Grow Your Bottom Line by Reducing Costs

As the O&P profession is faced with increased expenses and shrinking
reimbursement levels, reducing costs can significantly impact a company’s
bottom line. Following some basic business concepts with an eye to areas unique
to O&P facilities can help practitioners identify ways to reduce costs and
D64338BB8F3115F.jpeg” alt=”Money pots” width=”250″ height=”138″ hspace=”5″ vspace=”3″ border=”0″ align=”right”>“That is really the first step in being able to reduce your
costs is to know how you are performing against some type of benchmark,”
he said.

Another important aspect of understanding business metrics and cost
structure is for a company to measure and monitor its progress.

“We spend a lot of time measuring, what we call measuring and
monitoring, which simply means that we use the technology we have available to
provide us with the information to analyze our businesses, and by doing so, we
can find anomalies and findings,” George said. “The key is the
setting of goals and targets and then measuring and monitoring against

In addition, understanding which costs are fixed and which are variable
is important. For O&P businesses, one of the biggest variable costs is

Reduce labor costs

Because every orthotic and prosthetic device is one of a kind, the labor
required to fabricate each item represents a large portion of an O&P
facility’s variable costs, especially for orthoses.

“By far, probably on the order of 70% or 80% of the cost of any
orthosis is the labor,” said Steve Hill, CO, a technical consultant in
orthotics for Delphi Ortho. “With orthotics, there is no question about it
– the only way to cut the costs of making braces is to cut the

Labor costs can be reduced by hiring cheaper and usually less skilled
labor or by finding more efficient ways to manufacture.

“Everybody has to concentrate on labor, and you can not just get
rid of your expensive labor,” Hill said. “You have to find ways of
making that expensive labor more efficient, so that means streamlining

Flexibility and lateral thinking can help O&P practitioners identify
ways to streamline fabrication. Always being on the lookout for innovative ways
to improve efficiency – even while going about activities such as shopping
– can help practitioners find ways to streamline processes and lower labor

“The one thing that a good lab manager has to be is flexible and
lateral in his thinking because you could be at the grocery store and see some
new thing. Maybe it is the way that the grocery store does business. Maybe it
is a product the grocery store has or maybe it is somebody in the grocery store
you see who has some tool like a Palm pilot that they are using in a way that
makes what they are doing more efficient,” said Hill. “Maybe you are
at the mall, or you are at the park or wherever you are, a person has to have
the kind of freedom of mind to view what they are seeing with an eye toward
using it in their own application – lateral thinking.”

Examining the work flow also can identify ways to lower labor costs. By
analyzing how the work flow proceeds from the patient’s initial contact
until delivery of the orthotic or prosthetic device, potential bottlenecks can
be identified and addressed.

“If you can deliver a device to a patient more quickly, it is
better for the patient, it is better for the referral source and it is better
for you because you have minimized waste,” George said. “We spend a
fair amount of time looking at that kind of thing.”

Benefits of practices networking
Another way practices can
realize cost savings is through networking, which allows practitioners a way to
work on their business rather than just in their business.
Image reprinted with
permission of Dennis Clark, CPO.

Use central fabrication

Practitioners can use central fabrication services to realize cost
savings in a variety of ways. For example, using central fabrication services
can help a practice contain its labor costs. Practices that rely on central
fabrication facilities to complete the majority of their work pay a
predetermined amount for each device, so they know up-front how much a device
costs, said Hill. In contrast, when a practice fabricates a device in-house, a
technician is paid the same hourly wage regardless of how many devices are

The use of central fabrication services also can help contain operating
costs. Using central fabrication can allow a practice to reduce the square
footage needed to house a lab. In addition, less equipment may be required,
furthering reducing expenses.

“Rent is a big fixed cost that you have that you really cannot
control in any other way other than making sure that you have the right amount
of space for the business that you have, so central fabrication is helpful in
that respect,” George said.

Another way that using a central fabrication facility can help free up
cash flow is by decreasing the amount of inventory that a practice must
maintain. The use of central fabrication also can enable practices to embrace
new technology at much lower costs by absorbing the bulk of the equipment and
training costs as well as decreasing the learning curve associated with
implementing new technology.

“As we move into new technologies, both in orthotics and in
prosthetics, and the new technologies are just exploding onto the scene, the
utilization of central fabrication absolutely reduces your learning
curve,” said Dennis Clark, CPO, president Point Health Centers of America
(Point), president of Clark and Associates Prosthetics and Orthotics, president
of O&P1, and executive director of Orthotic Prosthetic Group of
America (OPGA). “In our field, the learning curve really relates directly
to expense because you have a learning curve in terms of new equipment, new
materials and new techniques and technology utilization. So if you can shift
that monkey if you will onto the central fabrication center, they have to
perform and create the new type of prosthesis or orthosis with that new
technology, and they assume all of the risk.”

Finally, cost savings that can be recognized by using central
fabrication facilities is achieved through speed. The quicker a practice can
deliver a device, the sooner the practice can bill patients or their insurance
companies. Narrowing the time lag between paying for the components and being
reimbursed by the third-party payer decreases one of a practice’s biggest
intangible expenses, Clark said.

Keep inventory down

While the use of central fabrication services can serve to keep
inventory down, O&P practices should strive to keep only reasonable levels
of stock and not buy products simply because “you think one day a
particular type of patient is going to come through the door,” George
said. “What is more appropriate is to work from a just-in-time kind of
philosophy, which says I am only going to keep on the shelf what I think I can
deliver in a certain period of time.”

Because maintaining inventory on the shelves can be costly and eat into
profits, working from a just-in-time philosophy, or ordering something when it
is needed, can be an important cost savings for a small business. By the same
token, working on a just-in-time basis dictates that practitioners must be
familiar with their patients’ needs to avoid jeopardizing their ability to
deliver services.

“If you have a business that does a lot of trauma work at the
hospital, then you need to have what you need available right now. You cannot
wait for it to be shipped,” George said. “So you really have to
understand your business, just like we do. We spend a lot of time analyzing our
businesses and … making sure that our practitioners, and our clinicians,
and our field management are in sync and that we are in fact available and able
to provide what the patient needs when they need it.”

Networking your business

Another way practices can realize cost savings is through networking,
which allows practitioners a way to work on their business rather than just in
their business.

“Working in your business cost savings might be stopping people
from doing overtime, using a less expensive shipper, changing your technique on
something simple in house, or changing your provider of central fabrication or
a prefabricated orthotic device,” Clark said. “Working on your
business is this networking concept where you become part of a network, and
that network goes out and gets contracts that you can get access to patients
with, so that you are not constantly out there having to spend marketing
dollars and your time to gain access to patients by marketing to managed care

Several years ago, Point Health Centers of America and OPGA, two
networking organizations for independent O&P facilities, joined forces. In
2004, the provider-owners sold to VGM (Van G. Miller Group of Companies),
giving Point and OPGA access to services from other VGM divisions such as
Homelink, which is the largest outpatient referral network in the United States
for orthotic and prosthetic as well as durable medical equipment services, said

By belonging to such networks, practices can conduct purchasing under a
group contract, receive help with marketing efforts and costs, and gain
referrals to patients. In addition, Point is working on an outcomes data
collection service, which Clark noted will help in “creating a best
practice scenario, and best practice scenarios tend to be more cost

Practitioners can belong to OPGA, Point or both. Providers who belong to
Point are credentialed by the American Board for Certification in Orthotics and
Prosthetics Inc.

Track accounts receivable and billing

One area where expenses can be overlooked is in a
company’s accounts receivable. Not being able to collect on a sale or even
a portion of a sale carries an expense. So if a practice can become as
efficient as possible, it is afforded the time necessary to work the collection
from either the insurance company or the patient, George said.

“Make sure that you can collect as much as you possibly can from
what you have sold. If you do not, there is an expense to that, and if you are
a small business where you may be on the cash basis of accounting, everything
that matters is how much money is left at the end of the day,” George
said. “If you have not collected it, you have less money left at the end
of the day.”

For some practices, using an outside billing company could represent a
significant cost savings through decreased employee costs and increased
collections. In addition, contracting with a billing company can free up office
employees and even practitioners to focus on running a practice.

“In many offices, the practitioner is the owner and the president
and everything else that goes on with an office. Rather than having to
supervise personnel, he or she is able to do what he or she does, which is be
an O&P practitioner,” said John Dolza, COE, president and chief
executive officer of Complete Professional Office Services. “A
practitioner, when working as a practitioner, is worth about $200 an hour, and
that is a huge savings compared with what they are paying us.”

Complete Professional Office Services, which specifically handles
O&P billing, charges companies a one-time set-up fee, and then companies
pay a percentage of the amount collected.

“The advantage to it is we are like an employee you might say in
some ways. Cost follows right along with what they are getting. If you get
$1,000 this month, my bill is going to be small. If you get $10,000 a month, my
bill is going to be larger,” Dolza said. “Secondly, we are after the
fact. If you suddenly get a big drop in income, you are not still carrying that
employee cost.”

In addition, a billing company staff can specialize in different areas
of collections. For example, one department of the billing company can be
responsible for putting together the claim and making sure all of the necessary
information is included correctly. Denials can be handled by another
department, which means that denials are handled by different employees than
those who prepared the original claim. Furthermore, all denials are resubmitted
rather than being set aside and forgotten.

Dolza said that O&P offices can lose a lot of money because denials
can lost in the paper shuffle.

“If I have a prosthesis worth $10,000 and I have a problem with it,
I will go fix that. But if I have something worth $100 or $200, I might put
that off to the side because I am looking at this prosthesis over here, and I
forget it,” he said. “Those [cases] get lost and they lose a
tremendous amount of money.”

With a billing company focusing exclusively on submitting claims and
handling denials, a practice can realize quicker payment, increased cash flow
and a better bottom line, he said. Furthermore, he noted a billing company
serves to decentralize cash management, which can decrease the potential for

Use computer-aided design

One final area that can represent a cost savings to practices is
computer-aided design/computer-aided manufacturing (CAD/CAM). Recent advances
in CAD/CAM technology for the O&P industry have resulted in a greater
acceptance and more widespread use of CAD/CAM by practitioners. CAD/CAM may
also offer consistency and quicker delivery of devices to patients.

“If you can utilize CAD to reduce the days that it takes between
initial evaluation of a patient and final delivery, each one of those days that
you reduce is money in the bank,” Clark said. “Then when you are out
marketing yourself and you can say this is how fast I am, that is a great
marketing tool.”

Another advantage CAD offers is the ability to provide insurance
companies with objective documentation of volume changes in prosthetic
patients, which can reduce the number of claims that are denied. Although Clark
noted CAD/CAM is more widely used for prostheses, he believes that CAD
manufacturers are finally starting to narrow the gap between orthotics and
prosthetics, and that in the not too distant future, “they will be side by

For more information:

Mary L. Jerrell, ELS, is a correspondent for O&P Business

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