Procedural Portfolio Planning in Plastic Surgery, Part 2: Collaboration Between Surgeons and Hospital Administrators to Develop a Funds Flow Model for Procedures Performed at an Academic Medical Center.

INTRODUCTION: Although plastic surgeons make important contributions to the clinical, educational, and research missions of academic medical centers (AMCs), determining the financial value of a plastic surgery service can be difficult, due to complex cost accounting systems. We analyzed the financial impact of plastic surgery on an AMC, by examining the contribution margins and operating income of surgical procedures.
METHODS: We collaborated with hospital administrators to implement 3 types of strategic changes: (1) growth of areas with high contribution margin, (2) curtailment of high-risk procedures with negative contribution margin, (3) improved efficiency of mission-critical services with high resource consumption. Outcome measures included: facility charges, hospital collections, contribution margin, operating margin, and operating room times. We also studied the top 50 Current Procedural Terminology codes (total case number × charge/case), ranking procedures for profitability, as determined by operating margin. During the 2-year study 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.
RESULTS: After rebalancing our case mix, through procedural portfolio planning, average hospital operating income/procedure increased from $-79 to $+816. Volume and diversity of cases increased, with no change in payer mix. Although charges/case decreased, both contribution margin and operating margin increased, due to improved throughput and decreased operating room times. The 5 most profitable procedures for the hospital were hernia repair, mandibular osteotomy, hand skin graft, free fibula flap, and head and neck flap, whereas the 5 least profitable were latissimus breast reconstruction, craniosynostosis repair, free-flap breast reconstruction, trunk skin graft, and cutaneous free flap. Total operating income for the hospital, from plastic surgery procedures, increased from $-115,103 to $+1,277,040, of which $350,000 (25%) was returned to the practice plan as enterprise funds to support program development.
CONCLUSIONS: 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 gain-sharing model.