July 1996 Bulletin

24% of all payers are managed care, HMOs

BONES survey finds '95 collections up 4.38% vs 7% in '94

by Jeff Hollis

Jeff Hollis is Member-at-Large of the Board of Directors of the BONES Society, Inc., a national organization of managers of orthopaedic practices.

The second annual nationwide survey of members of the BONES Society, Inc. found that the growth in managed care continues nationwide, and that an increasing number of orthopaedic groups are taking proactive steps to "manage" managed care. According to the survey, 6.7 percent of the respondents reported having a capitated contract.

It comes as no surprise to find that California has the highest percentage of managed care penetration, as measured by percentage of collections from payers. The survey found 40.15 percent of the payer mix is either a managed care or HMO plan. This compares to the national average of 24 percent, calculated from the responses of 272 BONES members in 44 states and the District of Columbia.

In addition to California, other western states are experiencing a high percentage of managed care penetration. Washington state has a payer mix of 29.33 percent managed care/HMO, and Colorado, 27 percent. In the Midwest, Kansas has a payer mix of 18 percent managed care/HMO; Iowa, 8 percent; and Missouri, 25.2 percent. In the South, Alabama reported 11.5 percent of payers were managed care or HMOs; Tennessee, 13 percent; and Florida, 26.37 percent.

In the mid-Atlantic states, Virginia reported 20 percent of payers were managed care or HMOs; North Carolina, 14 percent; and Pennsylvania, 21.67 percent. In the Northeast, New York has a mix of 26 percent; Connecticut, 31 percent; and Massachusetts, 39 percent. On average, Medicare collections
are highest in the Midwest (23 percent), Southern (23 percent), and mid-Atlantic (22 percent) regions.

As the growth of managed care continues, the growth in collections of the practices has shrunk. The average increase in collections in the 1995 BONES survey was 4.38 percent, compared with the 7 percent increase a year earlier.

Obviously, the financial landscape of orthopaedics has been forever changed by managed care. There are some areas that are more affected than others, but there are few "safe" areas. As with any industry, there will be a point in time when the market forces stabilize and the growth of managed care will become
level. However, it does not appear to be anytime soon. The combined mix of Medicare and managed care has placed a significant burden on the financial well-being of many orthopaedic practices and there seems to be no immediate relief.

But how are these practices coping and even thriving (not just surviving) in the midst of the most fundamental change of medicine in recent memory?

There is a great deal of merger acquisition activity. The survey found that 11.8 percent of the respondents indicated that they had undergone a merger or acquisition in 1995. The average group size went from 4.8 orthopaedic surgeons to 7.5.

Seven percent of the respondents reported performing invasive surgical procedures in their office. As more payers shift a larger surgical load either to outpatient departments of associated hospitals or ambulatory surgical centers, advances in technology increase the feasibility to perform safe, effective, and efficient procedures within the office setting. This enables the orthopaedic practice to diversify the services offered and share in the financial return previously available only to hospitals.

More information about the BONES survey can be obtained by contacting Jeff Hollis, (540) 347-9220 or the BONES Society office, (800) 247-9699. BONES has 1,100 members nationwide.

1995 BONES Survey

(Average of 272 responses)

The average increase in revenue is 4.38%

Staff salaries account for 17.72% of net revenue; staff benefits, 4.11%

Percentage of collections from payers

Medicare              28.9%                                                            

Personal              7.1%                                                             

HMO/managed care      24.0%                                                            

Medicaid              3.8%                                                             

Workers'              14.7%                                                            

Indemnity insurance   12.4%                                                            

Blue Shield plans     9.1%                                                             

11.8% of respondents reported undergoing a merger or acquisition in 1995. Of those, the average group size increased to 7.5 orthopaedic surgeons from 4.8.

The average number of office locations is 2.1.

17% of respondents reported that physician compensation is determined by straight salary; 53%, by production; and 24%, by a combination of salary and production. Six percent used another formula.

The average compensation for each FTE orthopaedic surgeon is $311,631.

6.7% of respondents have a capitated contract. Of those, 37% were for all orthopaedic services. The average percentage of overall practice revenue from capitated contracts is 4.3%.

The most common surgical procedures in 1995 were 29881, 27447, 27130, 29877, 29888, 27244, 23420, 25605, 64721, 29826.

7% of respondents reported performing invasive surgical procedures in the office.
Of those, 4% are reimbursed for the facility fee.

32% of respondents use outcome studies.

The information is based on responses of 272 members of BONES Society, Inc. to a survey mailed to 828 members in March 1996.

BONES collections

State                   Average increase  (decrease) in collections                    

Alabama                 2.5                                                            

Alaska                  0.4                                                            

Arizona                 6.0                                                            

Arkansas                1.59                                                           

California              1.1                                                            

Colorado                (0.4)                                                          

Connecticut             13.0                                                           

Delaware                8.0                                                            

Florida                 1.6                                                            

Georgia                 (0.75)                                                         

Hawaii                  (19.7)                                                         

Idaho                   (1.1)                                                          

Illinois                (1.34)                                                         

Indiana                 15.0                                                           

Iowa                    5.0                                                            

Kansas                  3.37                                                           

Kentucky                5.5                                                            

Louisiana               3.8                                                            

Maine                   22.3                                                           

Maryland                0.2                                                            

Massachusetts           7.5                                                            

Michigan                7.0                                                            

Minnesota               3.5                                                            

Mississippi             15.0                                                           

Missouri                4.25                                                           

Montana                 (2.0)                                                          

Nebraska                N/A                                                            

Nevada                  10.0                                                           

New Hampshire           5.0                                                            

New Jersey              5.4                                                            

New York                0.2                                                            

North Carolina          6.75                                                           

Ohio                    N/A                                                            

Oklahoma                N/A                                                            

Oregon                  11.5                                                           

Pennsylvania            1.45                                                           

South Carolina          4.57                                                           

South Dakota            5.0                                                            

Tennessee               9.2                                                            

Texas                   5.22                                                           

Vermont                 8.0                                                            

Virginia                (1.6)                                                          

Washington              10.4                                                           

Washington D.C.         (25.0)                                                         

Wisconsin               4.6                                                            

Source: 1995 BONES Society, Inc. survey of 44 states and the District of Columbia

N/A=not available

BONES HMO payers

State Percent of collection from HMO/managed care payers
Alabama               11.5                                                             

Alaska                N/A                                                              

Arizona               35.0                                                             

Arkansas              18.0                                                             

California            40.15                                                            

Colorado              27.0                                                             

Connecticut           31.0                                                             

Delaware              N/A                                                              

Florida               26.37                                                            

Georgia               30.0                                                             

Hawaii                N/A                                                              

Idaho                 0.0                                                              

Illinois              22.5                                                             

Indiana               21.50                                                            

Iowa                  8.0                                                              

Kansas                18.0                                                             

Kentucky              18.0                                                             

Louisiana             18.0                                                             

Maine                 N/A                                                              

Maryland              23.4                                                             

Massachusetts         39.0                                                             

Michigan              22.8                                                             

Minnesota             N/A                                                              

Mississippi           N/A                                                              

Missouri              25.2                                                             

Montana               3.0                                                              

Nebraska              N/A                                                              

Nevada                25.0                                                             

New Hampshire         N/A                                                              

New Jersey            27.5                                                             

New York              26.0                                                             

North Carolina        14.0                                                             

Ohio                  20.5                                                             

Oklahoma              N/A                                                              

Oregon                13.5                                                             

Pennsylvania          21.67                                                            

South Carolina        24.66                                                            

South Dakota          N/A                                                              

Tennessee             13.0                                                             

Texas                 27.8                                                             

Vermont               N/A                                                              

Virginia              20.0                                                             

Washington            29.33                                                            

Washington D.C.       N/A                                                              

Wisconsin             11.66                                                            

Source: 1995 BONES Society, Inc. survey of members in 44 states and the District of Columbia

N/A=not available

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