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Improve Your Negotiating Power and Profitability
By Susi Ebersbach, MBA You didn't enter this profession to analyze data, and you probably have an intense disdain for "bean-counters." At the same time, your science/technology side acknowledges the need for validation of your work via data analysis, and your business-owner side feels the pressure to justify costs. Analyzing your costs and the procedures you routinely employ to provide services will not only arm you with the knowledge to negotiate your reimbursements intelligently and identify ways to lower the costs of providing a service, it is also the first step in developing a continuous quality improvement program and, by extension, elusive outcomes measurements.
These concepts have been tossed about for over a decade; however few, if any, actionable programs have been implemented at the practice level. My goal, therefore, is to outline the development of a program to measure cost and cost-effectiveness of prosthetic and orthotic treatment, define the parts that will result in immediate benefit, and then relate it to the collaborative process to help develop a complete outcomes measurement program.
Planning and executing a cost-measurement program for your practice involves both clinical and accounting expertise:
- Determine which services you want to measure. With multitudes of L-Codes, it's daunting to imagine costing each code. Use your existing data and evaluate the base codes you have historically billed. Using frequency reports you can determine your practice's most commonly provided services. You can always begin by costing the highest volume services and evaluate additional services at another time. Perhaps use the 80/20 rule to determine your top services (as a caveat, you'll want to run the volume reports to decide which services to measure based not only on frequency, but also on revenues, or risk leaving out a lower volume but higher dollar-impact service from your evaluation).
- Choose an appropriate timeframe for your measurement that will typify your annualized volumes. Identify the data elements you may need to add or standardize and report those in your data collection. For example, you may not already collect and code the clinician and technician time devoted to each service. You can also standardize a coded data element for patient progress. You may also decide to further segment services within the same base code, requiring that you predetermine a method to code important attributes into the spreadsheet such as componentry and patient characteristics.
- Calculate the direct costs to provide the service. Direct costs are costs you can easily relate to the provision of a specific service. The cost of the clinician/technician time (salary and benefits) is likely the largest component and must be converted to a dollar amount per service. The costs of materials and supplies are also added in.
- Allocate indirect costs to the service. Administrative staff salaries and benefits, facility costs, insurance premiums, office equipment and supplies, and marketing expenses can be computed for the year, and then a basis for allocation should be determined. Make sure your allocation is applied consistently.
- Factor in equipment depreciation and the value of donated time or services. If you do not, you risk underestimating costs in the long term. You can use straight-line depreciation and allocate the cost of these items similarly to overhead.
- Calculate the cost of a unit of each service type. Having this information at your disposal allows you to evaluate reimbursement offers and identify areas where you need to lower costs or negotiate higher reimbursement.
The inclusion of data elements such as patient/practitioner attributes and interim progress monitors provides an additional level of information to measure cost-effectiveness. When you are also able to segregate base codes into protocols using different components and cross-tabulate each using the simple progress measures you've added as data points, then you are able to identify the most cost-effective protocols. A practitioner who utilizes one protocol may never see that a colleague's practice is more cost-effective. Formalizing this process within a practice allows you to identify the best overall protocol.
This leads to the benefit of industry collaboration and standardized cost measurement and progress monitors, along with pooling data from multiple practices, which would identify the best practices across the industry rather than across one practice. Although this should be possible within the O&P community, it still won't provide a complete picture of the factors that control outcomes of P&O care. This explains the long delay in agreed-upon outcomes measures.
We tend to think of our profession as the provider of orthotic and prosthetic treatment when, in fact, we are part of a continuum of care. O&P protocols and outcomes are impacted by other health care providers. Each collaborating area has its own interim progress monitors that it may also refer to as outcomes. Ultimately, all collaborators in the continuum need to define overall indicators that standardize measurement of best outcomes in prosthetic and orthotic care. This will require that each collaborative arena refine its own piece before a complete, measurable process can be assimilated. Take the lead! Begin to implement continuous quality improvement through a process of cost measurement and analysis of cost-effectiveness in your practice. Susi Ebersbach, MBA, is an independent marketing and management consultant with more than ten years of experience in the O&P industry as the former director of business development for the POINT Health Centers of America network. 
Table Of Contents - June 2008
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