Reimbursement’s Downward Trend for Orthopedic Services

Over the past decade, orthopedic and musculoskeletal (MSK) services have been immune to many of the negative reimbursement trends experienced by other specialties.  This protection can be attributed in large part to the significant number of elective procedures, healthy revenue from ancillary services, and relatively strong year-to-year increases in reimbursement.  As a result, many orthopedic practices have been able to maintain sufficient operating margins while remaining independent.

Now, however, that immunity is beginning to wear off.  An increased focus on alternative payment models and reduction of hospital utilization by the Centers for Medicare & Medicaid Services (CMS) and other commercial payors has instigated a decline in reimbursement for orthopedic services.  An analysis of Medicare reimbursement for these services between 2009 and 2013 indicates revenue increases are moderating across various clinical settings, including consults and procedures in physician practices, inpatient surgical cases at hospitals, and outpatient cases at ambulatory surgery centers (ASCs).Ortho_MSK Reimbursement_13M12D18These reductions in net revenue coincide with continued growth in medical group expenses, as operating costs per physician have increased annually for the past several years.  In addition, alternative payment models will continue to proliferate, and greater emphasis will be placed on prevention and the use of lower-cost clinical settings.  In response, hospitals and orthopedic groups are pursuing alignment models designed to improve the delivery of orthopedic/MSK care while maintaining favorable operating margins.  Accordingly, many health systems will experience increased consolidation in orthopedic services in the near term as downward pressure on reimbursement continues, costs at private medical groups increase, and alternative payment models expand.

How will your organization respond to the downward trend in reimbursement for orthopedic and MSK services?

To learn more about orthopedic and MSK reimbursement, see our Executive Briefing.

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1 Hospital reimbursement is calculated by using the orthopedic/MSK Medicare Severity Diagnosis Related Groups (MS-DRGs) with the greatest volume, as identified by the Medicare Provider Analysis and Review (MEDPAR) Inpatient Hospital National Data Set. The MS-DRG weight and the average base rate for hospitals, as defined by the CMS Acute Inpatient Prospective Payment System (PPS), are used to determine reimbursement.
2 ASC reimbursement is based on all orthopedic/MSK Ambulatory Payment Classifications (APCs) in Addendum A of the CMS Hospital Outpatient PPS.
3 Physician reimbursement is based on professional fees for Medicare reimbursement of the top 25 CPT codes billed by orthopedic surgeons. Medicare reimbursement is based on the work relative value units and conversion factor, as defined by the Medicare Physician Fee Schedule in a given year. The top 25 CPT codes are defined by ECG Management Consultants, Inc.’s National Provider Compensation, Production, and Benefits Survey, year 2012 based on 2011 data.

This entry was posted in Healthcare Reimbursement, Hospital-Physician Alignment, Orthopedics/Musculoskeletal and tagged , , , , by Michael Duffy. Bookmark the permalink.

About Michael Duffy

Michael has experience in medical group operations, performance benchmarking, and assessments of financial arrangements between hospitals/health systems and physician groups. At ECG, he has assisted medical groups in improving operational efficiency, reviewed and restructured payor contracts, developed bundled payment programs, conducted service line assessments and strategic planning, worked on physician compensation projects, and conducted third-party fair market valuations. Prior to joining ECG, Michael worked in the health services practice at BearingPoint, where he assisted providers and payors in strategic IT system selection, implementation, and operations improvement projects for billing, disease management, benefits administration, and finance functions. He has a master of business administration degree from the University of Notre Dame Mendoza College of Business and a bachelor degree in business administration with an emphasis in finance from Loyola Marymount University.

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