How a Chicago-area Orthopedics Practice Went From 1% Medicaid Patients to 80%, and Remained Profitable – Managed Healthcare Executive

When Andrew Shadid talks with orthopedic surgeons, “they kind of laugh” at his practice’s approach of focusing on Medicaid patients. “Most people don’t want to get involved in the Medicaid space, especially in Illinois,” says Shadid, CEO of Genesis Orthopedics & Sports Medicine in the Chicago area. That’s because these patients are, as a group, more complex, and the payment is lower. “Most say, ‘You’re crazy to be accepting this. There’s no way to make it work,’ ” Shadid says. He acknowledges it can be stressful and difficult, but “we view it as morally obligatory,” as well as exciting and challenging.

They make it work financially by applying principles of reverse innovation, a concept Shadid learned about in a 2015 lecture by Vijay Govindarajan, Ph.D., MBA, a professor at Dartmouth College’s Tuck School of Business, while attending a three-week Business Bridge certificate program at the businessschool.

Shadid, who doesn’t have a medical degree, hadn’t planned to go into the family business. But after he repeatedly told his father how reverse innovation could change the family orthopedic surgery practice, Hythem Shadid, M.D., agreed to the concept, but only if his son spearheaded the project.

Flipping the model

The United States is, by far, the biggest spender on healthcare in the world. The country’s healthcare expenditures accounted for 19.7% of gross domestic product (GDP) in 2020. According to one study, 25% of that spending is wasted on failures of care coordination, overtreatment, needless administration complexity and the like. A Commonwealth Fund ranking of the U.S. and 10 other high-income countries put the U.S. dead last in four of five categories (access to care, administrative efficiency, equity and healthcare outcomes).

Value-based care is supposed to address these issues by rewarding providers who do well on cost and quality metrics, but that’s only one approach and most of the results of the value-based programs conducted by CMS have been underwhelming.

Govindarajan has proposed a bolder approach that flips the traditional model of where and why technological innovation occurs by looking to developing nations.

Govindarajan grew up in India in a family with resource constraints. During his early years he realized problems had to be solved through innovation, as “you can’t throw money at a problem if you don’t have money.” After earning his MBA and Ph.D. in the U.S., he returned to India years later to create new medical devices for General Electric. One successful result of his effort was an ultra-low-cost portable electrocardiogram (ECG) machine. With a price tag of $400, the machine was one-third the cost of traditional ECG machines and small enough to be used in ambulances.

Although initially made for the Indian market, GE sold most units outside the country because of the low price and small size. “Usually you think of innovations starting in a rich country and going to the poor country,” says Govindarajan. “With reverse innovation, it’s the opposite.”

Govindarajan, with Chris Trimble, wrote the book, “Reverse Innovation: Create Far From Home, Win Everywhere,” which was published in 2012. He wrote a follow-up book with Ravi Ramamurti titled “Reverse Innovation in Health Care: How to Make Value-Based Delivery Work.”

Living values

What Shadid took from Govindarajan’s lecture was the overarching concept of providing care for all. He and his father knew that people on Medicaid lacked good access to orthopedic care in Illinois. But “we didn’t know how bad it was,” Shadid says. Few orthopedic surgery practices take Medicaid managed care plans in the state, comments Shadid. One-quarter of Illinois residents are Medicaid enrollees, and Illinois spending per Medicaid enrollee is 49th in the nation. Shadid asked the Genesis Orthopedics front desk staff how many potential patients were turned away due to their practice not accepting Medicaid insurance. The numbers were high.

Shadid says he and his father wanted to live according to their values and beliefs that all people are created equal and are deserving of care. “When looking at our practice, we weren’t doing that,” Shadid says. Instead, they prioritized patients with better insurance. They decided to change their practice, and went from a patient mix of 1% Medicaid patients to one that is 80% people covered by Medicaid.

“We had to figure out how to deliver the care for half or a third of the cost. That pushed us hard into reverse innovation,” Shadid says.

5 ingredients

It has not been an easy transition. This is how they did it.

1. Use advanced practice practitioners

Everything an orthopedic surgeon does in the office setting, a physician assistant (PA) or nurse practitioner (NP) can do, especially if they are well-trained, Shadid says. An orthopedic surgery practice is 70% to 80% office-based with 20% in the operating room. “Just through the use of APPs (advanced practice practitioners), we can quickly become three to four times more efficient in the way we deliver care,” Shadid says.

Genesis Orthopedics’ staff ratio goal is four to six APPs per physician, whereas in the U.S., most ratios are 1-to-1, he says. This model prioritizes conservative care first.

2. Understand the patient population needs are different

The practice must factor in social determinants of health with the Medicaid population. Patients sometimes miss appointments because they don’t have transportation and a ride service is too expensive. The state provides transportation to Medicaid patients, but it must be scheduled four to five days in advance, which is not always feasible. One patient rented a U-Haul because it was cheaper to rent for two hours than taking a ride service, though the patient had trouble finding parking. “Stuff like this happens all the time,” Shadid says.

The Medicaid population has a high rate of mental health issues. For that reason, they may not be the best patients for surgery and follow-up, he says. “There’s a lot of complexity to working in this environment,” says Shadid, who adds that poor population actually needs better overall quality care, since there are so many impacts on their outcomes.

3. Develop a different financial model

The margin in providing care to the Medicaid population is much slimmer than with other payers, Shadid says. He likens the circumstance to Amazon, which has a lower per-book margin than other retailers that is offset by volume. “That’s true of us, too,” he says. Without much fat built into their financial model, “we try to make up for it in efficiency,” which has led to levels of revenue and profitability similar to what they had before they changed the patient mix. “It takes two to three times RVU (relative value unit) to get to that level of profitability, but it is spread out over more providers.” RVUs, used by CMS to determine provider compensation, measure value based on the “inputs” of expertise, physician involvement, and clinical and nonclinical resources needed to provide patient care.

4. Find the right people

The practice has 16 providers, including physical therapists, APPs and physicians. “We found that PAs and NPs love our model,” Shadid says. A practice following their example needs to recruit APPs who want to do more and reach their potential, according to Shadid. Some don’t want the pressure of making diagnoses and prefer to only assist the doctor. Shadid says they are not a good fit for a practice that depends on APPs to be independent.

It takes a strong partnership between the APPs and surgeons to make it work. After bringing on a new doctor, they add APPs to the team for maximum efficiency. “One of the keys in doing so is finding the right surgeon alignment, since they’re the top of the food pyramid,” he says. The surgeons need to be passionate about this style of care delivery and be willing to work as a team.

5. Working within regulations

It’s not just state regulations that can stand in the way of efficiency. Hospitals also have rules that may limit an APP’s scope of practice. In some operating rooms, a surgically trained APP might be allowed to perform “noncritical” parts of an operation, such as an initial incision or closing superficial layers of skin. The supervising surgeon would perform the “critical” parts of the surgery. “Some hospitals say surgeons must be present the entire time,” Shadid says. For their reverse innovation model to work, Genesis Orthopedics chooses hospitals with fewer APP regulations.

Focus on prevention

One reason reverse innovation has not been adopted en masse is partly because of prevailing thinking. “You associate cost with quality,” Govindarajan says. But at some point, there will be systemic pressure for fundamental transformation as healthcare costs increase.

The greatest opportunity, in Govindarajan’s opinion, lies in preventive care, as the bulk of healthcare dollars are spent in secondary and tertiary care. By focusing on prevention and better primary care, fewer health problems will get to the later and more expensive stages. “Smart entrepreneurs should pick up on this as a big opportunity,” he says.

Deborah Abrams Kaplan writes about medical and practice management topics.