Most medical practices would’ve seen a relatively normal, solid performance in the first quarter. But things shifted dramatically in April, as each state, particularly in the Northeast, started to restrict elective surgery and patients grew concerned. Hospitals were overwhelmed with admissions and started to repurpose operating rooms. This all had a halting effect on the orthopedic sector’s ability to provide services.

As the U.S. emerges from the COVID-19 pandemic, orthopedics should bounce back, as patients will seek out surgery to remedy discomfort or pain. The sector will rebound due to the nature of the ailments it treats, which come mostly in the form of everyday injuries that generate fractures as well as joint replacements. Whereas people might have the ability to function normally with dermatology or ophthalmology issues, when they have fractures, a spine problem, or back pain, they can’t function.

Another boon for the orthopedics field is that as the baby boomer population continues to age, they’ll need joint surgery. As imaging technology improves, doctors are recommending total replacement of shoulders, ankles, knees, and hips, as well as joint resurfacing. With tech improvements, the risk factors are lower, turnaround time is faster, and recovery periods are better. A lot of these procedures can be done on an outpatient basis, and members of the older population are accessing these services more. These procedures allow them to become active again – they can play golf, see their grandkids, and drive.

Demand for these procedures and convenient access to outpatient surgery centers are driving much of the orthopedic world.

Growth Areas for Orthopedic Practices

As orthopedic groups increase in size, the opportunity increases for additional business lines. Larger groups may have multiple locations and offer a different set of ancillary services. One of the big opportunities lies in advanced technology for imaging, an MRI machine. Every orthopedic practice tries to own their own MRI machine, which runs between $2 million and $3 million. A practice of 10 to 15 surgeons can produce 5,000 MRIs a year, with an average yield of about $700 each. It’s a revenue stream that doesn’t rely on physicians’ hands.

Another is ultrasound-guided injections that add to the revenue stream anywhere between $100 to $150 per procedure. There’s also more durable medical equipment, braces, boots, and crutches, which all hold about a 60% margin. Although physical therapy is low margin because of the cost of labor, it’s necessary and serves patients well.

Many practices have developed no-appointment-needed walk-in centers, helping patients avoid waiting five or six hours at the hospital. They’re triaged, X-rayed, seen, and then moved right into, depending upon their condition, an orthopedist schedule, whether it’s the hand surgeon, sports medicine practitioner, or spine surgeon. For every dollar that walk-in centers generate, practices can realize $4 downstream among surgical services, therapy services, and advanced imaging services. It’s a great way for a practice to expand its footprint without a lot of sticks and bricks – they can be built in about 2,000 square feet.

The Growth of Ambulatory Surgical Centers

A practice operating its own ambulatory surgical center is a win-win for both the practice and its patients. Half a practice’s business can be shifted to the center, keeping patients out of the hospital, which is less costly to the patient and more efficient for the surgeon. All in all, ambulatory surgery centers are a safer environment. In a hospital, there’s a mix of patients with various comorbidities. The pandemic further highlighted the dangers of this mix. When the patient comes to a private ambulatory surgery center, they’re orthopedic patients who are generally of better health. They can get in and out in a much shorter period of time. The room turnover is faster.

Often when an orthopedic surgeon goes to the hospital for their cases, these may be bumped by emergencies, leading to patients yet again going through the process of getting authorization, clearance, and scheduling. Orthopedic surgeons are always at risk of other surgeons needing operating room time. Surgeons in one day may only see three or four cases at the hospital, if that, while they can do eight to 10 in the ambulatory surgery center. At their own surgery center, doctors control their work schedule, have their own teams, and have everything they need.

Ambulatory surgery centers are run as private businesses. Their primary objective is to deliver care, get the economics right, take care of the patient, and give them a good experience. It’s far more predictable and dependable. Hence the drive toward independent surgery centers.

Reimbursement Trends’ Effects on the Industry

Insurance reimbursements are putting pressure on orthopedics. A couple years ago, Centers for Medicare & Medicaid Services and other carriers introduced bundle payments, in which healthcare facilities receive a single payment for all services delivered during an episode of care. In many cases, this forced practices to invest heavily in case management and resources. The old days of fee-for-service are waning, so there’s a lot of downward pressure on reimbursement and the ability to perform services without the restrictions of prior authorizations. All the insurance carriers keep introducing new middlemen into the equation, whether it’s therapy or for advanced imaging, that bog down the process.

For example, Blue Cross Blue Shield doesn’t pay for viscosupplements, a highly used orthopedic service in which a drug is injected directly into a patient’s knees to help them with arthritis and avoid surgery. The carrier makes the patient pay for it, so it impedes the patient’s ability to access the service.

On the bright side, depending upon the state, workers’ compensation is still a reasonable payer and practices will make a reasonably good effort to take these patients on.

How COVID-19 Will Affect the Industry

Like every other medical practice, orthopedics will see procedure changes. We’ve recommended screening every patient at the front entrance of our practices. If someone answers affirmatively on any question on the COVID-19 questionnaire provided by the Centers of Disease Control and Prevention, they can’t come in the door. Those entering must wear a mask and have their temperature taken.

Practices are changing their waiting rooms, putting distance in the seating areas and blocking off or partitioning the distance between counters, reception desk, or registration desk to protect both patients and staff. Staff all wear masks. One practice I’m working with introduced kiosks that are wiped down between uses.

Where orthopedics differs from other kinds of care is that when someone falls and breaks something, they must get it fixed – it’s unavoidable. Because of this, it’s likely that within the next 90 days, surgical volumes will climb back up to pre-COVID-19 levels. While patients may wait longer for purely elective procedures, including cosmetic surgery, orthopedics will likely get back in the saddle pretty quickly because it’s summertime, and people want to be active.

The problem is, a lot of orthopedic practices went to zero during the pandemic. They either were not equipped or didn’t feel safe. Now they’re trying to reconstitute themselves after losing a lot of patient activity, but they can’t get their staff back. I’ve seen practices that have shut down permanently, with the doctors finding jobs elsewhere, or more senior doctors deciding to retire. There will be fewer practicing physicians when the dust settles. Opportunities are there for practices that managed to remain open during the pandemic, even if they reduced hours and locations.

Given the weak state of some practices, the door may be open for consolidation and private equity acquisitions in orthopedics, the latter of which hasn’t found as much success in the field as in other specialties, including ophthalmology, urology, and dermatology. But now, it may be a pathway for groups struggling to reconstitute themselves due to capital and organizational needs.

---

About Steve Fiore

Steve Fiore, MBA, FACMPE, is the CEO at Orthopaedic Specialty Group, P.C. and principal at Medical Consultants of New England, LLC. He has over 42 years of healthcare administration and over 35 years of orthopedic practices experience. Mr. Fiore has been a member of the board of directors of MGMA, president for the Eastern Section of MGMA, president of Massachusetts and Rhode Island MGMA, and president of the American Association of Orthopedic Executives (formerly the Bones Society Inc.,), a national organization of Orthopedic Administrators.

---

This article is adapted from the May 20, 2020, GLG teleconference “Private Practice Outlook: Orthopedics.” If you would like access to this teleconference or would like to speak with Steve Fiore or any of our more than 700,000 experts, contact us.

---

GLG is supporting nonprofits on the frontline of COVID-19 relief, pro bono. If you represent or know of an organization that could use our help, let us know here. If you are a GLG network member whose expertise might be valuable to a relief organization, please get in touch here.