Insights from the AAOE Benchmarking SurveyBased on Data Year 2017 ResultsAnalysis by David Blish of Katz, Sapper & Miller

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I N T R O D U C T I O NIf you’re a member of the American Alliance of Orthopaedic Executives (AAOE), you’ve likely seen the annual benchmarking survey in which practices submit data on a range of variables, including physician compensation, practice revenue and expenses, and accounts receivable. But, effectively translating the benchmarking results into actionable insights can be a challenge.

Working in conjunction with AAOE, Katz, Sapper & Miller (KSM) analyzed raw, blinded bench-marking data at the practice level to uncover insights that are difficult to find when looking at individual reports. We also included some important takeaways from practices identified as high-performing based on AAOE benchmarking data. While there is no substitute for an in-depth understanding of a practice’s structure and environment, we hope these findings will help your practice.

ABOUT THE AMERICAN ALLIANCE OF ORTHOPAEDIC EXECUTIVES

Founded in 1969, AAOE is the premier practice

management association serving the

musculoskeletal industry. Membership includes

more than 1,400 orthopedic practice executives,

administrators, physicians, and their staff.

AAOE is dedicated to providing education, com-

munity, and resources to set the standard

of professional knowledge and industry insight.

For more information on AAOE or to inquire

about membership opportunities, visit aaoe.net.

For more than 20 years, AAOE has conducted

an annual benchmarking survey to provide

orthopedic practices with the data needed to

make key strategic decisions in their practices.

Participation in the survey makes the insights

more valuable to practices. Learn how at

aaoe.net/benchmarkingsurvey.

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LOW OK GOOD GREAT

CO M P E N S AT I O NTo put it simply, revenue that is not spent on overhead can be taken home by physicians as compensation. Increasing compensation, therefore, is a simple yet complex task of managing revenues and expenses. Analyzing physician compensation using benchmarking data is both an art and a science, with a lot of complexity.

Determining where to place the lines that separate “OK” from “good” and “good” from “great” is subjective, however. We can put compensation on a spectrum in which moving to higher levels of compensation is the goal.1 Based on the AAOE Benchmarking Survey data, most groups would agree that approximately $500K per full-time equivalent (FTE) physician is the beginning of “good.”

SPEC TRUM OF COMPENSATION

~ $500K

1. It is assumed that increasing physician compensation is an objective of all group administrators. However, other non-financial goals are just as important: improving clinical care and the patient experience, hiring and maintaining quality staff, etc.

1

40 35 30 25 20 15 10 5 0

2

TOTAL RE VENUE PER FTE PHYSICIAN

Only 12% of AAOE responses are over $1.8M in per physician revenue. In this zone, the practice’s development plan should emphasize maintenance, managed care contracts, and non-clinical or non-traditional sources of revenue.

A typical level of revenue for a full-time orthopedic physician is between $1M and $1.8M. A practice’s development plan in this zone should consider additional revenue streams such as ancillary services.

If you have a physician with revenue below $1M, the practice’s development plan should focus on increasing productivity and market share growth.

Num

ber o

f Res

pons

es

$200K $400K $600K $800K $1M $1.2M $1.4M $1.6M $1.8M $2M $2.2M $2.4M $2.6M $2.8M $3M+

Adapt your practice’s development plan

based on benchmarks related to revenue

generated per physician.

R E V E N U EThe biggest driver of total practice compensation is net revenue from orthopedic services, not including ancillaries.2 Statistically, the correlation between net revenue and compensation is about 76%. This seems obvious: as the practice receives more revenue, the aggregate compensation rises. It is important to note that this is total practice compensation – the sum of all physicians’ compensation. The correlation between compensation per physician and net revenue is only 53%. In other words, more revenue will increase the total compensation pool, but it might not benefit an individual physician’s compensation as much. The amount received by each physician depends on the compensation plan, which goes beyond the scope of the AAOE survey data.

The following graph shows total revenue per FTE physician, including revenue from ancillary services if they are present. The average revenue per physician is $1.2M. Several insights can be drawn from these results.

2

2. AAOE ancillary services are: Durable Medical Equipment (DME), Physical/Occupational Therapy (PT), MRI, X-ray, and other (undefined) services.

Being in Alaska, where there is lots of trauma from commercial fishing, allows us to focus exclusively on upper extremity surgery. We only recruit fellowship-trained doctors who want to practice solely in their niche of hand, elbow, or shoulder surgeries. Referring physicians know that is all we do, and we are exceedingly busy. Olivia Wolf, CPC, Administrator, Alaska Hand-Elbow-Shoulder

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LESSONS FROM A HIGH PERFORMERAlaska Hand-Elbow-Shoulder

One group that has realized very high levels of revenue per physician is Alaska Hand-Elbow- Shoulder. This three-physician practice subspecializes in upper extremity surgery and has created a distinct competitive advantage in their market.

Alaska has few hospital-employed physicians, and all the orthopedic practices in Anchorage are private practices. This creates a competitive environment, but the subspecialty focus and reputation of Alaska Hand-Elbow-Shoulder allows them to prosper and expand.

Understand the competitive

environment in which your practice operates to determine how to

position and promote your providers.

40 35 30 25 20 15 10 5 0

LESSONS FROM A HIGH PERFORMEROhio Orthopaedic Center

In the 96th percentile for surgical cases per physician, Ohio Orthopaedic Center is clearly a high-performer. Based in Lancaster, Ohio, about an hour from Columbus, the five-physician practice is consistently busy. In addition to hospital cases, the physicians utilize an ambulatory surgery center. They also use aggressive marketing to keep their brand top-of-mind for consumers and referral sources.

P R O D U C T I V I T YWe examined three measures of productivity that could impact revenue: number of patient visits, work relative value units (wRVUs), and surgical case volume. Of the three, surgical case volume had the biggest correlation with revenue, but the relationship was not strong. These results suggest that the type of case is at least as important as the number of cases. A small case and a big case count equally but will likely have different revenue contributions.

WRVUs had the next strongest driver of revenue, in part because high surgical activity will also manifest as a high wRVU level. Lastly, the number of annual patient (clinic) visits seemed to have some impact on revenue. However, the number of patient visits in isolation is not nearly as important as the surgical yield (i.e., surgical ratio or surgeries per new visit).

ANNUAL SURGIC AL C ASES PER FTE PROVIDER

About 64% of respondents had case volume between 300 and 500 cases. This is generally a safe zone for a full-time orthopedic physician.

Case volume below 300 or above 900 represents only 12% of survey respondents and likely includes new physicians (below 300) or unique situations (over 900).

Doctors with surgical activity over 600 have a higher average compensation than those below this threshold.Roughly a quarter of orthopedic surgeons have volume between 600 and 900 annual cases.

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Num

ber o

f Res

pons

es

100 200 300 400 500 600 700 800 900 More

Track wRVUs for your providers. WRVUs

allow you to consider case complexity when using benchmarking

results.

Include multiple measures of produc-

tivity when comparing your practice and

providers to available benchmarks. Both

the number and type of cases are needed

to make effective comparisons.

Total Joint Replacements

Sports Medicine

Spine

2Shoulder

Hand & Upper Extremity

1General Orthopedics

Foot & Ankle

Because our analysis is mainly at the group practice level, we did not assess the physician- level linkage between wRVUs and compensation. However, we did review wRVU activity per physician for each subspecialty for additional insights. Unfortunately, dividing the data into subspecialty cohorts reduces the sample size significantly.

The graph below shows the second and third quartiles of wRVUs per physician; the start of the blue bar is the 25th percentile, and the end is the 50th percentile. The green bar extends from the 50th percentile to the 75th percentile.

WRVU BY SUBSPECIALT Y (MIDDLE R ANGE ONLY)

2nd Quartile n3rd Quartile n

2,000 4,000 6,000 8,000 10,000 12,000 14,000

Number of wRVUs

5

Examining benchmarks across subspecialties canreveal importantinsights into the productivity of

providers in your practice.

We use extensive benchmarking data to check expenses, and our 100% production compensation model keeps all physicians top-line focused. Curt Jefford, CEO, Ohio Orthopaedic Center

There are substantial differences in the range of wRVUs between orthopedic subspecialties.

The other orthopedic subspecialties have a similar range of wRVU values between the 25th and 75th percentiles.

Foot and ankle specialists have lower wRVU values compared to other subspecialties, while shoulder specialists have higher values.

While not shown in this chart, the maximum values for subspecialties in the top quartile are over 30,000 wRVUs.

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

So, what is the combination of ancillaries that creates the highest levels of compensation? The graph below compares revenue per physician against compensation per physician by ancillary service mix. The size of the bubble indicates the number of practices included.

AVER AGE RE VENUE COMPENSATION PER PHYSICIAN BY ANCILLARY SERVICE MIX

$500K $1M $1.5M $2M $2.5M $3M

6

Ave

rage

Com

pens

atio

n pe

r Phy

sici

an

Average Revenue per Physician

X-RAY MRI, PT

X-RAY, PT, Other MRI, X-RAY, DME, Other

MRI, X-RAY, PT

PT

All Ancillaries

No Ancillaries

Number of Ancillary Services

Offered

0 (No Ancillaries)

12345

Number of Practices3

Average Total Revenue per

Physician

Average Compensation per Physician

17 (14%)18 (15%) 36 (29%)29 (24%) 16 (13%)

7 (6%)

$ 1,305,210 $ 1,451,462 $ 1,581,836 $ 1,593,661 $ 1,849,766 $ 1,948,155

$ 439,770$ 533,098$ 413,312$ 440,526$ 483,490

$ 452,506

A N C I L L A RY S E R V I C E SHaving established that revenue drives compensation more so than many other factors, improving revenue becomes a critical component of practice management. The addition of ancillary services to a practice is a key strategy for increasing revenue, but ancillaries also add costs. Which ancillaries, and how many, provide the biggest bang for the buck then? Consider the table containing the ancillary services mix, average revenue per physician, and compensation per physician:

As the number of ancillary services

increases, average revenue per physician

increases. However, average compensation does not. This suggests

that compensation is more influenced

by other factors (such as ancillary mix, expense control,

practice size, etc.).

3. Not all practices submitted revenue data. This table only shows practices that did submit data.

We used to have DME but found the profitability was marginal due to the additional billing headaches it often created, so we outsourced it. There are lots of convenient free-standing MRIs near us and a physical therapy provider right across the hall. Melody Blauser, MBA, Practice Administrator, Kentucky Bone & Joint Surgeons

Practices with no ancillary services have an average revenue of approximately $1.3M and average compensation of about $440K per physician.

The practices with the highest compensation have some mix of ancillaries but not the same mix.

Practices with all five reported ancillary services have roughly $500K more in revenue on average but reported the same compensation.

The graph is complex but yields these key insights:

Our conclusion is that neither the number of ancillary services nor the mix of ancillary services drives compensation gains. In other words, adding ancillaries isn’t a cure-all for increasing compensation, but you will never get to stratospheric levels of compensation without ancillary services. This analysis also suggests that no single ancillary is clearly more lucrative than another. What is more important is that the services are executed and operated efficiently. The adage is true: it isn’t what you do – it’s how you do it.

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LESSONS FROM A HIGH PERFORMERKentucky Bone & Joint Surgeons

Kentucky Bone & Joint Surgeons was created in 2011 as a federation of 15 physicians in several practices. The group was formed in response to the market pressures of hospital acquisition and recruitment of orthopedic surgeons. Though membership in the federation has evolved, the remaining two groups – one of which is the five-provider Kentucky Bone & Joint Surgeons practice – share services and expenses but maintain autonomy in management and compensation. Kentucky Bone & Joint Surgeons has digital X-ray as their sole ancillary.

Consider adding ancillary services

if it makes sense for your practice and

your market. Do not underestimate the space needs and

billing requirements, however.

If possible, measure the profitability of each

ancillary. Also make sure you track the

referral path to know whether your efforts

are paying off.

Invest in targeted advertising and

outreach that will likely lead to future

referrals.

8

Sponsoring trainers at local high schools is a great community benefit and helps with name recognition. While the expense is obvious, determining whether referrals are due to the trainers or other factors is challenging. But we think the effort is worthwhile and worth the investment. Melissa Buessing, Practice Administrator, Nebraska Orthopaedic and Sports Medicine

LESSONS FROM A HIGH PERFORMERNebraska Orthopaedic and Sports Medicine

With 15 physicians and just as many advance practice providers, Nebraska Orthopaedic and Sports Medicine has been in existence for 32 years. Nebraska Orthopaedic and Sports Medicine has digital X-ray, MRI, and DME. The group has incrementally added most ancillary services except therapy. The group is running out of space in their current building, which hampers theirability to add more on-site ancillaries. Roughly 15% of practice revenue comes from ancillary services. One successful program for them is athletic trainers.

CO N C LU S I O N

Now what?Make the most of data in your practice:

1. Consider using the highlighted key takeaways to drive your practice.

2. Participate in the AAOE Benchmarking Survey for Data Year 2018 to get free access to all of the benchmarking results.

3. Start using benchmarking results today by purchasing a subscription to the online, interactive reports available in AAOE Empower.

4. Connect with consultants such as KSM (ksmcpa.com/healthcare) to help improve your practice and solve its most complex challenges.

5. For more ideas, connect with AAOE Data Services (aaoe.net/empower).

800-247-9699data@aaoe.netaaoe.net/empower

317-580-2000dblish@ksmcpa.comksmcpa.com/healthcare

The information presented herein is general in nature and should not be acted upon without the advice of a professional. © 2019 KSM Business Services, Inc.