possible means to generate additional revenue — simply increasing patient volume may no longer be enough to maintain or grow revenue.
"With looming Medicare pay cuts and sustainable growth rate pressures, it's becoming harder and harder for physicians to make money," says John Martin, CEO of OrthoIndy, an orthopedic practice of more than 60 physicians based in Indianapolis. "Ancillaries are key to the future success of physician practices. They're what's going to help doctors keep the doors open. Reimbursements keep going down, expenses keep going up and you can only make up so much of that with volume."
John Davis, MBA, principal of Medical Practice Consulting, a medical practice consulting firm based in Bantam, Conn., agrees. "With reimbursements squeezed, you have to look at all the various ways you might bring in additional payments. Providers have to look at how much care they provide themselves versus what they refer out and then decide how much else they would like to offer."
Ancillary services can significantly reduce overhead practice costs. Don Schreiner, CEO, of Rockford (Ill.) Orthopedic Associates, says his practices' ancillary services help cut the practice's overhead costs divided among physicians 50 percent.
Orthopedic practices interested in expanding their offerings should consider six key ancillary services, all of which can successfully drive revenue if operated efficiently and supported by adequate demand.
1. Physical therapy. Physical and occupational therapy is one of the most common ancillary services offered by orthopedic practices; however, there are still a number of orthopedic practices, especially smaller practices, referring out this service. Practices that do not already offer physical therapy can bring in substantial revenue to their practice by adding a program.
Glen Prasser, CEO of Beacon Orthopaedics and Sports Medicine in Sharonville, Ohio, says his practice has been offering in-house physical therapy since 1998. "While there is certainly a revenue aspect to this service, what is important to us is patient convenience. Patients come to Beacon and remain here for therapy and other services and don't have to travel outside these walls," he says. "It also helps to differentiate us from other practices. Our patients value the convenience, and they actually end up being an extension of our marketing efforts by telling their friends and family about their experience."
To reap the most profit, a practice would employ its own physical therapists and assistants and bill for their services. Generally, 1-2 therapists per physician are required to meet referral demand (though referral volumes do vary by subspecialty), and practices can expect to generate $100,000-$200,000 in collections annually per provider, with a 25-30 percent profit margin, says Mr. Davis.
"My thinking has always been that orthopods use physical therapy as a treatment modality as much if not more often than pharmaceuticals. If they use it so much, why don't they just provide it?" says Mr. Davis.
While other arrangements exist where an outside physical therapy business might pay rent to a practice to offer in-house services, Mr. Davis recommends practices employ their own physical therapists and use the same tax ID number for the program as their practice in order to reduce legal risk associated with referral laws.
2. MRI/imaging. More and more orthopedic practices are offering on-site imaging services, including MRIs. The most common arrangement orthopedic practices seem to use for this service is purchasing an MRI and then using a telaradiology service to interpret the images. In this scenario, the practice bills for the technical component of the MRI services while the radiology company bills for the professional fee. Mr. Davis says this arrangement is the "safest and cleanest" due to payor concerns about who is qualified to provide imaging care.
The investment required to offer MRI services in-office range from $250,000-$1 million, and savings can be found by purchasing used or refurbished equipment, which is readily available, says Mr. Davis. The cost of a new, high-quality open MRI will likely run practices between $750,000-$1 million, says Mr. Martin.
In order to determine if an MRI is a wise investment, practices should project their volume based on past MRI referrals and then determine likely payor mix as payments vary widely by payor, says Mr. Davis. For example, Medicare typically pays $350-$500 for an MRI facility fee while a private payor may pay significantly more.
Mr. Davis also suggests that if orthopedic practices decide to purchase an MRI, they purchase an open MRI as opposed to one designed for extremities only. "My personal thinking is that if you're going to go there, go all the way," he says. "An extremity MRI can't be used on someone's back or hip. These can't be done correctly without a full body MRI."
OrthoIndy is one practice finding success in offering MRIs, though it offers the services through its Indiana Orthopaedic Hospital. The practice is now considering offering orthopedic ultrasound, which can be used to diagnose some orthopedic conditions. "There was a lot of discussion at the AAOS meeting about this technology, and this has piqued the interest of many of our physicians. Staying on the cutting-edge is important to our practice so we can provide the highest quality orthopedic care," says Mr. Martin.
3. DME programs. Another ancillary service more practices are considering is durable medical equipment programs. Here, an orthopedic practice can either operate its own program, which would be most profitable, or bring in a DME company, which pays the practice rent, to manage a program, says Mr. Davis. Mr. Davis reports many practices operating their own programs house their DME services within their physical therapy departments.
Beacon Orthopedics offers DME and orthotics on site but has partnered with BioWorks, an outside company, to run the program and does so for the convenience of the patient, says Mr. Prasser.
Rockford Orthopedic Associates operates its own program, employing a manager to oversee the department, in addition to other departments, and a podorthist to custom fit braces and other orthotics. The practice is looking at hiring an orthoist in the future, allowing the program to make prosthetic limbs and custom braces as well. "Hiring a orthoist will allow us to offer more quality services to our patients as well as generate more revenue," says Mr. Schreiner. "We also think that in a couple years, insurance companies and the government are going to require certified orthoists to even do business as a DME company, so this will prepare us for that."
If an orthopedic group chooses to run their own DME service, Mr. Davis says it is important to run the program like a business. "If you run it like a business, there is some money to be made, but if all you have is a disorganized closet, you're likely to lose money," he says.
In addition to DME programs, some practices are dispensing products besides orthotics. For example, OrthIndy currently offers omega-3 supplements for arthritis patients and is looking into opening a pharmacy dispensary for workers' compensation patients, according to Mr. Martin.
4. Electromyography. Some practices are looking at offering nerve conduction studies, or EMGs, on site. These are typically referred out to physiatrists or neurologists but orthopedic practices are increasingly looking at offering this service through employing a physiatrist who would also perform other services, such as pain management injections, says Mr. Davis. Practices may also consider paying a provider an hourly fee to perform the tests on site.
Another option — and a viable one for any ancillary service — is renting out part of an office building, assuming the practice is the owner of the facility, or some of its own unused office space to a provider to provide these services. While employing a provider is probably a more profitable option if sufficient demand exists, renting at fair market value can be a less time-consuming option for practice administration while still allowing seamless, convenient patient care.
The investment required for EMG equipment is relatively low, around $5,000, according to Mr. Davis, while a physician performing them can earn anywhere from $75-$100 or more per test, by some estimates.
5. Surgery center. As more and more orthopedic, and even spine, surgeries move to the outpatient arena, it has become more common for orthopedic surgeons and practices to consider investing in an ASC in order to gain a portion of facility fee payments that in the past would have gone to the hospital, not the surgeons.
"Physicians have been under fee pressure for many years, but maybe that pressure has hit later for orthopedic and other specialties," says Luke Lambert, CEO of Ambulatory Surgical Centers of America. "Owning an ASC is one of the best things surgeons can do to augment their practice income if they haven't done it already."
Brent Lambert, MD, president and co-founder of ASCOA, adds that ASCs are also a great recruiting tool for practices. "All physicians coming out of training are looking for ownership opportunities in an ASC. There's also a practice productivity benefit because a typical surgeon can perform sometimes twice as many procedures in the ASC because it's more efficient.
"It's not uncommon for surgeons to augment their annual practice income by 15-20 percent [through an ASC investment]", he says.
Ownership of a surgical facility also provides surgeons with more control over their schedules.
"While many physicians get into ASCs for the additional revenue, they find quickly that what they really love about it is controlling their days — not being bumped, scheduling cases the way they want and having direct influence over staffing and efficiency," says Mr. Davis.
6. Physician assistants. While not technically an ancillary service, practices that employ PAs to see patients and assist with surgery can generate substantial additional revenue. PAs typically command salaries of $70,000-$100,000, on the very high end, but are often able to generate 2-3 times more, according to Mr. Davis.
In order to generate the most revenue possible for a practice, Mr. Davis recommends PAs have their own schedules, treat patients and assist in surgery.
"I recently worked with a practice whose two PAs were generating $250,000-$300,000 annually in collections," says Mr. Davis. "While not every PA can collect this, if you let them treat patients and assist in surgery, they can be very profitable, even if you're paying them a $100,000 salary."
However, in order for PA revenues to cover practice costs, as opposed to supplement physician incomes, the practice would need an employed physician model since PAs bill under the supervision of a physician when treating patients in the office.
Other models for employing PAs include assuming their salaries as overhead costs divided among all physicians and then allowing the revenues they generate to be distributed to the physicians supervising them. This model is the one used by Rockford Orthopedic Associates, says Mr. Schreiner. However, he says other practices use a revenue-neutral model for employing PAs, where physicians who want a PA pay the PA's salary out of their own revenues but are able to keep the addition revenue generated by the PA.
Contact Lindsey Dunn at lindsey@beckersasc.com.
Note: This story is for informational purposes only. Please seek the guidance of legal council before implementing any of the ancillary services discussed here.
"With looming Medicare pay cuts and sustainable growth rate pressures, it's becoming harder and harder for physicians to make money," says John Martin, CEO of OrthoIndy, an orthopedic practice of more than 60 physicians based in Indianapolis. "Ancillaries are key to the future success of physician practices. They're what's going to help doctors keep the doors open. Reimbursements keep going down, expenses keep going up and you can only make up so much of that with volume."
John Davis, MBA, principal of Medical Practice Consulting, a medical practice consulting firm based in Bantam, Conn., agrees. "With reimbursements squeezed, you have to look at all the various ways you might bring in additional payments. Providers have to look at how much care they provide themselves versus what they refer out and then decide how much else they would like to offer."
Ancillary services can significantly reduce overhead practice costs. Don Schreiner, CEO, of Rockford (Ill.) Orthopedic Associates, says his practices' ancillary services help cut the practice's overhead costs divided among physicians 50 percent.
Orthopedic practices interested in expanding their offerings should consider six key ancillary services, all of which can successfully drive revenue if operated efficiently and supported by adequate demand.
1. Physical therapy. Physical and occupational therapy is one of the most common ancillary services offered by orthopedic practices; however, there are still a number of orthopedic practices, especially smaller practices, referring out this service. Practices that do not already offer physical therapy can bring in substantial revenue to their practice by adding a program.
Glen Prasser, CEO of Beacon Orthopaedics and Sports Medicine in Sharonville, Ohio, says his practice has been offering in-house physical therapy since 1998. "While there is certainly a revenue aspect to this service, what is important to us is patient convenience. Patients come to Beacon and remain here for therapy and other services and don't have to travel outside these walls," he says. "It also helps to differentiate us from other practices. Our patients value the convenience, and they actually end up being an extension of our marketing efforts by telling their friends and family about their experience."
To reap the most profit, a practice would employ its own physical therapists and assistants and bill for their services. Generally, 1-2 therapists per physician are required to meet referral demand (though referral volumes do vary by subspecialty), and practices can expect to generate $100,000-$200,000 in collections annually per provider, with a 25-30 percent profit margin, says Mr. Davis.
"My thinking has always been that orthopods use physical therapy as a treatment modality as much if not more often than pharmaceuticals. If they use it so much, why don't they just provide it?" says Mr. Davis.
While other arrangements exist where an outside physical therapy business might pay rent to a practice to offer in-house services, Mr. Davis recommends practices employ their own physical therapists and use the same tax ID number for the program as their practice in order to reduce legal risk associated with referral laws.
2. MRI/imaging. More and more orthopedic practices are offering on-site imaging services, including MRIs. The most common arrangement orthopedic practices seem to use for this service is purchasing an MRI and then using a telaradiology service to interpret the images. In this scenario, the practice bills for the technical component of the MRI services while the radiology company bills for the professional fee. Mr. Davis says this arrangement is the "safest and cleanest" due to payor concerns about who is qualified to provide imaging care.
The investment required to offer MRI services in-office range from $250,000-$1 million, and savings can be found by purchasing used or refurbished equipment, which is readily available, says Mr. Davis. The cost of a new, high-quality open MRI will likely run practices between $750,000-$1 million, says Mr. Martin.
In order to determine if an MRI is a wise investment, practices should project their volume based on past MRI referrals and then determine likely payor mix as payments vary widely by payor, says Mr. Davis. For example, Medicare typically pays $350-$500 for an MRI facility fee while a private payor may pay significantly more.
Mr. Davis also suggests that if orthopedic practices decide to purchase an MRI, they purchase an open MRI as opposed to one designed for extremities only. "My personal thinking is that if you're going to go there, go all the way," he says. "An extremity MRI can't be used on someone's back or hip. These can't be done correctly without a full body MRI."
OrthoIndy is one practice finding success in offering MRIs, though it offers the services through its Indiana Orthopaedic Hospital. The practice is now considering offering orthopedic ultrasound, which can be used to diagnose some orthopedic conditions. "There was a lot of discussion at the AAOS meeting about this technology, and this has piqued the interest of many of our physicians. Staying on the cutting-edge is important to our practice so we can provide the highest quality orthopedic care," says Mr. Martin.
3. DME programs. Another ancillary service more practices are considering is durable medical equipment programs. Here, an orthopedic practice can either operate its own program, which would be most profitable, or bring in a DME company, which pays the practice rent, to manage a program, says Mr. Davis. Mr. Davis reports many practices operating their own programs house their DME services within their physical therapy departments.
Beacon Orthopedics offers DME and orthotics on site but has partnered with BioWorks, an outside company, to run the program and does so for the convenience of the patient, says Mr. Prasser.
Rockford Orthopedic Associates operates its own program, employing a manager to oversee the department, in addition to other departments, and a podorthist to custom fit braces and other orthotics. The practice is looking at hiring an orthoist in the future, allowing the program to make prosthetic limbs and custom braces as well. "Hiring a orthoist will allow us to offer more quality services to our patients as well as generate more revenue," says Mr. Schreiner. "We also think that in a couple years, insurance companies and the government are going to require certified orthoists to even do business as a DME company, so this will prepare us for that."
If an orthopedic group chooses to run their own DME service, Mr. Davis says it is important to run the program like a business. "If you run it like a business, there is some money to be made, but if all you have is a disorganized closet, you're likely to lose money," he says.
In addition to DME programs, some practices are dispensing products besides orthotics. For example, OrthIndy currently offers omega-3 supplements for arthritis patients and is looking into opening a pharmacy dispensary for workers' compensation patients, according to Mr. Martin.
4. Electromyography. Some practices are looking at offering nerve conduction studies, or EMGs, on site. These are typically referred out to physiatrists or neurologists but orthopedic practices are increasingly looking at offering this service through employing a physiatrist who would also perform other services, such as pain management injections, says Mr. Davis. Practices may also consider paying a provider an hourly fee to perform the tests on site.
Another option — and a viable one for any ancillary service — is renting out part of an office building, assuming the practice is the owner of the facility, or some of its own unused office space to a provider to provide these services. While employing a provider is probably a more profitable option if sufficient demand exists, renting at fair market value can be a less time-consuming option for practice administration while still allowing seamless, convenient patient care.
The investment required for EMG equipment is relatively low, around $5,000, according to Mr. Davis, while a physician performing them can earn anywhere from $75-$100 or more per test, by some estimates.
5. Surgery center. As more and more orthopedic, and even spine, surgeries move to the outpatient arena, it has become more common for orthopedic surgeons and practices to consider investing in an ASC in order to gain a portion of facility fee payments that in the past would have gone to the hospital, not the surgeons.
"Physicians have been under fee pressure for many years, but maybe that pressure has hit later for orthopedic and other specialties," says Luke Lambert, CEO of Ambulatory Surgical Centers of America. "Owning an ASC is one of the best things surgeons can do to augment their practice income if they haven't done it already."
Brent Lambert, MD, president and co-founder of ASCOA, adds that ASCs are also a great recruiting tool for practices. "All physicians coming out of training are looking for ownership opportunities in an ASC. There's also a practice productivity benefit because a typical surgeon can perform sometimes twice as many procedures in the ASC because it's more efficient.
"It's not uncommon for surgeons to augment their annual practice income by 15-20 percent [through an ASC investment]", he says.
Ownership of a surgical facility also provides surgeons with more control over their schedules.
"While many physicians get into ASCs for the additional revenue, they find quickly that what they really love about it is controlling their days — not being bumped, scheduling cases the way they want and having direct influence over staffing and efficiency," says Mr. Davis.
6. Physician assistants. While not technically an ancillary service, practices that employ PAs to see patients and assist with surgery can generate substantial additional revenue. PAs typically command salaries of $70,000-$100,000, on the very high end, but are often able to generate 2-3 times more, according to Mr. Davis.
In order to generate the most revenue possible for a practice, Mr. Davis recommends PAs have their own schedules, treat patients and assist in surgery.
"I recently worked with a practice whose two PAs were generating $250,000-$300,000 annually in collections," says Mr. Davis. "While not every PA can collect this, if you let them treat patients and assist in surgery, they can be very profitable, even if you're paying them a $100,000 salary."
However, in order for PA revenues to cover practice costs, as opposed to supplement physician incomes, the practice would need an employed physician model since PAs bill under the supervision of a physician when treating patients in the office.
Other models for employing PAs include assuming their salaries as overhead costs divided among all physicians and then allowing the revenues they generate to be distributed to the physicians supervising them. This model is the one used by Rockford Orthopedic Associates, says Mr. Schreiner. However, he says other practices use a revenue-neutral model for employing PAs, where physicians who want a PA pay the PA's salary out of their own revenues but are able to keep the addition revenue generated by the PA.
Contact Lindsey Dunn at lindsey@beckersasc.com.
Note: This story is for informational purposes only. Please seek the guidance of legal council before implementing any of the ancillary services discussed here.