Ancillary services: A new cost-benefit analysis

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It wasn’t long ago that a primary care practice’s calculation of whether to provide an ancillary service, such as lab work or sleep testing, was relatively simple: would patients use it, would it improve their health, and would it generate additional revenue, or at least break even?

Those are still the main considerations for practices operating under the traditional fee-for-service payment model. But experts say that the growth of value-based models, which reward practices for reducing the overall cost of patient care while maintaining or improving outcomes, adds a new wrinkle to the ancillary service question. 

“In a predominately fee-for-service environment, it’s a fairly straightforward financial calculation, where you look at the volume of patients who need the service, what it costs to provide the service and how much you get reimbursed for it,” says Russell Kohl, MD, FAAFP, a family physician in Stilwell, Kan., and chief medical officer with TMF Health Quality Institute, a Medicare quality improvement organization.  

Under a value-based system, Kohl adds, with its focus on cost of care and outcomes, the financial return for adding a service is harder to calculate. He cites the example of whether to provide pulmonary function testing for patients with COPD. Not only does the practice have to decide if it can provide the service for less than a pulmonologist, it has to weigh whether in-house testing will reduce the number of its patients requiring trips to the emergency department or hospitalization, which would drive up the overall cost of caring for that patient.

“In a value-based world, it becomes a more nebulous calculation than it cost me ‘X’ dollars to do a pulmonary function test and I get paid ‘Y’ dollars for it,” he says.

Ancillaries remain common

Whatever their reasons for doing so, many primary care practices continue to offer some form of ancillary service. In the 2018 Medical Economics Physician Report, 91 percent of family, and 89 percent of internal medicine practices said they offer at least one of 16 types of ancillary services, with lab services and electrocardiogram being the most common. Among all non-surgical primary care survey respondents, 84 percent said they provide ancillary services.

Moreover, experts say, the growing role of alternative and value-based payment models doesn’t alter the fundamental questions of whether patients will benefit from an ancillary service and whether the practice can make money providing it.

Nick Fabrizio, Ph.D., FACMPE, now a principal with the Medical Group Management Association, previously spent 10 years as practice administrator for a large primary care group. “We had a lot of long, hard discussions around questions like, ‘is this service one that we feel comfortable in providing, can we provide a high level of quality in doing it, and is it more convenient for our patients to have it done by us rather than someone else?’”

The easiest way to determine if patients will use an ancillary service, Fabrizio says, is to ask them-either through a mail or online survey, or face-to-face at the end of an appointment. Another useful technique is to look at the services and procedures for which patients are most frequently referred out. Among the practices he consults with, the most common ancillary procedures include stress tests, ultrasounds, and blood labs. 

A factor practices sometimes overlook when considering ancillary services is any laws and regulations governing who can provide the service and under what circumstances, says Owen Dahl, MBA, FACHE, principal of Owen Dahl Consulting in The Woodlands, Texas. For example, laboratory services have to meet the requirements of the federal Clinical Laboratory Improvement Amendments. “The encouragement there would be to check your state laws and federal regulations to make sure your staff and providers meet the necessary criteria for that service,” he says.

Impact of alternative payment models

While in the past ancillary services often were seen as a source of additional revenue, under value-based payment models, practices may find they need them just to maintain their current revenue, says Dahl. 

“In a world of fee-for-value, the key is not necessarily to generate revenue, it’s to protect against loss of revenue,” Dahl explains. “That’s because you might wind up getting dinged financially for referring to a very expensive outside provider. So then you’d want to be able to control your expenses by offering that service at a lower cost than referring it out.”

For Lovelace Family Medicine of Prosperity, S.C., being part of an alternative payment model-specifically, an ACO-has provided a bonus to its decision some years ago to acquire a dual-energy X-ray absorptiometry (Dexa) scanner-a device used to measure bone density-a somewhat unusual and costly purchase for a practice in a rural area.

“By virtue of having the Dexa, we’re detecting osteoporosis and preventing women from having hip and spinal compression fractures,” says family physician Oscar Lovelace, MD, the practice’s founder. “That’s allowed us to keep patients out of the hospital for hip fractures and skilled nursing facilities for rehab, which is saving thousands of dollars for our ACO.”

The same dynamic applies to the practice’s hospital-grade chemistry analysis machine that it uses to perform blood counts and metabolic panels. He cites the example of a diabetic patient who comes in with a dangerously high blood sugar level. “If we catch that patient early and can give them intravenous fluid hydration and insulin in our office, we can save a trip to the hospital that would cost Medicare $10,000 easily,” Lovelace says.

Will payers cover it? 

Once the decision is made to add a service, the next step is to find out whether, and how much, payers will reimburse for it. The challenge, says Kohl, is that insurance plans differ in their coverage policies and amounts. For practices that contract with a large number of payers, determining how many patients will be covered for the service is often a difficult and time-consuming exercise. 

If an insurer doesn’t cover a service, practices can sometimes persuade them to do so by showing it will reduce costs of care, says Fabrizio. That’s particularly true when it comes to counseling for lifestyle and chronic disease issues, such as smoking cessation, weight management and diabetes education. “Can you keep my patients healthier and prevent their needing more costly services by providing that counseling? If I’m a payer that’s something I’m certainly looking at,” he says.

Patient demand remains a driving force

But even with the complexities of value-based care and differing payer requirements, ancillary services at many practices are still determined by such basic factors as the practice’s location and the needs of its patient population. Lovelace Family Medicine’s decision to acquire sophisticated blood lab technology was driven in part by high rates of diabetes and blood-related diseases among its patients.

“We’re able to manage a lot of things in the office right then during the patient’s visit, rather than having to send them to the hospital, because we have that lab capability,” Lovelace says. 

Other services the practice offers have been added largely because of patient demand, says Lovelace. And even though the demand for some, such as laser hair removal,  is less than in urban areas, “one of the good things about being a part of the community and providing continuous care is it allows you to consider the long haul when you’re making decisions about whether to invest in the technology you need for an ancillary service.”

While financial return is always an important consideration when considering an ancillary service, Lovelace says, “if it allows us to at least break even, if it improves our quality of care and it doesn’t come with too much regulatory hassle, as a rule, we’ll probably do it.”

Fabrizio says that settling for break even on an ancillary service is generally a reasonable approach, given that the service will benefit patients. At the same time, he notes, practices need to consider what other opportunities it may be foregoing by adding the service.

“Adding a service takes “X” number of hours in staff time and physician time. If they didn’t provide that service, how many more of their ‘regular’ patients could they see?”, he says. “And it’s not just the physician time, but also the staff time and the room utilization resource that you also have to figure.” 

Patient demand has also guided the practice Sports Medicine at Chelsea which, despite its name, provides both family and sports-related procedures and services. The New York City-based practice has a patient panel numbering some 40,000 and has undergone several physical expansions since its founding in 2006, according to Naresh Rao, DO, FAOASM, one of its three physicians. 

The practice’s family medicine services are popular among patients of all ages, while sports medicine attracts younger, physically active patients, of which there are many in Manhattan’s Chelsea neighborhood where the practice is located. “Being an osteopathic family practitioner and fellowship-trained in sports medicine opens up a whole bunch of ancillary services we can deliver to our patients,” Rao says. 

Family medicine services the practice offers range from sleep studies to tropical medicine to cryotherapy and wart removal. On the sports medicine side, services include joint and soft tissue injections, musculoskeletal ultrasounds, integrative sports medicine and physical therapy, among others. 

The latter has been responsible for most of the practice’s growth in recent years, says Rao, such that the practice how employs four full-time and one half-time therapist.  “Half the patients that come to our office see a physical therapist, because there’s such a recurrent nature to physical therapy,” he says. 

By and large, Sports Medicine’s commercial payers are “pretty accepting” of its ancillary services, Rao says, in part because the practice belongs to an Independent Practice Association, which negotiates payer contracts on its behalf. If a service is not covered, or requires a prior authorization, the practice makes sure to inform the patient. “We find that when the patient is told upfront what they’ll have to pay for, it tends to produce higher levels of satisfaction,” he says. 

For practices considering ancillary services, Rao says: “The most important thing is to think about what’s comfortable, what’s truest to who you are as a person and a medical professional. I love family medicine, it’s the base of everything we do here, and there’s a lot we can do to build on that base. So if you’re comfortable in a particular realm, then by all means go for it.”