LGT's Profit Sense

Many opportunities may arise in a physician practice for providing ancillary services, depending on the nature of that practice as well as the physicians’ interests. A short list includes anesthesia, diagnostic testing, endoscopy, pain management and physical therapy. (For more examples, see “12 ancillary services to consider.”)

But before deciding whether to offer ancillary services, physicians need to answer two questions: First, will the services improve patient care? Second, are the physicians interested in, and willing to manage, the implementation of those services?

Factors to consider

To help determine whether providing ancillary services is right for your practice, here are some factors to take into account:

What ancillary services are you currently ordering out? If you’re losing a percentage of potential revenue by sending your patients elsewhere for specific services, it makes sense to evaluate whether it would be worthwhile to bring them in-house. If you brought a particular service in-house, for example, would that be more convenient for your patients?

What are the upfront equipment costs? Some ancillary services are more expensive than others and require purchasing hard assets. Can the equipment be bought or leased, or bought used? Do you have room for the equipment in your current office space? What are the financing options for whatever hardware or equipment you need?

How much will it cost to support the services? Equipment is one thing, but space, personnel and management also can be significant components of ancillary costs. Can the services be performed at your current location or will you need to relocate or lease a separate office space? Will providing these services require hiring new staff?

What are the third-party approval and regulatory issues? For instance, setting up a laboratory necessitates licensing by the Clinical Laboratory Improvement Amendments, part of the Department of Health and Human Services. Licensing fees are set according to the types of tests being performed. Depending on the extent of coverage, licensing may involve obtaining a licensed pathologist to sign reports and handle inspections and other regulatory issues.

How much can you charge? Understand the business you’re getting into with an ancillary service. How much money can it bring in, who pays and how much? In order to determine how much you can charge, you need historical data, which can usually be provided by professional organizations or other practitioners offering the same ancillary services.

What’s the return on investment? Having determined costs and charges, it’s time to determine what kind of profit margins are involved in this type of service. What’s the break-even point? How long will it take to move into profitability? Is the expected profit worth the time and effort it will take to provide the service in-house?

Legal and contractual obligations

Imagine you’ve decided that providing ancillary services could work out profitably for your practice. The next step is to evaluate potential hurdles or roadblocks. For example, does your practice’s lease agreement have any restrictions on use? Talk to your malpractice insurance carrier about whether your existing policy covers the ancillary services, and factor in those costs.

In addition, it’s important to educate yourself on the Stark Law, which actually consists of several federal laws related to self-referrals for clinical laboratory services under Medicare. Written by Congressman Pete Stark, the Stark Law was part of the Omnibus Budget Reconciliation Act of 1989 and was expanded in 1993, 1994 and 1995. The set of laws basically prohibits doctors from referring patients for specific “designated health services” to a business entity or service in which the physician has a financial interest — if those services are paid entirely, or particularly, by Medicare or Medicaid.

There are also many Stark Law exceptions. The Antikickback Statute is similar to the Stark Law. The statute was an amendment of the Medicare and Medicaid Patient Protection Act of 1987. Violations carry some harsh penalties. The provisions are complex, so it would be wise to seek the counsel of a health care attorney for guidance.

Rules and laws

Finally, evaluate your plan under Medicare rules. Medicare, as everyone is aware, is subject to change. Ancillary services and payment for them are regulated under Medicare and Medicaid rules — in addition to the Stark Law and the Antikickback Statute. Ancillary services can be profitable, but only if you understand, and follow, the rules.

12 ancillary services to consider

As food for thought, here are 12 ancillary services your practice might offer:

1. Anesthesia,
2. Addiction education, psychotherapy and other wellness-related services,
3. Catheterization and/or infusion therapy services,
4. Diabetes-related services, including dialysis and diet management,
5. Clinical diagnostic laboratory services,
6. Endoscopy services or even a freestanding ambulatory surgery center,
7. Geriatric care management,
8. Pain management and physical therapy,
9. Retail sale of products such as eyeglasses, hearing aids and orthotics,
10. Skin care,
11. Sleep studies and sleep medicine, and
12. X-ray services.