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We’re a happy family: Collaboration between plastic surgeons and hospital administrators to develop a profit-sharing model for procedures performed at an academic medical center
Charles S. Hultman, MD, MBA, Christopher Ellington, MBA, Susan Phillips, BSN, Mark Harris, MHA, Allen Daugird, MD, MBA, Joellen Buckio, MHA, Anthony A. Meyer, MD, PhD.
University of North Carolina, Chapel Hill, NC, USA.
PURPOSE:How much value does plastic surgery add to the financial position of an academic medical center (AMC)? Although plastic surgeons make important contributions to the clinical, research, and teaching components of AMCs, determining the financial impact of a plastic surgery service can be difficult, due to complex cost accounting systems and oblique overhead structures. This paper 1) analyzes the financial impact of a plastic surgery service on an AMC, by examining contribution margin and operating margin, and 2) presents a profit-sharing model that incentivizes both administrators and surgeons.
METHODS:We examined hospital financial data for all plastic surgery procedures performed at an AMC, for FY09 and FY10. Responding to the economic volatility of 2008, we collaborated with hospital administrators at the end of FY9 to implement 3 types of strategic changes: 1) growth of areas with high contribution margin (head & neck oncology), 2) curtailment of high-risk procedures with negative contribution margin (body contouring), 3) improved efficiency of mission-critical services with high resource consumption (free-flap breast reconstruction). Outcome measures included: facility charges, hospital collections (gross revenue), contribution margin (collections less variable costs), operating margin (contribution margin less overhead & depreciation), and OR times. We also studied the top 50 physician-billed CPT codes (total case number*charge/case), ranking procedures for profitability, as determined by operating margin. During this 2-year period, we had no turnover in faculty; did not pursue any formal marketing; did not change our surgical fees, billing system, or payer mix; and maintained our commitment to indigent care. Incremental growth from FY08 to FY09 was 1%.
RESULTS:After implementing strategic changes to improve the financial value of the plastic surgery service to the hospital, average operating margin/case increased from -\ to +\, representing a net increase of \ for each procedure performed (Table). During this period, volume and diversity of cases increased, with no change in our payer mix. Although charges/case decreased, both contribution margin and operating margin increased, due to improved throughput and decreased OR times. The 5 most profitable procedures for the hospital were hernia repair, mandibular osteotomy, skin graft to the hand, free fibula flap, and flap of the head & neck, whereas the 5 least profitable procedures for the hospital were latissimus breast reconstruction, craniosynostosis repair, free-flap breast reconstruction, skin graft to the trunk, and cutaneous free flap. Total operating income for the hospital, specifically from plastic surgery procedures, increased from -\,103 to +\,277,040, of which \,000 (25%) was returned to the surgeons as enterprise funds, to support program development and faculty recruitment.
CONCLUSION:Through focused strategic initiatives, plastic surgeons and hospital administrators can work together to unlock the latent value of a plastic surgery service to an AMC. Specific financial benefits to the hospital include increased contribution margin and operating income, the latter of which can be reinvested in the plastic surgery service through a profit-sharing model.
Financial Contribution of Plastic Surgery Service to Hospital
|# of cases||Unique CPT codes||Hospital charges (\0||Contribution margin per case (\0||Operating margin per case (\0||OR time--room (minutes)||OR time--case (minutes)|
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