This article outlines 10 key trends that are impacting orthopedic practices. These trends affect orthopedic practices directly, as well as hospitals and surgery centers that work with orthopedic surgeons.
Orthopedic practices are highly concerned with reimbursement trends, maintaining access to patients and competition from hospitals.
1. Patient deductibles on the rise. Since 2009, high-deductible plans have tripled. Now more than 26 percent of employers have HDHPs, according to PwC's 2014 Touchstone survey of large employers. The increasing use of high deductible plans by employers and the growth of insurance sold through the healthcare exchanges (exchange-based plans often include high deductibles) means patients increasingly are responsible for a larger share of their healthcare costs. As a result, orthopedic providers will be forced to collect more and more of their revenues from patients directly — who are even more notorious for difficulty in paying than insurers.
Additionally, as their out-of-pocket responsibilities rise, patients become more attentive and careful of their healthcare spending, which can result in delaying healthcare procedures, particularly elective procedures like orthopedic cases that can be delayed without major health consequences. Increasing patient responsibility is also expected to lead to price shopping. If comparison shopping continues to gain traction, practices with transparent pricing information will be best poised for success.
Overall, the increase in HDHPs and health exchanges has a substantial impact on reimbursement per patient and the numbers of procedures performed by orthopedic surgeons.
2. Device companies feel the pinch of providers' cost-cutting efforts. Device companies are starting to be impacted by price shopping, ACOs and other efforts by providers to reduce their costs per case. This leaves device companies less able, as well as for legal reasons, to fund orthopedic practices and provide ancillary funds to orthopedic practices. While not a huge impact on most orthopedic practices, this takes away some small amount of revenue otherwise allocable to these practices.
3. Healthcare spending will grow, despite cost-cutting efforts. An analysis by PwC projects a healthcare spending growth rate of 6.8 percent in 2015, which may suggest an end of the record-low growth the industry experienced in 2010-2013 — an average annual rate of 1.3 percent over the three years. Contributing to the growth are a stronger economy (and a lower unemployment rate), the costs of specialty drugs, health IT and physician employment (which generally means higher office-based charges under fee-for-service contracts). However, these growth factors are tempered by high-deductible health plans, price shopping and risk-based payments.
Orthopedic practices specifically may benefit slightly from the economic uptick, as those who put off treatment in a down economy begin to actively seek out care. This plus fewer unemployed and uninsured could result in a slight volume increase for surgeons. However, this minor 'win' is expected to be offset by increasing practice management costs, including health IT, and the significant increase in patients' financial responsibility for care. As patients are forced to pay more (thanks to HDHPs), we anticipate greater price shopping and/or delaying of care. Thus, the return of notable healthcare inflation is expected by orthopedic practices to have little positive impact.
4. 'Supergroups' offer alternative to hospital employment. With an orthopedic practice, it seems that there are three core strategic choices. Go big and become part of a much larger orthopedic group that has the ability to battle through the many challenges (and regulatory and administrative requirements) of the evolving healthcare environment; join a hospital; or develop a very small practice where the group has a very low cost and can make a decent living, if not compete on a grander scale.
For a variety of reasons, we are seeing the growth of very large orthopedic groups, due in part to the ability of these larger groups to amortize costs and develop the needed leadership and infrastructure to better position themselves to be needed by payers, patients and hospitals. These 'supergroups,' as they are often called, include organizations such as OrthoCarolina, OrthoIndy, Illinois Bone and Joint Institute, Proliance, Midwest Orthopaedics at Rush, the Rothman Institute, Newport Orthopedic Institute and more.
While several trends are driving many physicians in a variety of medical specialties toward hospital employment, many orthopedic groups remain independent, though certainly some groups are hedging their bets by developing deeper relationships with hospitals. Hospitals, in contrast, desire a close relationship with orthopedic surgeons. Orthopedic groups are responsible for 12 to 15 percent of revenues at many midsize to smaller hospitals. In many markets, hospitals desire to employ orthopedic surgeons and control patient flow and expenses, but they recognize the importance of independent orthopedic referral sources to their hospitals and the hesitancy of orthopedic surgeons to become employees. Ancillary revenues, on a different note, remain important for orthopedic groups.
5. Hospitals enhance employment efforts. There is increased pressure on large groups to fight off hospital recruitment. Because of the desire by hospitals to simply employ orthopedic surgeons (and therefore gain control of orthopedic episodes), many hospitals are paying high starting and lateral salaries. Hospitals, given their dependence on orthopedic cases, are constantly trying to hire physicians away from orthopedic groups to join their hospital as employees. As a result, independent groups are forced to pay higher salaries to remain competitive and work to maintain group cohesion.
6. Strong leadership increasingly critical. In the past, orthopedic practices were run similarly to small businesses with one or two physicians and an office manager. Today, as regulatory requirements and group size grows, there is a need for more sophisticated physician and administrative (e.g., MHA-, MBA-bearing) leaders. Orthopedic groups need great 'Level-Six' leaders who can manage and work with physicians, including the alpha personalities so many surgeons are characterized as having. Top-down leaders rarely succeed with strong-minded physicians. Some of the most successful orthopedic groups in the country — including all supergroups mentioned in the previous point — have recognized this, and attracted top-level, strategic leaders to guide the practice.
7. Urgent care as an ancillary service. There is great growth in urgent care and, specifically, orthopedic-focused urgent care, which is increasingly owned by orthopedic groups. Here, the orthopedic urgent care efforts are often a clear aim toward maintaining and expanding patient access — and practices' ability to attract new patients. We expect this to evolve over the next several years.
8. Care management of orthopedic services just emerging. Orthopedic surgeons, from a financial standpoint, remain largely proceduralists and not yet care managers, responsible for coordinating entire episodes of care. While a number of hospitals and orthopedic groups across the country are testing bundled payments for care episodes (through programs such as Medicare's Bundled Payments for Care Improvement program), this approach is not prevalent yet on a large scale. Yet, despite a slow start, the ultimate goal of many orthopedic groups is to control the bundled payment (and therefore how reimbursement is split among parties, such as the surgeon, hospitals, physical therapist, etc.). Some of the largest national players in orthopedics, including Johns Hopkins, Mayo Clinic, Hoag Orthopedic Institute, have entered into agreements with employers for bundled payments, and a handful of other provider groups are doing so with private payers. For example, Blue Cross and Blue Shield of North and South Carolina have been particularly active in developing orthopedic bundles. However, a number of health system executives have noted that many commercial payers aren't yet able to adjucate bundled payments, suggesting a desire by the provider to do bundling isn't always enough to get such deals off the ground.
9. Reimbursement pressures. In orthopedics, particularly in spine and pain management, we are seeing some significant erosion in incomes. General orthopedists, and particularly joint replacement surgeons, are expected to continue to stay relatively busy as the population ages. However, Medicare has constricted payments for orthopedic procedures. According to an analysis by the American Academy of Orthopaedic Surgeons, the total dollar value of Medicare reimbursements from 1992 to 2010 not only decreased in nominal dollars, but also in real dollars. And, where Medicare goes, many commercial payers follow. Spine and pain management specialists face even more pressure. Benefit design issues and efforts by managed care companies to try and reduce spine surgery and pain management procedures are having a substantial impact on the income of those related specialties.
10. Orthopedic surgeon shortage. There is a constant discussion of there not being enough supply of orthopedic physicians given the aging of America. The Association of American Medical Colleges has predicted a shortage of 46,100 surgeons/specialists by 2020. Yet, when we talk to orthopedic groups, they do not think of supply issues as a major concern. In fact, they are more concerned about the growing number of orthopedic physicians that are finishing residency and fellowships at a time when a number of forces (such as HDHPs, etc.) may reduce demand. Thus, in the orthopedic community, it largely seems that there is not as great a concern about the supply of orthopedic surgeon than there being a shortage of cases.