Scrambling To Survive

January 31, 2009

Medical practices tap new revenue streams as reimbursements shrink

Baltimore Business Journal – by Tania Anderson Contributor

Dr. Elizabeth Schlenoff. is trying to keep her family medical practice afloat.

The Harford doctor, who has practiced medicine for 24 years, has made a profitable and successful business of runny noses and infected ears. But in the past few years as insurance companies have started reimbursing her and many doctors in Maryland less for previously covered procedures, she’s turned to other sources of income.

She started a med spa, which offers simple cosmetic procedures, in 2005. Then she launched an addiction management clinic, which counsels patients in alcohol and prescription medicine addiction, about a year ago. And she recently got a high-end nutritional supplements business off the ground.

“I have so many irons in the fire,” she said. “It’s called scrambling to survive.”

Schlenoff, like many Maryland doctors, has launched these ancillary services, investing $852,000 over the last four years, as a way to fill the revenue hole. Typically, these services don’t even bother with insurance but just rely on patients to pay for fees outright.

“People have essentially gone to non-covered procedures, trying to get out from under the insurance companies with their erratic payments or nonpayments,” said Dr. Joseph Zebley, a family physician in Baltimore and past president of the Maryland Academy of Family Physicians.

Zebley said the state lacks any statistics showing this trend of new ancillary services but in his role as the president of the academy, he saw more practices launch additional revenue streams to keep their doors open. Family physicians, for example, have purchased laser machines to offer cosmetic procedures such as micro dermabrasion. He said other groups have invested in pain management services, including electrical stimulation.

“It’s a moving target,” Zebly said. “It’s whatever is a non-covered service that people want and are willing to pay for.”

Staying ahead of the curve

The strategy for doctors is to figure out which services are in demand and no longer being reimbursed by insurance companies. As soon as the insurers decide to reimburse those services below cost, then the physician dumps the program.

Zebley did just that in his own practice several years ago when he purchased a dexa machine to detect osteoporosis in elderly women. His office charged $250 for the service. But when Medicare decided to cover the procedure at $125, Zebley got rid of the machine.

“It’s a simple business strategy,” he said. “It works but you have to stay ahead of the curve.”

Schlenoff said this strategy has kept her business alive as the cosmetic procedures, which range from $300 to $3,000, and addiction management services have brought in revenue from new and existing patients. Some of those services even attracted new patients to her family practice.

But it’s not as much revenue as she would have liked. She’s hopeful that selling high-end vitamins will attract a hefty business. Her first shipment of products sold out in less than a month. “It’s not going to be a difficult, all-consuming thing for me to grow,” she added.

OrthoMaryland of Baltimore also took a crack at this strategy in 2004 when it launched several ancillary services to fill its own insurance reimbursement hole. The orthopedic practice, which had been doing fine since its start in 1925, was losing $150,000 per physician per year from insurance companies reimbursing them for fewer medical services.

Some of its new offerings included three therapy centers, an MRI service and a surgery center, all started from the ground up with about $6 million in capital. The idea was that patients wouldn’t need to be sent out for these services but could receive this care all under one roof, driving more revenue to the practice. The new services have proven to make up for the insurance reimbursement loss, as well as help attract at least six new physicians to the practice over the past four years.

“Once we got through that startup period, we were pleasantly surprised at the difference that these ancillaries have made in terms of revenue,” said Dr. Jim Demopoulos, CEO of OrthoMaryland, which has seen revenue climb from $1 million in 2003 to $22 million in 2008.

Diversifying the mix

The group wants to add even more services to its plate. Home health care ­is one area that makes sense, since many of its orthopedic patients need this kind of service, Demopoulos said.

“Physicians would love to just practice medicine and not have to develop these other services because it takes capital and time,” he said. “If they want to practice in a state like this [where reimbursements rank in the bottom quarter nationally], that’s what they have to do.”

But some groups aren’t needing to launch new services to bring in more revenue. Some, like the University of Maryland Family Medicine Associates, have extended their evening and weekend hours, started offering walk-in services and developed a specialty products line focused on sports medicine to offset economic pressures. The changes, which the academic group started implementing about seven years ago, have helped the practice attract more working professionals living near its office.

“Any business is trying to have a diverse and appropriate mix of people who access their business,” said Dr. David Stewart, chairman of the University of Maryland Family Medicine Associates.

Maryland-based physician groups will likely make the trend even stronger in the next year because they expect insurance reimbursements will get even tighter. Medicare reimbursements will be cut by 15 percent or more in 2010, according to the American Medical Association, prompting other insurance carriers to follow suit.

“On top of all the cuts we’ve seen, we may be looking at another 15 to 20 percent decline,” Stewart said. “We’re going to have to continue to juggle all of these balls to figure out how we just maintain.”

Schlenoff, who didn’t take a salary last year, said the practice will stay afloat if she can continue to negotiate with her creditors. She’s also in the market for a partner who would be willing to invest in the practice and help her grow it.

“So far no one is crazy enough but you never know,” she said.

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