|3 Strategies for Keeping Orthopedic Device Costs Down|
By Marc Davis
Quality, simplicity, ease of use and the long-term efficacy of orthopedic implants and devices are of the utmost importance when choosing what your facility will purchase.
However, "For all that the device companies have done for orthopedics over the years -- their innovations, particularly -- they also evaporated significant profit out of orthopedic surgery," says orthopedic surgeon John Cherf, MD, MBA, MPH, who practices at the Neurologic & Orthpedic Institute in Chicago. "The high cost of devices is a problem."
So, assuming satisfactory quality, cost may be the most important factor in these decisions. Here are three strategies that can help your orthopedic-driven ASC or hospital in the constant struggle to keep expenses associated with orthopedic devices down.
1. Encourage business education
Currently, most ASCs and hospitals assign the responsibility for buying devices to either the director of orthopedics or the director of surgery, or to the purchasing department, according to Dr. Cherf, who has also been an advisory consultant on all sides of the industry -- for practicing surgeons, ASC administrators, commercial payors and device providers.
Both models have benefits and drawbacks: The purchasing department will efficiently procure what is needed, but likely won't have as great an understanding of the products as a surgeon would. However, while the director of orthopedics' or director of surgery's knowledge can be key to deciding which devices and implants to buy, Dr. Cherf says that, as a rule, these purchasers struggle to keep orthopedic device expenses down.
The reason? A lack of formal business training.
"It's not part of medical school curriculum, not taught in residency, and so most surgeons don't have experience in managing costs," says Dr. Cherf. "[Physician-owned] ASCs and hospitals must become more sophisticated in managing their costs. A big first step is learning how to effectively negotiate. The fact is, you can negotiate price with a device manufacturer. Many will give you volume discounts or other incentives."
Competition among device and implant manufacturers is stiff, agrees Larry L. Teuber, MD, a founder, managing partner and neurosurgeon at The Spine Center in Rapid City, S.D. Make it work to your advantage by arguing for clauses that will allow you to pay for low-volume items only after you actually use them or that will guarantee free or reduced-rate shipping.
"We take some devices on consignment," says Dr. Teuber, who is also the founder and physician executive of Black Hills Surgery Center in Black Hills, S.D. "The amount of inventory in some ASCs is staggering. Inventory is cash on the shelf, it costs money to hold it, and if your money isn't working for you, you're losing money. As for rebates, it's a game that the buyer loses. I strongly reject the rebate and pay cash on receipt of the orthopedic device."
As a result, it's recommended that you encourage physicians to seek out business knowledge, or choose a physician with some business background for the task of balancing the clinical and budgetary facets of purchasing.
2. Separate sales from surgery
While vendors can be an excellent resource for product information, limit their contact with surgeons who aren't involved in purchasing.
"We usually order directly from the company rather than from a vendor and, in most cases, we don't allow our surgeons any contact with vendors," says Dr. Teuber. "We don't allow vendors to set up in the corridors to sell their devices, or even to park in our parking lot. We don't like conditional relationships with vendors. They're sales people, and we understand that. Dealing directly with a company eliminates the commission and saves us money."
An exception to Dr. Teuber's no-contact with vendors rule is when new or more complex devices become available. When this occurs, Dr. Teuber allows a vendor to demonstrate their use to the surgical staff.
"Devices must have a low failure and complication rate, but they must be easy and simple to use as well," he says. "[Working with the vendors on an educational basis] lets us ensure everyone on staff is comfortable with the device" before any final decisions are made.
Further, limiting this contact to someone who will think about the business and cost implications goes hand-in-hand with perhaps the mot critical step for keeping costs down: standardization.
3. Standardize wherever possible
Regardless of who handles the purchasing, one of the key priorities and ongoing goals of the position should be to standardize both vendors and devices, says Dr. Teuber. Although surgeons tend to prefer devices and implants they've been trained on -- "If a surgeon switches to a new, unfamiliar device, he goes to the bottom of the learning curve," says Dr. Cherf -- competent surgeons can effectively use any of the standard devices.
In addition, knee and hip devices are difficult to differentiate from company to company, according to Dr. Cherf.
"There's not much [qualitative] difference between them," he says. "Seventy-five percent of these implants are basically commodity products."
Further, notes Dr. Teuber, "All devices and implants have been approved by the FDA and therefore they meet bio-mechanical requirements, so quality may be generally equal."
The fact that quality will be similarly high among the top device makers is important to keep in mind and stress to surgeons who may hesitate at standardization as, from a business perspective, the benefits of simplified ordering (only one company invoiced, fewer purchase orders issued, etc.) and lower costs (individual implants and devices cost less due to high volumes, free shipping, etc.) are enormous. Therefore, advises Dr. Teuber, have clear-cut selection criteria for devices and implants that makes cost a heavily weighted factor after quality is assured.
What's more, you don't have to eliminate the possibility of adding new devices or switching implant types; you just standardize your purchasing system to account for the possibility. And the savings from standardizing commodity devices can free up the budget for such additions. Dr. Teuber's Spine Center, for example, has a formulary for devices and implants, much like a formulary for prescription drugs.
"If a surgeon wants to use a device not on the formulary, he can tell us which one and why he wants it," says Dr. Teuber. "If he has all the facts and can persuade us that the increased cost provides a real clinical benefit, we'll OK it."
Who gets to be profitable?
Because so many of the device companies are publicly traded, it is understandable that they'd look to protect their profits as much as possible, even at the expense of purchasers.
"They're required to enhance shareholder value and that's exactly what they've done," says Dr. Cherf, who believes orthopedics-driven ASCs and hospitals can be profitable if they use their collective purchasing power in the marketplace (a role group purchasing organizations help play). "Ideally, for maximum profitability for ASCs, there should be a price negotiator representing a consortium of ASCs buying collaboratively. Then ASCs could buy in large volume, like Wal-Mart. That would increase profitability, although cut manufacturers' margins."
Mr. Davis is a freelance writer. Contact him at firstname.lastname@example.org. The full text of this article and additional items regarding orthopedics and spine can be found in the Jan./Feb. issue of the Becker's ASC Review.
|The Political Landscape, Healthcare and ASCs: MSNBC's Tucker Carlson to Present|
Attendees at our June Orthopedics-, Pain Management- and Spine-Driven ASC Conference will gain insights on the political mood surrounding healthcare and ASCs, as Tucker Carlson will present the keynote speech, "The Political Landscape, Healthcare and ASCs." A longtime magazine and newspaper journalist, Mr. Carlson is the host of MSNBC's Tucker, a fast-paced, no-holds-barred conversation about the day's developments in news, politics, world issues and pop culture.
Further, the informative and practical content scheduled for presentation will help attendees improve profits of orthopedics-driven ASCs. In addition, while gaining business and clinical knowledge, you can earn CME credits. Based on the growth we saw last year, we have expanded the roster of speakers and will be bringing in more nationally known figures. We also have a broad and outstanding agenda. Here's a sampling of the topics that will be covered:
- Pain Management in ASCs -- A Clinical and Business View;
- 3 Different Methods to Improve Profits Quickly in the ASC -- A Panel Discussion;
- Developing a Spine-Driven ASC;
- An Orthopedist's View of Changes in Healthcare;
- Post-Acquisition Success With a Corporate Partner; and ,
- Core Tips and Strategies to Succeed With Orthopedics and Neurosurgery.
You can download the full conference brochure here.
An enormous thank you to our sponsors. VMG Health, a leading valuation and transaction firm that focuses solely on healthcare entities, will be a senior leadership sponsor. VMG has conducted hundreds of ASC valuations and developed the data the Intellimarker, an extremely effective benchmarking resource. Please contact Greg Koonsman, Jon O'Sullivan or any of VMG's terrific team for more.
Thanks also to National Surgical Care, the first company to acquire a sponsorship. National Surgical Care is a rapidly expanding company with terrific leadership; it is sponsoring the conference at a glance that will be distributed to all attendees at the conference. For more information on NSC, e-mail Rick Pence. Finally, a big thanks to Naya Kehayes and Eveia Consulting & Management Company; they are as good at managed care as anyone in the business. Eveia will be sponsoring the badge lanyards at the conference. Thank you again for your support. For more information on Eveia, call Ms. Kehayes at (425) 657-0494.
Download a conference prospectus here. As always, our full-year ASC Review advertisers receive a discount on exhibiting and sponsorships. For information, e-mail Scott Becker, and he will direct you to your ASC Communications account manager, or call (800) 417-2035, or e-mail Jessica Cole, Emily Noyes or Ryan Kiernan directly.
|News and Notes
Correction. New Jersey's emergency amendment that would apply disclosure rules to physician-owners of ASCs and other entities has not been fully adopted; it has been agreed to by the state Board of Medical Examiners, but has not yet been signed by the governor.
Marshall Erdman and Associates adds chief medical officer. Anesthesiologist, CEO and AMGA Chairman of the Board Allen Kemp, MD, has joined Marshall Erdman & Associates as chief medical officer. Dr. Kemp will lead advance planning, directing Erdman's consultative efforts to plan healthcare facilities that maximize the efficient and economical use of available space. By offering a patient-focused vision for the future of healthcare facilities, in accordance with the aims of the Institute of Medicine, Dr. Kemp will lead Erdman in addressing the gap that exists between business interests and practicing physicians, and the gap between healthcare reimbursements and costs. For more information on Erdman's healthcare facility design-build expertise, please visit the company Web site or call (800) 322-5117.
Looking for corporate partners. We are seeking the names of new companies interested in acquiring majority interests in ASCs. If you are one or know of one, please e-mail Scott Becker.
Are you doing total joints? We are looking for information on surgeons performing total-joint procedures in ASCs. If you or your center are doing total joints, and would be willing to discuss, please e-mail Scott Becker. Thank you.
Looking for contributors to March/April issue of Becker's ASC Review. Our March/April issue will focus on several key topics:
- Establishing an ASC -- A Primer from A to Z;
- Tips for Profitable Endoscopy in ASCs;
- Key Products for GI;
- Hospital-Physician Joint-Ventures: Current Tips for Success; and
- the Orthopedics and Spine Medical Device Market Letter.
The June conference brochure will also be included. If you would like to nominate a new GI endoscopy-related product for inclusion, please e-mail Stephanie Wasek or call her at (484) 866-1292.
Thank you, new and returning advertisers. Marshall Erdman and Associates, a full-service construction firm that offers project management from financial analysis to design-build, has signed on with the ASC Review for a full-year of premium-placement advertising. Erdman will appear on the back cover of the special pullout section, "Establishing an ASC -- A Primer From A to Z," in the March/April issue. Contact Tom Cornell for more information on Marshall Erdman's services.
Physicians Endoscopy, the leader in developing and managing GI-focused facilities, will have premium placement in the March/April issue of Becker's ASC Review; contact Barry Tanner or John Poisson.
We also thank Todd Mello and Curtis Bernstein of HealthCare Appraisers. HealthCare Appraisers is an outstanding valuation firm with great expertise with ASC valuations.
Another thank you to Regent Surgical Health, a terrific manager and developer of ASCs that specializes in turnarounds. Contact Tom Mallon.
Healthcare conference of interest. We are delighted that Outpatient Outlook 2008, an event focused on outpatient care and industry leaders as a whole is advertising with the ASC Review as well. This is not an ASC Communications event, but is presented by a5, a Chicago-based firm with significant healthcare and event marketing experience. For more information, e-mail John Harris or visit Outpatient Outlook online.
McGuireWoods Reception. In an effort to continue fostering relationships among those in the health care industry, McGuireWoods will host a reception on Feb. 7 from 5 to 7:30 p.m. at the Ritz-Carlton Chicago highlighting the following companies and leaders who work with hospitals and other providers in Illinois:
- Britt T. Reynolds, the vice president, division III operations, for Community Health Systems, the largest publicly traded hospital company in the United States.
- Claudia Stone Gourdon, senior vice president -- hospital sector, of Healthcare Finance Group, Inc., which specializes in senior debt financing that enables healthcare service providers to achieve their strategic capital goals.
- William "Mike" Karnes, CFO, and Tom Mallon, CEO, of Regent Surgical Health, an experienced surgery center developer, surgery center manager and developer of physician-owned hospitals across the country.
- Raymond M. Braun, president of McShane Medical Properties; John C. Daly, vice president -- healthcare services, McShane Construction; and Alexander M. Hlavacek, COO of McShane Medical Properties; all of the McShane Companies, a leading provider of integrated development, design/build construction, medical property acquisition and medical property management services in markets throughout the United States.
- David L. Woodrum, FAAHC, FACHE, a partner in Woodrum/ASD, which provides a range of services to ambulatory surgery centers - from development, management, and strategic marketing, to facilitating acquisitions and structuring joint ownership.
The following McGuireWoods lawyers will be highlighted as well: Jeffrey C. Clark, healthcare litigation; Craig R. Culbertson, capital markets and healthcare finance; Donald A. Ensing, capital markets and healthcare finance; Paul E. Fisher, real estate; Kara M. Friedman, healthcare and Illinois certificate of need; Thomas F. Londrigan Jr., healthcare and state government relations; and Jeffrey E. Rogers, government investigations and healthcare litigation.
If you are interested in attending, please e-mail Amy Nolan. Space is limited.
|Companies to Watch |
We are delighted to highlight the following companies in this week's E-Weekly.
Serbin Surgery Center Billing. With the upcoming Medicare ASC payment changes and the ever-changing complexity of ASC billing, many ASCs are looking for solutions to their billing and collection needs. Serbin Surgery Center Billing was founded in 2001 to provide the answer to this much-needed service. SCB concentrates on the unique needs of surgery centers and provides expert and accurate coding, billing, collections, and managed care negotiations solely to the ASC industry. The company's certified and experienced coding, billing, and collection personnel bill and collect over $25 million per month due to their extraordinary attention-to-detail in all aspects of the reimbursement process. SCB's extensive knowledge of payor responsibilities and managed care contracting ensures you'll receive the highest reimbursements possible. By outsourcing to SCB, ASCs can eliminate the headache and necessary evil of billing and collections while simultaneously realizing additional benefits. Claims are processed more rapidly, collections are improved, and office staff is not burdened with patient billing questions. For more information, contact SCB at (866) 889-7722.
ProVation Medical. ProVation MD software is designed by 12 full-time, in-house physicians and coders, working together with more than 75 clinician and coder consultants to create software that mimics a physician's or nurse's natural preferences and workflows. At its core, ProVation is intuitive software developed by physicians to help their colleagues focus on patients rather than paperwork. ProVation software enhances patient safety through better documentation, automatic data tracking, and quality improvement. This includes the automated population of post-procedure orders and patient instructions; automated recall functionalities for patient follow-up and pathology results due; and device tracking and many other features. The software prompts the clinician to document efficiently, then generates the corresponding CPT and ICD-9 codes and CCI edits ready for review by HIM and coding staff. The result is coder-ready documentation delivering compliance, proper reimbursement, and shortened days in accounts receivable. For more information e-mail Laura Gilbert.
Symbion. Headquartered in Nashville, Tenn., Symbion is a leading provider of high quality surgical services across many specialties. Led by one of the industry's most experienced management teams, the company was founded in 1996 to acquire, develop and operate outpatient surgery facilities in partnership with physicians, hospitals and health systems. Through continued capital investment and flexible partnership arrangements, Symbion's network has grown to include 54 short-stay surgery centers and three surgical hospitals across 23 states. In each of its locations, the company works to create highly efficient, quality focused environments designed around the needs of both patients and physicians. Visit Symbion on the Web for more information.
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If you have any questions on any of the items listed in this letter, please contact me at (312) 750-6016 or by email at email@example.com.
Very truly yours,
Scott Becker, JD, CPA