Orthopaedic Practice Management: Pearls & Pitfalls
Q&A with Dr. Jack Bert by Dr. Christopher Tucker *
* The following Q&A is adapted from a two-part Arthroscopy journal podcast on this topic, released on October 5 & November 2, 2020, which are available through the Arthroscopy journal website, iTunes, Google or anywhere you listen to podcasts.
Jack M. Bert, M.D., AANA Past President, is a world-renowned thought leader on orthopaedic practice management, an avid clinician, founder of the Minnesota Cartilage Restoration Center and CEO of MDDirect. In this conversation, we discuss the business of orthopaedics and, specifically, his practice management pearls and pitfalls. This conversation flows chronologically, much like a surgeon evolves through his or her career, to ensure we hit all the highlights and have a little bit of something for everyone. We discuss the early career surgeon; the established surgeon; ancillary and alternative income streams; nonclinical opportunities; and transitioning out of practice.
Chris Tucker, M.D. (CT): Jack, can you share with us your pearls and pitfalls for the surgeon looking for a job either right out of residency or someone looking to transition practices? What should they be looking for (and looking out for)?
Jack Bert, M.D. (JB): Great question. There are several important concepts to think about when you're looking for a job:
- The contract. The contract should be relatively simplistic language and you should be able to understand 99% of it. Utilize a good contract attorney if there are parts of it that you don't understand. There are two important clauses that are absolutely critical to ensure that they are appropriately written: termination with cause and termination without cause. If an employer simply wants to terminate your employment without cause, it can be for (literally) any reason whatsoever and in my opinion, should be eliminated from a contract, which is extremely difficult. "With cause" requires egregious behavior such as inappropriate care, proven sexual harassment, etc. Remember that contracts written with a 90-day termination clause for either party without cause are just 90-day contracts! Noncompete clauses can be written so that you will be unable to practice anywhere near the community in which you live IF the health care system or private group has multiple offices. For example, if you have a 10-mile radius noncompete from the office in which you practice and leave the group or hospital system, the contract may be written to include ALL the clinic sites owned by the group or hospital. IF there are multiple clinic sites or offices 15 to 20 miles away, the "10-mile radius" may end up being 50 miles from where you are living since the 10-mile radius applies to ALL sites. A recent Medscape survey noted that only 8% of respondents were successful in negotiating out of a noncompete agreement and 12% were unsuccessful. The remainder simply didn’t try.
- Type of employment opportunity. When you consider the current number of Orthopaedic Residents and/or Fellows who are looking at employment opportunities, whether it’s through a hospital, health care system or private practice, there's no question that the number of Orthopaedic Surgeons that are joining groups and being employed by hospitals or health care systems is rising. There are two reasons for this: orthopaedics is one of the top two revenue sources for hospitals; thus, they want to control the surgeons and obtain as much downstream revenue as they can get. "Downstream revenue" is the money that you earn for the hospital, including your professional fees in the clinic and surgery, MRI referrals, facility fees when you do surgery, physical therapy (PT) referrals, durable medical equipment (DME) referrals and any lab referrals. According to the Merrit-Hawkins 2019 Physician Revenue survey, Orthopaedic Surgeons earned an average net revenue for the hospital of $3.29 million/year. Note that health care systems and equity investment groups are slowly purchasing group practices with lucrative buyouts. These equity buyouts are becoming very common, and if you are seeking a private practice job, you’ve got to consider the likelihood of the practice undergoing an equity purchase. As soon as there's a buyout of a group, the salaries for the remainder of the partners that are in the group commonly drop by roughly 30%. It’s important to know up front if this is a consideration and how long it will be before you will attain partnership.
If you decide to work for a hospital or health care system, make sure that you have a reasonable employment contract. Remember, you're going to be paid based upon your productivity which depends upon hitting your target work relative value unit (RVU) numbers. Before you sign the contract with a hospital system, you want to confirm that there is a strong referral source for you as a new surgeon or it can be very difficult to reach these numbers. Furthermore, make sure there is no "clawback provision" in your contract so that if you don’t reach a minimum RVU value during the first year or two of a fixed salary contract, they can’t terminate you "without cause" and demand you pay back the amount that you didn’t technically earn because you didn’t reach a preassigned work RVU value. - Understand your worth. When it comes to negotiating reimbursement with your potential employer, you’ve got to understand what you’re worth and what you’re generating for the hospital system. They use something called the Medical Group Management Association (MGMA) to determine average salaries for specialists. For example, the average salary for an Orthopaedic Surgeon is approximately $400-450,000 in year one. The administrators argue that they need to use the 50th percentile as your salary. My response to that when meeting with administrators on behalf of a surgeon group is this: "So, are these Orthopaedic Surgeons the best of the worst or the worst of the best, since they are in the 50th percentile?" The bottom line is you want to know what you are generating for the hospital or system yourself and negotiate from there. You won’t be able to do this initially, but when it comes time to renegotiate your contract after several years in practice, you will hopefully have some data that estimates the amount you have earned for the hospital. Remember that the data noted above confirms that the average Orthopaedic Surgeon produces about $3.29 million, net, for the hospital on an annualized basis. In salary negotiations, you want transparency and fairness, which is extremely difficult to achieve since hospital administrators rarely share earnings data with physicians. Get an explanation of benefits (EOBs) from patients and keep them. Try to get ones representing every payer in your area. That way you will at least have an idea what the hospital or your group practice is getting paid for your services based upon the charges.
- Finally, carefully read your initial contractual agreements. This will be the only time you're going to be able to successfully negotiate your contract. Once you put pen to paper, remember, there's no turning back.
CT: Next, can you share with us your thoughts on pearls and pitfalls for the first five years of your career as a practicing Orthopaedic Surgeon? Where can folks succeed or really go wrong?
JB: Be careful of trying to generate high numbers of RVUs because that's the natural tendency for anyone starting out. You’ve got to be especially careful of doing this in private practice. Try to remain conservative in your approach to patient care; the surgery will come with time. Furthermore, your reputation, even though it's harder to be this way, as a conservative practicing physician will benefit you because the referral surgeons and your patients will love you for it, and they'll trust you. I like to collect good articles and quote them for patients or actually hand them a copy. Patients love that type of evidence-based approach instead of "I’ve always done it this way." At the end of the day, if you're honest with your patients, you'll be shocked at how good your scores will be on all the various internet search engines, and you'll be amazed at how faithful your patients will be. When they won't be faithful is if you want to dive into surgery immediately for something that doesn't necessarily require it, and if they get other opinions, then the word gets around pretty quickly that you're a "cutter." I've seen that happen to surgeons and it really slows down the progression of their practice.
Also, DO NOT JOUST! What this means is do NOT condemn other surgeons in your area for their initial treatment even though you may disagree with it…it will only come back to haunt you when you have a complication and can result in litigation. As one of my mentors used to say, "what goes around, comes around." It may take years, but negative comments regarding other surgeons will eventually result in tarnishing your reputation OR result in vengeful comments from other surgeons when your patient obtains a second opinion.
I always tell surgeons that are just coming out of their residency or fellowship that it takes about five years to hit your "critical mass" for patient-to-patient referrals. Don’t get frustrated early on. Just try to be honest, extremely empathetic, conservative and very transparent. Don't be afraid to share the literature; try to be as evidence-based as you can. We should all be doing that with everything that we do in our profession.
CT: Okay, how about for the surgeon in the prime of his or her career? Those with experience have an established team and a fairly set way of doing things. What tips do you have for that surgeon, who may run the risk of potentially losing sight of the forest for the trees, so to speak, as they're in the prime-earning years?
JB: Chris, I’m an old guy who still tries to read every night for 30 to 45 minutes, and I really believe that continuous learning is key. Get involved in an organization that you love, such as AANA. Get involved in teaching – on any level. For over 30 years, I would go once a month to the local hospital and teach their small family practice program for 30 minutes doing "hands on" lecturing and they just loved it; plus, when the FPs finally go into practice, those that stay in your area will refer patients to you.
So, I think the answer to that is to keep teaching, get involved and keep learning. If you're insecure about a new procedure, come to one of the courses that we teach at the Orthopaedic Learning Center (OLC). Don’t be afraid to learn and don't be embarrassed by being the oldest guy in the group – we have a lot of guys in their 50s and some in their 60s who still come to our OLC courses.
CT: What thoughts do you have for the surgeon approaching retirement or looking to at least downshift in their practice? How can they remain active, relevant and helpful to their practice while still taking some more time away for themselves?
JB: Excellent question! So, one thing I didn't mention earlier – and this goes for the younger surgeons as well – start your retirement plan right away! Get into a defined benefit pension plan if you are in a private group or solo practice. If you're employed, put the maximum amount away into your 401(k) or individual retirement account (IRA). People ask me what you should have upon retirement and I'm embarrassed to give you the number, but it's a lot more than you'd think. It depends on your standard of living and what you’re used to spending, but remember that you have to take the "required minimum distribution" out of your pension plan of roughly 4% per year after you turn 70 ½. So, do the math on what you think you need in your retirement plans. Also, calculate your "burn rate," i.e. what you think you spend monthly. Most people don’t have a clue what they spend monthly because they have to add up all of their debt obligations, including taxes, mortgage payments, income taxes, other debt obligations and then their household credit card payments, child expenses including possible tuition costs, etc. These are numbers that very few individuals keep track of. Thus, unless you've got 10 to 15 million dollars stacked away in a money management account, which is not likely for the majority of surgeons, I would make the argument that you should consider doing something post-retirement or working out a situation with your group where you can keep working on a part-time basis.
There’s significant demand as you get older for medical legal work. There's 26 billion dollars of medical legal work done every year in the U.S. I can make as much in half of a day doing medical legal work as I would working in two days of practice and subjecting that amount to collections and overhead. The reason is, you can charge a lot of money to do medical legal work when 1) you've got 25 to 30 years of practice experience, 2) it’s 100% prepaid and 3) overhead is 15% or less. It's not like putting a total knee in or doing knee or shoulder arthroscopy, but the bottom line is there's a huge need for this kind of work and the legal system is willing to pay a lot to have seasoned Orthopaedic Surgeons doing it. Furthermore, you only see the patient on one occasion, render an opinion and there is no stress or liability associated with caring for a patient because there is no physician-patient relationship in medical legal work.
So, I think it's important for that extra potential income stream working literally just one to 1 ½ days/week because older surgeons are very precious commodities in the medical legal field. Otherwise, see if your group will allow you to see patients and refer the surgical cases to the younger partners. Most older surgeons have a very loyal patient base that trust their judgement and consequently will allow a seamless referral to a new partner.
CT: Again, fantastic advice Jack. Okay, can we discuss some concepts that apply universally across the board to all practicing surgeons, regardless of the phase in their career? I'd like to hear your thoughts on the current and future states of things like ancillaries, passive income, alternative income streams and even some nonclinical opportunities. What can you tell us about those?
JB: There are some Chief Medical Officer (CMO) jobs that are out there, and some consulting jobs. The problem with that is they require working five days a week. But those are some jobs that you can do. I know that some surgeons are doing disability evaluations. So those are some nonclinical opportunities aside from the ones that I've talked about earlier.
I think ancillaries are definitely here to stay and that is a significant source of passive income. And one of the things that I've told people who are employed by a hospital system or by a big health care system is that you can make the argument that you deserve to be at a much higher RVU rate than that 50% MGMA threshold by stating your case. That's the way administrators can recruit high-quality employed physicians and the surgeons can still make a fortune for the hospital system. I believe that because of the massive shift to outpatient cases, the hospitals have got to provide their surgeons with good income levels or they're not going to attract or keep quality Orthopaedic Surgeons. As I previously stated, remember that hospitals and health care systems make their money from the physicians’ professional fees, facility fees and referrals to their ancillaries including the operating room (OR), ambulatory service center (ASC), MRIs, X-rays, PT and DME. Thus, it’s important to remind the administrators that their downstream revenue is significant and pays many times over for their salary.
CT: Okay, going back to your presidential address from 2009: With the benefit of having an additional decade of experience in hindsight, can you better answer your own question: "Can the private practice of orthopaedic surgery survive the 21st century?"
JB: I think the answer is without question, yes. I started a company two years ago called MDDirect, and what we've been doing is working with employers through brokers, third-party administrators and cost management companies. Basically, what these groups do is sell plans to employers. So, the employers trust the brokers, the third-party administrators (TPAs) and their cost management companies. But the problem is they really don't understand the management of musculoskeletal care very well.
If you can link up employers to value-based groups that do cost-effective care, bundled payments and "packaged pricing" and are willing to work with an employer, you'd be shocked at how well those groups then do. We effectively push the insurance companies out of the middle of this equation. We've got a whole series of pilot programs going and our average savings right now is 30% on musculoskeletal care – just by reducing the insurance company’s involvement in cost management. Employers love it because they know their patient is going to get good care from a high-quality provider for a lower overall cost.
So, we know that if we're conservative in private practice and even in employed practice, we can do a good job of delivering orthopaedic care. I believe that with this trend now going directly from employers to providers, if you're cost-effective, value-based and you can reduce insurer involvement, you can have a scenario where at a reasonable price, you get high-quality musculoskeletal care at a low cost. We're seeing bundles in meniscectomies and shoulder scopes, and employers are excited about the opportunity to work through these care models with us…I think it's really exciting!
So, the answer to your question is "yes." For private practice, I think they're going to do very well, especially those that have their own ASC. The only caveat there would be if some of the massive companies like United Healthcare buy out the practices and/or force surgeons to work at ASCs that they own. This is starting to happen as these massive insurers and health care coalitions are purchasing ASCs and incentivizing patients monetarily to use their facilities. If this becomes monetized nationally, you could be forced to work at their facility. However, this will be a difficult business proposition for these large insurers, especially if employers develop relationships with groups through brokers and TPAs – this is what MDDirect is attempting to facilitate.
CT: I think that's encouraging; as long as we have a buy-in as surgeons, I too am optimistic that the future is bright. Jack, thank you for sharing your time and thoughts with us and especially for the hard work you've put into advancing the practice of orthopaedics throughout your career on behalf of all surgeons and patients.
Dr. Bert's presidential address and commentary titled "Can The Private Practice of Orthopaedic Surgery Survive The 21st Century?" can be found in the July 2009 issue of Arthroscopy, which is available online at www.arthroscopyjournal.org.