April 1996 Bulletin

Cutting costs in practices

by Thomas J. Grogan, MD

Thomas J. Grogan, MD, is clinical professor, department of orthopaedic surgery, UCLA and CEO of California Orthopaedic and Sports Medicine Associates.

Orthopaedic surgeons must be able to control costs in their practices.

"It's a very simple equation that our net take-home dollars are basically going to be equal to the revenue that comes in the door minus what it costs us to get that revenue," said Thomas J. Grogan, MD.

In a presentation at the Annual Meeting symposium, "Riding the Tidal Wave of Change: Strategies for Survival and Success in Today's Evolving Healthcare Marketplace," Dr. Grogan described the formation of purchasing alliances with other orthopaedic surgeons or groups to obtain disposable items at lower cost. These could be casting materials, X-ray supplies, transcription services and other items that are consumed on an ongoing basis. He suggested this technique also might be used to get reductions from medical malpractice carriers.

The key is networking, he said. "As a private, solo practitioner in pediatric orthopedic surgery in Los Angeles, I have zero clout with any suppliers or malpractice providers, but we can get together as a group and create what amounts to a group purchasing organization," Dr. Grogan said.

"A group might go directly to a manufacturer, and get price decreases and then, working with a local distributor, we can specifically decrease the cost of those items to our practice."

Dr. Grogan said that most of the insurance companies that deal with him have learned that "if I'll take a 5 percent reduction in my fee, I may take it again next year. A lot of times our suppliers and manufacturers are in the same position and we can almost turn the tables to a little degree and say to them that we like having this decrease but if we increase our net worth from 25 to 50 doctors, we'd like to get another decrease in these costs."

Dr. Grogan also discussed the other end of the equation--revenue, or specifically, what he was doing to get better managed care contracts. The answer is disease management.

"In reality disease management is outcome-based compensation," he said. "What we want to do is set up a program where we'll take disease risk for a process like an anterior cruciate ligament reconstruction over time and the better job we do taking care of that patient the better we get paid for that process."

The key is knowing the data. One of the benefits of being involved in capitation and capitation contracts in many areas, is that he has been able to assemble important data. "We looked at our last 100 cases of anterior cruciate ligament repairs and exactly what kind of resources were consumed in taking care of those patients," he said. "And we, in essence, identified a median-type case or profile and that's what we've used to base for our contract."

Dr. Grogan developed a partnering relationship with a hospital, negotiating per diem rates and the rates for doing the procedures. "We negotiated and developed partnering relationships with our anesthesiologists and our physical therapists and brace manufacturers," he said. "In essence, what we've done is placed ourselves in position of controlling that episode of care. So, the key to this control is data."

Disease management is beneficial because it gives the physician control. "There's an alignment of incentives here now," he said. "We're now on the same page with our facility partners, our anesthesia partners, PT/OT partners and, in reality we're back on the page with the patient, because if the patient does well, we do well. That's a tremendous advantage when you go in and talk to an employer group-especially with self-insured employers."

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