In the Business-Minded Surgeon blog, members of OrthoFounders, a national group of orthopedic entrepreneurs, discuss how orthopedic surgeons can lead efforts to fix the problems in health care that are so palpable and apparent to themselves, but opaque and undervalued by others. Topics include how to maximize return based on business strategy and improved clinical performance, how to navigate the entrepreneurial journey, and how to connect with others who have similar interests.

 

 

BLOG: Securitization of health care contracts might be costing your practice needed revenue

Most orthopedic surgeons invest funds in multiple financial instruments as part of retirement portfolios. As our advisors often say, diversification of individual investments balances risk and reward and converts a disparate collection of separate investments into a coordinated package with mutually reinforcing components. That portfolio then becomes a more valuable entity — one that could be sold at any time and converted into an annuity if the owner wanted to begin reaping the rewards prior to retirement age.

The process of selecting and packaging individual investments into a tradeable commodity is called “securitization,” a term that got a lot of press in the subprime lending crisis of 2009. The question posed by this blog post is, “Are health care payers using securitization principles to maximize their financial positions, thus harming the best interests of our surgical practices?”

We can consider this question by starting with the mortgage crisis mentioned above. In the early 2000s, banks were collecting millions of mortgages together, packaging and selling them to parties interested in collecting the debt payments during the lives of the loans. By packaging these loans together, they hid some highly risky loans among the less risky loans in a type of diversification that seemed to lower risk. In fact, without the highly risky loans hidden among the less risky loans, it is unlikely the banks could have unloaded these for a profit.

Now, let’s see if we can apply that securitization principle to health care payers and medical/surgical practices in order to understand how the payers might be profiting at the physicians’ cost. First, health care payers insure the health care costs of millions of people and they package these policies into plans. Some of these beneficiaries will generate massive costs, but many will generate little health care cost in any given year.

Next, the payers sign contracts with practices to provide care, knowing practices have no way of stratifying access for those patients in the plan with high costs (high revenue for the practice) ahead of those who take physician time but generate low costs (low revenue). Payers know practices lack an appointment optimization solution that would allow them to unbundle this securitized package and manage their clinic time to generate maximal revenue and efficiency.

For example, most surgical practices participate with Medicare despite the fact it reimburses at low rates relative to the private market. While there are multiple reasons to participate with Medicare, such as a moral obligation to care for senior citizens, the business case for accepting Medicare is simple: Senior citizens require surgical procedures at a high rate. Although a participating physician may engage in numerous encounters that do not result in surgery and reimburse less than the cost of running the clinic, occasionally a patient will require a surgical procedure that reimburses well enough to warrant the practice’s continued participation in Medicare.

In this example, CMS is capitalizing on the principle of securitization to improve its financial performance. The same case can certainly be made for any of the other payers in the market. The logical conclusion is that health care payers securitize their policies into plans and contract with providers to treat all beneficiaries in the plan to improve the profitability of companies at physicians’ expense.

This realization leads to an obvious hypothetical. Is it possible to continue engaging in the care of securitized pools of insured patients, but to diminish the negative repercussions of securitization to maximize the financial performance of the clinic? If 20 patients with XYZ insurance plan request an appointment during a busy week but the clinic only has the immediate capacity to take care of seven of those patients, is it possible to better manage how the prospective open appointment slots should be filled to maximize the production of each physician? I believe physicians must develop and utilize an appointment optimization solution to remain viable in a health care ecosystem where all of the participants other than physicians have already put in place sophisticated methods to maximize utilization of skills and minimize payment for that utilization.

John “Jay” Crawford, MD, is a partner at Knoxville Orthopaedic Clinic and founder of nextDoc Solutions, a software company that builds custom apps for orthopedic surgery practices. His primary interest is helping private-practice orthopedic surgeons discover and implement strategies to ensure robust and sustainable business performance in a consumer-driven health care environment.