10
Things Every Orthopedic Practice Should Be
Doing in the New Healthcare Environment
by Ron Howrigon
ABOUT THE AUTHOR
Ron Howrigon is president and
founder of Fulcrum Strategies, a
physician consulting firm that
specializes in managed care
contract negotiation and practice
marketing services. Since 2004,
Fulcrum Strategies has helped
practices of all sizes and specialties
to negotiate their payer agreements
and secure more favorable contract
rates and language.
18 years of experience in the
managed care industry as a
negotiator and network
manager
Has held senior management
positions with CIGNA, Kaiser
Permanente, and BlueCross
BlueShield
Holds a Masters of Economics
degree from North Carolina
State University where he
focused in the area of health
economics with a minor in
statistics
Earned a Bachelors of Business
Administration degree from
Western Michigan University
29 total years of experience in
healthcare industry
Many of us have seen David Letterman’s Top Ten List and gotten a good chuckle out of it.
Inspired by this, I decided to create a top then list of my own, but rather than being humorous,
my list is meant to help orthopedic practices succeed in the business of healthcare by explaining
the most important lessons that I learned while working for some of the largest insurance
companies in the U.S. for 18 years. In 2004, I became extremely disillusioned with the way
managed care companies were treating physicians, so I quit my job and founded a physician
consulting firm based in Raleigh, North Carolina, called Fulcrum Strategies. I believe that the
experiences I’ve had working on both sides of the negotiation table have given me an especially
unique perspective to weigh in on the issue of healthcare. What follows is a list of ten important
things that every orthopedic practice should be doing in the new healthcare environment. These
crucial points can help practices to better position themselves for success.
1
Develop a Practice Dashboard or Scoreboard:
Every orthopedic practice should have a monthly report that tracks the key management
measures as defined by the practice. At a quick glance, this report should be able to tell the
physicians and administrators how the practice is doing, and it should be followed very closely.
You might compare this point to lab values that a physician would follow for a given patient.
Because physicians are very adept at looking at a chart, reading lab results, and very quickly
getting a good idea on how their patient is doing, if all of the values look good then the physician
knows that the patient is doing well. If one or more of the values has changed, however, the
physician knows that they need to either make a change in the patient’s treatment plan or order
more tests to find out what is wrong. Your practice dashboard should work in much the same
way. If all the numbers are good, you know things are working smoothly. If one or more of the
numbers starts to change, it’s a quick indicator that you may need to do something or ask for
more analysis to figure out what is wrong.
The items on the dashboard will vary from practice to practice but should include those critical
measures that give you an indication on how the practice is doing. Things like billing amounts,
number of RVU’s billed, cash collections, days in AR, collection rates, average wait time for a
new patient appointment, non-physician cost per patient or per RVU, and payer mix are all things
that might be included on a dashboard. These numbers should be reported for the month, year
to date, and compared to the same period in the previous year. An example of one indicator
would be this chart below:
Days in Accounts Receivable
June 2014
June 2013
Variance
YTD 2014
YTD 2013
Variance
35.6
33.5
2.1
34.0
33.3
.07
With a quick glance you can see that Days in AR has increased slightly from last year, but not significantly yet. You might make a note to
keep an eye on this trend and to look into it further if the number increases further. Take a moment to consider the following scenario: Let’s
say the number for June 2014 was 45 instead of 35. This should cause immediate concern. Is there a problem with your billing office?
Do you have new employees doing the collections? Is there a computer or a system problem? Your practice dashboard may not be able
to diagnose the problem, but it can certainly direct you where to look.
2
Market Evaluation:
Very few orthopedic practices do any kind of formal market evaluation. This doesn’t have to be an expensive consulting project, but it
should be done nonetheless. A simple review consisting of your group’s place in the market, a list of your competitors, and a list of who
the payers and employers are, can be an incredibly valuable tool. There are also some inexpensive software programs available that will
allow you to plot your locations, compare them to your competitors, and then map them against a wealth of data from the latest census.
With a little data support, you can quickly see how your group is acquiring patients and from where they are coming . You can see the areas
that are under-served and the demographics of those areas. All of these things can be done relatively simply, and can help you make
important decisions about your practice. For example, in terms of expansion and new office locations, you can base your decisions on
your data rather than on your emotions.
Consider the map below. This is an example of a study that Fulcrum Strategies conducted for a client to help them evaluate their market
and consider questions about expansion.
What you can see is a visual representation of
from where this group’s patients were coming.
This map helped our client decide where they
should build their next office in order to be
accessable to areas that they previously had
been unable to serve. This kind of market
evaluation is very helpful in deciding the
future direction for any medical group.
3
Budgeting:
While many of us hate the budgeting process, we also know that it is important. The corporate world in every industry has learned that if
you don’t develop a budget and then monitor your performance against it, two things happen. First, you will be vulnerable to cost creep.
Without knowing how much you had planned to spend, you will be amazed at how fast small incremental expenditures add up to budgetary
problems. In one of the companies I previously worked for, the joke was; “A million here, a million there, eventually it adds up to real
money.” While that isn’t the environment in most medical practices, the same principle applies. If you spend an extra $10,000 each
month, at the end of the year you have lost $120,000 that could have been budgeted for other things or as a bonus for the physicians. In
most practices that is real money. The second thing that happens is that you can’t tell where the financial bleeding is. Without a budget,
it’s difficult to know if you are spending too much money, and if you are, what areas are hurting you. This could lead to inaction or taking
action in areas that are not the problem. My grandfather, who never finished grade school, was one of the smartest people I have ever
known. He was very fond of saying; “It doesn’t do any good to throw water on the kitchen if the living room is on fire.”
As basic and critical as budgeting is to most businesses, I find very few medical groups that have anything inplace that looks like a formal
budget. In most situations, the practice doesn’t even know they have a financial problem until about halfway through the year, and then it
takes them another six months to figure out what the problem is. This is no way to run a practice.
4
Five-Year Financial Projections:
Another critical tool for most business is a long-range financial projection. These projections are based on current performance that is
combined with realistic assumptions on cost increases due to inflation, expansion, and revenue increases due to business growth and
price of product increases. By doing a five-year projection you can see how your business is likely to look over the foreseeable future. Is
your business growing and becoming more profitable, or is it on a downward cycle? This tool also helps to point out when strategic
changes need to be made. I read a story once that Napoleon asked his engineers to plant trees on both sides of the roads leading to and
from Paris. He wanted this so his troops would always march to and from battles in shade. When his engineer asked him if he know how
long it would take for the trees which were saplings to grow tall enough to cast shade he said; “Of course I do. That is why you need to
plant them today!” The point being that many strategic business changes may take a year or more to implement and then another period
of time to see the results. If you are not looking several years down the road, you many not see the need for a strategic change with enough
advanced warning to implement it in time.
5
Strategic Plan:
Every orthopedic practice should have a strategic plan and that plan should be reviewed and updated annually. A strategic plan can be
very simple but should, at a minimum, answer the questions of what you want your business to be and how you are going to make that
happen. A strategic plan is essential and should cover very fundamental issues. Issues such as, how big do you want to the practice to
become? What services would you like to offer in the future? Do you want to expand geographically? While these questions may seem
fairly basic, you would be surprised how many practices haven’t taken the time to actually discuss and agree upon the strategic direction
for the group. A few years ago, I worked with a practice that finally sat down and went through these kinds of questions. What they found
is that three of the senior partners had very different ideas regarding the future of the practice.
Once you have outlined a strategic plan and direction for the group, the next part of the process is to outline how you are going to accomplish that plan. If your plan is to grow in size and locations, then you need to decide things like how fast, how many locations, when and
how are you going to finance the expansion, what services will be offered, etc. This is where a strategic plan can really benefit a business
because it provides focus and a road map for the future. My grandfather was also very fond of saying, “If you don’t know where you want
to go, you’re not likely to end up in a good place.”
6
Diversified Revenue:
I work with many physicians who understand diversification when it comes to their retirement investments, but when I talk to them about
diversified revenue streams in their practice, their eyes glaze over or they admit that they haven’t thought much about it. I’m not talking
about combining a medical practice with a coin-operated laundry. I’m talking about the other related medical services you can provide
that will produce profit for the group and diversify your revenue stream against major changes in the future.
The best example that I can give is from one of my large neurology clients. This group not only provides adult and pediatric neurology
services, but they have branched into imaging with two internal MRI machines, Sleep Studies, a Pain Management Clinic, in-office
Infusions, and Clinical Research. This approach to diversified revenue helps to protect their practice against future changes just like a
diversified investment portfolio does. For example, if Medicare suddenly reduced the reimbursement for EMG’s, it would hurt the group,
but not as much as it would if they didn’t have their other services to help offset the reduction. While most practices can’t do everything
that this group has done, they should at least be evaluating these types of ancillary revenue streams to determine which ones they can,
and should get into.
7
Practice Marketing:
Many physicians have a negative impression of marketing because they think marketing means advertising, and they don’t like the idea
of advertising. I had one physician say, “What am I going to advertise? It’s not like we are having a sale or anything.” The first thing I
tell these practices is that marketing is not advertising. Advertising is just one of many tools that can be used to market a product or
service, and it certainly isn’t the right tool for every situation. Marketing is simply the process of telling your story or sharing with your
customers who you are and what you can do. It’s also something that physicians haven’t done very well in the past. Marketing may take
on many forms, and the trick is to develop a plan that is right for you.
A primary care group may want to develop a brochure to mail out to households in the area surrounding their office. The brochure may
highlight their doctors, location and hours of operation along with anything that makes them stand out. An orthopedic group may want
to implement a program where they market to primary care groups in their area to make sure the PCPs are aware of what the group can
offer in the way of services in their specialty. At Fulcrum Strategies, we have implemented this type of physician outreach program for
several of our clients. We have a dedicated representative who visits every primary care office in a given area to drop off information about
our client, inform them of new physicians and services, and to determine if they are having any issues or problems with referrals that we
could address. The program was not costly, and it produced incredible results. During these visits, we asked each practice if they referred
any of their patients to our client. 62% of the practices said that they referred at least some of their patients to this particular group. After
the personal visits were completed, we followed up with another survey of the primary care groups. In this follow up survey 81% said
that they were now referring patients to this group. This is just one example of what good, targeted marketing can do for a practice.
8
Fee Schedule Verification:
I know this probably won’t come as a surprise to anyone, but insurance companies do make mistakes. What many doctors don’t realize
is that the insurance companies have good programs in place to catch the mistakes that could result in an overpayment to a doctor or
hospital, but they don’t do anything to correct for under payments. I think every orthopedic practice should have a formal process to
routinely check and make sure that their insurance contracts are paying the correct amount to their practice. This doesn’t have to be
something that makes you increase your staff; it can be something as simple as regular, random sample audits. If the audit shows that
you are being underpaid, then you can devote the resources to a full underpayment recovery audit. The main point here is not to assume
they are correct, because if something is wrong, it’s costing you money, and nobody can afford that in this new healthcare environment.
9
Negotiate Managed Care Contracts:
Physicians live in a very bizarre business environment. For most doctors, the largest purchaser of their service is the government. Unlike
other government contractors who negotiate cost plus contracts or bid on contracts, physicians get paid whatever the government decides,
even if it doesn’t cover their costs. On top of that, Medicare reimbursement has not kept up with practice inflation. So, you have a business
where your costs are increasing with inflation, but your biggest revenue stream isn’t. It doesn’t take a Nobel winning economist to tell you
that unless you get increases from your other revenue streams (the private insurance companies), you will face a business situation with
declining profits. This is why it’s imperative to negotiate your managed care contracts and make sure you are getting inflationary increases
necessary to keep your practice viable. I know that is often easier said than done, but you have to find a way to make it happen or eventually
you won’t make enough money to survive. At Fulcrum Strategies, we negotiate managed care contacts for practices of all sizes and specialties cross the United States. If you are facing difficult negotiations with the payers, please don’t hesitate to contact us for assistance.
10
Thinning the Herd:
For many years, insurance companies have banked on the fact that most physicians don’t understand the economics of their practice and
that they will not terminate any carrier because they don’t want to lose patients. This has helped produce a downward spiral for most
physician salaries. Let’s assume that you are a small group practice. You currently have a 4-week wait for a new patient appointment. You
have several insurance contracts that pay different rates. Let’s assume that one insurance company pays you 20% less than the average
of your other contracts. This company makes up 4% of your total patients. The idea of thinning the herd is that you should notify that
particular insurance company and tell them that you intend on terminating their contract if they don’t raise their rates to the average of their
competitors. If the insurance company doesn’t agree to a fee increase, you go ahead and terminate. With this action, the following
happens: First of all, since you have removed an insurance company, you lose some patients. Because your wait time is already 4 weeks
out, your appointments still stay booked but your wait time goes down from 4 weeks to 3 weeks. This means you are providing your other
patients better service. The patient visits you lost are replaced with visits that pay you an average of 20% more.
You have a limited number of appointment slots that each doctor can fill in a given day. If the demand for your services is higher than your
appointment supply (as evidenced by a wait time for new patient appointments), then you can’t afford to sell one of your limited appointment slots to an insurance carrier for less than what others are willing to pay for it.
The bottom line is this: The business of healthcare has become extremely difficult for physicians, and it’s not likely to get better in the next
few years. Now more than ever, it’s critical to follow these simple but powerful business processes and principles. If you don’t have the
expertise or resources to implement these measures, make it a priority to go out and find them. Failure to operate your orthopedic practice
like a business, and plan for the future, can lead to disaster. Just look at how many companies have failed to plan ahead, and as such,
failed to survive. Anyone still own General Motors stock?
We hope this article has provided you with valuable insight. If you need additional assistance, please don’t hesitate to contact us. We
can determine if you are getting fairly reimbursed by the payers or if there is potential for better rates and contract language. Our team
of former insurance professionals will handle all of your managed care contract negotiations from start to finish. You always
maintain complete decision-making control throughout the entire process. We do the work, and you get the reward!
Fulcrum Strategies is exhibiting at the AAOE 2015 Annual Conference. Please visit us in
Booth #913 to discuss your payer contracting questions with our negotiators.
DON’T MISS OUT!
Our President, Ron Howrigon, will be presenting “Reimbursement Trends in a Post
Healthcare Reform World” on Tuesday, April 28th from 10:15 – 11:15am.
FulcrumStrategies
Superior
Fulcrum Strategies | 1340 Sunday Dr, Ste 101, Raleigh, NC 27607 | 919-436-23377 | www.fsdoc.com
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CELEBRATING 10 YEARS | 2004-2014