An orthopedic practice can absorb financial pressure in dozens of small ways. It can wait another year to replace an X-ray machine. Renegotiate supply contracts. Push for more volume. Search for another revenue stream.
Eventually, Terry Rosenthal believes practices reach a harder question: Can we afford to remain the practice we are today?
The answer carries stakes beyond any single practice’s ledger. When independent practices shrink or close, the same procedures often move to hospital outpatient departments, where Medicare pays more for identical care, a gap Mr. Rosenthal returns to later.
Mr. Rosenthal has spent 29 years at The Orthopaedic Clinic in Opelika, Ala., including 16 as CEO. He is also president of the American Alliance of Orthopaedic Executives, giving him a view of the financial pressures facing his own five-surgeon group and orthopedic practices nationally.
For Mr. Rosenthal, the problem is straightforward. Nearly every expense on his practice’s profit-and-loss statement has increased. Reimbursement has not followed the same trajectory.
“Unlike your neighborhood grocery store or your favorite restaurant, if my costs go up 10%, I can’t just raise my prices 10%,” Mr. Rosenthal told Becker’s. “My costs have gone up, my reimbursement has gone down, and that’s just not a sustainable model.”
The question now is what practices do when the usual places to absorb that difference begin disappearing.
When the math reaches the practice
The 2027 Medicare Physician Fee Schedule proposal has sharpened that question.
AAOE has asked CMS to reconsider several provisions, including proposed cuts of up to 20% to work relative value units for total hip, knee and shoulder replacements, and a policy that would pay only half the normal rate for a separately identifiable evaluation and management service performed on the same day as a procedure.
For Mr. Rosenthal, however, reimbursement is only one side of the equation. Prior authorization shows what is happening on the other.
Every request creates work. Someone has to collect records, enter information into a payer portal and follow up. A denial may trigger an appeal or peer-to-peer review that takes a physician away from clinic.
“Somebody has to compile the data, put it in the portal and send the follow-up,” Mr. Rosenthal said. “If it’s denied, you have to appeal it or set up a peer-to-peer. That all takes someone to do.”
Personnel is already the largest expense for most practices, he said. Yet administrative requirements can require groups to devote more staff and physician time to securing payment even as reimbursement itself comes under pressure.
The same tension appears in CMS’ proposed change to modifier 25, which is used when a physician provides a significant, separately identifiable evaluation and management service on the same day as another procedure. AAOE has argued that reducing payment for those services could discourage practices from evaluating and treating patients during the same visit.
Mr. Rosenthal pointed to orthopedic injections as an example. A practice could eventually face an uncomfortable financial incentive: evaluate the patient today, then ask the patient to return for treatment.
“You may have to tell patients, ‘I can’t give you your injection today. You’re going to have to come back another day,’” he said.
The practice protects its economics by making care less convenient.
The decision no practice wants to make
For years, practices have answered financial pressure with efficiency. Mr. Rosenthal’s group has ancillary revenue from physical therapy and MRI. It scrutinizes purchasing and technology. It focuses heavily on volume because many of its expenses remain fixed regardless of how many patients walk through the door.
“My building’s going to cost the same whether we see one patient today or 100,” he said. “The rent’s the same, the utilities are the same.”
But efficiency has a ceiling. If Medicare economics continue deteriorating, Mr. Rosenthal said practice leaders may eventually have to model choices far more consequential than finding another operational savings.
“Do we downsize?” he said. “Do we stop seeing Medicare patients? Do we shed staff, get smaller and focus on the patients we can treat outside of Medicare?”
Mr. Rosenthal was not saying his practice has decided to take those steps. He was describing the choices he believes practices may increasingly have to consider.
That is where reimbursement pressure begins changing more than a balance sheet. A smaller staff means less capacity. Limiting Medicare changes who can get an appointment. Shrinking a practice can mean fewer patients seen altogether.
Mr. Rosenthal worries the consequences will ultimately reach patients.
“What may take two or three days to get patients seen may take two or three weeks,” he said.
The investment that waits another year
The effects can begin well before a practice cuts staff or limits patients. They can show up in an X-ray machine.
“Can we get another year out of that X-ray machine?” Mr. Rosenthal said. It is the kind of capital decision a practice might approach differently when it does not know what Medicare reimbursement will look like a year from now.
The same applies to technology. Mr. Rosenthal said IT costs have climbed as practices contend with cybersecurity requirements, server replacements and other infrastructure expenses.
AAOE has argued that year-to-year Medicare uncertainty makes it difficult for practices to plan staffing, capital investments and technology adoption. The organization is calling for a longer-term payment framework that accounts for inflation and practice cost growth.
That uncertainty also colors Mr. Rosenthal’s view of new payment models. AAOE has asked CMS to provide additional implementation time for the Ambulatory Specialty Model and reconsider its mandatory structure, citing the analytics, care coordination, quality reporting, compliance and financial infrastructure practices may need to participate successfully.
Mr. Rosenthal’s experience with merit-based incentive payment systems makes him wary of asking practices to make another significant administrative investment without knowing how long the model will last.
His practice participated in MIPS and devoted resources to collecting and submitting the required data. He said the group saw some benefit, but not what had been promised.
“Is this something that they’re going to put in, and then five years from now, it’s on to the next thing?” he said.
What happens when independent practices get smaller
Mr. Rosenthal believes practice leaders should prepare rather than wait. That means examining workflows, negotiating with vendors, carefully vetting capital purchases and looking for technology or ancillary services that could improve the economics of the practice.
AI may eventually help. Mr. Rosenthal is exploring whether AI could take over some functions practices currently pay employees to perform, though he does not believe the technology is mature enough to assume those savings will materialize.
“You have to be very nimble,” he said.
But his larger concern is what happens if being nimble is no longer enough. Mr. Rosenthal said some physicians have already responded to Medicare economics by opting out or limiting the number of Medicare patients they see. He worries continued pressure will accelerate that shift and send more patients toward larger health systems.
That creates a contradiction, in his view. Independent practices are being pushed to find savings, but if more care migrates into hospital settings, the same services can carry higher reimbursement.
Mr. Rosenthal points to imaging.
“There’s no reason an MRI done in my office, on the same machine and for the same patient, should be reimbursed less than an MRI done across the street at a hospital simply because it’s performed in a hospital facility,” he said.
For Mr. Rosenthal, that is why the debate over Medicare payment cannot be separated from the future of independent orthopedics.
Practices can negotiate harder. They can postpone investments. They can increase volume and search for new revenue. What they cannot do indefinitely is spend more to provide care while being paid less for it.
“You have to take a hard look and ask, ‘If these trends continue, can we afford to remain the size we are and continue treating Medicare patients the way we do today?’” Mr. Rosenthal said.
For some orthopedic practices, that may become the calculation that determines what, and who, remains.
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