February 2002 Bulletin

Trends in orthopaedic surgery

Finances, practice opportunities growing, PPMCs declining

Planning for the future

By Janice G. Cunningham, Esquire

As we enter a new year, it is a good time to take a look at the current state of affairs in orthopaedics. What changes have occurred in the last few years? What might we expect in the next?

A survey of available benchmarking statistics is a good place to start. The Medical Group Managers Association (MGMA) has recently begun to publish "best practices" data and in these compilations develops benchmark data based on practices that are top-performing financially. The MGMA, as well as a number of other resources, provide valuable information for and about orthopaedic surgical practice. I have drawn on a number of these sources and listed several of them the end of this article.

Practice Finances

The good news is that average gross receipts in orthopaedic practices continue to show an increase from year to year (Table 1). According to MGMA, mean gross receipts have increased from $762,396 per doctor (2000 report based on 1999 data) to $810,178 per doctor. This is a 6.27% increase, ahead of cost of living.

Likewise, the joint statistics compiled by the National Association of Healthcare Consultants, PM Holdings, LLC and The Society of Medical-Dental Management Consultants (Joint Statistics) show an even greater increase in collected revenue, up from $726,984 in 1999 to $804,388.

What about overhead expenses? The Joint Statistics show a modest increase in overhead rates expressed as a percentage of gross receipts (Table 2). In 1999 the average overhead rate for orthopaedic practices was 46.0%. It rose to 46.3% in 2000. This is especially good news when you consider that the Joint Statistics showed a 10.65% increase in revenue collected.

Does the increase in revenue mean that orthopaedic surgeons are working harder? Of course orthopaedic surgeons have always worked hard and that trend continues. However the number of RVUs produced (Table 3) has not shown a significant increase in the last year at least not according to the MGMA.

Practice Transactions

As with most medical specialties, major transactions in orthopaedics have slowed significantly. The days of practice mega-mergers and sales to hospitals or physician practice management companies (PPMCs) are gone. Of these major transactions that dominated the mid-nineties, the ones that made good business sense have grown and prospered.

On the other hand, those that were driven by fear of managed care or the expectation of increased income with little or no effort have not survived. The late nineties saw a return to private practice as hospitals divested themselves of physician practices and PPMCs lost financial ground. Unfortunately for many physicians, buying back their practices carried a big price tag.

The good news is that, for the most part, the worst is over. Most orthopaedic practices have made the transition back to private practice and are poised to thrive again.

More traditional inter-doctor transactions have again become the norm. These include sales of practices to other physicians, buy-ins for new owners and buy-outs by the group of departing physicians.

Transactions involving the sale of stock or assets often include a value for goodwill. For orthopaedic practices the value of goodwill has been holding fairly steady in the last few years after experiencing a significant jump in 1997 (Table 4).

Recruitment, salaries on the rise

Physicians in all specialties are experiencing difficulty in recruiting new associates and orthopaedic surgery is not immune. As practice management consultants, we are receiving more requests from practices for assistance in recruiting physicians to fill open positions, whether it is due to practice growth or the retirement of another physician.

The net effect is that base salaries are beginning to rise. According to statistics maintained by The Health Care Group, the trend over the last five years shows a fairly steady increase for base salaries in orthopaedics. Although the sample size is small, it is becoming more common to see base pay approaching or exceeding $200,000, especially for fellowship-trained subspecialists.

Which subspecialties in orthopaedics have seen the greatest interest for post-residency training? According to the American Academy of Orthopaedic Surgeons (AAOS), hand surgery became the most frequently completed fellowship topic during 2000/2001. This subspecialty represents 23.7% of post-graduate fellowships completed.

In the five-year period from 1995 to1999, AAOS reported that hand surgery fellowships accounted for 17.4% of completed post-graduate topics, second to sports medicine fellowships at 33.5%. Sports medicine has dropped to second place during 2000/2001, according to AAOS, representing 21.2% of completed fellowships.

What do the trends mean for your practice?

Orthopaedic practices continue to grow and prosper. Growth is generally not occurring due to mergers or other combinations of practices. Rather, practices are looking to grow from within.

This requires careful planning. If it has been a while since your group has done a strategic planning retreat, now is the time to do so. Start by looking at how you stack up to the most current numbers. Contact the organizations in the resource list I have provided to obtain valuable benchmark data.

Next, look at the trends within your own practice over the last five to ten years. Is practice revenue growing in line with the averages? What types of patients do you see? Are there certain diagnostic categories that you tend to refer out? Might it be time to consider bringing in a subspecialist?

Whether you are planning to recruit a new general surgeon or subspecialist, or simply replace a retiring physician in the next few years, start planning now. The market for new recruits is getting tight. Now more than ever, it is imperative that you plan ahead for anticipated physician staffing needs over the next few years. Recruiting qualified candidates with the right "fit" may take longer than expected. Smart practices will begin early to cultivate relationships with potential recruits still in training.

Resources

  1. American Academy of Orthopaedic Surgeons
    6300 North River Road, Rosemont, IL 60018
    (847) 823-7186
    Orthopaedic Practice in the U.S. 2000/ 2001, American Academy of Orthopaedic Surgeons, Rosemont, IL.
    Orthopaedic Practice in the U.S. 1998/ 1999.
    Orthopaedic Practice in the U.S. 1996/ 1997
    .
  2. The Health Care Group, Inc.
    140 West Germantown Pike, Suite 200, Plymouth Meeting, PA 19462
    (800) 473-0032
    The Goodwill Registry 2001
    The Goodwill Registry 2000
    The Goodwill Registry 1999
    The Goodwill Registry 1998
    The Goodwill Registry 1997
    The Goodwill Registry 1996
    The Goodwill Registry 1995
    The Goodwill Registry 19944
    The Goodwill Registry 1993
    The Goodwill Registry 1992

    Physician Starting Salary Survey
    Physician Starting Salary Survey 1999
  3. Medical Group Management Association
    104 Inverness Terrace East, Englewood, CO 80112-5306
    (303) 799-1111
    Cost Survey, 2001 Report Based on 2000 Data, Medical Group Management Association, Englewood, CO.
    Cost Survey, 2000 Report Based on 1999 Data
    Cost Survey, 1999 Report Based on 1998 Data
    Cost Survey, 1998 Report Based on 1997 Data
    Cost Survey, 1997 Report Based on 1996 Data
    Physician Compensation and Production Survey, 2001 Report Based on 2000 Data
    Physician Compensation and Production Survey, 2000 Report Based on 1999 Data
    Physician Compensation and Production Survey, 1999 Report Based on 1998 Data
    Physician Compensation and Production Survey, 1998 Report Based on 1997 Data
    Physician Compensation and Production Survey, 1997 Report Based on 1996 Data
  4. Certain source material is developed through a Joint Service Agreement among:
    National Association of Healthcare Consultants

    1255 Twenty-Third Street, NW, Washington, D.C. 20037-1174
    (202) 452-8282
    PM Holdings, LLC
    Corporate Headquarters, 432 N. Saginaw Street, Suite 816, Flint, MI 48502
    (810) 234-8852
    The Society of Medical-Dental Management Consultants
    3646 East Ray Road, B16-45, Phoenix, AZ 85044
    (800) 826-2264
    STATISTICS Medical and Dental Income and Expense Averages, 2001 Report Based on 2000 Data, National Association of Healthcare Consultants, The PM Group, The Society of Medical-Dental Management Consultants
    STATISTICS Medical and Dental Income and Expense Averages, 2000 Report Based on 1999 Data
    STATISTICS Medical and Dental Income and Expense Averages, 1999 Report Based on 1998 Data
    STATISTICS Medical and Dental Income and Expense Averages, 1998 Report Based on 1997 Data
    STATISTICS Medical and Dental Income and Expense Averages, 1997 Report Based on 1996 Data

Janice G. Cunningham, JD, OTR/L, is a health consultant with The Health Care Group® and an attorney with Health Care Law Associates, P.C., based in Plymouth Meeting, PA. Contact Ms. Cunningham at (800) 473-0032 or jcunningham@healthcaregroup.com.


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