Rehab services offer good revenue source

Physical therapy generates revenue for orthopedists

You might say the motto of Raleigh (NC) Orthopaedic Clinic, P.A., is "never say never." How many employees in the 15-physician practice would have predicted in 1988, when the practice sold its physical therapy business, that it would re-purchase the assets of the same business eight years later?

The cut into revenues caused by managed care and its emphasis on utilization has forced Raleigh Orthopaedic to look for new sources of revenue. As it turns out, the practice isn’t alone. An informal survey of about 70 orthopedic practices attending the Medical Group Management Association (MGMA) orthopedic assembly in October found that just under half of the groups represented employ physical therapists.

Rehab can boost patient satisfaction

Given the financial dynamics of managed care, the move back into rehab is resulting in better economic performance, practice administrators tell Physician’s Managed Care Report. An effective physical rehabilitation program can boost your patient satisfaction scores, while also improving clinical outcomes. Another factor that could make your practice shine with health plans is reduced hospital admissions for certain patients, such as those who have had hip surgery.

Under fee for service, physicians earned better incomes strictly from performing surgeries. In recent years, however, payments and referrals to specialists have dropped significantly. Managed care, which focuses more on holistic treatments, rewards physicians for patient care beyond high-tech procedures.

"Two consultants told us we could expect 15% to 30% in terms of [annual] profit margin," says Deborah Howard, executive director. Three months and 20 managed care contracts later, Howard says "we’re feeling very good about what we’ve done."

Still not convinced of the revenue potential physical therapy can offer an orthopedic practice? You may want to talk with Chuck Redwing, FACMPE, administrator of The Orthopaedic Clinic in Phoenix. "In our situation, a well-run, efficient physical therapy department generates as much revenue as a full-time orthopedic surgeon," Redwing says.

Although the match between physical therapy and orthopedic practices certainly isn’t new, it has gotten renewed attention in the past year. "Many orthopedists are talking to their colleagues and finding out that it is possible to make a physical therapy practice work within a group practice," says Bruce A. Johnson, a consultant with Medical Group Management Association Consulting Services in Englewood, CO. "There’s a constant concern in looking for additional sources of revenue in what looks to be a dwindling future revenue stream given the growth of managed care. Part and parcel of that is the potential ability to present a full package of musculoskeletal services [to managed care organizations]."

Stark law discouraged rehab ownership

Physical therapy and orthopedic practices have had an up-and-down relationship over the past five years. An expanded version of the Ethics and Patient Referral Act, commonly known as "Stark legislation" because it was spearheaded by U.S. Rep. Pete Stark (D-CA), became effective in 1995. The Stark law prohibited physician referrals to physical therapy practices they have an ownership interest in. As a result, many groups shied away from physical therapy ownership.

At the prompting of groups like MGMA, there now is a group practice exemption to the legislation, Redwing says. "It’s a very complicated rule and depends on how your group is structured [legally]. You also need to set up compensation formulas so that physician compensation is not directly tied to the physical therapy practice. I would advise anyone to consult a legal advisor to make sure your practice is exempt," he says.

HEALTHSOUTH packs rehab muscle

Some orthopedic practices have stayed away from the rehab business because industry giant HEALTHSOUTH Corp., in Birmingham, AL, is building its portfolio of acute rehab hospitals and outpatient clinics at an astonishing rate. "They have a hub-and-spoke model [in many markets] consisting of an acute rehab hospital, outpatient rehab clinics, outpatient surgery centers, and facilities with diagnostic capabilities such as an imaging center," says Jean Swenson, an analyst with Alex Brown & Co. in Baltimore. "At this point, HEALTHSOUTH can go to a managed care organization and say they can provide a whole spectrum of services cheaper than anyone else. In markets where they have this hub-and-spoke strategy, I really don’t see how anyone can touch them."

Johnson believes practices can compete most effectively with the HEALTHSOUTHs of the world by joining together with other orthopedic practices to form a regional network. The idea is to approach a payer with good collective geographic access in a given market.

Regardless, The Orthopaedic Clinic has done very well on its own in Phoenix, one of HEALTHSOUTH's strongest markets, Redwing says. "I think a practice can make it by themselves in a saturated market. Our biggest distinguishing factor is that our therapists are employees of the physicians. This greatly enhances communication, and because of that, there’s a very definite tie to the quality and efficiency of patient care," he says.

Once a practice overcomes the legal and competitive hurdles, owning a physical therapy practice can offer clinical advantages in addition to its revenue strengths, Redwing says.

"Because the therapists are directly employed and supervised by our physicians, we can have very direct communication between the physician and the physical therapist," Redwing says. "That greatly enhances the quality of what we do for our patients. Plus, if a patient isn’t doing well and isn’t responding to PT, there is no incentive for us to keep patients in therapy for six months. We’ll try something different."

Once you’ve assessed your market and conquered the legal obstacles, top-notch coding, billing, and patient management become high priorities, experts say. The key to running a successful rehab operation is knowing how to work with managed care organizations effectively on billing issues and utilization, Redwing and Howard say.

When Raleigh Orthopaedic Clinic re-entered the physical therapy business in fall of 1996, it asked the managed care organizations with which it networked if the physical therapy practice could be added as well. "I explained to them one of the reasons we wanted to get into this business is to help control costs and utilization," Howard says. "They know us as a [cost-] effective group that is conservative surgically."

Howard and Redwing approach negotiations with managed care organizations on a case-by-case basis. "One payer wanted to give us a remarkably small amount per visit no matter how many services we provided in a visit," Howard says. "We chose not to participate with that payer."

Payers like package pricing

In some cases, Redwing’s practice negotiates a capitation rate with orthopedic services and physical therapy in one package. "Some contracts may not want physical therapy, but for other contracts, it’s a bargaining chip we bring to the table," he says. "We may ask if they’ve thought of physical therapy, and they light right up."

Contract negotiations provide the perfect time to discuss billing issues as well, Redwing says. Ask what procedures will be covered and what the billing rules are. It’s also helpful to have the practice’s medical director meet directly with the medical director of the managed care organization to discuss billing and documentation issues, says Janice Cunningham, an attorney and consultant with The Health Care Group in Plymouth Meeting, PA.