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The Business of O&P: Warm and Tropical—or Frozen Tundra?
By Jodi Mills You are basking in the warm sun on a white sandy beach with the
ocean lapping at your feet. A refreshing drink in hand, sunglasses
on, a balmy breeze blowing through your hair--ahhhhh, life is good.
Freeze frame--now put yourself in the frigid winter of a land that
doesn't see the sun, endless snow, and chilling winds that blow and
blow.
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David Schultz, CPO |
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Why the comparison? If you had a choice of
destinations--the tropical paradise or the frigid wasteland--most
of us would opt for the beach. Hard economic times with no end in
sight can appear to be cold and uninviting. Brrrrrr--did you feel
that cold, stiff breeze just blow past? Do you have a choice in the
matter when it comes to the business of O&P?
David Schultz, CPO , CEO, president, Actra
Rehabilitation Associates, Brookfield, Wisconsin, shared his
assessment of where O&P is heading regarding rising costs: "The
cost of doing business is rising, and the revenues seem to me to be
flat. For example, more and more providers are delivering
orthotics. Obviously that's going to affect everyone's
revenues.
"In the wholesale area, suppliers are able to increase their
fees according to the rise in their costs, which is as it should
be. O&P practitioners for the most part find it difficult to
pass along their increased costs through increased fees because of
contracts, Medicare levels, Medicaid levels, government budget
squeeze, etc."
He continues, "Costs are rising in labor and raw materials.
Wholesale costs are increasing as manufacturers attempt to cover
their costs. Labor expects increases every year. The labor supply
is tight, and that increases labor costs. Reimbursements seem to be
governed by the Medicare allowables. The Medicare levels rise very
little each year, actually below the Consumer Price Index (CPI).
It's been that way for many years. Medicare allowables have never
kept up with the CPI, so we are way behind at this point."
Labor costs, health insurance, workers compensation insurance,
and other liability expenses seem to be among the biggest worries
O&P companies and probably most businesses face at this time.
Rising costs also include increased administrative costs associated
with HIPAA and Medicare Fraud & Abuse compliance and other
government rules and regulations.
HMOs attempt to get providers to go below Medicare reimbursement
allowables, resulting in deep discounting. (Editor's note: Please
see "Can You Afford To Discount?" April 2003) Wholesale supply
costs are climbing; yet with an increasingly tighter reimbursement
situation, the average practitioner is finding it difficult to
increase or maintain profitability.
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Ron Cheney, CPO |
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Commenting on the double problem of rising costs
and declining reimbursements, Ron Cheney, CPO ,
American Prosthetics & Orthotics Inc., Clive, Iowa, points out,
"Costs have escalated in employee recruitment, salaries, employee
educational assistance, employee benefit programs, materials, and
the increasing need for marketing.
"Factors contributing to lower reimbursement are discounting,
increased splitting of the O&P pie with other professions, and
Medicare being the barometer for fees by private insurance carriers
and agencies."
What can the O & P industry in particular do to survive,
even flourish, in such challenging times?
If you are a practitioner, you can most likely keep adding to
this list of worries that you face on a daily basis to keep your
business going. But don't put away that tanning lotion yet. There
are some that feel with the right focus, O&P businesses can
succeed in these unstable times. Robert Benedetti, controller,
Promise Consulting, Pittsburgh, Pennsylvania, agreed that most
industries, not just O&P, are suffering from substantial cost
increases and declining revenues. However, his thoughts are quite
encouraging. He tells us, "O&P companies can still be very
competitive if they know what they are doing. If they have
energetic clinicians and a savvy administrative staff to support
them, the company can be very profitable."
Energetic clinicians and savvy administrative staff sounds
great! You can be assured that assembling such a group does not
come without a price. So how do you cover the salaries, health
insurance, workers compensation, etc., for such an all-star
group?
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Byron H. Whitaker, CPO, |
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According to David Schultz, you need to count the
costs: "Know what it costs to do business. In this environment,
good cost-accounting skills are a must." Another viewpoint was
stated by Byron H. Whitaker, CPO , president and
CEO, Rehab Designs of America, Riverside, Missouri, "We are
embracing technology to make us more efficient, while at the same
time providing education and training to our clinical team members
to ensure they meet compliance standards and have all the tools
necessary to properly manage their practices. We believe if all
documentation is complete, this saves us time in our collection
efforts."
Ron Cheney points out, "A realistic fact is that reimbursement
most likely will not increase in the near future. This means that
companies must streamline their operations to be more profitable
and to concentrate on increasing their market share to increase
revenues. We take a close look at our business and methodology on a
frequent, regular basis, reexamining policies and procedures to
determine where profitability might be improved."
Cheney shares ideas for a proactive approach to marketing and
increasing revenue: "Increase public awareness of ABC [American
Board for Certification in Orthotics & Prosthetics]
credentialing. Market the idea of long-term cost savings for
certain technologies that insurance carriers are normally unwilling
to pay for. Hold symposiums with insurance company case managers
and others involved with claims decisions. A quarterly newsletter
has been a very effective marketing tool for our company. You can
reach a broad or targeted audience at a nominal cost with
information you want referral sources or payers to know."
Cheney urges customer service: "It's one way to differentiate
yourself. We must be strong in this area--it's the trump card to
winning business. It's not the only card, but it's the card to get
you in the game."
Being active in legislative efforts is important, according to
Schultz and Cheney. "The various associations have to continue
their efforts on the Hill to have Congress realize we have to be
kept up to date on the fees in order to remain viable," Schultz
says.
Cheney urges O&P facility owners and practitioners, "Be
proactive in your relationship with senators and representatives at
the grassroots level. Increase awareness of the benefits of PAC
[Political Action Committee of the American Orthotic &
Prosthetic Association (AOPA)] contributions."
Schultz points out that watching your accounts payable is
necessary. "Review accounts payable closely each month. Keep your
receivables as current as possible. Use good cost-accounting skills
when calculating contracts. Watch inventory levels so they don't
get out of hand. Too much inventory is actually cash sitting on the
shelf. Keep your operations as efficient as possible. Make sure
that your labor pool is not too large for the amount of business
you do."
So far the formula for thriving in todays business climate looks
like this:
Incredible clinicians and support staff
+ Excellent cost-accounting skills
+ A voice in Congress
+ Embracing technology
+ Increased efficiency
+ Consistent collection efforts
= Cash in the bank.
It appears clear-cut. However a huge piece of the formula
briefly mentioned above is worth mentioning again: keep a close eye
on your collection efforts.
All this may seem easy to say, but not easy to do! Each of the
parts to this formula for success will require forethought and
planning. Don't be overwhelmed. Map out a plan and get started.
Great results lie ahead! 
Table Of Contents - August 2003
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