The Business of O&P: Warm and Tropical—or Frozen Tundra?

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You are basking in the warm sun on a white sandy beach with the ocean lapping at your feet. A refreshing drink in hand, sunglasses on, a balmy breeze blowing through your hair--ahhhhh, life is good. Freeze frame--now put yourself in the frigid winter of a land that doesn't see the sun, endless snow, and chilling winds that blow and blow.

David Schultz, CPO
David Schultz, CPO

Why the comparison? If you had a choice of destinations--the tropical paradise or the frigid wasteland--most of us would opt for the beach. Hard economic times with no end in sight can appear to be cold and uninviting. Brrrrrr--did you feel that cold, stiff breeze just blow past? Do you have a choice in the matter when it comes to the business of O&P?

David Schultz, CPO , CEO, president, Actra Rehabilitation Associates, Brookfield, Wisconsin, shared his assessment of where O&P is heading regarding rising costs: "The cost of doing business is rising, and the revenues seem to me to be flat. For example, more and more providers are delivering orthotics. Obviously that's going to affect everyone's revenues.

"In the wholesale area, suppliers are able to increase their fees according to the rise in their costs, which is as it should be. O&P practitioners for the most part find it difficult to pass along their increased costs through increased fees because of contracts, Medicare levels, Medicaid levels, government budget squeeze, etc."

He continues, "Costs are rising in labor and raw materials. Wholesale costs are increasing as manufacturers attempt to cover their costs. Labor expects increases every year. The labor supply is tight, and that increases labor costs. Reimbursements seem to be governed by the Medicare allowables. The Medicare levels rise very little each year, actually below the Consumer Price Index (CPI). It's been that way for many years. Medicare allowables have never kept up with the CPI, so we are way behind at this point."

Labor costs, health insurance, workers compensation insurance, and other liability expenses seem to be among the biggest worries O&P companies and probably most businesses face at this time. Rising costs also include increased administrative costs associated with HIPAA and Medicare Fraud & Abuse compliance and other government rules and regulations.

HMOs attempt to get providers to go below Medicare reimbursement allowables, resulting in deep discounting. (Editor's note: Please see "Can You Afford To Discount?" April 2003) Wholesale supply costs are climbing; yet with an increasingly tighter reimbursement situation, the average practitioner is finding it difficult to increase or maintain profitability.

Ron Cheney, CPO
Ron Cheney, CPO

Commenting on the double problem of rising costs and declining reimbursements, Ron Cheney, CPO , American Prosthetics & Orthotics Inc., Clive, Iowa, points out, "Costs have escalated in employee recruitment, salaries, employee educational assistance, employee benefit programs, materials, and the increasing need for marketing.

"Factors contributing to lower reimbursement are discounting, increased splitting of the O&P pie with other professions, and Medicare being the barometer for fees by private insurance carriers and agencies."

What can the O & P industry in particular do to survive, even flourish, in such challenging times?

If you are a practitioner, you can most likely keep adding to this list of worries that you face on a daily basis to keep your business going. But don't put away that tanning lotion yet. There are some that feel with the right focus, O&P businesses can succeed in these unstable times. Robert Benedetti, controller, Promise Consulting, Pittsburgh, Pennsylvania, agreed that most industries, not just O&P, are suffering from substantial cost increases and declining revenues. However, his thoughts are quite encouraging. He tells us, "O&P companies can still be very competitive if they know what they are doing. If they have energetic clinicians and a savvy administrative staff to support them, the company can be very profitable."

Energetic clinicians and savvy administrative staff sounds great! You can be assured that assembling such a group does not come without a price. So how do you cover the salaries, health insurance, workers compensation, etc., for such an all-star group?

Byron H. Whitaker, CPO,
Byron H. Whitaker, CPO,

According to David Schultz, you need to count the costs: "Know what it costs to do business. In this environment, good cost-accounting skills are a must." Another viewpoint was stated by Byron H. Whitaker, CPO , president and CEO, Rehab Designs of America, Riverside, Missouri, "We are embracing technology to make us more efficient, while at the same time providing education and training to our clinical team members to ensure they meet compliance standards and have all the tools necessary to properly manage their practices. We believe if all documentation is complete, this saves us time in our collection efforts."

Ron Cheney points out, "A realistic fact is that reimbursement most likely will not increase in the near future. This means that companies must streamline their operations to be more profitable and to concentrate on increasing their market share to increase revenues. We take a close look at our business and methodology on a frequent, regular basis, reexamining policies and procedures to determine where profitability might be improved."

Cheney shares ideas for a proactive approach to marketing and increasing revenue: "Increase public awareness of ABC [American Board for Certification in Orthotics & Prosthetics] credentialing. Market the idea of long-term cost savings for certain technologies that insurance carriers are normally unwilling to pay for. Hold symposiums with insurance company case managers and others involved with claims decisions. A quarterly newsletter has been a very effective marketing tool for our company. You can reach a broad or targeted audience at a nominal cost with information you want referral sources or payers to know."

Cheney urges customer service: "It's one way to differentiate yourself. We must be strong in this area--it's the trump card to winning business. It's not the only card, but it's the card to get you in the game."

Being active in legislative efforts is important, according to Schultz and Cheney. "The various associations have to continue their efforts on the Hill to have Congress realize we have to be kept up to date on the fees in order to remain viable," Schultz says.

Cheney urges O&P facility owners and practitioners, "Be proactive in your relationship with senators and representatives at the grassroots level. Increase awareness of the benefits of PAC [Political Action Committee of the American Orthotic & Prosthetic Association (AOPA)] contributions."

Schultz points out that watching your accounts payable is necessary. "Review accounts payable closely each month. Keep your receivables as current as possible. Use good cost-accounting skills when calculating contracts. Watch inventory levels so they don't get out of hand. Too much inventory is actually cash sitting on the shelf. Keep your operations as efficient as possible. Make sure that your labor pool is not too large for the amount of business you do."

So far the formula for thriving in todays business climate looks like this:

 Incredible clinicians and support staff
 + Excellent cost-accounting skills
 + A voice in Congress
 + Embracing technology
 + Increased efficiency
 + Consistent collection efforts
 = Cash in the bank.

It appears clear-cut. However a huge piece of the formula briefly mentioned above is worth mentioning again: keep a close eye on your collection efforts.

All this may seem easy to say, but not easy to do! Each of the parts to this formula for success will require forethought and planning. Don't be overwhelmed. Map out a plan and get started. Great results lie ahead!