How Orthopedic Surgeons Get Paid

So what should a surgeon be paid for a Surgery? Well, Medicare says we should get paid at RVU's time conversion factor. And so RVU is a measurement of work and expense in providing a service. So there's three components to the RVU. There's a practice, there's a work RVU, there's a practice expense RVU, and there's a liability or cost of liability insurance RVU. And there's regional variations in these RVU units. So an RVU for a Knee Replacement in Nashville may be a little different than New York City.

That thing gets uh multiplied by conversion factor. The current conversion factor is $35 per RVU and so an average Medicare Total Knee Replacement might pay $1400 in uh a moderate-sized city, but if you're in New York City, you might get paid $1700 and if you're in rural America, you might get paid, uh, $1000 so there's variation there.

So, um, there are two main types of payers that we're gonna talk about. There's government payers and there are commercial payers. An orthopedic group typically sees about the same number of each, but because commercial payers pay a much higher Reimbursement rate, most of your collections are gonna be coming from a commercial payer. So and this is Orthoorum data, 4000 orthopedic surgeons, 54% of the collections came from commercial and about 28% Medicare plus Medicaid came from government payers.

So when it comes to government insurance, you're talking Medicare, you're talking Medicare Advantage, and you're talking Medicaid. With government insurance, Medicare and Medicaid, there's no negotiation of the fee schedule. Every surgeon in a city gets paid the exact same amount as any Other surgeon in that, um, in that city.

With Medicare Advantage, you can negotiate your fees. Uh, what happens there is a health plan sponsor gets paid by Medicare a per member per month fee to manage that, uh, beneficiary's care. The beneficiary may also pay a small monthly fee and these plans will often offer like a free annual exam, free vision, free dental, and some Other perks to get people to sign up.

And these health plan sponsors might be a large health system or an IDN in integrated Delivery Network, can be a nonprofit charity or it can be just your commercial payers like your Blue Cross and Aetna's, they will run a Medicare Advantage plan.

And there are over 30 million beneficiaries in Medicare Advantage plans, and that's 35% of the overall Medicare market and it's growing in popularity because these Medicare Advantage plans will have an out of pocket maximum that's usually set about $5000 so the beneficiary or the patient knows that they're never gonna have to pay more than $5000 for their healthcare in that year.

These plans are heavily managed, which means there's a lot of prior authorizations, there's a lot of peer to peer phone calls, a lot of denials. If you want to do anything that costs money to these patients, you're gonna have to ask and beg permission from the, from the, uh, health plan sponsor. So as a specialist, you have to get a referral from the Primary care doctor to see these patients, and this can be really annoying as an orthopedic surgeon.

Because for instance, if I'm seeing a patient for their Shoulder Pain, and they say, oh, doc, you know, I also have Knee Arthritis. Do you mind giving me a shot in my Knee? I don't get paid for that shot in the Knee. I have to send the patient back to their Primary care doctor and get a referral to see the patient for their Knee, so I can then give them a shot for their Knee Arthritis. So that's, um, can really slow down your practice.

A commercial insurance is the names we all know, it's Blue Cross, Blue Shield, Cigna, Aetna, United, um, Aetna, all those different ones. These companies offer multiple plans which makes this really confusing. So a Blue Cross may offer an employee sponsored plan, plan, a Medicare Advantage plan, a Medicaid plan, an individual plan on the exchange market, and they may be acting on someone's behalf as a third-party administrator or TPA.

Uh, commercial insurance does really 3 things. One, they help create a provider network, that means they're coming to an orthopedic group like mine and saying we'll pay you X number of dollars to provide these services. They manage care and that means utilization management or utilization review, which is the prior auSs and basically saying whether or not I can operate and whether or not they'll pay for it. And then they also process the claims, uh, and make sure everyone gets paid.

So with commercial payers, you have to negotiate the fee schedule and, and with a typical commercial insurance plan, you're gonna get paid as an orthopedic surgeon anywhere between 110% of Medicare, maybe up to 200% Medicare and your commercial rates will depend on how much leverage you have over the commercial payer.

So for instance, if you are a provider in a fragmented market, which means there's lots of little bitty orthopedic groups all around, scattered around the state, and you're going up against a bigger orthopedic, a bigger uh commercial payer, you're not gonna get good rates. Your rates are gonna be down there around 110% of Medicare rates. If you live in a state like Alabama that's 95% controlled by Blue Cross Blue Shield, you're gonna

Get lower rates and you're not gonna have the negotiation over the Blue Cross. But if you're in a large orthopedic group and there are groups that are really big now like Rothman and Ortho Virginia and Ortho Carolina, all over 150 orthopedic surgeons, or if you're in a big academic institution, um, you're gonna get really good rates. You might get 180% of Medicare for your commercial rates, which makes a huge difference in your overall take-home pay.

Orthopedic surgeons and any uh provider has to sign a non-disclosure agreement with these uh commercial insurance companies, so we're not allowed to tell anyone else what our rates are. So when we say, um,

So when we say managed care, 90% of insurance plans have some managed care to them, but it basically means that a commercial payer is gonna decide whether my recommended treatment is cost-effective and appropriate, and we call this utilization management or utilization review, but basically it's just someone coming between me and my patient and what I want to do. So it means I have to obtain a prior authorization before I do any Surgery or MRIs for a majority of patients.

Except for Medicare, uh, and Medicaid. Um, so an insurance company is gonna review my patient chart. They may say the patient didn't have Physical therapy, so they're not gonna pay for a back MRI. Uh, if they deny the care, I'm always offered the opportunity to do a peer to Peer review, which means I'm gonna have to call up another doctor at a set time and, um, and discuss the care with the, with that doctor and try to plead my case for why the patient needs what, what I think they need.

And managed cares can also deny payments after the fact, uh, which is, uh, really annoying, uh, but they do that from time to time. So when it comes to payment models, there's fee for service, value-based care, and capitation.

For fee for service, if I do a Knee Replacement, Medicare is gonna pay me 1400 dollars-ish a few days after I submit my charges without too many questions asked. Blue Cross Blue Shield may pay me a little bit more. If it's a value-based care, uh, it's basically pushing the financial risk, uh, down to the provider level. And so, for instance, if I provide more value, which means improving quality or decreasing cost, then I may get paid a little bit more for that improvement in value. And we know this is bundles, this is BPC.

BCI and BPCI Advanced and my group spent a couple $100,000 hiring case managers to work and, and pro and contact our patients on a pretty vigorous uh schedule to make sure that they stayed out of trouble and we were able to save 2 or $3 million a year in decreasing our cost by this, uh, by these case managers calling our patients and we were able to keep 2/3 of those savings which made it very profitable for us to provide better care.

You also see value-based care is in the changing of the site of care, which means total joint replacements are now being discussed and moving towards the ambulatory Surgery centers as a way to provide cheaper care and when they are value-based care, um, plans set up with these uh bundles, the provider can benefit from providing cheaper care. There are some

Commercial company, uh, insurance companies are also beginning to offer um bundled payments. Capitation is probably the most uh significant risk the provider can take. Uh most capitated plans are with Primary care doctors, although some orthopedic groups do decapitated plans as well. Uh but this started back in the 80s with the HMOs and basically it's saying every provider

Provider is gonna get paid a per member per month fee to handle all of that beneficiary's medical care and um if I do a lot of care, I don't get paid anymore. If I do very little care, I still get paid the same per member per month fee. Uh, and these are true with a lot of the Medicare Advantage plans, a lot of the ACOs and IPAs out there will do capitation.

Um, if you do it well and you can manage the patients, uh, well, you can be profitable with this, but if you're not really, uh, savvy in this, uh, you can lose a lot of money.

Work comp, work comp is often one of your highest payers. The fee schedule is set by the state employment Board, so every doctor in that state gets paid the same amount for a work comp case. There's a lot of paperwork, a lot of hassle with dealing with these patients, but you get paid well for all that hassle.

When it comes to its self-insured plans, you see most of the larger uh employers these days are going to self-insured plans. Um, they hire a third-party administrator to basically manage and process those claims and use that third-party providers, uh, provider network to, um,

To set the fee schedule for all of the uh services that will be provided, but basically the TPA is gonna pay the claims and then pass that cost straight on to the employer. The reason why that's important for Orthopedics is we see a trend here with direct to employer contracting and it really can only happen when the employer is self-insured.

Uh, the best example of this is Walmart. They've contracted with 3 or 4 orthopedic groups across the country to provide the OrthoCare. So Walmart will waive the co-pays for their patients who go to Springfield, Missouri to get their Knee replaced.

Uh, when an employer is self-insured, their non-orthopedic claims can still go through their TPA, so these Primary care doctors and everybody else out there still gets paid, but then when they contract with, uh, just 1 or 2 or 3 or 4 orthopedic groups, the employer can pay those orthopedic groups directly and not through the TPA and come up with all sorts of bundle payment initiatives, uh, for those. So we're

Switch gears and talk a little bit about charges and uh collections and overhead. For a typical case, your charge or billing is your sticker price. It is completely arbitrary. They're generally close to what your highest contracted rate for that service might be. So for instance, right here, I put $4000 for Medicare uh for a charge on a Knee Replacement, and that's just an arbitrary number.

Um, if, uh, 99% of the time my charge will not have any impact on the money I collect or the money I make, but you want your charges to be at least as high as your highest contract. If, uh, your collection rate should be about 40% of what your charges are in general, it does depend a lot on your fee schedule and your payer mix and how efficient your central billing office is at collecting your money.

As a general rule though, if I bill $4 I'm going to collect $2 and I'm gonna take home $1 of that. So that's a good rule of thumb just to kind of make sure that you uh know how your charges, collections, and, and take-home pay all, um.

Interact and our billings and healthcare are artificially inflated for all sorts of perverse reasons. I won't get into too much of it then, but it's amazing the insurance companies want our charges to be high because they're going to their customers, which are their employers and telling them, hey, we saved you 70% off a doctor's charges, so they want our charges to be high. The hospitals actually get reimbursed by the government on their, uh, uncompensated charges, so they want their charges to be high.

And it just goes down from there. Everybody's incentivized to keep their charges high.