Improving and Maintaining Profitability in Orthopedic and Spine Practices: 12 Areas of Focus

Renée Tomcanin -  

Recent reports in the media show that many healthcare practices are losing money in this struggling economy. However, many orthopedic and spine practices have managed to implement initiatives that have helped them to maintain profits. Others have reexamined their practices and found simple ways to improve current procedures. A few more have investigated new business opportunities that have helped increase profits.

Here are 12 areas that orthopedic and spine practices can focus on to maintain and increase profitability in the face of a tough market.


1. Focus on the revenue cycle.
Keeping an eye on collections and payments is important for practices, especially in a struggling economy. Michael H. Cox, PhD, CEO of Central Maine Orthopedics in Auburn, Maine, says that many patients many are not aware of what plans they qualify for, such as Medicaid, so practices should take the time to work with patients to help them figure that out.

With rising copays and deductibles, many patients may find it difficult to make these payments. Don Love, administrator of an orthopedic practice in Roanoke, Va., advises practices to prescreen their patients and to speak with them prior to arriving at the office so that patients are aware of what cost their insurance will cover and what they will be expected to pay.

"It's important to provide a patient with a complete financial picture," Mr. Love says. By taking these steps, patients and physicians can work together to arrange a payment schedule, and the chances of patients paying their copays upfront increase.

Curt Mayse, a principal with LarsonAllen, suggests that practices should work better with their front-desk staff members to help them understand all aspects of the billing cycle and collections process. "Many practices are too focused on their payor reimbursement and Medicare to notice that the patient portion of healthcare payments is growing," he says.

Mr. Mayse says that practices should figure out how they can stay on top of this information and help patients gain a clear understanding of their payment responsibilities, as Mr. Love suggests. Mr. Mayse suggests gathering the following information for patients regarding their responsibilities:

  • Co-payments
  • Deductibles
  • How many patient visits to the office or physical therapist will be covered


Mr. Love suggests that practices should closely watch their bad debts and other outstanding debt in A/R.

Mr. Mayse agrees and notes that practices should focus on getting their collections out of the door immediately following a patient visit. "These should be sent within minutes or hours, not days, of a visit," he says. "This way, the practice will get their reimbursements or denials back quicker from insurance companies."

When practices receive a denial, Mr. Mayse says that they should not sit on this information. "The business office should pass the reasons for the denial on to the front-end to communicate to them why the claim was denied." By improving the communication between these two parts of the practice, offices can cut down on repeat mistakes and improve their overall collections and billing.

One way to improve the revenue cycle is to focus on efficiency within a practice. Total quality management, or process improvement, can help a practice to develop more efficient processes. Mr. Love sees now as a good time to implement changes within a practice. "It's not something that you'll be able to do in three or six months," he says. "It really is a culture change within the practice."

Mr. Love suggests taking the time to teach process improvement techniques to the practice's management team and staff. In addition, he says that it is important to reinforce its use so that the new techniques become part of the operation of the practice.

2. Work on managed care contracting. Poorly negotiated contracts with payors can mean lost reimbursements for many practices. "Many practices tend to neglect to actively manage their contracts or fail to see how they can get better reimbursement rates because they had heard of relatively little success in this area," Mr. Mayse says.

Mr. Mayse says that now is a good time for practices to examine their contracts with payors and see where they currently stand. "Even if you don't improve your rates, discussing your contracts with payors can help you understand the methodology of your reimbursements," he says. Practices can see if they have budget neutrality adjustment factors, determine what pay rates they are receiving based on the 2008 or 2009 relative value unit methodology and understand their contracts on a better level, according to Mr. Mayse.

Another benefit this evaluation can have is that practices can look into what items they aren't receiving reimbursement for and work to get these items or services covered.

Furthermore, practices can decide if they want to stay in-network or go out of network with certain payors, as most practices initially try to join with as many insurance companies as they can. "It is important to understand a payor's payments and look for inaccuracies," Mr. Mayse says.

"A recent study found that a large national payer paid 73 percent of their claims lines correctly. This still means that 27 percent were paid incorrectly, and it is important to understand why," he says.

Evaluating these contracts gives physicians and billing staff members the chance to look over their coding, especially the coding of modifiers and in-office procedures, according to Mr. Mayse.

3. Change the culture and then processes can be improved.
"Someone once said that 'culture eats process for lunch,'" says Dr. Cox, who believes that culture plays the largest role in a successful business. If a center has a weak management and has not developed an employee culture of "ownership," attempting to make changes to any operational processes can be difficult and often frustrating no matter how well the processes are designed.

When Dr. Cox took over management at CMO a year and a half ago, the business was struggling. "The employees had no sense of direction and had little involvement in developing the business or daily operations," he says. "Consequently the business was fragmented, and not patient oriented. In addition, our surgeons began functioning as individual practitioners and not owners of the corporation. I believe this was a survival instinct and not grounded in good business acumen."

According to Dr. Cox, by giving staff more ownership of the daily processes CMO has been able to change the culture. Now, employees are asked to join work groups when CMO undergoes any major projects or initiatives and their input is valued. One of these work groups developed standards of performance and behavior, which dictates how employees should behave as part of the business. The document was approved by all employees, and now all new hires are required to sign off on this document before they come on staff.

"People improve and guide processes," Dr. Cox says.

4. Efficient use of ancillary services. Many orthopedic and spine practices have ancillary services, such as physical therapy and MRI imaging. According to Mr. Love, it is important to make sure that these aspects of the practice are running smoothly.

In addition, many practices have found opportunities by distributing durable medical equipment. However, Mr. Love warns that this may look like an attractive option — and it has been successful for many practices — but practices must conduct thorough due diligence to ensure their return on investment.

"Our practice just recently added durable medical equipment as a business, and it is profitable," Mr. Davidson says. "Pro formas to add more imaging services also look good." He mentions one caveat for practices interesting in adding these services. "Medicare changes in imaging center certifications are possible in the near future, so a practice should be mindful of this."

There are other ways in which orthopedic and spine practices can add new services and staff in this economy, according to Alan Davidson, executive director of the Orthopedic Institute of Pennsylvania in Camp Hill. For example, the addition of a non-operative musculoskeletal service, such as physiatry, can lead to the addition of pain management services.

Many surgeons use or are investors in ASCs. Partnering with a good center can be valuable even in this economy. Ken Austin, MD, an orthopedic surgeon in Airmont, N.Y., notes that it is important for surgeons to become involved in the management and oversight of the center they choose to use. He also notes that it is important to find a "beneficial and cost-effective" way to work with the ASC in this economy so that both the surgery center and physicians see positive results.

Mr. Davidson agrees that efforts to improve production in ASCs in which an orthopedic or spine physician is a partner can offer another opportunity, such as adding extended hours in the ASC.

Mr. Mayse notes that practices should also evaluate their durable medical equipment services to determine if what they are offering is still profitable and still state-of-the-art. He also suggests evaluating what the practice could offer in terms of these services.

Additional ancillary services can also be profitable. According to Mr. Davidson, short-stay hospital development presents another business opportunity for physicians at orthopedics and spine practices, but at a high risk.

Joint ventures with hospitals are another area Mr. Davidson says orthopedic and spine practices should consider. "Gainsharing and co-management may be good strategies with hospitals," he says. "Exit strategies in joint-venture businesses with hospitals may be good precautions should the federal legislators put orthopedists out of business. Hospitals that see opportunities to build market share in a down market are good partners. Orthopedists must use leverage in negotiations."

5. Selective marketing. One way orthopedic and spine practices can boost their profits is by selective marketing, which is increasing marketing efforts to a target audience and those people most likely to have need for a practice's services. According to Mr. Davidson, "Selective marketing efforts pay off." He suggests that practices should improve their phone response to patients and processing of patients at all levels of service (reception, clinic visit, etc.) in the practice. Adding an online service or electronic medical records can help with scheduling and registration by allowing patients to take care of this information before they come into the office.

"Efforts to make it easier for referring practices to communicate with an orthopedic practice are essential," says Mr. Davidson. "Aging baby boomers and young sports participants are obvious markets. The middle-aged market with candidates for preventative and life-improving services such as joint resurfacing is likely to be a good population for targeted marketing."

As an example, Mr. Davidson's organization is resuming a once defunct DEXA scanning service in an osteoporosis service, not in expectation of profits but rather in fulfillment of a community need for the identification and treatment of osteoporosis.

Dr. Austin agrees that selective marketing can be beneficial for practices. "It's important to remain involved in the community," he says, and by using marketing techniques, a practice can do just that.

By making efficient use of the practice's Web site, these services can reach a broader audience and offer more information to potential patients than what they can find on online directory sites, according to Mr. Mayse.

6. Consider focusing on niche markets. Large practices with a wide variety of sub-specialties may consider expanding into niche clinics and/or centers of excellence in a poor economy. Dr. Cox says this approach has been very successful for CMO.

"Focusing on specific facets of the industry and marketing clinics around them can help promote that aspect of your practice, improve patient care and eventually clinical outcomes" Dr. Cox says. Currently, CMO has developed specialty centers for hand surgery, sports medicine and joint replacement.

By concentrating sub-specialty areas it may be easier for practices to find efficient and better defined ways to inform their target markets about their services.

7. Evaluate labor utilization. Staffing costs often account for the largest expense for orthopedic and spine practices. According to Mr. Love, they can be more than half of a practice's total expense. However, automatically cutting staff may not the best solution when trying to reduce costs. Mr. Love advises practices to figure out how to maximize efficiency with the existing staff and increase the volume of patients that can be seen during a clinic session. He says that adjustments in staffing should be made without affecting the quality of care.

"We are trying to protect jobs," he says. A key way to maximize the efficiency of your staff, according to Mr. Love, is to keep an open line of communication between staff and management. By paying attention to the needs of the staff, practices can increase efficiency, create higher job satisfaction and potentially boost patient satisfaction.

Nicola Hawkinson, CEO of SpineSearch, a recruitment and educational company with a focus on spinal practices, agrees that physicians need to keep their current staff satisfied. "I consider it a form of preventive practice medicine," she says, noting that many problems regarding job performance or employee satisfaction can be handled before they become bigger issues.

Ms. Hawkinson suggests that physicians provide incentives for their staff that are not limited to bonus plans. "An incentive doesn't have to be financial," she says. Dress-down or half-day Fridays can do a lot for staff morale. "A mother of three may prefer a half-day on Friday over $200 or $300 because she may be paying that much in day care."

Mr. Mayse says that many practices, especially orthopedics practices, often have difficulty determining their proper staffing requirements. "It is important to have the right resources available at the right place and the right time," he says.

This includes clinical staff, administrative staff, physical therapists and athletic trainers. "You don't want to have too many people on staff so that they are sitting around," Mr. Mayse says. "At the same time, you want to have enough people so that you don't lose money in having too much overtime."

He also notes that by providing effective leadership in all areas of the practice, many of these issues can be effectively handled.

Physical therapists can be of particular benefit and hassle to a practices, according to Mr. Mayse. In some cases, state law will not allow practices to offer these services. If a state does permit an orthopedic practice to have physical therapists, Mr. Mayse says that having the proper level of management and providers is key.

"Also athletic trainers can be used both internally and externally to promote a practice," Mr. Mayse says. "If they offer services to local high schools and attend their sporting events, they can find a need in the community and act as a perfect marketing tool for the practice."

8. An educated staff is an effective staff.
According to Ms. Hawkinson, an undereducated staff often leads to dissatisfaction. "If the staff doesn't have the knowledge they need to perform their duties, they will become easily frustrated and unproductive," she says.

Ms. Hawkinson suggests hosting regular staff meetings so that physicians can be aware of the educational needs of their staff.

Attending continuing medical education courses provide great opportunities for staff to gain information that physicians cannot get in the office or operating room, Ms. Hawkinson notes. "Having staff attend these courses as a group shows that they are an important part of the practice and a part of a team," she says.

Ms. Hawkinson notes that sending staff to these meetings can be tax deductible, but practices should consult their accountant for proper knowledge of accounting rules.

9. Improve hiring practices to reduce staff turnover.
High turnover rates can decrease a practice's profitability because of the time spent on training the new staff member rather than on treating and recruiting new patients. It is not good enough for physicians to just find staff member who can fill the position; the new hire must be a good fit for the practice.

One area where many physicians run into hiring problems is by not having or creating insufficient job descriptions. Ms. Hawkinson, who is a nurse practitioner, says that she had been hired by a physician who was unsure what her job description was. Due to a lack of an accurate job description, the job that needed to be done wasn't being accomplished, and the lack of a defined position became frustrating to Ms. Hawkinson.

"The problem could have been easily remedied with an accurate job description," Ms. Hawkinson says. "With an accurate job description all three parties involved win. The doctor has a highly efficient staff, the employee knows exactly what is expected of them, and the patient receives optimal care." Ms. Hawkinson has found that through her experience in the field by helping practices define job roles and create optimal staffing methods, profit margins can be increased.

"Before hiring, a physician should identify gaps in the workplace and assess what is needed in the daily workload," Ms. Hawkinson says. "Determine what needs to be done or needs to be done more efficiently."

By taking the time to determine exactly what position needs to be filled can save practices money. "This way, you won't end up hiring an office manager for $75,000 when you can hire a clerk for $35,000," she says.

Dr. Cox notes that in 2007 CMO was experiencing a turnover rate of 50 percent when he joined the Practice. "To address the turnover rate, I took a page from Al Stubblefield's 'Journey to Excellence' and put hiring decisions into the hands of the employees. Subsequently, CMO has reduced the turnover rate to nearly zero. This changed because employees have a vested interest in the success of the new employee, and the interview process is focused on behavior and character rather than skill," he says.

According to Dr. Cox, human resources and the related department manager at CMO create a short list of candidates for a position, which may include some phone or in-person interviews. The short listed candidates are then scheduled for interviews with an employee interview team without managers present. The employee group makes the recommendation on the hiring and Human Resources do the follow-up. Dr. Cox notes that CMO employees who do the interviewing have been trained on the legalities and  processes of interviewing.

"Employees have ownership of the process and are selecting a colleague who has the right character and integrity for the center," he says. "Because the employees understand the method and are sincere about the approach the chances of picking the right candidate is improved considerably."

10. Establish a presence in the community. One way practices can maintain and improve the number of patients who come into their offices is by establishing a presence in their local communities.

Dr. Cox suggests that practices engage in community outreach and become involved in their local chamber of commerce and other community groups. CMO also performs outreach to the local university.

CMO has improved its reputation and presence in its community by working with patients through this difficult economic time. One employee is dedicated to working with patients on managing the costs of the healthcare and providing financial counseling.

"Our market reach is wide and we encompass a large rural area in Maine, and we have many patients who are less fortunate and in need," Dr. Cox says. "We provide discounted rates and work with payors, and if we need to, we provide charity care." Through these extra efforts, good word-of-mouth recommendations for CMO have spread to the community, and Dr. Cox says that the center's revenues are up for the second consecutive quarter and compare favorably to the same period last year.

Working with primary care physicians and emergency departments in the area are other ways in which practices can reach out to patients in their communities. "We developed a more formal relationship with the local emergency rooms and developed a telephone ER triage system," Dr. Cox says. "We can now more efficiently handle referral cases and everyone is satisfied."

11. Become active in politics, especially issues related to practices. One area that could greatly impact the overall revenues of orthopedic and spine practices is new legislation that could eliminate business for practices, such as laws that put limits on physician ownership or referrals. Additionally, there are a growing compliance issues which could subject practices to Medicare audits and enormous costs. For these reasons it is critical for orthopedic and spine surgeons to take an interest and involvement in politics that could affect their livelihood, Mr. Davidson says.  

"Orthopedists must dive into politics and improve lobbying efforts," he says. "There are many forces that are damaging the public trust of physicians, and work needs to be done to restore the image. Hospitals and payors market and display kindly physicians delivering healthcare on their billboards. As the president of a health plan once told me, 'Insurers are basically marketing organizations.' Physicians must promote their good images though politics and marketing."

12. Make effective use of office space. The building in which a practice is located can affect profitability almost as much as the operations that go on inside of it. According to Mr. Mayse, many orthopedic and spine physicians love big buildings, thinking that a bigger space is a better space. At the same token, many physicians choose to remain at a cramped space when it may be wise for them to expand their practices. Both of these missteps can cause problems for a practice's profitability.

"Physicians need to consider the scope and the layout of a facility that can effectively manage the caseload they have," Mr. Mayse says. This means that office space must be large enough to comfortably accommodate the patients a practice will see in a day but not too much that there is wasted space.

By paying too much on rent or limiting the number of patients a practice can see because of lack of space, the costs can add up over time, according to Mr. Mayse.

Contact Renée Tomcanin at renee@beckersasc.com.

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