Practice Setting

In choosing a practice, surgeons may opt to practice as a solo practitioner or join a larger organization. This choice is often motivated by personal preferences and practice goals. Whereas a solo practitioner setting offers greater autonomy and financial control of the sole proprietorship, group practices offer greater negotiating power in outlining the terms of payer contracts and offer established patient referral networks. Larger groups may be divided into single-specialty group, multispecialty group, or contract-based practices.

The form of organization that is chosen should conform to market demand. Larger organizations offer the power of collective influence in negotiations for larger payer contracts. Moreover, they offer economies of scale, supply chain efficiencies, division and standardization of labor, and opportunities for collaborative work among individuals.

Other general themes shared among organizations are corporate and financial integration. Shared practice overhead costs, human resources management, and professional liability pricing power are also inherent in larger organizations. Moreover, large organizations typically exist in monopolistic or duopolistic markets, allowing for better pricing power and optimization of supply chain contracts with vendors and suppliers.

A parallel set of changes confronting practicing spine surgeons is the move to hospital employment. Although classically the group practices described in this section have been freestanding entities, now many practices are becoming hospital based, with many aspects of overhead and clinic management, billing, and collections subsumed by the facility that now “owns” the practice. Navigating the move to hospital employment requires critical assessment of practice value. Further loss of autonomy may be anticipated, as now surgeons must negotiate both with other physician members of the organization and with administrative representatives to execute change. The complexity of hospital employment is unfortunately beyond the scope of this chapter.

Single-Specialty Group

The simplest form of organization-based practice is a single-specialty group practice. This category can further be subdivided into academic, governmental, or health-systems; the general themes are shared among the three subdivisions. Each individual surgeon is a member of the group practice, which is composed of colleagues with similar training in the same specialty or subspecialty. Clinically, as a member of a large single-specialty group, one may subspecialize within the practice and enhance the technical expertise of the practice; downstream effects are reflected in the marketability and patient referral pattern of the practice.

General advantages of group-based practices exist as described. Specifically, single-specialty group practices are able to integrate into larger multitier practices or participate in specialty care networks such as independent practice associations (IPAs); in the later arrangement, the group acts as a common contractor for the specific services that it is contracted to provide. Clinically, membership in a single-specialty practice may allow for lifestyle flexibility with each member of the group able to take call at established intervals. Successful single-specialty group practices maximize individual human capital, minimize internal competition and conflicts of interests, and equitably reward individual members.

Training trends point toward continued subspecialization. Nearly two thirds of neurosurgical practice is spine focused. As the size of neurosurgical groups grows, an increase in subspecialization may be expected, with a larger number of neurosurgeons limiting practice exclusively to specific neurosurgical disorders. Individual members of the single specialty group may use higher orders of subspecialization for marketing the single specialty practice, establishing scalable efficiencies and enhancing volume-based outcomes. At present, formal subspecialization is not required for practice privileges.

Multispecialty Group

The structure of a multispecialty group practice resembles a single-specialty group practice with the exception being that the clinical focus of the organization is not a single specialty but representative of many clinical disciplines. Similar to a single-specialty group practice, a multispecialty group practice structure requires the surgeon to give up autonomy and financial independence in exchange for group financial and patient referral-pattern security. This negotiated focus allows for market power and practice sustainability. Further benefits include collective negotiating power with larger payers and shared business and financial risks among different clinical specialties.

Certain advantages are inherent to multispecialty group practices, which are not evident in other organizations. First, multispecialty practices have significant leverage in negotiating favorable reimbursement with payers and wield significant pricing power and influence in arbitration. Second, multispecialty groups allow for pooling of large capital investments among the various specialty members, reducing individual specialty overhead expenses.

The disadvantages of a multispecialty group practice include subsidization of lower-income specialties by higher-income specialties as well as the transfer of income from higher-income specialties to lower-reimbursed physicians referring within the practice to procedural, higher revenue-generating specialties. Furthermore, personal clinician autonomy and schedule flexibility are diminished in multispecialty group practices.

Academic practice is a unique subset of a multispecialty practice, as departments often enjoy autonomy and control over financial and scheduling elements of their respective practices while benefiting from the larger institutional financial risk sharing, overhead reduction, collective capital investment, and negotiating power.

Electronic Health Record Adoption

The American Recovery and Reinvestment Act (ARRA) of 2009 and the Affordable Care Act (ACA) of 2010 introduced many changes to the operational elements of medical practice, most notably to the technologic infrastructure of health care delivery. The HITECH Act, a part of the ARRA, introduced “meaningful use” incentives totaling up to nearly $30 billion for health care providers to adopt and effectively implement electronic health records (EHRs) in their practice. The benefits of digitizing patients’ medical records under an EHR system include improved coordination and continuity of care for patients, the promotion of health care quality and efficiency, and the potential reduction of errors. EHRs also allow for rapid outcome assessments due to the improved accessibility of data.

The financial incentives in addition to increased vendor competition due to the responsiveness of EHR vendors to the HITECH Act have seen an increase in EHR adoption in the United States. When choosing from the myriad of EHR vendors, it is important to select the technology that can both enhance productivity and allow for the demonstration of meaningful use under the Medicare and Medicaid EHR Incentive Programs in order to qualify for incentive payments. There can be many challenges, however, to implementing information systems in a surgical practice. The scale of the organizations and services involved, the need to redefine roles and relationships among personnel, and concerns about decreased clinical productivity have contributed to the initial resistance to EHR adoption. EHR deployment strategies were identified in a 2014 qualitative study of EHR implementation and can improve EHR adoption among providers. These strategies include managing expectations, making the case for quality, recruiting a powerful guiding coalition, providing adequate training, acknowledging competing priorities, and allowing time to adapt.

An additional meaningful use incentive is the implementation of clinical decision support (CDS) tools within deployed EHR builds. Surgeons must also implement CDS along with EHRs under the meaningful use incentive authorized by the HITECH Act. Many CDS systems can be incorporated into existing EHRs. CDS systems can enhance decision making in the medical practice by offering tools like computerized reminders, clinical guidelines, diagnostic support, condition-specific order sets, and documentation templates. Although utilizing CDS systems can optimize a surgeon’s use of the EHR, there are potential drawbacks if CDS systems are not developed properly for the specific practice. For example, the specific order sets and templates for neurosurgery EHR conversion with CDS systems should be tailored to the specialty. CDS systems’ prompts and warnings should prevent errors and help performance, not act as an unnecessary hindrance.

EHR incentive programs are tailored to primary care physicians and not to procedure-based specialties. Many EHR elements mandated by the Meaningful Use program, which gauges the adoption of EHRs into practices, are irrelevant to surgery or to specialty care. Smaller specialties, such as neurosurgery, face further challenges, with the added expense of tailoring EHR systems to the needs of specialty physicians.

Transition From International Classification of Diseases 9 to 10

The Centers for Medicaid and Medicare Services (CMS) is mandating a transition to the International Classification of Diseases, 10 ^th revision, Clinical Modification/Procedure Coding System (ICD-10-CM/PCS) from ICD-9-CM. Effective October 1, 2015, the use of old ICD-9 coding sets for billing claims was denied reimbursement from CMS. The ICD-10 system offers more detailed diagnosis coding consisting of tens of thousands more diagnosis codes than ICD-9, including elements of laterality, chronicity, and subsequence of treatment.

During the transition to ICD-10-CM/PCS, surgeons are likely to realize loss of productivity and revenue. The potential advantages of adopting the ICD-10 coding system are numerous; they include accurate and precise information regarding presenting and treated pathology, increased specificity of pathology and comorbidities, diminished coding errors, better information for payers, payment based on performance, improved outcomes measurements, and clearer definitions of new procedures. Furthermore, as outcomes and quality become a basis for reimbursement, risk-adjusted coding via ICD-10 becomes increasingly relevant for maximizing revenue capture.

It is important to keep up to date with the requirements and details of the ICD-10 system, as they will directly affect coding, billing, and reimbursements for the provider. There are several hundred EHR vendors that can help medical practices with the transition to ICD-10.

Transition to Ambulatory and Outpatient Spine Surgery

With the motivation to contain costs and the advances in less invasive techniques, interests in ambulatory operations performed on an outpatient basis have grown in the United States. The lower costs associated with operations in the outpatient setting have contributed to the trend. A 2014 study examining lumbar discectomy patients from the State Ambulatory Surgery Database and the State Inpatient Database for New York, California, Florida, and North Carolina from 2005 to 2008 found that institutional charges were significantly lower for outpatient lumbar discectomies. Lumbar discectomy was one of the first spinal procedures performed in an outpatient setting, and median charges for inpatient surgery was $24,273 compared to just $13,107 for outpatient surgery. In patients who had undergone lumbar discectomy between 2005 and 2010, outpatient lumbar discectomy procedures had lower overall complication rates compared to inpatient cases. Since then, other spinal procedures have increasingly and successfully been managed in an outpatient setting, including cervical disc arthroplasty, anterior cervical discectomy and fusion, and transforaminal lumbar interbody fusion. A 2014 study by Baird and colleagues indicates that complication rates in outpatient surgical treatments of degenerative cervical spine disease are substantially lower than that of inpatient cases. However, this may be due to selection bias because patients in the inpatient setting tended to be in poorer health. To minimize risks and maximize successful surgical outcomes in an outpatient setting, it is important to ensure a proper selection of patients for specific outpatient procedures. It is also critical that physicians provide transparency to eligible patients about the risks and benefits involved in an outpatient surgical environment.

Utilization of Services and Resources in a Fee-for-Service Environment

In the current reimbursement schema of fee for service (FFS), health care providers and facilities are reimbursed by line item of services and resources expended on each episode of patient care. Thus, the number and volume of services and resources used in providing care drive unit cost of patient care.

The FFS is a natural evolution of standard line item billing seen in other service industries. FFS is a charge-based model and not pinned to a predetermined budget in a sector that does not fully understand its overheads and drivers of those overheads; this encourages addition of further units to increase total revenue capture. By its very nature, FFS does not bundle services, as it is a strict line item accounting model for reimbursement. The lack of competitive market restraint on fees thus leads to a unique economic outcome where the payer establishes market fee limits rather than relying on provider competition.

The payer response to the FFS has been to establish modified fee pricing among physicians in a geographical location or to offer alternatives such as financial risk sharing or hiring providers in a salaried role.

Price Opacity

Health insurance companies provide indemnity insurance to cover large sums of payment to providers in short notice to facilitate care. Unfortunately, this insulates and blinds patients to the true cost of the service provided, indirectly reducing price sensitivity and patient-provider negotiating dynamics. This lack of price transparency is thought to directly lead to overutilization of services by patients and providers, resulting in excessive health care spending.

Cost Accounting in Health Care: Cost of Providing Care to the Provider

The inability to understand the cost of delivering care makes pricing care a challenge. In parallel industries, the cost of a product or service is derived from calculating the cost of producing said product or service and including a margin as guided by industry standard or intellectual property protection. The lack of understanding of the cost production of care for the providers leads to establishing “charges” in place of prices, typically dictated by charge masters without a value-based foundation.

Variations to Fee for Service: Resource-Based Relative Value Scale

Because of the potential for high utilization with the standard FFS system, major payers, led by CMS, moved toward a broadly applicable relative value-based scale. Developing a commonly used relative value system based on resources needed to provide health care services reduces the variability between payers paying for services to a conversion factor; in essence, payers set the expected utilization and negotiate reimbursement rates. Medicare is generally considered the standard alongside which other third-party payers base this conversion factor, paying a percentage of what Medicare would pay. Regional variability exists for private payer conversion relative to Medicare’s annually adjusted conversion factor.

Bundling of Payments per Episode of Care

A proposed evolution in the reimbursement schema is the bundling of payments into a fixed fee based on each individual episode of care in order to share risk and link reimbursement with patient outcomes and experience. The fixed fee is established in advance of care delivery with an additional margin to account for any unexpected events but not kept open ended. Unlike the traditional line item FFS model, all charges are included in a lump sum and distributed among all providers, thus eliminating separate charges such as surgeon’s fee, facility fee, or medication charges.

Bundling of payments has a number of benefits to providers. First, it empowers providers to define clinical care overhead costs; defining the fixed and variable costs streamlines the economics of the practice. A better understanding of drivers of costs allows for determining the drivers of such overhead and thus influencing them to lower the cost of care delivery. Second, bundled payments offer providers negotiating power with payers against other competitor practices. Practices may be able to secure a large percentage of lives covered by a large payer by demonstrating a lower cost of care delivery. Virginia Mason and the Cleveland Clinic have been able to use bundled payment models for back pain and cardiac care, respectively, in order to secure a large referral base insured by large employers. This method works especially well for high-volume or high-cost procedures, but given the rampant growth in health care costs, bundled payments have been proposed as a value-based model to replace FFS.

The benefit of bundling payments is manifold for payers, with reductions in per patient cost of coverage. Negotiating a bundle reduces the number of parties payers must negotiate with for payment and provides downside protection for providers should adverse events exceed initial expectations. Further, it places the financial burden of quality on providers, limiting the ceiling on charges to the payer via the FFS model.

The disadvantage of bundled payments is unique to physicians and health care facilities. Bundled payments reduce the physician negotiating power directly with the payer, necessitating a separate negotiation between providers and health care facilities. This trend has led to many health care facilities hiring salaried physicians in order to practice greater oversight and control in managing their overheads. For facilities, bundled payments reduce the ability of high reimbursing segments of the practice to subsidize lower reimbursing ones, effectively capping net margins.

Bundled payments have already been proposed by the Bree Collaborative in the state of Washington for spinal fusion surgery. The high volume and charges associated with spine surgery as well as its complexity make it a ripe target for bundled payments. Moreover, the spine market is highly saturated with competitive forces driving a need to lower costs, increase efficiency, and yield consistent outcomes in order to show the societal value of the field.

Capitation

Another form of the value-based payment model is capitation. This model is considered a compromise between unit pricing FFS and fixed payments. Health care reform via the ACA and the roll out of Accountable Care Organizations (ACOs) will likely use a variation of capitation in an attempt to tame the growth of health care spending. Both providers and payers derive utilization and reimbursement rates. With capitation, prior to delivery of care, a fixed charge is paid for an average episode of care, including professional, technical, and other facility charges. As with FFS, the capitation charge calculation requires an understanding of the elements of the resource and material utilization for an average episode of care for a defined service. Furthermore, an accurate database of average utilization for the services rendered is required. Out of the average utilization and average cost data, capitation charges are derived and negotiated between payers and providers. Similar to fixed payments, profits are realized by optimizing efficiencies and overheads as well as establishing value-based standardized care protocols to lower added costs associated with variability and complications. Because payments are fixed upfront, capitation discourages utilization.

Capitation rates are nearly universally lower than FFS reimbursement; understanding the efficiencies and areas of improvement in high-cost service utilization is the difficult task in determining how capitation rates provide for a sustainable practice. Capitation agreements are typically sustainable only when high-volume procedures are agreed upon. The number of covered individuals must be large enough to reduce the incidence of high-cost outliers; thus, a slow transition may be beneficial and prevent the likelihood of overwhelming the practice financially. Specifically, a tally of the top current procedural terminology (CPT) codes and diagnostic ICD-9 codes are required for a period of 1 to 5 years. A list of services associated with these diagnoses and their respective treatments is required to calculate the cost of the episode of care. Documentation of preoperative services including radiologic studies, electrodiagnostics, operative charges including decompressions, instrumentations and biologics, in-hospital services, and postoperative services will help to determine costs associated with each step of the episode of care. Once the list of services is delineated, the average charge per CPT code billed and average allowable CPT code and utilization rate per CPT code for the practice will help in calculating expenses and negotiating appropriate capitation rates.

Capitation can occur at the level of the primary care provider, the spine surgeon, or both. At the primary care level, the provider’s rate of reimbursement is capped while a modified FFS reimbursement model is applied downstream to the spine surgeon, thus creating conflicting incentives and high utilization once the patient is referred to the surgeon. At the level of the spine surgical evaluation, the specialists participates in risk sharing by withholding fees as a percentage of the capitated rate, which is then returned once the period of risk is over if procedure-generated expenses have not exceeded the budget.

The highest level of risk burden on providers is through full capitation. In full capitation models, providers receive a fixed, regular payment for a defined population covered by the payer in the capitation agreement. The advantages are generally realized by the payer but can be beneficial to specialists able to limit the use of or efficiently use services. Miscalculation of costs may result in bankruptcy and insolvency of the specialist practice. As a result, partial capitation agreements are more common and involve risk sharing between payers and providers.

Modified risk adjustment rates introduce equitable risk sharing between the payers and providers through stop-loss insurance policies. Here, any expense above a predefined, fixed percentage of the capitation agreement is covered by an insurance policy. A second method is through the negotiation of a “corridor of risk” between provider and payer where the capitation is set on the bases of expected utilization for the services and resources used; if utilization exceeds a percentage above the 100% capitated rate, the agreement provides additional reimbursement, discounted on an FFS schedule. If utilization is below the full rate, both the plan and provider share the savings.

To negotiate capitation rates with payers, spine surgeons require access to reliable data on their own practice as well as the patient population negotiated within the plan. An understanding of the practice under FFS will help determine base revenue requirements to sustain the practice in a transition from an FFS to a capitation model. Once revenue requirements are understood, utilization-related expenses must be reviewed and calculated in order to determine the profit and loss to calculate a rate, which will provide the practice with a reasonable profit margin. This level of accounting will likely require professional financial advising and should not be performed independently. Legal counsel is recommended to assure contracts are specific to the negotiated ICD and CPT codes intended to be covered and that vagueness is eliminated. The CPT being capitated should be listed in contracts specifically and not in general language.

To understand the required expenses under a capitation plan, spine surgeons also need to better understand the population that will be covered under the capitated agreement. A thorough understanding of the demographics covered under the plan as well as expected utilization for the specific diagnoses and procedures under an FFS model for the preceding 2- to 5-year period will delineate a utilization scheme in the traditional FFS model and help guide expected utilization under a capitated system. Medicare and commercial capitation risks represent an important distinction when calculating utilization, where Medicare risk may be several times greater than commercial risk.

Consulting a contract specialist can help minimize ambiguous language in capitation contracts, which may result in undesirable terms. Carve-outs for CPT codes not covered by the capitated CPT codes are an example. Rare or highly resource and cost intensive codes may not be covered and require a carve-out by another provider (with or without capitation) or by the same spine surgeon (under a modified FFS contract for the specific CPT code). Moreover, understanding the number and specific diagnoses from other specialists that will be shifted to the negotiating surgeon is important for calculating revenue and expense under the capitated system. Patient dumping may be an undesirable by-product of vague capitated contract; flooding of patients from FFS providers to capitated providers due to poor contractual language can lead to an unsustainable practice.

Continuous monitoring of utilization rates and expenses is required once a capitated contract has been negotiated to allow for a sustainable and profitable practice. Given the fixed upfront payments in a capitated mode, the variable column in the profit and loss statement is the expense column. This is in contrast to an FFS model where an increase in the services or rate of reimbursement can offset expenses.

Surgeon Productivity

The single largest driver of revenue for a spine practice is the surgeon’s clinical productivity. Productivity is a factor of time and energy allocated to meeting the goals of the spine practice; both are scarce resources. Thus, the optimization of time and energy is critical for ensuring the inflow goals of the practice are met and the surgeon’s efforts are not compromised.

The largest driver of revenue as a percentage of the surgeon’s clinical time is that spent performing operations. Therefore, maximizing the number of operations and limiting time spent on other activities may add revenue and offset costs. Approximately 40% of a typical neurosurgeon’s time is spent in the operating room in a given week. Other tasks include outpatient and inpatient evaluations as well as administrative activities. The appropriate use of various staff and outsourced services may increase the percentage of time the spine surgeon is able to operate and increase the volume needed to maintain a busy operative schedule. Utilizing advanced midlevel providers may increase the number of patients evaluated in the outpatient setting, reduce lead times for referred patients to be seen, and increase the number of potential operative candidates.

Moreover, outsourced services such as billing, accounting, payroll services, employee benefits administration, and human capital management can free the time of the surgeon from significant management responsibilities. However, outsourced services may be cost prohibitive and more practical for larger practices.

The final step in revenue reporting is collecting payments from respective payers as soon as possible to cover practice-related expenses. Conscientious and resourceful billing and collection personnel or well-reputed, outsourced service providers are essential to maintain the spine practice’s cash flow. Cash and short-term liquid holdings should equal 70% of the practice income statement, whereas accounts receivable should not exceed 30% for a period of 1 month. Debts should be limited to no more than 7% to 10%. Conscientious bookkeeping and accounting keep the practice well managed and help with end-of-term tax reporting.

There are other opportunities for practices to generate income. Some spine surgeons capture ancillary income by incorporating other revenue streams to their practices, including ownership in ambulatory surgery centers, imaging such as magnetic resonance imaging (MRI), and physical therapy. For some surgeons, particularly those in states that do not have certificate of need restrictions and those in larger group practices, this is a significant alternative source of revenue.

Medicare and Workers’ Compensation as Sources of Revenue

Although the majority of revenue capture in a spine surgeon’s practice may be from private sector payers and indemnity insurers, Medicare or workers’ compensation may cover a significant percentage of patients presenting to a spine surgeon’s practice. These sources of revenue are unique, and depending on the make up of a surgeon’s referral pattern, careful management of resources and time are required. Appropriate patient selection and careful practice management can help sustain profits while allowing the spine surgeon to continue to provide services to these populations of patients.

Most patients over 64 years of age are likely to be covered by Medicare with or without supplemental coverage. Given their higher age, they are more likely to have comorbidities, making them prone to complications. Moreover, reimbursement rates by Medicare usually reflect the second-lowest rates behind Medicaid and other safety net patients.

Workers’ compensation is another alternative source of revenue encountered by spine surgeons. Indeed a significant number of spinal issues are acquired as a result of work-related activities; workers’ compensation helps cover health care expenses related to such work-related activities. However, reimbursement rates associated with this type of liability insurance are lower than commercial indemnity rates but higher than Medicare. Workers’ compensation reimbursement rates are procedure based and thus patients who are considered surgical candidates within this demographic are preferred. Confounding the overall care of workers’ compensation patients, however, is any legal claims related to their well being, which may increase the nonsurgical time surgeons must dedicate to addressing such legal issues.

Expense Categories

The various expense categories for operating a surgical spine practice generally fall into fixed and variable expenses. Fixed costs broadly include occupancy costs, capital expenditures, human resource/personnel expenses, insurance premiums, and information technology costs; variable expenses include cost of medical supplies, outsourced resources, and frictional expenses such as utilities and other per use resources.

Occupancy costs include cost of facilities out of which the spine practice operates. This expense often is 5% of the overall cost associated with managing a neurosurgical spine practice. These may include office and clinic space both at inpatient and outpatient facilities that are required for the execution of care. Capital expenditures may be borne by the inpatient facility where a spine surgeon has privileges or at the outpatient offices; these may include imaging and navigation technology, radiosurgical treatment equipment, and furniture and nonconsumable office supplies.

In general, the largest expense in health care is labor costs. This expense accounts for approximately 15% of the costs associated with a typical neurosurgical spine practice. Labor plus benefits of nurses, advanced practice providers (nurse practitioners and physician assistants), medical assistants, billing and scheduling personnel, and data processing and transcription personnel may account for as much as 35% of the spine practice’s expenses. Benefits often include medical, life, and disability insurance, paid time off and vacations, and matched versus unmatched retirement plans. Attracting and retaining high-quality staff will often require attractive benefits. Many benefits are tax advantaged but can be cost prohibitive; thus, mandating employee contribution to health and retirement plans may ameliorate costs associated with human resources management. The average surgical spine practices employs 3.6 nonphysician staff for each surgeon.

Various liabilities must be insured to protect the survival of the spine practice. These include premiums to cover professional liability, employee benefits, disability, and property liability insurance. Professional liability insurance is very expensive and typically accounts for 4% of a practice’s expenses. However, due to the high-risk nature of spine surgery, added insurance premium riders should be included to allow for maximal coverage of the surgeon’s practice. If the practice is incorporated, additional corporate liability insurance can be purchased for the practice in addition to professional liability insurance for the individual surgeons.

Information technology (IT) expenses continue to grow in health care; in the typical neurosurgical spine practice, less than 2% of the expenses are related to IT costs. The HITECH Act mandates the use of electronic health records, which can be pricey and require significant backend support by the distributor; additionally, further software and hardware costs and the support they require add to the burgeoning cost of an IT infrastructure needed for a modern surgical spine practice.

Cost Accounting

To maintain a successful enterprise, overhead cost must be calculated. As reimbursements move toward value-based models like bundled payments and capitation models, understanding a practice’s overhead costs and the drivers of such expenses becomes vital in maintaining a viable practice. As reimbursements change away from traditional FFS models or as expenses increase, the ability to adjust certain costs may maintain the profitability of a practice in such a dynamic financial environment.

Cost accounting can be performed based on charge data or by calculating the cost of production. Using a fee schedule for each CPT code by relative value scale, one can calculate the charges. First, total expenses of the practice are calculated on a per year basis minus physician salary and benefits. Next, total relative value units (RVUs) are determined by multiplying CPT by RVUs for each code and summing these numbers. Each CPT is retrospectively assumed to weigh separately into expense calculation; this expense ratio is calculated by dividing the RVU by the total expenses in the first step. The remaining profit is divided by the negotiated rate per RVU to determine the profit ratio.

If a resource-based relative value system (RBRVS) fee schedule is used, comparing to a Medicare RBRVS contract and converting to higher rate to reflect the market rate is helpful. The conversion factor is calculated by dividing net revenue by total RVUs and comparing this amount to the negotiated market rate determined in the first step to determine the margin of profitability needed to maintain a sustainable and profitable practice. The conversion factor is multiplied by the expense ratio and multiplied by 100 to determine the expense ratio percentage. The expense ratio is equated to the overhead needed to maintain the practice.

A new method for cost accounting is to calculate the drivers of cost of production using a time-driven activity–based costing (TDABC) method. With this method, each step in the care delivery process is observed and timed for an average time per step and categorized by a specific laborer. Then, utilizing salary, supplies, and equipment data as well as overhead, a cost per unit time for each activity in the episode of care is calculated. This method is considered the most thorough approach to determining the cost of producing care. The major disadvantage of the TDABC method is its reliance on consultants and cost of performing the analysis; continuous measuring and optimizing of the drivers of cost may be prohibitive for many practices and only advantageous to large health systems.

Physician-Owned Distributorships

One potential COI confronting surgeons has received considerable attention from regulators. Physician-owned distributorships (PODs) are medical device distribution entities that are owned by the physicians utilizing the devices. In a POD, the physician owners may be making treatment choices governing the use of these devices in their patients. Generally, the POD will feature a manufacturer supplying devices at a wholesale rate, with the physician utilizing the implantable device supplying it to the hospital. Many PODs focus on spinal implants.

This relationship places the physician in the role of distributor of a given implantable medical device. There are significant potential conflicts with surgeons making treatment decisions utilizing products whose sale they directly benefit from. These relationships have attracted the attention of the Office of the Inspector General (OIG), who issued a fraud alert specific to PODs in 2013. Regulators feel that PODs pose substantial potential risk for fraud and abuse.

Conflicts of Interest and Individual Physicians

The conflicts that can affect patient care for physicians are most apparent when there are financial relationships between the physician and industry. For example, the myriad of spinal devices available that can be made by different companies require the spine surgeon to choose one device over the other in the clinical practice. As John Robertson, MD, stated during his 2008 presidential address to the American Association of Neurological Surgeons (AANS), “The appearance of a conflict of interest is obvious, if a surgeon accepts gifts, consulting payments, or stock from a company intended to influence his or her use of that company’s new device in his or her clinical practice.” The AANS Code of Ethics provides ethical guidelines for medical, social, and professional relationships in a neurosurgical practice. The Guidelines on Neurosurgery-Industry Conflicts of Interest that were approved by the AANS board of directors in 2008 are largely based on the principles of the AANS Code of Ethics. The Congress of Neurological Surgeons (CNS) has outlined similar guidelines to aid members in determining appropriate behavior to limit any COI. These guidelines are particularly relevant to individual physicians. They clarify the proper relationships between neurosurgeons and industry, emphasize that the patient’s ethical care should be the highest priority, and recommend complete and understandable disclosure regarding the conflict of interest. Receiving any kind of compensation from industry in return for using a certain device or treatment in a clinical practice is considered unethical.

Physician Payment Sunshine Act/Open Payments Program

The Open Payments program rose from the Physician Payment Sunshine Act of 2007 and was exacted as part of the Affordable Care Act in 2010. Its objective is to provide transparency on the financial relationships that providers have with industry counterparts. The Open Payments Program requires health care manufacturers (device and pharmaceutical) that conduct business with Medicaid or Medicare in the United States to report “all transfers of value” to physicians or teaching hospitals to CMS, which will then release these reports to the public. The types of payments to report include consulting fees, gifts, honoraria, food/beverages, payment for participating in nonaccredited continuing medical education (CME) programs, research payments, and grants.

Public reporting began on September 30, 2014, for reportable events from August 2013 to December 2013. Full-year reporting began in 2015. Physicians and teaching hospitals that establish their identity on the CMS Enterprise Portal and register for access to the Open Payment system will have 45 days to preview and dispute reported data and 15 more days to resolve any issues. If the issue remains unresolved during this period, it will be reported as “disputed” when posted to the public by CMS. However, the issue can still be disputed after this period. The program does not require any specific preparation steps by physicians and teaching hospitals.

Conflicts of Interest and the Organized Neurosurgery

Relations between neurosurgery and industry can be beneficial to the advancement of medical knowledge and patient care. The AANS and CNS allow corporate sponsorship opportunities for events that include annual meetings, educational workshops, clinical and practice management workshops, and resident training courses. To address the concern of industry influence, however, AANS approved in 2004 the AANS Guidelines for Corporate Relations; these guidelines deliver a detailed protocol on how to deal with interactions between AANS representatives and private industries. CNS published similar guidelines in 2008. These strict guidelines include a disclosure policy for all CME activities: speakers, authors, scientific planning committee members, paper presenters, and staff must disclose any conflicts of interest from commercial support. The intent of these efforts is to prevent the occurrence of financial COI between AANS and corporate sponsors.

Conflicts of Interest in Research

Conflicts can also arise in the investigative setting. A 2004 study examined 332 randomized trials published between 1999 and 2001 and found that industry funding was significantly associated with more favorable outcomes in support of the new industry product in medical trials and surgical interventions. A more recent study analyzing spinal publications in five leading spinal, neurosurgery, orthopaedics, and general medical journals in 2010 discovered a significant association between the funding source and the study outcome; there was a greater proportion of favorable outcomes in industry-funded studies compared to studies with public and foundation funding. Therefore, it is essential for spine surgeons to be aware of potential COI that could bias results when reviewing the literature or engaging in research.

Future Trends

As reimbursements decline compared to historical averages and overheads rise, many spine surgeons look to alternative means of income generation for the practice. Investing opportunities in health care facilities, imaging centers, ambulatory surgery centers (ASCs), and physical therapy practices are a number of ways spine surgeons have attempted to generate greater revenue for their spine practices. Federal Stark Laws prevent Medicare and Medicaid beneficiaries from being referred to such facilities where physicians own a stake in the facility with the exception of ASCs. ASCs with 23-hour observation capabilities can be profitable to spine surgeons; otherwise most spine operations cannot easily be transitioned to this lower overhead, higher unit revenue facility. Surgical hospitals require a significant investment and, in addition to physician ownership, require private investments. The physician control over delivery of care may contribute to higher patient satisfaction, may respond more easily to value-based payment models, and has potential for significant profit upside.