Adding Ancillaries: Bucking the Practice

January 1, 2008

Many resourceful physicians have turned to adding ancillary services as a way of boosting income. But be careful: While this strategy can and often does work, it comes with risk - to your wallet and your preferred practice style. Keep your eyes open.


As reimbursements fall and costs continue to climb, private practitioners across the country are adding an impressive selection of new products and services to their line-up - a direct attempt to diversify and enhance revenue streams.

Some sell pharmaceuticals and prosthetic devices. Others offer physical therapy and smoking cessation clinics, along with inhouse elective procedures such as vasectomies, Botox injections, and laser hair removal. Many supplement their income by conducting clinical trials or acting as expert witnesses in court. And then, of course, there are those who spend thousands retrofitting their offices to provide more lucrative laboratory services and diagnostic imaging. Indeed, specialty and small group practices resemble Wal-Mart more every day - positioning themselves as one-stop-shops for all their patient’s healthcare needs.

Proponents of the trend say the modern day business model amounts to a win-win situation, helping doctors revive shrinking profits while simultaneously improving the continuity of patient care. They also point to the convenience factor. Patients benefit by having a wider menu of services available from a single provider they can trust. “I think as long as the revenue side of our business stays flat or declines, which it has for insured services, and as long as expenses rise, you’re going to have to find new sources of income or go out of business,” says Bill Jessee, president and chief executive of the Medical Group Management Association. “Practices are scrambling to find new income streams.”

And so they must to survive in the challenging managed care environment. Yet, as the industry evolves, an obvious line of questioning unfolds: Are physicians at risk of spreading themselves too thin? What implications might continued diversification have on the business of medicine? And will it affect quality of care?

When bigger isn’t better

Judy Bee, a practice management consultant for Practice Performance Group in La Jolla, Calif., says she’s seen firsthand the effect entrepreneurial zeal can have on practices that push themselves too far too fast. “You’re not just at risk of losing your sense of direction,” she says. “You may lose a pot of money.”

One client, for example, came to Bee for advice after his second business venture went awry. The physician, trained in physical therapy, initially opened a weight-loss center where he referred existing clients struggling with obesity. He sold calorie-controlled food and his physician assistant drew blood panels where necessary. “It made a lot of sense and he was able to market the idea commercially as a medically supervised weight loss center,” says Bee. Emboldened by his success, the physician then invested in space to open a medical treatment spa, which never took off. “There weren’t many of his patients that were a natural entrée to support the spa and he had to hire a facialist and two more nurses to support it,” she says. “When he came to me, he was losing $30,000 a month.”

According to Bee, practices that add new services often fail to consider the impact it will have on paperwork, personnel and existing patients. “It’s amazing to me how many doctors say they have this great idea and they’re going to market it, but they’re constantly behind in the office,” says Bee. “If you’re not staffed up enough to answer phone calls and you’re not able to see patients on time already, you need to fix that first.”

Such was the case with an ear, nose, and throat specialist Bee counseled, who was looking to bring cosmetic surgery into his fold. The practice already suffered huge wait times and an overworked staff. “They wanted to find a way to buffer their reduced revenue stream and from that standpoint they were absolutely right,” Bee says. “But I said to him, ‘You’ve got a month wait for patients already and referring physicians who are angry that they can’t get their patients in. What are you going to do if this marketing plan works?’”

Beyond the requisite financial analysis of any new ancillary service, Bee suggests doctors looking to broaden their business plans consider patient complaints, phone answering delays, and wait times to determine whether they’re ready to expand. Look, too, she says, at seating availability in the waiting room and the number of parking spaces reserved for patients. “When those service areas go down it’s not just the new patients that are inconvenienced,” she says. “It’s everybody. You’re likely to lose your patients of record who will eventually get sick of it.”

Patient safety

Indeed, practices that overwhelm their resources can compromise performance on multiple fronts. Overworked staff, for example, may be more likely to make mistakes that can cost a practice big, says Nick Fabrizio, senior consultant for MGMA Health Care Consulting Group. On the clerical side, billing clerks who are running to catch up might gather inadequate documentation and enter incorrect billing codes - both of which contribute to an increased incidence of rejected claims. Physicians, meanwhile, who are struggling to squeeze more patients into an already hectic schedule, may be more likely to make incorrect diagnoses, prescribe the wrong medicine, or overlook negative lab results.

“If you’re using existing staff to perform new services, there’s not only an increased chance for errors, but you’ll likely experience internal operating problems, including patient processing delays.” Fabrizio says. “You have to ask yourself if you can perform this service and maintain the same quality of care.”

While little data exists on the underlying cause of medical errors in doctor’s offices, the effect of fatigue on hospital nurses and physicians is well documented. The landmark 1999 Institute of Medicine report, titled, “To Err is Human,” estimates that up to 98,000 people die in U.S. hospitals each year as a result of medical errors. Sleep deprivation was among the list of contributing factors, along with antiquated paper records systems and systematic problems within the healthcare field.

Hospitals, of course, are staffed around the clock, which necessitates shift work from sleep-deprived doctors and nurses. They are also more likely to juggle an onslaught of emergency patients at once. Both of these can contribute to human error. But it’s no great leap to assume that physicians (and their staff), scrambling to supplement their income, may experience their own brand of burnout due to increased workloads, which could affect patient safety.


That has Nancy Davenport-Ennis concerned. The chief executive of Patient Advocate Foundation in Newport News, Virg., says the diversification of patient services can be a significant positive - as long as doctors keep their eyes on the ball. “Practices that are going to diversify services need to use standards and quality metrics set through quality assurance and accreditation programs and use enhanced provider reporting to increase transparency in all those areas to ensure quality care,” she says. “We encourage practices to have a broad array of ancillary services all directly related to therapeutic intervention and quality of life.”

That means offering ancillaries that don’t necessarily benefit the bottom line. “We would be concerned, for example, with fulltime oncology practices that had no nurses available to take weekend or evening calls, leaving a message for patients to call or visit the local hospital instead,” says Davenport-Ennis. “For us, not providing that ancillary service can become a matter of life and death because the community hospital may not have immediate access to the patient’s adverse event being addressed at one o’clock in the morning.”

Terry McGeeney, president and chief executive of TransforMED, a practice redesign initiative of the American Academy of Family Physicians, agrees that patient safety must remain the industry’s foremost goal. “As long as providers function within their skill level, safety should not be an issue,” he says. “But on the other hand, you should always receive adequate training and perform enough procedures to keep current. If you only do five vasectomies a year, for example, it may not be in the best interest of your patients to continue doing them.”

Too far afield?

As physicians reinvent their roles as healthcare providers, there are also a number of ethical concerns to consider. Some in the medical community, for example, believe doctors are getting dangerously close to performing procedures way outside their scopes of practice. “All kinds of different physicians have gotten involved in Botox injections, for example, to try to keep their practices alive where they themselves might be skeptical about the medical value of what they are doing,” says David Dale, president of the American College of Physicians. “Though they are trained as a physician and are certainly able to give injections, it is my feeling that those kinds of treatments are best handled by specialists, like dermatologists.”

Many, too, fear physicians who supplement their incomes by testifying as expert witnesses in malpractice lawsuits may be tempted to give false or misleading testimony. They also suggest physicians could end up spending too much time in court and too little time literally practicing what they preach. Noting that, “when appropriate, physicians have an obligation to testify in court as expert witnesses,” the American College of Surgeons has issued ethics guidelines to encourage physician expert witnesses to remain impartial in legal proceedings.

The organization also launched a nationwide database of expert witness testimony to keep physicians in check. “Because itinerant plaintiff expert witnesses who provide inappropriate and inaccurate testimony are still commonplace, there is a need for an expanded and comprehensive database to track such testimony,” the College wrote in 1997, when the database debuted.

Clinical trials are under the same scrutiny. According to CenterWatch, a Boston-based publishing firm that tracks the industry, nearly half of the 7,300 physicians it surveyed from the Physicians Desk Reference were actively engaged as clinical investigators in 2005.

Advocates of community-based research say such studies keep the medical community abreast of cutting-edge research and provide patients with potentially lifesaving treatment options. Though physician investigators are paid by the trial sponsors (often drug companies), reports that clinical trials are a cash cow are grossly overstated. Most receive fair and reasonable compensation for their efforts.

Indeed, a 2006 CenterWatch survey found nearly half of physicians who enter the research field and remain involved in trials rank professional development, interest in research, and a drive to improve patient care as key motivators. Only 9 percent of investigators cite money as a reason to participate.

Still, critics remain concerned over the money physicians receive to enroll their patients in clinical trails. Such payments, they argue, present a conflict of interest - encouraging doctors to exploit patients who don’t necessarily fit the research protocol. “A doctor who does legitimate research for drug companies has a right to be reasonably reimbursed for any additional work they do,” says Peter Lurie, a medical doctor and deputy director of the health research group at Public Citizen, a Washington-based watchdog group. “The problem is that sometimes the incentives for doctors to participate in a trial are ridiculously large for the amount of work they do.”

According to the American College of Physician’s Fifth edition Ethics Manual from 2005, functioning as both an investigator and the clinician of a patient-subject can also result in conflict between what is best for research and what is best for the patient: “Physician-investigators should disclose this conflict to potential research participants and should maintain patient-subject health and welfare as their primary consideration,” the manual states. “Patients should be informed that the primary motive of a research protocol is to gain new knowledge and that there may or may not be clinical benefit.”

Also, disturbing to some are the increasingly aggressive sales tactics used by pharmaceutical firms to encourage participation, offering doctors a premium to enroll many patients quickly. And few in the medical field support so-called “seeding trials,” in which drug companies pay doctors to gather supporting data on patients after a product is released. Such trials, they say, are designed to expose more doctors to the drug and are often initiated by marketing departments.

“Well-designed and well-controlled clinical trials are a very valuable activity for society, but I think too often clinical trials are done with new drugs that are very similar to old drugs so there is not much expectation that there will be a unique benefit,” says Dale. “That’s of lesser value.” Before embarking on a clinical trial, he says, physicians should explore whether it is a good investment of their time and gather thoughts from colleagues on the merits of such research. “Think about it as something that has a lasting value and not just a revenue stream for the office,” says Dale.

An image problem


Though private practitioners have been forced to tap their inner entrepreneur, there is one other factor that weighs heavily on their ability to successfully diversify: public perception. Despite the time most physicians devote to providing value-added ancillary services, some may be inadvertently alienating patients (even peers) who view the pursuit of supplemental income as opportunistic.

“If I walk into five different family practices and they’re all offering vitamins, collagen, and Botox treatments, I’m going to start to wonder about whether they are truly devoted to the business model that they have,” says Owen Dahl, a consultant in Houston and author of “Think Business! Medical Practice Quality, Efficiency, Profits.”

The same could arguably be said of breast cancer centers that sell wigs and prosthetics, or physical therapy and rehabilitation centers that partner with chiropractic specialists.

To be sure, when it comes to boosting the bottom line, good old-fashioned business savvy may be fair game for corporate America, but physicians, it seems, are forced to play by different rules. In the eyes of the public, medicine remains one of the last truly noble professions. Doctors, after all, are in the business of helping people. “What practices do to add income will contribute to the public’s perception of what the practice is - the quality of their therapy and the perception of how they deliver their care,” says Davenport-Ennis. “The primary focus of the clinic must continue to be centered on reclaiming wellness.”

An industry in flux

How much further will the industry evolve? That depends on the competition, says Regina Herzlinger, a professor and business administration chair at the Harvard Business School. Physician practices, she notes, are “not just pushed by declining reimbursements from managed care, but by the proliferation of retail medical clinics.” Such clinics, which are staffed by nurse practitioners, are cropping up at drug stores and grocery stores across the country, offering affordable, convenient care for routine family health problems.

“This is real competition for physicians because now there’s an alternative, cheaper way to meet many of your healthcare needs,” says Herzlinger, who has authored numerous articles on healthcare innovation. “They don’t do brain surgery. They have a very narrow menu, but they’re also very cheap so if you’re uninsured, or you’re a busy parent and your child needs a flu shot, it’s an excellent option.” Revenue diversification among private practitioners, she notes, is a competitive response to those clinics. “Good for them and good for the consumer,” says Herzlinger. “Let the best one win.”

Ultimately, Herzlinger says she believes the changing face of private practice will benefit the healthcare system as a whole. “Healthcare right now is incredibly inconvenient,” she says. “The patient has to make an appointment, come to the office, go to the lab, visit the imaging center, and go back to the office. It’s a huge benefit to the economy that this integration occurs.”

It may also be a boon to the uninsured. “Many physicians do a great deal of charitable work and to the extent that physicians become more profitable, they should be able to do more of it,” says Herzlinger. “Those are two distinct social benefits.”

That, she adds, is why any government intervention that would limit the physician’s ability to provide ancillary care should be avoided. “I always worry about legislators stepping in and telling doctors these services are beyond their scope, when physicians aren’t asking for handouts - they’re putting their own capital at risk,” she said. “It’s competition.”

Quite so. As small practices rise to meet the demands of a marketplace in flux, only those that manage their business plans will likely survive. That means providing ancillary services that speak to the physician’s talents and expertise, implementing a strategy for smart growth, and never losing sight of patient-centered care. “If they succeed it’s because they will have made the customer’s lives better,” says Herzlinger. “If they fail, it’s because they weren’t good at it to begin with.”

Shelly K. Schwartz is a freelance writer in Maplewood, N.J., who has covered personal finance, technology, and healthcare for 12 years. Her work has appeared on CNNMoney.com, Bankrate.com, and Healthy Family magazine. She can be reached via editor@physicianspractice.com.

This article originally appeared in the January 2008 issue of Physicians Practice.