Reimbursements Are Falling While Costs Are Increasing

There are two themes that recur in my conversations with people working in O&P. One is the difficulty in getting compliant documentation from the referring physician and the other is the concern with increasing costs with downward pressure on reimbursements. Neither of these is really a new issue, but they seem to be the most common things I hear. The good news is there are strategies that you can use to reduce the negative impact on your practice from these challenges.

Let’s tackle the shrinking margin first. Historically, O&P has enjoyed a higher profit margin than most healthcare practices. Hospitals are among the lowest: a Becker‘s Hospital Review reported that as of April 2021, the median hospital operating margin was 2 percent. I can’t find details on private physician-owned practices, but a few years ago they averaged about 12 percent. A 2021 white paper at the Medical Group Management Association is titled “Our Operating Margin is Fading.” According to Macro trends, as of Sept 30, 2022, the typical physical therapy practice had an operating margin of about 7 percent. The last time I had access to AOPA data, O&P Practices averaged 15-30 percent margins, based on a number of factors. It is not surprising that our margins are falling in line with norms. If a hospital system can be profitable with a 2 percent margin, why can’t a private practice thrive with 10 -15 percent margins?

The key to success here is something of an enigma to many in O&P: consistent business processes. There is a ton of waste and inefficiency in most practices and largely it is due to the fact that operating like a real business was never really necessary. Now that the pressure is on, we don’t know what to do. Or we know what to do but don’t know how to do it, or worse yet, we don’t want to do it. The first two are easy to solve. But the third condition, where I find many people, is a really hard spot. No one can effect the necessary change when an owner does not want to change.

I have many examples of practices where the owners and staff believe in continuous learning. Where there is the freedom to try new things and a willingness to create efficiencies. Most of those practices have enough flexibility to figure out how to effectively deal with unexpected events. Yea, it’s hard, but they seem to come out better for the effort.

The same is true for physician notes. This is a challenge. There is no magic pill, no software is going to solve it for you and no one else is going to compel the referring physicians to respond appropriately to you. The definition of insanity is doing the same thing over again and expecting a different result. So here is an excellent opportunity to bring your team together to brainstorm different approaches that may help with creating the type of relationship with your referral sources that facilitates the communication necessary to be able to get the documentation when and how you need it with the information required for you to get paid.

To learn more about processes that make an O&P practice thrive, make sure you register for the OPIE Admin Bootcamp in early May!