Spine surgeons navigate 'tough economy'

News & Analysis

Spine surgeons and practices have felt the economic pinch plaguing healthcare this past year and are getting bigger through mergers and acquisitions or partnering with the local hospital.

Even large community-based orthopedic and spine practices are coming together to realize economies of scale as inflation, staff shortages and the need for more sophisticated practice management technology grows. The aggregation of Chicago-based Midwest Orthopaedics at Rush and OrthoIllinois earlier this year is a prime example.

"Consolidation is going to be part of what we're going to see in every aspect of medicine, not just physician practices. We are seeing it in industry in the last six months or year as we've had four major spine mergers with four companies merging into two new enterprises," said Frank Phillips, MD, a spine surgeon at Midwest Orthopaedics at Rush and director of the division of spine surgery at Rush University Medical Center, at the Becker's Spine, Orthopedic and Pain Management-Driven ASC Conference in June. "It's happening everywhere…As professional revenue goes down, surgeons are generally innovative people and look for revenue streams outside our day-to-day practices."

Ancillary services can be a lucrative revenue source, but that's tough for small practices to execute on. It's hard to raise the capital alone for an ASC and other service lines. Payer contracts are also tightening and requiring more prior authorizations, which takes additional resources to tackle.

"Part of the reason OrthoIllinois merged with us was the scale to have more negotiating power with the payers as a bigger group. There will always be niche practices in certain locations that really work well that are small, but I think it's getting harder and harder to survive with labor costs and negotiations with payers, if you're a small group, are going to drive consolidation. We've said it for years and it's happening to some extent, and I think it's going to be accelerated by the tough economy we are facing."

Moody's Investor Services predicts continued pressure on hospital expenses due to labor shortages, but there will be some relief as hospitals rely less on expensive contract labor. Labor trends could bode well for physician practices and ASCs if there is less movement and more talent retention. However, KaufmanHall's November "National Hospital Flash Report" shows supply costs are still on the rise and likely will remain high next year.

Ernest Braxton, MD, is part of the 12-physician Vail-Summit Orthopaedics & Neurosurgery in Vail, Colo., and the only practicing spine surgeon. He said the group is leaning on partnerships with other physicians in the area and the local hospital to develop ancillary services, including three ASCs.

"Having a hospital as a partner is actually a really good idea because you're not as adversarial with taking out patients from the system. We share in that revenue, and the hospital's have a lot more power with contracting, so we were able to get the hospital contracts on our surgery center, which is helpful as opposed to going out on our own and raising a lot of capital to do so," said Dr. Braxton.

Many physician groups have had competitive relationships with hospitals but Dr. Braxton urged physicians to keep their eye on the "larger strategic goal" to work together and accomplish more as partners than as single entities. It also helps that the hospital services and physician practice complement each other instead of directly compete.

"Our practices focus on different areas and there isn't much overlap even though it's a really small town we work in," he said.

Carlos Bagley, MD, chari of the department of neurosurgery,co-chair of the neurosciences division and co-medical director of the Saint Luke's Marion Bloch Neurosciences Institute in Kansas City, Mo., also sees big opportunities for physicians and hospitals to work together in the future for better patient care. He said it takes leadership from both sides to turn an adversarial relationship into a productive one.

"There have been these adversarial relationships and we're having a knife fight [between the hospital and physician practice] over here, and all the while the insurance carriers are loving it because we're killing each other and picking each other off," said Dr. Bagley. "I think aligning is important because our goals and interests are the same around the patient and providing the most optimal care."

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