10 Knee Specialists 10 Interesting Statistics and Facts … and formed a sub-specialty group of the clinic, the Atlanta Sports Medicine & Orthopaedic Center. Dr. Gillogly specializes

Brian J. Cole, MD, MBA. Dr. Brian Cole is aprofessor in the department of orthopedics with aconjoint appointment in the department of anatomyand cell biology at Rush University Medical Center inChicago. He is the section head of the cartilageresearch program at Rush University Medical Centerand the Cartilage Restoration Center at Rush, a mul-tidisciplinary program specializing in the restoration ofarticular cartilage and meniscal deficiency. He alsoserves as the head of the orthopedic Master’s program and trains residentsand fellows in sports medicine. Dr. Cole is the team physician for theChicago Bulls basketball team, and co-team physician for the ChicagoWhite Sox baseball team and DePaul University in Chicago.

Dr. Cole specializes in arthroscopic shoulder, elbow and knee surgery. He hasa specific interest in arthroscopic reconstruction of athlete’s shoulder (rotatorcuff, instability and arthritis), elbow and knee. He is the principal investigatorfor numerous FDA clinical trials and regularly performs basic science research.

He has authored and edited several hundred peer-reviewed publications,including highly recognized orthopedic textbooks on arthroscopy, sports med-icine and cartilage transplantation. His publications also include nearly onethousand book chapters, technique papers, and presentations describing thetechniques and results of shoulder, elbow and knee surgery. Dr. Cole lecturesand teaches the techniques of cartilage restoration and shoulder arthroscopyon a national and international level. He is a member of numerous national

Here are 10 interesting statistics and facts about orthopedic practices, as gathered by the American Academy of Orthopaedic Surgeons.

1. Private practice makes up the majority (81 percent) of orthopedic practice settings.Within the private orthopedic setting, 60 percent are in orthopedic group practice, 31percent in solo practice and 9 percent are in a multi-specialty practice. The remaining19 percent is split between seven additional practice settings: academic practice (9 per-cent), hospital/medical center practice (4 percent), military practice (2 percent), pre-paid plan/HMO practice (2 percent), public institution, non-military (1 percent) andother setting (2 percent).

2. Here are the top 10 fellowships (with the percent of members with the fellowshipin parentheses).

• Sports medicine (28.4 percent)• Hand surgery (20 percent)• Spine surgery (14 percent)• Total joint (9.6 percent)• Adult knee (9.1 percent)• Pediatric orthopedics (8.8 percent)• Adult reconstruction (8.5 percent)• Adult hip (7.6 percent)• Trauma and fractures, including Ilizarov (7.6 percent)• Shoulder and elbow (7.3 percent)

Most orthopedic surgeons (86 percent) report completing one fellowship; 12 percentreported they have completed two fellowships; 1 percent reported completing three.The remaining 1 percent reported completing more than three fellowships.

Business and Legal Issues for Orthopedic and Spine PracticesPRACTICE REVIEW

January 2009Vol. 2009 No. 1

10 Knee Specialists to Know

10 Interesting Statisticsand Facts AboutOrthopedic Practices

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INSIDE8 Spine Surgeon Dilemma: Standalone Practice or Join Orthopedic Group11 4 Observations on Orthopedic and Spine Devices and Equipment11 Will the Federal Government Shut Down Surgery Centers and

Physician-Owned Hospitals?11 Resources14 5 Business Challenges Orthopedic Practices Face15 New Report Examines Hospital-Physician Relationships and

Arrangements to Secure Successful Alignment With Physicians17 3 Hot Spine Device Trends18 3 Spine Products to Know With Neurosurgeon Dr. James B. Macon20 Founding Sponsors of Becker’s Orthopedic and Spine Practice Review20 At a Glance: 6 Top Orthopedic Device Companies22 Office of Inspector General Issues Advisory Opinion:

Physician-Hospital Orthopedic ASC Joint-Venture23 Orthopedic & Spine Medical Device, Equipment and Supplies

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Business and Legal Issues for Orthopedic and Spine PracticesPRACTICE REVIEW

January 2009 Vol. 2009 No. 1

8 Spine Surgeon Dilemma: Standalone Practice or Join Orthopedic GroupBy Rob Kurtz

11 4 Observations on Orthopedic and Spine Devices and EquipmentBy Stephanie Wasek

11 Will the Federal Government Shut Down Surgery Centers and Physician-Owned Hospitals?By Scott Becker, JD, CPA, and Elaine Gilmer, JD

11 Resources

14 5 Business Challenges Orthopedic Practices FaceBy Scott Becker, JD, CPA, and Stephanie Wasek

15 New Report Examines Hospital-Physician Relationships and Arrangements to Secure Successful Alignment With PhysiciansBy Scott Becker, JD, CPA, Bart Walker, JD, and Elaine Gilmer, JD

17 3 Hot Spine Device TrendsBy David Abraham, MD

18 3 Spine Products to Know With Neurosurgeon Dr. James B. MaconBy Rob Kurtz

20 Founding Sponsors of Becker’s Orthopedic and Spine Practice Review

20 At a Glance: 6 Top Orthopedic Device Companies

22 Office of Inspector General Issues Advisory Opinion: Physician/Hospital Orthopedic ASC Joint-VentureBy Scott Becker, JD, CPA, and Melissa Szabad, JD

23 Orthopedic & Spine Medical Device, Equipment and Supplies Product Shopper

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Letter from the Editor

2009 will be a challenging year for orthopedic and neurosurgical practicesnationally. There are a handful of core considerations that parties shouldtake into consideration as they make their plans for the coming year.

1. Decrease in procedures. There will be some deceleration in orthopedicand spine procedures as parties are more cautious regarding spendingmoney on co-payments and about concerns regarding being off of work forsome period of time. This will lead to some slowdown in the number ofprocedures. In fact, some commentators have already indicated that aftercosmetics, the largest area of deceleration for hospital procedures is in theorthopedic space.

2. Payors and patients will slow down on payments. In addition to thedeceleration of procedures, payors and patients will be slower on their pay-ment of amounts due.

3. Increased patients on Medicaid. This will reduce overall average pay-ments per procedure.

4. Core concepts to improve profitability. Much of the plans for next yearwill center on improving and applying some core concepts and blockingand tackling to retain and keep profits where they should be. These can beclarified to five core concepts.

• Keep debt low. This is a good time not to be over leveraged. In fact, overleveraging has led to many of the problems throughout the nation’s economic system as a whole.

• Redouble efforts to improve managed care contracts. This may be a good time to review managed care contracting and to see if it makes sense to try and reopen negotiations. Unfortunately, managed care payors are themselves benefiting from increased consolidation and are facing more pressure to reduce healthcare costs.

• Careful on head count. This is a time to be very careful about staffing and overstaffing to ensure that your offices and surgery centers, if applicable, are staffed at the right amounts and not overstaffed.

• Improvements in collecting. A good deal of improvements, in terms of profitability, is often in billing and collections. This is a good time to allocate people to improve collecting and to examine better ways to improve your billing and collecting.

• Improved marketing. This is a terrific time to double-down on inexpensive marketing types of efforts that may lead to more patients and more follow-through with patients and referral sources.

We see 2009 as a challenging year. While fortunate to be in the healthcarearea, it is still an area where there will be efforts made to bring down costsnationally and it is an important time to redouble the efforts to improve theprofitability of orthopedic practices and neurosurgical practices.

Should you have any questions, please contact Scott Becker at (312) 750-6016 or [email protected].

Very truly yours,

Scott Becker


societies and serves on the board of the American Academy of Orthopedic Surgeons andassumes many high level positions on society organizing committees.

John D. DiPaola, MD. Dr. John DiPaola is founder of Occupational Orthopedicsand a partner at East Portland Surgical Center in Portland, Ore. After 12 years prac-ticing general orthopedics, Dr. DiPaola established Occupational Orthopedics, theonly specialty practice in the United States providing personalized care exclusively forinjured workers. He is the current medical director for Oregon Health Systems andMontana Health Systems. Dr. DiPaola regularly speaks about injured workers’ care atregional and national meetings.

Jack Farr, MD. Dr. Jack Farr is the medical director for the Cartilage RestorationCenter of Indiana. Over the past 20 years, following his completion of his orthopaedicsurgery residency at Indiana University Medical Center, Dr. Farr has continued to focushis practice in sports medicine and knee restoration. His numerous appointments andaffiliations include a clinical associate professorship in orthopaedic surgery at IndianaUniversity Medical Center and a board position with the Cartilage Research Foundation.

Freddie H. Fu, MD. Dr. Freddie Fu is the David Silver Professor of OrthopaedicSurgery and chairman of the department of orthopaedic surgery at the University ofPittsburgh School of Medicine and University of Pittsburgh Medical Center, where hewas previously the department’s executive vice chairman. Dr. Fu has been the head teamphysician for the University of Pittsburgh Department of Athletics since 1986 and holdssecondary appointments at the university as professor of physical therapy and healthphysical and recreational education. Dr. Fu is known worldwide for his pioneering sur-gical techniques to treat sports-related injuries to the knee and shoulder and his exten-sive scientific and clinical research in the biomechanics of such injuries.

Scott Gillogly, MD. Dr. Scott Gillogly is founder of the Atlanta Knee and ShoulderClinic and formed a sub-specialty group of the clinic, the Atlanta Sports Medicine &Orthopaedic Center. Dr. Gillogly specializes in cartilage restoration, complex knee disorders, biologic knee reconstruction as well as sports and shoulder injuries and servesas the head team physician and orthopaedic surgeon for the Atlanta Thrashers hockeyteam and the Atlanta Falcons football team. Dr. Gillogly completed a distinguished military career in the Army Medical Corps with the rank of lieutenant colonel. He iscurrently the director of sports medicine training for the Atlanta Medical CenterOrthopaedic Residency Program.

E. Marlowe Goble, MD. Dr. Marlowe Goble has been a pioneering knee sur-geon for the past 30-plus years and is perhaps best known in orthopedics as one ofthe top surgeons in ACL reconstruction and meniscal allograft transplants. He per-formed what may be the first minimally invasive knee replacement procedure andholds more than 70 patents. He currently practices at Salt River Orthopedics inAfton, Wyo., serves as the director of the Utah State University medical device test-ing laboratory in the department of animal science and is an adjunct professor in thedepartment of orthopedic surgery at the University of Utah. His previous workincluded founding several companies, including MedicineLodge, an orthopedic tech-nology development firm; Facet Solutions, a facet arthroplasty device company; andFrontier Biomedical, a leader in comparative medicine. Dr. Goble has had severalother notable achievements including serving as a lead surgeon for Zimmer on theprosthetic ACL development and as Utah State University team physician.

Timothy E. Kremchek, MD. Dr. Timothy Kremchek serves as the CincinnatiReds baseball team medical director and chief orthopaedic physician. He performs the bulk of his surgical practice at the Summit Surgery Center in Cincinnati.He currently serves as the director of sports medicine for the TriHealth System of GoodSamaritan and Bethesda hospitals. Dr. Kremchek began private practice in orthopaedicsurgery and sports medicine in Cincinnati in 1993, when he completed a one-yearorthopaedic sports medicine fellowship at the Alabama Sports Medicine Institute inBirmingham, Ala.

Frank R. Noyes, MD. Dr. Frank Noyes is founder of the Cincinnati Sportsmedicineand Orthopaedic Center and director of The Noyes Knee Center. Dr. Noyes is an inter-nationally recognized authority on the diagnosis and treatment of complex knee prob-lems. In 1975, he joined the department of orthopaedic surgery at the University ofCincinnati and started Cincinnati’s first sports medicine program. He also established theNoyes-Giannestras Biomechanics Laboratories within the University of CincinnatiCollege of Aerospace and Mechanical Engineering, and today serves as a clinical

professor with the school’s department of orthopaedic surgery and an adjunctprofessor with the department of biomedical engineering.

Michael B. Purnell, MD. Dr. Michael Purnell is an orthopedic surgeon atOrthomed Center in Modesto, Calif. He specializes in sports medicine with afocus on the knee and shoulder and has more than 19 years of clinical practiceexperience. His clinical interests and expertise include computer-assisted kneearthroplasty, complex reconstruction of knee instabilities including ACL, PCLand dislocations, treatment of meniscus and cartilage abnormalities. He also hasextensive experience in shoulder arthroscopy and reconstructive shoulder sur-gery. He is a graduate of University of Iowa College of Medicine, did his resi-dency at Boston University Affiliated Hospitals Program and completed aSports Medicine Fellowship in Sydney, Australia. Dr. Purnell is the team physi-cian for the Modesto Nuts, the Class A affiliate of the Colorado Rockies baseballteam, and a team physician for California State University, Stanislaus andModesto Junior College. He serves as a consultant for DePuy Orthopaedics andAdvanced Bio-Surfaces and is a member of the editorial staff for the AmericanJournal of Sports Medicine.

David Raab, MD. Dr. David Raab is a senior partner and one of thefounding members of Illinois Bone and Joint Institute, one of the country’slargest orthopaedic and musculoskeletal practices. He has been in practice for17 years as a board-certified orthopaedic surgeon in suburban Chicago. Hispractice is focused on surgical and non-surgical management of the knee,shoulder and hip, as well as sports medicine and work-related injuries. Dr.Raab’s surgical specialties include arthroscopic knee, shoulder and sports medicine surgery, as well as total knee and hip replacement. He also serves asthe president of the Illinois Sports Medicine and Orthopaedic SurgeryCenter. Dr. Raab completed his medical training and residency atNorthwestern University Medical School and completed a fellowship insports medicine at the Minneapolis Sports Medicine Center in Minnesota.

10 Knee Specialists to Know (continued from pg. 1)


3. Orthopedic surgeons perform an average of 32orthopedic procedures each month. Among 12 fre-quently performed procedures, arthroscopy of theknee was reported by more surgeons than otherprocedures, and with greater frequency. Spinalfusion or re-fusion was reported by the secondlargest number of surgeons. Rotator cuff repair wasthe second most-frequent reported procedure, fol-lowed by release of carpal tunnel.

4. Orthopedic surgeons report that 19 percent of theirpatient payment came from private sources, includingprivate insurance and self-pay. Managed care account-ed for 33 percent of payment, split between HMOs(8.5 percent) and PPOs (24.2 percent). Governmentpatient payments are primarily Medicare patients(24.8 percent), with only 7.1 percent coming fromMedicaid. Workers’ compensation patient paymentsaccounted for nearly 12 percent of the total, while 4percent of service time was considered pro bono.

5. Surgeons younger than 40 comprise less than 15percent of all members. The proportion of surgeonswho remain active past the age of 70 represented 5percent of the total orthopedic workforce in 2006.Surgeons 70 and older report performing an averageof 19 procedures per month. The highest averagenumber of procedures performed monthly (35) is byorthopedic surgeons in the 40 to 49 age bracket.

General orthopedic surgeons report an average of 28procedures performed per month, while specialistsreport 33 procedures per month.

6. Here are the top 10 states in terms of number oforthopedic surgeons (with number in parentheses).

• California (2180)• New York (1183)• Texas (1141)• Florida (1035)• Pennsylvania (764)• Illinois (689)• Ohio (629)• New Jersey (558)• North Carolina (545)• Massachusetts (495)

7. Here are the 10 states with the highest orthopedicsurgeon density per 100,000 populations (with den-sity in parentheses).

• Wyoming (12.17)• Montana (10.69)• District of Columbia (9.81)• Alaska (9.64)• Vermont (8.67)• New Hampshire (8.40)• Connecticut (8.09)• Rhode Island (8.08)• Maryland (7.82)• Massachusetts (7.74)

8. Here are the 10 states with the lowest orthopedicsurgeon density per 100,000 populations (with den-sity in parentheses).

• West Virginia (4.18)• Mississippi (4.38)• Michigan (4.39)• Oklahoma (4.96)• Texas (4.99)• Arizona (5.07)• New Mexico (5.08)• Kentucky (5.18)• Arkansas (5.22)• Nevada (5.22)

9. On average, orthopedic surgeons took 4.3 weeks ofvacation in 2005, spent 8.9 days at CME events and8.2 days at professional meetings. The number of daysspent at CME events and professional meetings variessubstantially by practice setting, with surgeons in amilitary setting spending the least days (7.7 CME and6.7 meetings), while surgeons in a private academicsetting spend the most (11.4 CME; 13.6 meetings).

10. On average, full-time practicing orthopedicsurgeons spend 86 percent of their time in clini-cal practice, which includes office, surgical, andpatient rounds time. Approximately 16 percent offull-time surgeons report spending 100 percent oftheir time in clinical practice. The remainingtime is split between administration (7 percent),teaching (4 percent), research (2 percent) andother related activities (2 percent).

Read the American Academy of Orthopaedic Surgeonsreport at www.aaos.org/Research/stats/ 2006opus.pdf.

10 Interesting Statistics and Facts About Orthopedic Practices (continued from pg. 1)


Tip: This is often where the services of a healthcareconsultant or lawyer may be worth exploring, butthese services are an expense that can come at a timewhen a surgeon is looking to stick to a tight budg-et as the business launches.

• Ready to run a business?Running a standalone practice requires more thanjust a surgeon and patients. It’s a business like anyother medical practice, and requires a building, staff(and salaries and benefits), supplies for the staff,supplies for procedures and the many other finan-cial investments.

“If you start picking apart the different aspects tothe business model — drug and medical supplies,salary costs, managed care contracting, cash flow —there are so many roads that trickle off of that thatthey have to think of,” so surgeons must considerwhether they are prepared for and want to shouldersuch a time-consuming challenge, Mr. Shoup says.

A common mistake made by a standalone surgeon,or even those in a small group, that can make running the business more difficult is hiring thewrong personnel.

“One big problem I see … is hiring an office manager that is a friend of a friend or has minimal education,” Mr. Shoup says. “That person is handling multimillion dollars’ worth of yourmoney and they don’t picture it as the business forwhat it is. You bill out millions of dollars every year;who is handling your collections billing andexpense management?”

It may seem financially logical to keep expenses lowwhen starting a practice, and spending less on salaryis one way to do so. But skimping on staff who handle your billing or those who will negotiate contracts for drug and medical supplies can cause apractice to lose more money than it gains in salary savings.

Tip: Make sure to set aside time to find the right personnel, and then expect to pay more for the experience and value they will bring to your practice.

“Prepare for the cash outlay you have to pay forsalary and benefits for somebody of a high level ofprofessionalism,” Mr. Shoup says.

The good news is that as a standalone surgeon,problems with staff members are easily resolved asyou have the say about who stays and who goes, aluxury not always found in a group practice, saysDr. Hansen.

Tip: Before starting your own standalone practice,learn some basic business skills and try to gain abetter understanding of the business of medicine,

The dilemma between whether to start a stand-alone practice or join an orthopedic group isone that many spine surgeons face during

their careers. Both options have their merits, andboth can bring challenges and obstacles to success.Without careful planning and an understanding ofwhat makes these choices appealing and unappealing,the decision could very quickly prove to be a mistake.

Here are many of the pros and cons of both scenar-ios, and some practical guidance to help tackle the challenges of each option.

Standalone practiceWhile a standalone practice may offer many perks— you essentially determine your income, controlyour staff and dictate your on-call relationships —it also carries with it many challenges, includingdeveloping a good referral base, negotiating man-aged care contracts, and then there’s the small issueof overseeing a business and doing so successfully.

• Financial autonomyProbably the most obvious benefit of a standalonepractice is the financial autonomy.

“What you kill is what you eat, basically,” saysJames Hansen, MD, founding member of Austin(Texas) Neurosurgical & Spine Institute and apartner at South Austin Surgery Center. Assumingyou have access to cases, “you can determine yourown income.”

But such autonomy also presents significant challenges.

Taking time off — for vacations or an illness —effectively ends your income while you are out ofthe office, says Dr. Hansen. It may take significanttime to build up enough revenue that you canafford and feel comfortable bringing in no revenuefor a few days.

There are also other ramifications to consider, suchas what will happen to referrals sent your way thatyou cannot accept because you are out of the office.If the referring doctor isn’t willing to wait for yourreturn and sends another physician the case, youmay risk losing the referral if another physicianaccepts and delivers an impressive outcome.

• Developing referral sourcesPerhaps the most critical questions a spine surgeonmust answer before deciding to make the leap andgo solo is where his or her patients are going tocome from at the start, and what avenues exist tobuild a strong referral base to ensure a steady streamof patients.

“Maybe (the surgeon is) employed by a local hospi-tal and there is the built in referral base for his spinesurgery,” says Chris Shoup, a group vice president

at Nueterra and former CEO of Spine Hospital ofSouth Texas in San Antonio. “But if he’s notemployed, and decides to go standalone, what kindof referral base is he going to have going forward togarner cases?”

Tip: The surgeon must then put in a great deal ofwork and communication to develop a strong referralbase from the medical community, Mr. Shoup says.

“He has to go out, do a lot of legwork,” he says. “Aspine surgeon must make an effort to reconnect withtheir referral patterns to ensure that the primary careand specialists remain in the loop. For example, anorthopedist sends a patient over for a lumbarlaminectomy. I’m going to go back and tell theorthopedist what I did, thank (him or her) for thebusiness, and try to build referral patterns that way.”

Tip: It is also important to not pose a threat to surgeons who are willing to refer cases to you, says David Abraham, MD, a founder of the ReadingNeck and Spine Center in Wyomissing, Pa.

“If you can prove to referring orthopedic surgeonsthat you in no way compete with them — mostgeneral orthopods don’t want to think about thespine — and that you respect the territorial natureof the spine as opposed to the rest of orthopedics,then you should be able to get to the point (wherethe cases come to you),” Dr. Abraham says. “Theindividual has to prove to the local orthopedic com-munity that he is not a threat, and typically that isobvious because when you’re on-call, you give hipfractures away; you give ankle fractures away; yougive general orthopedic care to people who are likely going to be your good referrals.

“About 80 percent of my surgical referrals are comingfrom orthopedic offices, and the orthopedists don’tever see back pain anymore, don’t see neck pain any-more; they simply call my phone number,” he says.

• Prepare to negotiateIt’s great to have referrals, but they’re only good ifyou can get paid for the work you perform.

“That’s another factor a doctor has to consider:How am I going to get paid for what I do? How doI get on the managed care plans?” says Mr. Shoup.“A standalone practice will have to negotiate everyindividual managed care contract, especially ifyou’re in a large market.”

Since you cannot piggyback on an existing con-tract, standalone surgeons must be prepared forpotentially lengthy negotiations, have a strongunderstanding of what they want to be paid fortheir procedures and also understand how to read acontract and identify potentially undesirable claus-es that payors may try to include.

Spine Surgeon Dilemma: Standalone Practice or Join Orthopedic GroupBy Rob Kurtz


even if it requires delaying the start of your stand-alone practice for a few years, Dr. Hansen says.

“My first recommendation is to take some time andlearn some basic business skills, even if it means tobe taking a night course,” he says. “I took every college course I could, every AMA ‘starting yourpractice’ course that I could. Learn some basic business skills, and learn the business of medicinejust so that, particularly, if you’re on your own, youcan maximize your earnings, you don’t make badbusiness choices, you don’t get the most expensiveoffice and you’re able to make your rent payments.”

• Call rotation flexibilityAs a standalone surgeon, you can choose to takeemergency calls where you want to and with whichorganizations you want to affiliate yourself, a situa-tion that may be determined for you if you were tojoin a group.

“The large group may have affiliations with a hos-pital system or a surgical hospital … and thenyou’re in a position where you have to do your(cases) over there,” says Mr. Shoup.

On the downside, there’s no one to cover for yourcalls if you go away for vacation, which may limithow comfortable you feel taking time off.

• Reputation is yoursYour successes (or failures) determine the reputa-tion of your practice. You do not have to worryabout a poor decision made by a partner drastically

affecting your ability to run a successful business inthe community.

“Your reputation stands by you,” says Dr. Hansen.“Your practice’s reputation is made by you; you don’t have to worry about someone else hurting your practice.”

Group practiceThe work and stress needed to overcome the chal-lenges of standalone practice can easily convincespine surgeons that a standalone practice is not intheir interest and that joining an orthopedic grouppractice would be a better choice. While this scenario certainly alleviates some of the stresses ofstarting a practice, a spine surgeon interested injoining such a group must carefully weigh the benefits of this option and ensure the partnershipthey are considering allows enough freedoms andsuccesses to make it a worthwhile alternative toentrepreneurship.

• Reliable referral sourcesWhen you join a group, some of the stresses offorming strong referral relationships are instantlyalleviated.

“There’s safety in numbers,” says Mr. Shoup. “Yourreferrals are such that another doctor is not going tochange his referral patterns because he likes some-one (outside of the group) better. The big groupthat you’re in has a vested interest in maximizingthe billing opportunities for you to maximize the

partnership’s cash. There’s an intrinsic built inmechanism to go back and forth.”

Tip: You may still want to reach outside your groupto establish relationships and receive referrals fromother sources. If you do so, you will want to let theorthopedic surgeons in your group know that thesereferrals are not intended to help boost the ortho-pedic side of the practice.

“You’re going to want to say to your partners, ‘ifDoctor Jones across the way sends me a spine, it’svery obvious that I’m going to send that patientback to Doctor Jones so he can understand thatwe’re not stealing his practice,’” says Dr. Abraham.“Spine is such a small fragment of overall orthopedic care that the group should not in anyway be interested in using spine to market generalorthopedics.”

• Managed care piggybackingOftentimes, one of the perks of joining a practicefor a spine surgeon is the ability to gain access to thepractice’s managed care plans, and therefore, havethe ability to perform procedures immediately andget paid a good rate for the cases. Whether this isthe case is an important question for the surgeon toask when interviewing with a group.

“If I’m a neurospine guy and I’m looking to join agroup, how quickly can I gain access to their man-aged care plans?” asks Mr. Shoup. “If I’m a new guycoming into town, will I be able to piggyback ontheir managed care plans?”


• Getting paid fairlyThe primary reason an orthopedic group will bringin a spine surgeon will be to keep in the spine busi-ness the surgeons were referring out. Spine surgerycan be a very lucrative specialty, and a group canfinancially benefit by keeping the procedures in-house. How much it benefits is a potentially bigissue of contention.

“The spine orthopods may be making considerablymore than the general orthopod,” says Dr. Hansen.“There could be jealousy issues or they could be trying to average your income into theirs, which isnot going to sit well for very long. The upfront issueof asking how the pay arrangement is going to befigured out is very, very important.”

When spine surgeons interview with a group practice, Dr. Hansen says it is important to askfinancially relevant questions including the following:

• How do you get paid, and how is payment set up?

• Does everybody share the income? Is it pure productivity or some blended formula?

• What’s your vacation time?• Wha are your benefits?• Are benefits weighted more toward the older

guys? As you become the older guy, do you get some more benefits?

• What happens when someone retires? Does he or she get a payout? Are the remaining people expected to buyout the people who are leaving?

Tip: If a spine surgeon is displeased with the finan-cial arrangement proposed by the group practice, itis not uncommon for him or her to receive anincome guarantee that meets financial expectationsbut still lets the group reap the rewards of keepingthe procedures within the practice.

If such an arrangement is acceptable for both sides,the spine surgeon may want to solicit the services ofa lawyer to ensure a clear understanding of thecomponents of the contract.

“Get yourself an attorney who is versed in health-care practices to review the contract,” says Dr.Hansen. “I would strongly recommend a contractso there’s no misunderstanding and so it hasenough details. If you’re not interested in hiring anattorney, I would go to a much larger practice withyounger guys, because they’re more likely to havelooked into those issues than if you’re just joiningone other guy who may want to take advantage ofthe younger guy. I think it becomes a lot moreimportant to have an attorney if you’re joining amuch smaller group.”

While it is important for a spine surgeon tounderstand what he or she can expect as a baseincome, it is important not to overlook the valueof joining a group practice and the costs thatcome with this partnership.

For example, with your increase in expenses, youcan expect benefits that are going to be a little more generous for you and your staff.

“You can negotiate better arrangements with insur-ances, better arrangements with staff benefitsbecause there are more of you and you have morebuying power,” says Dr. Hansen.

There are also the benefits of joining a team thatshould already have well-qualified staff in place tohandle essential processes such as billing and pur-chasing supplies.

“If I’m part of a big group, my drug and medicalsupply expenses are pretty much a given becausethey’re already accounted for, somebody is alreadymanaging that need,” says Mr. Shoup.

• Understanding your costsWhen running a standalone practice, the costs ofrunning the business are fairly easy to understandand estimate since it’s all limited to operations of asingle surgeon and the staff. But when joining agroup, trying to determine how much of a surgeon’sincome will go toward running the group practice’sbusiness is a little more challenging.

“When you get into a large group, you get into mul-tiple layers of shared costs,” says Mr. Shoup. “I’veheard numerous times from many different prac-ticesthat shared costs have gone up incrementallybecause Doctor (Smith) has an entourage of peoplein satellite offices. I am an in-house surgeon at themain office without any satellite offices, and yet Ihave to share in the whole expense of the group.

“You need to look into and really estimate yourcosts,” he says. “While they may feed you yourbusiness, how much of it is going to get sucked outbecause of their operating expenses?”

Tip: It is essential to understand business whenstarting a standalone practice, but some knowledgein this area can also be of great benefit when joining a practice.

“Somebody in a group practice has to be a businessman, and that person may not be around all of thetime or may not want to do it, so it kind ofbehooves you to at least understand the businessaspects for your own protection,” says Dr. Hansen.“If you don’t want to be a business man, you don’tnecessarily have to, but it’s a little risky not know-ing anything.”

Taking some time to better understand the businessof medicine can help spine surgeons make wiserdecisions concerning their own work, and can alsoallow for better monitoring of the practice’s expens-es, which likely affects a portion of their incomes.

• Know your partners to determine creative flexibilityJoining a practice means more than just sharing officespace. It also means that you’re going to share a repu-tation with your new partners, and some of your part-ners may have particularly strong feelings about thetypes of procedures you should or should not be per-forming and the surgical methods you employ.

“You need to know your partners, know their rep-utation,” says Dr. Hansen. “Do they do things thatyou do? Are they going to be comfortable with you

doing something differently from how they’retrained if you came from a different program? Youshould get to know the philosophy of the group,what they expect of you, what freedoms you aregoing to have to do your own procedures.”

If your partners have strong beliefs about how theyperform procedures and expect you to emulate theirmethods, you may be able to learn from their tech-niques. The downside is that you may find yourselfabandoning some of your training to conform, mak-ing you feel like a resident again, with your partnersas the attending physicians, says Dr. Hansen.

Tip: The only way to gain an understanding of yourpartners’ expectations is to interview all of yourpotential colleagues, says Dr. Hansen.

“Bring up those issues because that’s not somethingthat comes out in the open when you’re talking,” hesays. “Can you be more cutting edge and try newthings? Ask what kind of procedures they dobecause some people do certain things, others donot. How do they do certain procedures (if there’smore than one way)?”

Tip: If you want to develop a spine niche in a grouppractice and essentially become a sub-specialist, Dr.Hansen suggests looking for a strong group thatalready has sub-specialists in different areas so yourvision is more likely to be understood and accepted.

• Call rotation inflexibility?If you join a group practice that already has spinesurgeons, determining coverage for you when yougo away shouldn’t be a big headache. But if you arethe only spine surgeon in a practice and are inter-ested in traveling for an extended period of time,requesting that your orthopedic partners cover foryou may cause problems.

“If you’re an orthopedic/spine fellow joining a gen-eral orthopedics group, you need to determine howcoverage is going to be handled, because not all ofthese orthopods may be comfortable covering somespine procedures,” says Dr. Hansen. “If you’re gonefor vacation for two weeks and you’re the only spineguy, they may not be comfortable handling it.”

Another challenge a spine surgeon joining an ortho-pedic group practice may face is that the orthopedicsurgeons may view the spine surgeon’s arrival asanother body to take on some of the orthopedic callresponsibility. If this is not something the spine sur-geon intends to do, this issue must be discussedbefore the surgeon’s joining the practice.

Contact Rob Kurtz at [email protected].

Find more valuable information for orthopedic

and spine practices in the FREEBecker’s ASC Review E-weekly.

Visit www.beckersasc.comto sign up.


Here, John Cherf, MD, MPH, MBA, one ofthe nation’s leading orthopedic surgeons, dis-cusses his thoughts on purchasing orthope-

dic and spine devices and equipment in four areas.

1. Total joints. “Orthopedics companies have be-come very consolidated,” says Dr. Cherf. “In terms ofthe joint replacement hip and knee business, three com-panies have 70 percent of the market share: Stryker,Zimmer and DePuy. Add two more companies —Biomet and Smith & Nephew — and you’re at 95 per-cent. Total joints are historically perceived as commodi-ty products; new technologies have been heavily pro-moted, such as alternative-bearing and resurfacing.

“But I think we’re going to enter a new era in whichproviders really focus on usability and cost of service.And the reason is that there’s no good data to differ-entiate these products.”

The takeaway is that you should focus on ease of use,and get your physicians to agree, ideally, on one ven-dor whose product provides this, so the administratorcan focus on keeping costs low.

2. Sports medicine. “On the sports medicineside, Arthrex is very innovative, and technology-driv-en, always pushing the envelope, and as a result domi-nates the space,” says Dr. Cherf. “On the knee side,there’s the all-inside arthroscopic technique with min-imal incisions for ACL and PCL reconstruction.Arthrex also has some interesting shoulder technology:The TightRope, which was originally designed forankle surgery, is an innovation for minimally invasiveshoulder surgery.”

3. Spine. “On the spine side, Medtronic has over 55percent of market share, but this area is really the wild,wild west,” says Dr. Cherf. “There’s a lot of new technol-ogy, the long-term data is limited, and the utilization ofprocedures is growing extensively. The payors are likelyto continue to examine these new technologies in termsof cost and utilization. Moving forward, I think MIS iskind of a mature sector, and we’re going to see a lot ofactivity focusing on pain management and makingpatients comfortable as an adjunct to spine procedures.”

4. Biologics. “I also think we’re going to seeincreased activity on ortho-biologics and other meth-ods for targeting disease earlier,” he says. “Even thoughthere’s not a lot of data supporting it right now, biolog-ics is the future, and that’s where we’re going to see thegreatest dividends over the next decade.”

Dr. Cherf ([email protected]) is aboard-certified orthopedic surgeon who maintains a multidis-ciplinary practice focusing on musculoskeletal medicine with afocus on knee and shoulder disorders at the Neurologic andOrthopedic Hospital of Chicago.

4 Observations on Orthopedic andSpine Devicesand EquipmentBy Stephanie Wasek

ResourcesBilling, coding and collectingNational Medical Billing Services. National MedicalBilling Services (NMBS) specializes in freestanding outpatient surgery center coding and billing, offering a cost-effective service,subject matter experts and integrity in business relationships. Tolearn more about NMBS, call (636) 273-6711 or visit www.asccoding.com.Pinnacle CBO. Pinnacle Centralized Billing Operations(CBO) offers a cost-effective alternative to your typical in-office billing department while positively impacting yourbottom line. For more information, visit Pinnacle III online atwww.pinnacleiii.com/services/cbo/cbo_services.htm. Serbin Surgery Center Billing. Serbin Surgery CenterBilling (SCB) was founded in 2001 to provide solutions forASCs’ billing and collection needs. For more information,contact SCB at (866) 889-7722 or visit www.ascbilling.com.

Construction and architectural firms Raymond Fox & Associates. Raymond Fox & Associatesis a full-service medical architectural firm, has completed over4,000 projects ranging from small, single-specialty offices tolarge, multi-specialty medical office buildings and has beeninvolved in over 400 surgical centers. Learn more at www.raymondfox.com, call (619) 296-4595 or e-mail RaymondFox at [email protected].

Management, development and equity firmsAmbulatory Surgery Centers of America. ASCOAis a leader in the surgery center industry, achieving exception-al quality of care and outstanding financial results. For moreinformation, visit ASCOA online at www.ascoa.com or call(866) 982-7262.Blue Chip Surgical Center Partners. Blue Chip Surgicalholds an equity stake in its projects and also serves as a managingpartner, with several highly profitable, physician-led centers in oper-ation around the country and a number of projects in the works.For more information, visit Blue Chip online at www.bluechipsur-gical.com or call (513) 561-8900.Health Inventures. A management and consulting servicesfirm, Health Inventures has been developing and expandingambulatory surgery care and other outpatient services since 1976.Learn more at www.healthinventures.com or call (720) 304-8940.Meridian Surgical Partners. Meridian SurgicalPartners aligns with physicians in the acquisition, develop-ment and management of multi-specialty ambulatory surgerycenters and surgical facilities. E-mail Kenny Hancock, presi-dent and chief development officer of Meridian, at [email protected] or call him at (615) 301-8142 formore information.National Surgical Care. National Surgical Care is a nation-wide owner and operator of ASCs, focuses on addressing the needsand problems confronting surgery centers across the country.Contact Rick Pence at (866) 866-2116 or at [email protected], or visit www.natsurgcare.com.Practice Partners. Practice Partners in Healthcare takesgreat pride in the development, management and equity own-ership with its physician and hospital partners. E-mail LarryTaylor at [email protected], visit Practice Partnersonline at www.practicepartners.org or call (205) 824-6250.

Medical devices – Implants and expedited payment optionsImplantable Provider Group. Implantable Provider Groupworks with providers, facilities, manufacturers and commercial payors to fully manage all aspects of high-cost implantable medical devices. For more information about IPG, visit www.ipgsurgical.com or call Michael Jones at (866) 753-0046.

Surgical supply and equipment manufacturersConMed Linvatec. ConMed Linvatec, a global leader inthe fields of arthroscopy, multi-specialty endoscopic medicalvideo systems and powered surgical instruments, offers someof the latest in technology for a growing range of minimallyinvasive and orthopaedic surgery procedures. Learn more byvisiting www.linvatec.com or call (800) 237-0169.Cybertech Medical. Cybertech is the brand name of orthoticproducts offered by Bio Cybernetics International; it’s patentedMechanical Advantage products are the result of advanced tech-nology that creates biomechanic support, patient comfort, andcompliance. Learn more about Cybertech Medical atwww.cybertechmedical.com or call (800) 220-4224.Spine Surgical Innovation. Spine Surgical Innovationdesigns and markets the Holmed Swivel Port System, which isdesigned for ease of use and intended for posterior or lateral lum-bar surgery. Learn more at www.spinesurgicalinnovation.com orcall (800) 350-8188.

Will the FederalGovernment ShutDown SurgeryCenters andPhysician-OwnedHospitals?By Scott Becker, JD, CPA, and Elaine Gilmer, JD

As the Democrats take control of the House,the Senate and the Presidency, many question the impact of such a change on

ambulatory surgery centers (ASC) and physician-owned hospitals. The most significant question is:Will the federal government shut down and/or restrictphysician-owned hospitals and ASCs?

The short answers to this question are: 1. no, the federal government will not shut

down ASCs; and 2. maybe the federal government will halt the

development of new physician-owned hospitals and/or restrict the activities of and adopt new rules relating to existing physician-owned hospitals.

A story of numbers and politicsCurrently, there are approximately 5,800 ASCs in theUnited States. Of these, approximately 900 are notMedicare-certified. Forty percent of all ASCs are locat-ed in five states: California, Florida, Texas, Georgiaand Pennsylvania. In addition, there are approximate-ly 200 physician-owned hospitals in the United States.

Mood in Washington, D.C., and statestowards physician ownership The mood in Washington and states towards physi-cian ownerships is slightly more favorable than theBush administration’s view of Iran, Iraq and NorthKorea. Essentially, physician ownership is viewed verynegatively in Washington D.C. and in many states.

A. Imaging. In the imaging sector, there is a com-mon perception that supply drives demand (i.e., themore imaging facilities that are available, the moreprocedures that will be performed). Recently, the WallStreet Journal published an article reporting that manypayors are implementing new prescreening require-ments to “ensure that physicians use high-tech scansonly when it is clear that patients will benefit.”1

Insurers such as Aetna, WellPoint and Cigna Corp.have hired radiology benefits managers to monitorscans. A Government Accountability Office reportfound that Medicare spending on scans varied basedon geographic area, suggesting that all procedures maynot be necessary or appropriate. Further, the federalgovernment is implementing a series of rules relatingto (i) the designation as an independent diagnostictesting facility; (ii) the inability to lease space to otherMedicare providers; (iii) the elimination of per-click

For more information or an introduction to any of the following companies, e-mail [email protected],call (800) 417-2035 or fax with the company circled to (866) 678-5755.


relationships; (iv) the elimination of block-leasing rela-tionships; and (v) several other requirements designedto make physician-owned imaging, as well as imagingas a whole, less costly to the federal government.

The initial reasoning behind the Stark Act (ini-tially only applicable to physician-owned labs)was based upon an older study which found thatthe number of procedures performed at a facilityincreased when (i) a physician owned an interestin the facility, (ii) the physician was able to referpatients to such facility and (iii) the physician didnot have to personally perform the procedure atthe facility. In 1998, the Department of Healthand Human Services, in proposing the Phase IRule of Stark II explained:

Both the anti-kickback statute and section 1877address Congress’ concern that health care deci-sion-making can be unduly influenced by aprofit motive. When physicians have a financialincentive to refer, this incentive can affect uti-lization, patient choice, and competition.Physicians can overutlilize by ordering itemsand services for patients that, absent a profitmotive, they would not have ordered.2

The Stark Act continues to develop around thisconcept, and thus the Stark Act has traditionallyrestricted situations where a physician could refer apatient to a facility, such as a lab or imaging facili-ty, but did not have to personally perform the serv-ices on the patient.

B. Physician-owned hospitals. The feder-al government has conducted approximately 10 dif-ferent studies as to the effects of physician-ownedhospitals. The vast majority of these studies haveindicated that physician-ownership of a hospital isfairly benign. Notwithstanding this fact, the physi-cian-owned hospital industry has a number of verystrong opponents in Washington, D.C. Theseinclude Sen. Max Baucus, Sen. Charles Grassleyand Rep. Pete Stark. For political and other reasonsthese individuals look very unfavorably upon physician-owned hospitals. In Dec. 2007, TheWashington Post quoted Sen. Grassley as follows:

My motivation for seeking reforms over a longperiod of time is the effect that specialty hospi-tals have on community hospitals when special-ty hospitals pass the buck on emergency careand cherry-pick based on profits rather thanpatient needs.3

Interestingly, many of these physician-owned hos-pitals are amongst the leaders in the country in cer-tain quality studies. As expected, there are anextremely small number of aberrational types ofphysician-owned hospitals that provide a sub-stan-dard level of care. However, notwithstanding thefact that (i) general acute care hospitals may alsoprovide such substandard level of care and (ii) infec-tions picked up in a general hospital are one of theleading causes of death in this country, each time abad action occurs at a physician-owned hospital, acongressional study and investigation commences.

C. Surgery centers. Many individuals atCMS have long taken the view that, although theydo not love ASCs or physician-owned hospitals,ASCs are located in so many congressional districtsand such a large outcry would result if they tried tooutlaw physician ownership that it will be impossi-ble to now prohibit physician ownership of ASCs.As a result, their belief is that the ASC’s ship onrestriction has sailed but prohibitions may still bepossible for physician-owned hospitals.

D. The New Jersey Codey Law. For near-ly a decade, the New Jersey Codey Law — thestate’s version of the Stark Act — had been read topermit physician-ownership of ASCs. However, inrecent cases unrelated to the Codey Law, judgeshave opined that the Codey Law prohibits physi-cian-ownership of ASCs in the traditional sense.

In Garcia v. Health Net of New Jersey, Inc., the courtfound that referrals to an ASC in which the refer-ring physician had a significant financial interestviolated the Codey Law. Due to such decisions,New Jersey may become one of the first states toprohibit and outlaw the new development of physi-cian-owned ASCs. The compromise likely to resultin New Jersey is typical of such political strugglesand outcomes. In essence, those already developedphysician-owned ASCs have political clout andthus will likely maintain their facilities without pro-hibition. In contrast, there is no one to protect theunborn ASCs.

This type of situation is precisely why many newlaws include a grandfathering clause. Such aclause allows the politicians to protect themselvesby allowing the existing ASCs or hospitals to sur-vive while simultaneously pleasing their allies inthe American Hospital Association or theFederation of American Hospitals by outlawingnew developments. In Jan. 2008, the New JerseyBoard of Medical Examiners elected to move for-ward on an emergency rule in response to theserecent cases.

E. Pain management. The government hasmade pain management part of its work plan for2009. In essence, much like imaging, the govern-ment believes that pain management has grown tounnecessary proportions and that the ownershipand profit that pain management procedures pro-vide has led to unnecessary procedures.

F. PET and radiation therapy ventures.CMS has extended the Stark Act to apply to radia-tion therapy ventures and positron emissiontomography (“PET”) services. Therefore, thesearrangements may only operate if structured tomeet an exception to the Stark Act.

G. Block leases, per-click and under-arrangements. The federal government hasmade negative comments on “indirect” referralsin various advisory opinions. CMS has taken actionto prohibit most types of per-click leases and under-arrangements structures. It has also determined thatthe anti-markup rules apply to block leases. Further,in Advisory Opinion No. 08-10 issued on Aug. 19,

2008, the Office of Inspector General also raisedconcerns regarding block lease arrangements underthe anti-kickback statute.

What will happen next? ASCs are likely to survive largely intact. WhileASCs may be challenged in some states, the out-standing work of the ASC Association and the factthat for each patient treated in an ASC, theMedicare program receives a 35 percent discount orsavings for the procedure (as opposed to the proce-dure being performed in a hospital outpatientdepartment), it is likely that ASCs will survive theupcoming political changes.

The physician-owned hospital situation is morechallenging. Over the last year, the House andSenate have reached agreement on different types ofprovisions that would essentially eliminate the newdevelopment of physician-owned hospitals.

The physician-owned hospital industry has beenprotected by both the White House and a numberof Republican and conservative Democratic sena-tors who support entrepreneurial healthcare growthand service (as opposed to protecting acute carehospitals from competition).

With that said, the change in the make-up of theHouse, the Senate and the White House is not ben-eficial to physician-owned hospitals. In many ways,it is a story of political clout. Since physician-ownedhospitals are in few districts, the Congressmen andSenators in the numerous districts without suchfacilities may take campaign contributions and abideby the wishes of certain enemies of physician-ownedhospitals (i.e., the American Hospital Associationand the Federation of American Hospitals), withoutfear of retribution. In essence, a Congressman orSenator who does not have a physician-owned hos-pital in his or her district need not worry about ret-ribution in voting positively to restrict physician-ownership. Thus, the risk of applying physician-owned hospital prohibition rules to existing physi-cian-owned hospitals significantly rises.

Mr. Becker ([email protected]) and Ms.Gilmer ([email protected]) are attorneysfor McGuireWoods.

1 Anna Wilde Mathews, “Insurers Hire Radiology Police to Vet Scanning.”

Wall Street Journal online, Nov. 6, 2008.

2 63 Fed. Reg. 1659, 1662 (Jan. 9, 1998).

3 Christopher Lee, “Limits Weight on Physician-Owned Hospitals.” The

Washington Post, Dec. 9, 2007, p. A03

The April issue of Becker’sOrthopedic & Spine

Practice Review will profile20 great spine surgeons.To nominate a great spine surgeon,

e-mail Scott Becker at [email protected]



Don Love, the CEO of an orthopedic prac-tice in Roanoke, Va., and Ken Austin, MD,an orthopedic surgeon in Ramsey, N.J.,

share their insights on key business challengesorthopedic physicians are currently facing. Five ofthe largest challenges facing orthopedic practicesinclude (1) decreasing Medicare and Medicaidreimbursement; (2) decreasing third-party reim-bursement; (3) difficulty recruiting physicians andstaff; (4) increasing hospital competition andrecruitment; and (5) the need to develop ancillaryservices and revenues.

1. Medicare and Medicaid practice payment cuts.Physicians are facing drastic impending cuts totheir professional fees.

Medicare’s sustained growth rate which is used tocalculate payment rates is flawed,” says Mr. Love.“We have faced these incredible cuts in reimburse-ment that have been delayed over the last severalyears, but the formula is still in place. What’s more … there will be double-digit reductions forprofessional fees. The impact of those reductionswill be very significant, especially for Medicare andMedicaid.”

Mr. Love says a potential effect statewide andnationally is that physicians may limit the numberof Medicare and Medicaid patients they’re treatingor opt out of Medicare altogether. There will also bea ripple effect on commercial payor contracts if theyare tied to the federal rates, he reminds.

This decrease will make it all the more important toseparately focus on the increasing number ofpatients who are taking part in high-deductiblehealth plans as part of the push for consumer-driv-en healthcare.

“We are investing more in overhead and labor hoursto prepare, because this movement puts the onus onus to screen thoroughly for treatment,” says Mr.Love. “The patient must understand what his finan-cial responsibility will be with regard to payment —especially to payment up front — so that he isn’t hitwith an unexpected bill and we ensure payment forservices when they are rendered. We’re also makinguse of technology to ensure we capture our chargesaccurately and bill appropriately and stay in compli-ance with our contracts.

“Purely from a billing point of view, it’s more com-plex and your coders have to be more astute toensure your practice is not missing charge opportu-nities when physicians perform services.”

2. Contracting with third-party payors.Orthopedic and surgical practices are again facingsignificant challenges from large payors. Large pay-ors are making aggressive efforts to “rebalance” pay-ments. In practice, this means they are attemptingto pay less to proceduralists and more to those who

provide evaluation and management services forindependent orthopedic practices, where a greatpercentage of revenues come from procedures.

This renewed effort, combined with increasingpayor leverage in many markets, has the ability togreatly decrease orthopedic revenues in the shortand long run.

3. Recruiting clinical and business office staff.“Recruitment is always a challenge,” says Mr. Love.There are a sufficient number of physician assis-tants to meet the demand for the present, but “thereare fewer orthopedic physicians nationwide, andhiring a physical therapist or physical therapy assis-tant is just about impossible these days. It’s anongoing challenge to have skilled support staff,coders and insurance billers, reception and frontdesk staff — you need good people all the waydown the line.”

In addition to demonstrating to prospective physi-cians, clinical staff and business office employeesthat your practice employment is dynamic and growing — adding ancillary services, for example— offering training support is good for recruitingand retaining, as well as key for keeping your facil-ity on the cutting edge.

“Training is becoming more critical for providingstaff with the skill sets to be successful, and togive patients excellent care and service,” says Mr.Love. “For example, we embarked on EMR acouple years ago, and it’s been filled with chal-lenges; but you have to pay to train staff in orderto implement new technology and keep theirskills and your facility up to par.”

4. Changing relationships with hospitals; achiev-ing détente with hospitals. Hospitals are again flex-ing their muscles in their relationships with physi-cian practices. Over the last two to three years, hospitals have refocused their energies on acquiringand employing orthopedic and neurosurgical prac-tices. Here, the efforts are more directed today onfocused, high-revenue practices as opposed to pri-mary care practices. This effort, in many markets,has come with the attitude implied or explicit thatthere is no longer room or will not be in the longrun room for truly independent practices.

“For a long period of time, hospital administratorswere not attentive to the needs of surgeons; theytook what we did and how we did it for granted,which led to a great deal of frustration,” says Dr.Austin. “When we had an opportunity to set upour own facility with our own protocols and over-sight, we jumped at it. And it’s worked out betterthan we possibly could have imagined. It proved wecould do what we wanted more efficiently.”

Hospitals have not always taken well to these kindsof practice driven successes. However, as time has

gone on and outpatient surgical facilities havebecome more integrated in healthcare, hospitaladministrators are “starting to get it, and understand how ambulatory surgery centers (ASC)can be beneficial to them,” he says.

While the opening of an ASC can alter the relation-ship between hospitals and surgeons to becomemore competitive in nature, it doesn’t have to bethat way if each side recognizes what the otherbrings to the table.

“There are still a lot of orthopedics cases that canonly be done in the hospital, that require appropri-ate post-op monitoring, such as joint replacements,fractures, traumas — these just aren’t geared for theASC,” says Dr. Austin. “The ASC doesn’t answer allthe needs of the medical community. We have dif-ferent functions, different efficiencies, and as longas those are realized and appreciated, each canthrive in its own area. From our perspective, thehospital is not considered a competitor, but an allyand a complement.

“As a result, we support the hospital regularly,donate to causes, present at charity functions. Wecould not do what we do without a hospital, whichis a necessary element of any community — thestronger the hospital is, the stronger we are.”

5. Developing ancillary services. Orthopedicgroups are increasingly looking to offer a range ofintegrated services to their patients, including MRIand physical therapy, under the same umbrella asthe practice. Ancillary services may also includeASCs and physician-owned hospitals.

“With the professional fees component goingdown, other revenue sources, such as PT, MRI,ASCs, durable medical equipment sales, bone den-sity screening and others are increasingly impor-tant, but development of those ancillary incomestreams come with their own challenges levied onthem,” says Mr. Love. “For groups such as ours incertificate of need states, it can be very costly topursue [a CON to add services] only to be turneddown. And, in some states, the physical therapistassociation has been effective in getting physician-owned PT practices banned.”

Roanoke Orthopaedic Center’s ancillary servicesinclude an osteoporosis program that includes bonedensity testing, physical therapy, dispensing durablemedical equipment, and it continues to explore further options.

“Some groups doing durable medical equipmentsales are taking it to the next level: A group inCharlotte, N.C., is doing retail DME,” says Mr. Love.

Contact [email protected].

5 Business Challenges Orthopedic Practices FaceBy Scott Becker, JD, CPA, and Stephanie Wasek





[email protected]


* * *




JUNE 11 – 13, 2009



New Report Examines Hospital-PhysicianRelationships and Arrangements to SecureSuccessful Alignment With Physicians

Anew report examines the trends driving a shift in hospital-physician relationships and profiles the arrangements that can be adopted

to secure successful, long-term alignment with the physician workforce.

The report is the result of a collaborative effort between Sg2, a leading international, future-focused healthcare intelligence company providingexpert-led resources, tools and education to enhance maximize clinical effectiveness, and McGuireWoods, a leading law firm with one of the largesthealthcare departments in the country.

The report, Accelerating Hospital-Physician Collaboration 2008, offers stepsfor developing each arrangement, and the benefits and challenges of eacharrangement are summarized. It also presents leading practices and lessonslearned from successful alignment initiatives.

The collaborative effort was led by Jillian Addy and Bill Woddson from Sg2,and Tom Stallings, JD, Kristian Werling, JD, Elissa Moore, JD, ScottBecker, JD, CPA, and Amy Nolan from McGuireWoods.

Request a copy of the report at by emailing Scott Becker [email protected].

You can join the Sg2 Community at http://members.sg2.com to access additional resources and intelligence covering strategy, operations and service line development. With nearly 10,000 members, this professionalhealth care networking site is free to join and features breaking news stories,expert insights, member questions and more.



New technology in the spine market is expand-ing faster than the size of the universe. There

are three main areas of focus.

1. Interspinous process devices. Thesedevices treat lumbar spinal stenosis; they are placedbetween the spinous processes to separate the bonesand indirectly decompress the stenotic lumbar spinalcanal. Lumbar spinal stenosis produces the symp-toms of intermittant neurogenic claudication, whichusually appears in elderly patients and is clinicallycharacterized by difficulty with prolonged standingand walking, relief upon sitting down, and improve-ment in symptoms with lumbar spinal flexion (theso-called shopping cart position).

These new devices are a hot topic at the nationalspine meetings and are attracting much enthusiasmand financial support. Clinically, the only devicethat’s currently FDA-approved is the X-Stop pro-duced by Kyphon, which was recently acquired byMedtronic Danek for $3.9 billion (yes, with a B).This company’s only other product is theKyphoplasty Balloon, which is used to expand osteo-porotic compression fractures in the elderly.

These interspinous process devices are being market-ed as “minimally invasive” in that they typicallyrequire only a 1-in. incision and are completed in lessthan 30 minutes. The brochure describes performing

the surgery under local anesthesia, although I don’tknow of anyone who does this. The techniqueinvolves separating the paraspinal muscles down tothe level of the lamina, inserting the device betweenthe bones and securing it with a fixation wing.

Other companies are trying to develop percuta-neous devices, but none have sought FDAapproval. Within 36 months, I expect there to bethree to six devices that will be the second genera-tion of this technology.

2. Artificial cervical disc. Cervical degenera-tive arthritis is a very common clinical problem, andartificial cervical disc technology stands to offer significant treatment options for people who sufferfrom cervical radiculopathy. The current standard ofcare for a cervical herniation involves an anterior cervical discectomy and fusion, usually using a plateand allograft. In 2007, a cervical disc was approvedby the FDA for use. A recent prospective random-ized trial comparing a cervical fusion to the cervicalartificial disc demonstrated similar clinical improve-ments by the two treatments. The hope is that long-term studies will prove that preservation of motionwill lessen the wear and tear on the discs next to thesurgical area; this may take a decade to prove.

The cervical disc may have difficulty gainingapproval from private payers, since the technology is

theoretically related to its cousin, the artificial lumbardisc. The lumbar disc had high expectations when itwas launched in 2005, but estimates about its salesvolume were off by 90 percent. Insurance companiessimply are not allowing patients to have access to thislumbar technology, and I’m not sure they will allowaccess to cervical discs, citing concerns about long-term durability and use.

3. Dynamic spine stabilization devices.Finally, the issue of dynamic stabilization of the spinemust be mentioned in this discussion. I admit I havegreat difficulty discussing this topic with enthusiasm,because I do not believe in the technology or in thelanguage used to support its use. Basically, the tech-nique consists of surgeons’ placing elastic devicesafter decompressions to stabilize the motion segmentbut not fuse it — they use the term “soft fusion.”While this topic has garnered a lot of press and titledmany meetings, I don’t think it will come to fruitionas widespread clinical practice. In fact, a recent article in the journal Spine discredited its use after follow-up studies evaluated the high frequency ofpost-op device complications.

Dr. Abraham ([email protected]) is a spinesurgeon at the Reading Neck and Spine Center inWyomissing, Pa.

3 Hot Spine Device TrendsBy David Abraham, MD

James B. Macon, MD, a neurosurgeonbased in Framingham, Mass., who per-forms surgical procedures at several west

suburban Boston hospitals and whose practice is ded-icated to spine and pain surgery, discusses three newspine products which have benefited his practice.

1. Holmed Swivel Port SystemThe Holmed Swivel Port System, designed by SouthEaston, Mass.-based Spine Surgical Innovation (withDr. Macon serving as the design consultant), wasdeveloped to give spine surgeons minimally invasiveaccess to the spine while cutting down on potentialmorbidity associated with some muscle dilator tubular access systems, Dr. Macon says.

In other systems, “the initial placement of the dilator — in order to achieve access to the spine —usually involves putting a sharp K-wire down to thespine,” he says. “That K-wire, if it’s not watchedvery carefully under x-ray control with fluoroscopy,can get pushed into places you don’t want it to gosuch as into the spinal canal or into a nerve root.Also, the inner dilator is fairly small — smallenough to go into the spinal canal and cause nerveroot or spinal cord injury.”

The Swivel Port System eliminates both the use ofthe K-wire and dilators and improves spinal access,says Dr. Macon. The way the device works is that fol-lowing an incision, a blunt instrument such as aPenfield dissector is used to split the muscle, asopposed to the use of a K-wire. After the dissectorhas reached the spine, biplane fluoroscopy confirmsthe proper level and trajectory for the port place-ment. Once the muscle is split, a Cobb periosteal ele-vator is inserted to scrape the muscle and ligamentoff the intended docking area for the port that willprovide access to the spine for the surgeon.

The Swivel Port System works like a hand-heldretractor when closed and becomes a tube whenopened. The retractor is placed through the musclesplit down to the bone. What makes the Swivel PortSystem different from other systems is that ratherthan using dilators to obtain access to the spine, thissystem uses blades that are opened by rotating(swiveling) the port base. The blades on the porthave a flange which prevents the port from migrat-ing out once positioned, Dr. Macon says.

“We open the port by turning the blade at the portbase using a ring-type device that fits over the port,”he says. “Once the port is open, then we put inexpander blades, and they allow increased exposureand minimize muscle creep so we can see more thanjust a straight cylindrical tube and yet you have eliminated the dilator and the K-wire problems, so itis safer and very fast to insert. You just split the muscle, put it in and you open the port with thering. It’s both safe and provides excellent exposure.”In addition, the port can be fixed to the operating

table with the handle attached to a flexible arm.This arm can then be firmly attached to an operating table, allowing a surgeon to position thetrajectory of the port in different angles, evenchanging the trajectory angle during a procedure.This allows a surgeon to perform procedures suchas multiple-level decompressions through one portplacement, Dr. Macon says.

The Swivel Port System includes a number of retrac-tors with blades of varying sizes which allow for awide range of procedures, he says. These includeminimally invasive posterior decompressions in thelumbar spine such as microdiscectomies andforaminotomies as well as large decompressions suchas two-level laminectomies or fusions and pediclescrew fixations from the postlateral approach.

While the long-term outcome might not be dif-ferent from other open approaches, Dr. Maconhas found that the minimally-invasive approachhas much less morbidity in the short term. Healso notes that a particularly interesting traitabout the Swivel Port System is that it actuallyhas greater benefits for obese patients. “In theSwivel Port technique, there’s no change in theincision size — the port just gets longer toaccommodate the depth of the incision,” he says.“Those patients who are larger benefit the mostfrom this particularly procedure because theyhave much smaller incisions and less risk ofwound problems than when standard open expo-sures are used. It’s really a paradox that the largerthe patient the smaller incision is better. This isone of the surprising benefits of the minimallyinvasive approach to the spine.”

2. SpineJet HydroDiscectomyThe SpineJet HydroDiscectomy was developedby HydroCision, which is based in NorthBillerica, Mass. This device essentially allows asurgeon to make incisions using a water jet. “TheSpineJet MicroResector can be placed in a discspace for removing discs either percutaneouslythrough a cannula or through the Swivel Port,”he says. The SpineJet MicroResector will performa microdiscectomy through a very small incisionwith a minimal annulotomy.

“The HydroCision discectomy is an interestingadjunct for a surgeon wanting to perform outpatient spine surgery for contained lumbardisc protrusions,” Dr. Macon says. “I have successfully used this technique for lumbarmicrodiscectomies.”

Dr. Macon also finds the use of HydroCision’sSpineJet XL curette beneficial. He uses this device toprepare the disc space for receiving an inter-bodyfusion when performing lumbar transforaminalinterbody fusions through the Swivel Port.

“There are several different handles which you canuse for different parts of your operation,” he says. “I

developed a bayonet handle for the curette andmicrodiscetomy device which allows use through theSwivel Port without obscuring your vision. Initially,their system was just a straight handle that blockedyour vision when used with tubular access systems.”

3. Allen Spine SystemThe Allen Spine System developed by Allen MedicalSystems in Acton, Mass., is an extension attachmentthat connects to a standard operating room table andallows a surgeon to perform spine procedures in an optimal position with no interference of the fluoroscopic imaging required for accurate placement of the Swivel Ports, Dr. Macon says. TheAllen Spine extension attachment also offers excel-lent padding for patients which decreases the likeli-hood of pressure sores and other complications oflying in a prone position for spine procedures.

“The Allen Spine System is a very good productfor an outpatient center because it is cost-efficientfor the facility,” Dr. Macon says. “Because it’s nota whole table and can be attached to the operat-ing table we already have, it is less expensive thancompeting products.”

Contact Rob Kurtz at [email protected].

3 Spine Products to Know With Neurosurgeon Dr. James B. MaconBy Rob Kurtz

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JUNE 11 – 13, 2009


Here are brief profiles of six manufacturers’that are among the world’s largest medicaldevice companies; in addition, these six

(listed alphabetically) are those from which orthope-dic-driven ASCs and hospitals purchase much oftheir orthopedics-surgery related products.

DePuy Orthopedics (a division ofJohnson & Johnson)The largest and most diversified of the world’shealthcare companies, Johnson & Johnson wasfounded in 1886. Today, with operations in 54countries, and sales in more than 175 countries, itis the premier purveyor of more than 200 medicaldevices, including orthopedic and spinal products.J&J is also a global leader in the sales of pharmaceuticals and packaged consumer healthcare goods. Its stock is traded on the NewYork Stock Exchange (NYSE) (symbol: JNJ).During fiscal 2007, Johnson & Johnson acquiredtwo healthcare companies: Conor Medsystems, acardiovascular device company with new drugdelivery technology, and Robert Reid, a Japanese orthopedic product distributor. In Oct. 2008,Johnson & Johnson acquired HealthMedia, anonline health counselor. DePuy’s U.S. headquarters is in Warsaw, Ind.

MedtronicFounded in 1949, Medtronic is one of the leadersin innovative medical technologies and surgeries,with focus on diagnosis, prevention and monitor-ing of chronic conditions. Among the firm’s innovations of special interest to orthopedic surgeons are its bone graft and Minimal AccessSpinal Technologies and image-guided surgicalnavigation procedures. The firm, headquartered inMinneapolis, Minn., sells its products in morethan 120 countries. Its stock is traded on theNYSE (symbol: MDT). In Oct. 2007, theCompany launched the CD HORIZON LEGACY Anterior Spinal System and in July2008, Medtronic completed the acquisition ofRestore Medical, manufacturer of devices to treatsleep-disordered breathing.

Siemens Medical SolutionsSiemens Medical Solutions provides a comprehen-sive mix of consulting services, including a varietyof orthopedic-related devices and equipment.Among the innovative “firsts” developed bySiemens are the first x-ray tube patent, the firsthearing aid with amplification adjustability, the

At a Glance: 6Top Orthopedic DeviceCompanies

FoundingSponsors ofBecker’sOrthopedic &Spine PracticeReviewWe would like to thank the two foundingsponsors of Becker’s Orthopedic & SpinePractice Review:

Blue Chip Surgical Center Partnerswas founded by ASC veteran Jeff Leland. Italso has great leadership in Jay Rom, Beth AnnJohnston, RN, BS, Richard Roski, MD,FACS, and several others. Only three years oldand ten physician-led centers in operation orin the construction phase, Blue Chip has beenremarkably successful.

The company has a reputation for delivering onits commitments, quickly building trust with thepartners and forging strong physician and hospi-tal relationships. Blue Chip is focused on spineand multi-specialty ASCs. Included in BlueChip’s portfolio of projects are three hospital JVsand three “turnarounds.” Blue Chip holds anequity stake in each project and also serves as amanaging partner. For more information, visitwww.bluechipsurgical.com.

National Surgical Care, a nationwideowner and operator of ambulatory surgicalcenters, focuses on addressing the needs andproblems confronting surgery centers acrossthe country. These challenges, which includeincreasing competition, complex legislativeissues and a difficult managed care contracting environment, threaten both the growth andprofitability of surgery centers. NSC’s experi-enced management team offers a high degreeof knowledge, skill, understanding and strate-gic resources for its centers.

NSC specializes in the acquisition and opera-tional enhancement of existing surgery centersand the development of new surgery centers inpartnership with hospitals and physicians.Aligning with NSC allows physicians to realizesome of the value they have created and gainthe resources of a skilled management team.Physicians can then spend more time focusingon patient care as NSC focuses on the business. Currently, NSC operates 21 surgery centers across the country. Visit NSConline at www.nationalsurgicalcare.com.

first real-time ultrasound, the first whole body fastvolume Spiral CT and the first PET-CT hybridscanning system. Based in Erlangen, Germany, thefirm was founded in 1877. Siemens AG stock is traded on the NYSE (symbol: SI).

Smith & NephewSmith & Nephew’s orthopedics division is a globalprovider of leading-edge joint replacement systemsfor knees, hips and shoulders, as well as devices fororthopedic trauma procedures. The specialist mar-ket helps drive the company’s annual $3.4 billionin sales, according to the company, by continuous-ly developing new materials and techniques tomeet the growing demands of procedures and facil-ities for tougher, long-lasting implants and less-invasive, faster-to-heal surgical products for useacross patient populations. Smith & Nephew wasfounded in 1856 and is headquartered in theUnited Kingdom. It is now the UK’s largestmedtech company and one of the top companiesin its field in the world. Their units jointly offerover 1,000 product ranges. It is traded on theNYSE (symbol: SNN).

Stryker Corp.Stryker Corp., another industry leader, manufac-tures and sells a diverse product mix of medicaland orthopedic devices in the domestic and globalmarketplace, including hip, knee and upperextremity replacement prosthetics, and spinalimplants. The firm is also noted for its develop-ment, manufacturing and sales of video-assisted-surgical systems, powered surgical and collateralequipment and instrumentation for minimallyinvasive surgery. Among its innovative products isEndosuite, a functioning OR suitable for use invirtually all specialties. It has headquarters inKalamazoo, Mich. Stryker is traded on the NYSE(symbol: SYK).

Zimmer HoldingsIn 2003, Zimmer Holdings acquired Swiss-basedCenterpulse, and became Europe’s leading orthopedicdevice company. With its U.S. base in Warsaw, Ind.,the company markets its products in more than 80countries. The company specializes in the developmentand manufacturing of reconstructive implants anddevices for spinal applications, and for knee, hip, shoul-der and elbow joints, and related orthopedic surgeryproducts. The firm is noted also for its innovation andthe fast-growing spinal segment of its business.Founded in 1927, Zimmer Holdings stock is traded onthe NYSE (symbol: ZMH). In April 2007, ZimmerHoldings acquired Endius, a company focused onminimally invasive endoscopic spine surgery systems,and in Nov. 2007, it acquired ORTHOsoft. In Oct.2008, the company acquired Abbott Spine, a manufac-turer of spine implants.

By Marc Davis, with additional research by Ariel Levine



The Office of the Inspector General recentlyissued Advisory Opinion 08-08. ThisAdvisory Opinion deals with a physician/

hospital joint-venture surgery center. Here, theAdvisory Opinion was requested because certainphysicians who invested in the joint-venture werethemselves not “safe harbor” compliant. In essence,some of the physicians practice principally in an inpa-tient setting. The OIG, based on the number of pro-phylactic steps and the overall facts, determined thatthe joint venture would pose minimal risk of abuseunder the Anti-Kickback Statute. Scott Becker, JD,CPA, and Melissa Szabad, JD, of McGuireWoodsserved as counsel to the requesting center. Tom Millsand Marion Goldberg of Winston and Strawn andNeal Goldstein of Much, Shelist were also instrumen-tal in assisting the center to obtain the opinion.

It reasoned as follows:

1. Use of pass-through entity“First, the Arrangement does not qualify for the pro-tection of the hospital/physician-owned ASC safeharbor, because the Surgeon Investors do not holdtheir investment interests in the ASC either directly orthrough a group practice composed of qualifyingphysicians. Rather, the Surgeon Investors hold theirindividual ownership interests in the SurgeonPartnership. The Surgeon Partnership, in turn, holdsan interest in the Company that owns and operatesthe ASC. We have previously expressed concern thatintermediate investment entities could be used toredirect revenues to reward referrals or otherwise viti-ate the safeguards provided by direct investment,including distributions of profits in proportion tocapital investment. However, in this case, the use of a‘pass-through’ entity does not substantially increasethe risk of fraud and abuse. Each Surgeon Investor’sownership in the Surgeon Partnership is proportionalto his or her capital investment.1 The SurgeonPartnership’s ownership interest in the Company is,in turn, proportional to its capital investment. Thusthe individual Surgeon Investors receive a return ontheir ASC investments that is exactly the same as ifthey had invested directly.”

2. Four surgeons don’t pass one-third tests“Second, four of the eighteen Surgeon Investors (theInpatient Surgeons) fail to meet the safe harborrequirement that at least one-third of a physicianinvestor’s income from medical practice for the previ-ous fiscal year or previous 12-month period bederived from the performance of ASC-QualifiedProcedures.2 This ‘one third’ test helps ensure that thesafe harbor applies only to investment income tophysicians who are unlikely to use the investment asa vehicle for profiting from their referrals to otherphysicians using the ASC. Safe harbor protection islimited to physician-investors who, because they per-form a substantial number of ASC-Qualified

Procedures, are likely to use the ASC on a regularbasis as part of the medical practices.”

3. Rare referrals; all surgeons; small por-tion of total surgeons“In the circumstances presented, notwithstandingthat four Inpatient Surgeons will not regulatory prac-tice at the ASC, we conclude that the ASC is unlike-ly to be a vehicle for them to profit from referrals. TheRequestors have certified that, as practitioners of sub-specialties of orthopedic surgery that require a hospi-tal operating room setting, the Inpatient Surgeonsrarely have occasion to refer patients for ASC-Qualified Procedures (other than pain managementprocedures, which are discussed below).3Moreover,like the other Surgeons Investors, the InpatientSurgeons are regularly engaged in a genuine surgicalpractice, deriving at least one-third of their medicalpractice income from procedures requiring a hospitaloperating room setting. The Inpatient Surgeons arequalified to perform surgeries at the ASC and maychoose to do so (and earn the professional fees) inmedically appropriate cases. Also, the InpatientSurgeons comprise a small proportion of the SurgeonInvestors, a majority of who will use the ASC on aregular basis as part of their medical practice. ThisArrangement is readily distinguishable from poten-tially riskier arrangements in which few investingphysicians actually use the ASC on a regular basis orin which investing physicians are significant potentialreferral sources for other investors or the ASC, aswhen primary care physicians invest in a surgical ASCor a cardiologist invests in a cardiac surgery ASC.”

4. Pain managementThe OIG also comments on the fact that the physi-cians certified that no surgeon investor would referpatients for pain management procedures (i.e. “indi-rect referrals”) unless he or she personally performedthe surgery.

“As noted above, the Inpatient Surgeons do haveoccasion to refer patients for pain management pro-cedures that are ASC-Qualified Procedures. This rais-es the possibility that an Inpatient Surgeon or otherSurgeon Investor might refer patients to other practi-tioners for pain management procedures performedat the ASC, for the purpose of generating a facility feefor the ASC. The Requestors have certified, however,that no Surgeon Investor will refer patients for pain management procedures to be performed at the ASC,unless the procedure is to be performed personally bythe referring Surgeon Investor. This serves to mitigatethe potential for abusive referrals, with regard to thistype of procedure.”

5. Hospital prophylactic stepsThe Advisory Opinion also commented positivelyon the steps taken to avoid the hospital driving refer-rals to the venture. Here, the arrangement includedcertain commitments limiting the ability of the hospital corporation to direct such referrals.

“Third, the Arrangement does not qualify for the safeharbor for ASCs jointly owned by physicians andhospitals, because the Hospital Corporation is in aposition to make or influence referrals to the ASC andto the Surgeon Investors. However, the Arrangementincludes certain commitments limiting the ability ofthe Hospital Corporation to direct or influence suchreferrals. The Hospital Corporation refrains from anyactions to require or encourage Hospital-AffiliatedPhysicians to refer patients to the ASC or to itsSurgeon Investors; it does not track referrals, if any, byHospital-Affiliated Physicians to the ASC or to itsSurgeon Investors; any compensation paid toHospital-Affiliated Physicians is at fair market valueand does not take into account any referrals Hospital-Affiliated Physicians may make to the ASC or to itsSurgeon Investors; and the Hospital Corporationinforms Hospital-Affiliated Physicians annually ofthese measures. In light of these safeguards, the abili-ty of the Hospital Corporation to direct or influencereferrals to the ASC is significantly constrained.”

6. Limitations on indirect pain management referrals; full disclosure topatients; hospital stepsThis is the type of advisory opinion that a couple ofyears ago should have been extremely easy to attain.However, currently, the OIG has expressed great con-cerns with both indirect referrals and is also con-cerned regarding issuing advisory opinions whichmay serve as examples or precedent to others.Currently, it takes a great deal longer than would haveotherwise been anticipated to receive an opinion.

“There are eighteen Surgeon Investors, of whom four-teen meet the following test: Each received at leastone-third of his or her medical practice income for theprevious fiscal year or previous 12-month period fromthe performance of procedures payable by Medicarewhen performed in an ambulatory surgery center(“ASC-Qualified Procedures”). The four remainingSurgeon Investors (the “Inpatient Surgeons”) do notmeet this test. Each of the Inpatient Surgeons derivesat least one-third of his or her medical practice incomefrom procedures requiring a hospital operating roomsetting, but receives little or no medical practiceincome from the performance of ASC-QualifiedProcedures. The Requestors have certified that theInpatient Surgeons rarely have the occasion to referpatients to other physicians for ASC-QualifiedProcedures, except for pain management procedures.The Requestors also have certified that none of theSurgeon Investors will refer patients for pain manage-ment procedures to be performed at the ASC, unlessthe pain management procedure is to be performedpersonally by the referring Surgeon Investor.

“The Surgeon Investors inform patients of their own-ership interest in the ASC by posting notices in thetwo offices in which Surgeon Investors practice andthrough a written notice to each individual patient.

Office of Inspector General Issues Advisory Opinion:Physician/Hospital Orthopedic ASC Joint-VentureBy Scott Becker, JD, CPA, and Melissa Szabad, JD


Orthopedic & Spine Medical Device, Equipment and Supplies Product Shopper

The Requestors have certified that, in the future, inthe absence of exigent circumstances, such writtennotice to individual patients will be provided prior tothe date of the procedure in the ASC.

“The Hospital Corporation is in a position to make orinfluence referrals to the ASC. The Requestors havecertified that, in order to limit such ability, theHospital Corporation has refrained and will refrainfrom any actions to require or encourage physicianswho are employees independent contractors, and medical staff members (‘Hospital-AffiliatedPhysicians’) to refer patients to the ASC or to its

Surgeon Investors, and has not and will not track refer-rals, if any, by Hospital-Affiliated Physicians to theASC or to its Surgeon Investors. The Requestors havefurther certified that any compensation paid by the Hospital Corporation to Hospital-AffiliatedPhysicians has been and will be consistent with fairmarket value and has not been and will not be related,directly or indirectly, to the volume or value of anyreferrals Hospital-Affiliated Physicians may make tothe ASC, its Surgeon Investors, or the Surgeon Group.The Hospital Corporation will inform Hospital-Affiliated Physicians annually of these measures.”

Mr. Becker ([email protected]) and Ms.Szabad ([email protected]) are attorneysfor McGuireWoods.1 We express no opinion with regard to any future sales of mem-bership interests in the Surgeon Partnership that may result inindividual investors having ownership interests that are not pro-portional to their investment.

2 The safe harbor for hospital/physician-owned ASCs (42C.F.R. § 1001.952(r)(4)) incorporates by reference this require-ment of the safe harbor for surgeon-owned ASCs (42 C.F.R. §1001.952(1)(ii)).

3 If this certification proves incorrect, this advisory opinion iswithout force and effect.


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