4 biggest business challenges facing orthopedic practices

Alan Condon -  

With U.S. inflation hitting 9.1 percent, the highest it has been in 21 years, overheads and staff wages on the rise, and reimbursement and physician fees continuing to be cut by insurers, the next year is set to be particularly challenging for orthopedic practices. 

Here are the four biggest business challenges facing orthopedic surgeons, with insights from physicians from across the country:

1. Medicare and commercial payer cuts. Physicians are staring down the barrel of further CMS cuts to their professional fees in 2023, and commercial payers — which base their rates on Medicare's — are likely to follow suit. Insurers are further decreasing reimbursement for procedures as well as bundling payments, which heightens the financial strain on many practices; overhead, staff salaries and inflation are increasing, while reimbursement is dropping.

In July, CMS released its Medicare physician fee schedule proposed rule for 2023, which would decrease the conversion factor by 4.42 percent to $33.08 while inflation and the cost of running an independent practice continue to rise. The potential effect around the country is that physicians may limit the number of Medicare and Medicaid patients they treat or opt out of Medicare altogether. There may also be a ripple effect on commercial payer contracts tied to federal rates, 

"This is in the midst of the worst inflation in the past 20 years, so the effect will be more than 5 percent on paper," according to Issada Thongtrangan, MD, of Microspine in Scottsdale, Ariz. "Physicians already lose financially when they take care of Medicare patients, especially if they are not healthy, and more and more physicians opt out of taking care of these patients. What do you think will happen to healthcare for Medicare patients in the future if this trend continues? Providing quality care will be more challenging in this environment, and sadly [there is] nothing we can do about it." 

2. Recruiting and retaining clinical and administrative staff. Recruitment is always a challenge, but the effects of the COVID-19 pandemic, burnout and an impending physician shortage are making recruiting and retaining top-tier talent an even bigger challenge. 

Nurses and medical assistants are among the most difficult positions to recruit in today's labor market, which has pushed many practices to increase wages and strengthen compensation packages and benefits to address staff shortages.

"We are practicing in an unprecedented time where there are staffing shortages across the board. Not having enough nurses, radiology technicians, scrub technicians, CRNAs, etc., have really hindered our ability to provide the level of care we are accustomed to providing for our patients," Robert Hirschl, MD, president of the Neuroscience Institute at Orlando (Fla.) Heath, told Becker's. "We need to think outside the box when it comes to our staff utilization and how we recruit and retain top quality individuals." 

3. Developing ancillary services. Orthopedic groups are increasingly looking to provide a range of integrated services, including ASCs, physician-owned hospitals, MRI and physical therapy, under the same umbrella as the practice. 

"For all practices, ancillaries are becoming a bigger piece of the business. We're getting less in professional fees, working harder for less money. We [need to] figure out ancillaries, which would include all the usual ancillaries — therapy, MRI, imaging, but also surgery centers," Frank Phillips, MD, director of spine surgery at Rush University Medical Center in Chicago, told Becker's. "We decided to [scale] through organic growth with partners, basically putting in retained earnings, which is obviously not the traditional way orthopedic or medical practices function, and use that to grow our footprint both in terms of geography and in terms of developing ancillary streams."

4. Maintaining independence. Another key challenge for independent orthopedic groups is maintaining their autonomy. This has driven many small and medium-size practices to merge into "supergroups," which benefit from greater economies of scale, sharing financial risk and a larger seat at the table when negotiating contracts with payers. 

Other orthopedic practices are partnering with private equity firms, which has seen a significant uptick in the specialty in recent years, and some are joining hospitals and health systems. However, this can mean sacrificing some autonomy when it comes to patient care, which independent surgeons do not want to do. 

In addition, when major hospitals and corporations acquire physician practices, especially primary care, this not only increases the cost of care but also decreases the referral to that community's orthopedic surgeons. Instead, those primary care practices have to refer to the hospital or corporate system in their network.

"The last decade or two we've seen reductions in reimbursements for professional services while reimbursements have stayed high on the facility side. At the same time, overhead has gone up, such as malpractice insurance, information systems and compliance. These things are very costly, and that's decreased the margins that an independent orthopedic group operates under," Ed Hellman, MD, president and interim CEO of Indianapolis-based OrthoIndy, told Becker's. "Successful groups have found ways to develop ancillary income streams, whether it's ownership of therapy or imaging centers or surgery centers. In our case, we have a physician-owned hospital that's part of that as well, and that has allowed us to stay independent of the major health systems." 

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