Aligning with musculoskeletal management services organizations is becoming a more attractive strategic option for independent orthopedic practices as economic, payer and administrative hurdles continue to challenge physician-owned groups to maintain autonomy.
Five spine surgeons discuss how MSOs will evolve in the orthopedic specialty in the coming years.
Editor’s note: Responses were lightly edited for clarity and length.
Question: How do you anticipate management services organizations playing out in the orthopedic landscape in the next five years?
Alok Sharan, MD. NJ Spine and Wellness (East Brunswick, N.J.): MSOs will be the next big trend in the orthopedic landscape over the next five years, similar to what we saw with the ownership of ASCs. Over the past few decades, physician-owned ASCs were a big trend. While the industry is still evolving, it has matured tremendously and now we are seeing the evolution toward the next generation model of focused factory ASCs.
Private equity and the purchasing of physician practices has brought to the forefront the value of creating an MSO for physicians. Currently, many physician practices spend about 50 percent of their revenue on overhead. With the current business structures, physicians aren’t capturing the value with that overhead (value lost). By creating and becoming part of an MSO, a physician can capture the value being created by their overhead expenses.
Physicians create value for themselves in many different ways, and often do not capture that value (value lost). As we continue to see downward pressure on reimbursements physicians are constantly seeking ways to capture value from these other services. In the operating room, for example, a surgeon receives reimbursement for the surgery they perform (value capture). Some surgeons capture the facility fee through ownership of an ASC (value capture), make revenue through implants by owning a physician-owned distributorship (value capture) or a neuromonitoring company (value capture), etc.
In the office, a physician may contract with a billing company in which they do not have ownership (value lost), pay an EMR company (value lost) or pay rent for a building in which they have no ownership (value lost). By owning or being part of an MSO that has these services under their umbrella (billing company, EMR, real estate, etc.) a physician can at least capture some of the value that is created. There are tremendous compliance issues involved with this that will be under scrutiny going forward. But it is clear that as we continue to see downward pressure on reimbursements, entrepreneurial physicians will realize and capture more value by being part of an MSO.
Brian Gantwerker, MD. The Craniospinal Center of Los Angeles: I am much more optimistic of the participation of MSOs in the spine landscape. They provide surgeons the support they need, while letting them build their own brand and maintain the DNA of their practice. They also provide mutual benefit for both parties. They can also provide the infrastructure to scale up practices in certain markets and not make it a Sisyphean task to make or exceed revenue or RVU goals for the surgeons that full employment situations tend to engender.
Christian Zimmerman, MD. St. Alphonsus Medical Group and SAHS Neuroscience Institute (Boise, Idaho): In short, MSOs are functionaries for their ability to transfer one or more of the non-clinical business functions of a medical practice or facility to a business entity that may legally be owned by physicians and nonlicensees. In most states, medical practices may be owned only by licensed physicians or other licensed healthcare providers. This severely limits the number of potential investors in a medical practice, and, consequently, limits the financial value of the practice. To the contrary, an MSO that provides exclusively non-clinical services to practices may be owned by nonlicensees, including private equity or venture capital investors, hospitals or family members of the physician owners of a practice.
That being said, these subcontractors and their counterpart physicians will most likely continue to provide “exclusive” services within the scope of their ordained practices. There will be larger emphasis on patient volumes as healthcare delivery and insurance indices format to more bargain plans. This is already causing tectonic shifts in behavior and opinions.
Robert Bray Jr., MD. DISC Sports & Spine Center (Newport Beach, Calif.): The MSO will be a rapidly expanding entity in musculoskeletal fields in general. With extensive pressures from deteriorating payments, increased regulatory requirements and loss of power among individuals or small practices, consolidation is inevitable.
The question to the group is what does the MSO offer? This is a very nebulous topic. Typically, the structure of such a deal involves reduced income to the physician with an option for a growth bonus if successful. This is also a contractual obligation with little option for divorce at the end of the relationship. The MSO or private equity-backed structure (that may have startup investor money) will typically turn in the short term, after which you or your group will be sold to a new managing structure that — depending on your contract — may give you little say in the future.
It all comes down to the value the MSO may add to the group and what path they will follow. If it is a quality-driven, cost-conscious group that enhances your scope of services, expands your payer contracts, adds service lines including ASCs or maximizes durable medical equipment, there may be tremendous value. But remember that, with any consolidation, you’re adding a new player to the market and there will be compromises. There will be a second wave in four to five years when those consolidated structures turn or reform, so evaluate and choose carefully, especially if your anticipated term of practice exceeds that timeframe.
Given the economic forces at work and complexity of running a practice, it is inevitable that MSOs and private equity-backed structures will be taking over a role from the hospitals, and it will remain to be seen how well they look after the physicians. This is an area that requires careful consideration. You need to know the people and plans for that MSO before jumping into such a relationship. After undergoing the same careful consideration myself, I did ultimately choose to participate and merged DISC into Chicago Pacific Founders’ private equity group. The new venture we created is going great.
Nicholas Grosso, MD. The Centers for Advanced Orthopaedics (Bethesda, Md.): Traditionally, MSOs provide physician practices with the tools they need to streamline business functions. It’s a practical and efficient business model to ensure that patients are the number one focus for a physician. While many groups in the orthopedic and musculoskeletal space may benefit from such services, there is now a new type of MSO emerging; a next-generation MSO that will provide all the typical MSO services as well as the tools and technical expertise for groups to succeed at risk-based contracting. I anticipate more physician practices in the musculoskeletal space will take advantage of these next-generation type MSOs in the next five years. We’ll likely see more MSOs enter the market, and ultimately the consolidation of MSOs.
The Centers for Advanced Orthopaedics came together nearly a decade ago to protect and enhance private practice medicine. Earlier this year, we launched our next-generation MSO, MedVanta, which is physician owned and operated. We remain steadfast in our commitment to physician independence, so launching MedVanta — which, amid a landscape that is increasingly being dominated by corporations and financiers, is empowering the private practice model of care — was a natural next step in CAO’s evolution.