Building and maintaining a successful orthopedic practice has never been more challenging. The cost of operating a provider practice has increased by 39% and practice overhead is now estimated to be around 60% of gross income.¹ This could be why mergers and acquisitions in the provider group space has risen so dramatically in recent years.

²For orthopedists who are set on building a more successful practice without selling or merging with other practices, service line expansion could be the way to go. Adding services helps create an integrated practice that improves convenience and care outcomes while increasing revenue opportunities and long-term financial viability.

Following are four areas of opportunity orthopedic practices should look at when considering adding service lines.

DME
The first area is durable medical equipment (DME). In 2021, the DME market was valued at $56.3 billion and it’s expected to grow. ³From braces to walking boots to custom-fitted orthotics, offering DME in your office is a huge benefit for your patients and can bring significant revenue for the practice. It also can reduce gaps in care and improve the patient experience.

Best practices for rolling out an in-office DME program, according to an article in Becker’s ASC, is to “include program champions, phased rollouts and ongoing evaluation.” ⁴For multi-location practices, this could mean starting with one office and then adding other offices over time. This enables practices to take advantage of lessons learned from earlier rollouts, which can streamline future rollouts and reduce expensive miscalculations.

Having a program champion can help ensure compliance and documentation are adhered to and that the right metrics are tracked for purposes of process improvement.

Physical Therapy
The practice of orthopedics and physical therapy (PT) go hand-in-hand. In most cases, PT is an essential part of achieving the best outcomes. Offering PT within the practice can increase the likelihood that patients will be compliant with their therapy plan while making it easier for patients to schedule their sessions. ⁵ It also enables better provider oversight and streamlined communication within the care team.⁶

When it comes to reimbursement, the amount depends on the payer so practices will need to decide which payers to accept or whether to focus on self-pay. Regardless of which direction you choose, it’s important to stay on top of regulatory compliance and payer requirements. For example, even though you offer PT within the practice, you may still need to provide patients with options for where they get their therapy.

In terms of revenue, the outlook is positive. The market for physical and occupational therapy in the U.S. was $34.5 billion in 2018 and is expected to grow at a 6.2% annual rate. ⁷ The average PT clinic takes in $886,000 and sees a 14.6% net profit margin. ⁸

Orthobiologics
Advancements in the field of regenerative medicine, an increase in sports-related injuries, and the growing interest in minimally invasive treatments have significantly increased the global orthobiologics market. ⁹]Non-surgical treatments have become especially attractive for those with osteoarthritis, which is the most prevalent joint disorder in the U.S. Close to 27 million individuals have been diagnosed—a number that’s likely to grow as our country’s population ages. ¹⁰

Revenue-wise, it can make sense for orthopedic practices to include orthobiologics. Fortune Business Institute suggests the global orthobiologics market will reach $8.3 billion by 2026, up from $5.8 billion in 2018. ¹¹The majority of this growth is projected to come from viscosupplements, bone growth stimulators, and demineralized bone matrix. ¹²In 2018, viscosupplements accounted for nearly a third of the global orthobiologics market.

One thing to note is that there is quite a lot of variability in the cost of various orthobiologics treatments and payers have been slow to come on board; many have yet to cover some of the most common treatments like platelet rich plasma (PRP) or stem cell (SC) injections. Practices may want to consider offering payment plans to make orthobiologics more accessible for patients who must pay out of pocket.

Ambulatory Surgery Centers (ASC)
ASCs have become a high-profile business in the U.S., especially as payers are increasingly favoring less-expensive outpatient centers over more costly inpatient options. The ASC market in 2021 was just under $40 billion and is projected to grow to $58.9 billion by 2028. ¹³According to research by Kaufman Hall, standalone ASCs now outnumber community hospitals in the U.S.¹⁴

[CALLOUT] The American Academy of Orthopaedic Surgeons (AAOS) projects that knee replacement surgeries alone will increase 189% to approximately 1.2 million by 2030 and will grow to 2.6 million by 2060. ¹⁵

For orthopedists looking to grow revenue, ASCs are a great investment. Instead of sharing revenue and professional fees for performing procedures at an ASC, having an ASC within the practice enables all revenues to be funneled back into the practice.

How to pay for service line expansion
Expanding services such as those mentioned above can be extremely costly. For example, the equipment needed to create an integrated PT center—from treadmills to treatment beds—can be expensive. Ultrasound muscle stimulators alone can run around $3,600 a piece and you may need several. ¹⁶Of course, those costs are dwarfed by the cost of starting an ASC, which can reach into the hundreds of thousands or even millions.

One option for adding services to your orthopedic practice is through private equity (PE) partnerships. With PE backing, expansion of service lines is practically limitless. With PE funding, providers have quick access to the resources they need to buy new equipment, rent facilities, hire more staff, and add locations. They can also provide resources to extensively market those services so as to receive a faster ROI.

In a PE partnership, the firm will likely want controlling interest in the practice while the providers maintain a minority ownership through “roll-over equity.”¹⁷ This means both parties benefit from the investment through “upside value appreciation” after the transaction, while providers retain full control over the clinical aspects of the practice.

Another option is to partner with a trusted source that can help you determine the best paths and financing strategies. A strategic advisor can offer sage advice, and consultative and tactical support to enhance every area of the practice to achieve personal and professional goals.

The time to act is now
There’s never been a better time to consider service line expansion. According to the Journal of Orthopaedic Experience & Innovation, there is approximately “$1.8 trillion dollars of private equity capital ready to be deployed within the healthcare services industry.” ¹⁸As competition increases and payer reimbursements decrease, orthopedic providers need to do all they can to improve financial viability and attract and retain patients. Expanding services can help them do just that, while also improving outcomes and enhancing patient satisfaction.

1. https://www.beckersasc.com/leadership/the-cost-of-running-a-medical-practice-has-increased-by-39-percent-says-1-director-see-how-he-s-handling-the-change.html?origin=ASCE&utm_source=ASCE&utm_medium=email&utm_content=newsletter&oly_enc_id=5878G0123745E2Z
2. https://news.bloomberglaw.com/health-law-and-business/insight-health-care-consolidation-strong-in-2019-expect-even-stronger-2020
3. https://www.grandviewresearch.com/industry-analysis/us-durable-medical-equipment-dme-market
4. https://www.beckersasc.com/new-asc-development/how-to-build-an-effective-in-house-dme-program-insights-from-two-ortho-practices.html
5. https://www.mgma.com/MGMA/media/files/fellowship%20papers/PHYSICAL-THERAPY-DEPARTMENT-DOES-THE-ORTHOPEDIC-PRACTICE-NEED-ONE.pdf?ext=.pdf
6. https://www.mgma.com/MGMA/media/files/fellowship%20papers/PHYSICAL-THERAPY-DEPARTMENT-DOES-THE-ORTHOPEDIC-PRACTICE-NEED-ONE.pdf?ext=.pdf
7. https://blog.marketresearch.com/u.s.-physical-therapy-clinics-constitute-a-growing-34-billion-industry
8. https://blog.marketresearch.com/u.s.-physical-therapy-clinics-constitute-a-growing-34-billion-industry
9. https://www.digitaljournal.com/pr/orthobiologics-market-to-expand-with-significant-cagr-by-2031
10. https://www.cdc.gov/arthritis/basics/osteoarthritis.htm
11. https://www.fortunebusinessinsights.com/industry-reports/orthobiologics-market-100173
12. https://www.fortunebusinessinsights.com/industry-reports/orthobiologics-market-100173
13. https://www.fortunebusinessinsights.com/u-s-ambulatory-surgical-centers-market-106323
14. https://www.kaufmanhall.com/insights/article/putting-ambulatory-surgery-centers-center-outpatient-strategy
15. https://www.hartfordbusiness.com/article/as-aging-population-boosts-demand-for-orthopedic-care-hospitals-others-bet-big-on-new
16. https://smallbusiness.chron.com/much-cost-start-physical-therapy-business-25721.html
17. https://2ec2b246x45d31849pmcrgzb-wpengine.netdna-ssl.com/wp-content/uploads/2021/07/Herschman-Torres-Journal-Ortho-Nov-2020-Private-Equity-Partnerships-in-Orthopedic-Groups-Current-State-and-Key-Considerations.pdf
18. https://2ec2b246x45d31849pmcrgzb-wpengine.netdna-ssl.com/wp-content/uploads/2021/07/Herschman-Torres-Journal-Ortho-Nov-2020-Private-Equity-Partnerships-in-Orthopedic-Groups-Current-State-and-Key-Considerations.pdf