October 2000 Bulletin

Ancillary services tap new income

Orthopaedist finds in-office surgicenters, MRIs generate greatest revenue with least risk

There’s a belief—or maybe a wish—that managed care will be dead in five years and physicians’ problems will go away. Jack M. Bert, MD, isn’t so sure. He believes health care delivery is in "permanent white water" and physicians better learn how to deal with declining reimbursements.

And, it’s been a frightening decline. Professional fees have decreased 25 to 28 percent since 1993, says Dr. Bert, a partner in Summit Orthopaedics, a 16-member group in St. Paul, Minn. "We have to capture more sources of revenue, somehow," says Dr. Bert. For him, the "somehow" is through ancillary services.

"Physicians have traditionally believed that they should just receive professional fees for providing medical services to their patients," he told the annual meeting of the BONES Society in May. "This is partly due to our training experience in hospitals, as well as a fear of the recently enacted Stark legislation. They never believed that they should obtain the technical component fee—the facility fee—for their services."

Dr. Bert cites a January 2000 marketing survey which found 80 percent of the net income of orthopaedic practices in the United States comes from surgery professional fees. And he points out that physicians are unable to easily control their professional reimbursements which continue to decline.

"The challenge for all of us in orthopaedics in the 21st century will be to protect ourselves by diversifying revenue," he says. "We must respond positively with an appropriate reaction to declining reimbursements by building and controlling ancillary services."

He reminds the audience of "the multiplier affect" that for every dollar paid to an orthopaedist for his or her clinical services, $7 is paid for related care provided to that same patient.

What kind of ancillaries are possible for orthopaedic practices? He lists an ambulatory surgical center, a surgicenter with a pain center, an in-office MRI, physical therapy with orthotics and braces, occupational health department, an in-office pharmacy and more.

"Clearly, in-office surgicenters and MRIs generate the greatest revenue with the least risk if appropriate market and payer analysis is completed on the front end," says Dr. Bert. His practice opened an in-office surgicenter 51/2 years ago and, Dr. Bert says, "it’s an excellent revenue source to offset declining reimbursements."

It has dramatically improved efficiency for his practice. Dr. Bert’s clinic is 30 feet away from his surgicenter. He can do an arthroscopic procedure on a patient who’s awake (with a regional block), and while a physician assistant is closing the wounds, Dr. Bert is on his way to the clinic where he can see five or six patients before it’s time to do the next arthroscopic case. The elapsed time is about 20 to 25 minutes.

"For four of our surgeons who actively use our surgicenter, the average time saved per day is 11/2 hours," Dr. Bert says.

He offers an example of a typical day—May 16, 2000. "I began at 7 a.m. with my first case. I saw 42 patients in the clinic beginning at 7:30 a.m. I completed clinic and seven outpatient cases and I left the office by 3 p.m. Now, I didn’t sit down; I took a 10-minute lunch and that’s the only time I spent as down time."

Dr. Bert says that one of the benefits of the surgicenter is that it can be used for a pain control center. "All of those times when your doctors are sending patients next door to the hospital for their epidural steroids, facet joint injections and intradiscal thermal ablations, the hospital charges a facility fee," he points out.

"An anesthesiologist comes in twice a week, does 14 referrals that we give to him. We average $600 of reimbursement for the facility fee when he uses the procedure room, per case, just as the hospital does. Our pain clinic revenue represented 30 percent of our total receipts for our surgicenter over the last five years. We did 7,900 total cases, 5,170 surgical cases and 2,730 pain clinic cases."

But Dr. Bert cautions that market analysis is absolutely critical before developing an ambulatory surgical center. Physician developers have to know who’s going to refer to the center and what payers in the area will pay the facility fee. "Thirty-three percent of newly built ambulatory surgical centers fail due to over building and not performing payer and market analyses," says Dr. Bert.

The good news for orthopaedists with surgicenters is that Medicare reimbursements for facility fees are scheduled to increase on April 1, 2001.

"The surgical reimbursement for the Medicare facility fee for arthroscopies will increase from $482 up to $1,213 and $1,355," Dr. Bert says. "And shoulder and elbow arthroscopies, which were not recognized before in the AP schedule, are now going to be in it and they’ll increase to $1,124 and $1,147."

He believes the in-office MRI is the least risky and the most highly profitable ancillary service that can be put in an office. "The extremity scanner and/or whole body scanner does not violate safe harbor Stark I or Stark II regulations—it’s the same as having an in-office X-ray," Dr. Bert says. "It’s a designated healthcare service. Reimbursement is available for both the facility fee and the professional reading fee."

He recommends getting an in-office MRI rather than a whole body scanner. "The reason is it’s a dedicated low field strength. You can do [scan] 85-95 percent of joints ... unless you’re a strictly spinal surgeon group. It’s a significantly lower capital cost. You can buy a smaller scanner that just does extremities, exclusive of shoulders, for about $350,000. You can buy an extremity scanner that does shoulders for about $500,000. Compare that to $1.5 million or $1.4 million for a large 1.2 to 1.5 Tesla unit, which requires $250,000 to $500,000 of cryogens and maintenance fees every year. The smaller scanners have about $25,000 of maintenance fees [a year]."

There is a lower cost per scan, lower staffing costs and lower installation site cost. It fits in a 10 x 12 foot space and does not require RF shielding unless the shoulder loop is added. He has found the images are as good as with a 1.5 Tesla unit.

The advantages of an in-office MRI also include the opportunity to capture markets. "We actually have some HMOs which refer exclusively to us because we’ve cut them a bulk rate deal with respect to the MRIs," he says.

Concerning other ancillary services, Dr. Bert says physical therapy is a significant profit center for his practice. "It’s an excellent site of referral for orthotics and braces and allows us to use our provider number for orthoses and braces," he explains. "Foot orthotics and knee braces compromise 87 percent of the referrals to the orthotist in our 16-man group.

"We’ve had our own occupational health department for two years. For example, we have Honeywell, 3-M, U.S. Post Office and the Minnesota Twins. We hired an occupational health physician to run a workers’ comp clinic. For every dollar in clinic fees, it generates $4 to $4.50 in ancillary fees."

The profit on in-office pharmacies is strictly based upon volume. "The average up-charge in our state is $5 to $7," he says. "If you do 100 prescriptions per day, with a $5 margin, you would make $126,000 per year."

Do ancillaries really generate revenue for the orthopedic surgeon? Dr. Bert offers this example: "Total cash production for a group of 13 doctors in our area was $12.9 million with expenses of $6.4 million, so their overhead was 49 percent. They put in a surgicenter, MRI and physical therapy and after two years, they placed that amount of money, $1.7 million, into their overhead and their overhead dropped to 35 percent.

"Incorporating your own ancillaries into your practice will actually improve patient care. It allows the orthopaedic surgeon to choose who delivers the care and in a capitated system will determine whether or not the surgery or MRI actually gets ordered since this service is under his control.

"The truth of the matter is the more control the physician has over the delivery of medical care as opposed to insurers who only care about costs, the better the quality of care the patient will receive."


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