The State of O&P: Growth Trajectory

Published in Orthotics & Prosthetics on December 20, 2022

State of O&P

The orthotics and prosthetics (O&P) profession is growing in the U.S. Approximately $4.3 billion1 is spent in the U.S. each year for prescription-based O&P products and services through O&P clinics.  

The profession is characterized by stable, recurring revenues, primarily resulting from new patients, as well as the need for periodic replacement and modification of O&P devices.

Devices

The demand for O&P services will continue to grow. As a result of several trends, including the aging of the U.S. population, there will be an increase in the prevalence of disease-related disability and demand for new and advanced devices.

The typical replacement time for prosthetic devices is three to five years, while the typical replacement time for orthotic devices varies depending on the device. Approximately $1.8 billion1 is spent in the U.S. each year by providers of O&P patient care services for the O&P products, components, devices, and supplies used in their businesses.

Hanger, Inc.

Market Leader

Headquartered in Austin, Texas, Hanger, Inc. is the largest national provider of O&P products and services. According to SEC records, Hanger now operates 789 patient care clinics and 115 satellite locations in 47 states and the District of Columbia, as of Dec. 31, 2021.2 The most recent annual report indicates its Patient Care segment currently accounts for approximately 24% of the market for patients in acute, post-acute, and patient care clinic settings.2

Hanger, Inc. was purchased on July 28, 2022, by Patient Square Capital, a dedicated healthcare investment firm, for approximately $1.25 billion

Financial Highlights2:

  • Net revenues were $312.4 million for the three months ended Dec. 31, 2021, compared to $277.3 million for the same period in 2020, reflecting growth of 12.6%
  • Net income was $14.0 million for the three months ended Dec. 31, 2021, compared to $16.1 million for the same period in 2020. Income from operations was $24.9 million for the quarter compared to $29.1 million for the same period in 2020, a decline of 14.6%
  • Adjusted EBITDA was $37.2 million in the fourth quarter of 2021, compared to $35.5 million for the same period in 2020, reflecting an increase of $1.7 million, or 4.9% 

Other Market Leaders

The next two largest single providers of O&P services in the U.S. are Össur and the U.S. Department of Veterans Affairs (VA), which operate 81 and 79 O&P clinics, respectively, according to public records.  

After Hanger and the VA, the top 10 practices have an average of less than 1% of the market each.

The market of patient care services for O&P in the U.S. is fragmented. This is characterized by O&P practices that are both regional and local independently operated. Össur and Ottobock are two O&P manufacturers that have substantial international patient care services operations.  

The Orthotic & Prosthetic Group of America (OPGA) is the largest community of independent O&P practices and supplier partners in the U.S., representing nearly 1,300 locations. 

Reimbursement

ReimbursementThe principal reimbursement sources for O&P services are:

  • Commercial private payers and other non-governmental organizations, which consist of individuals, rehabilitation providers, commercial insurance companies, health maintenance organizations (HMOs), preferred provider organizations (PPOs), hospitals, vocational rehabilitation centers, workers’ compensation programs, third-party administrators, and similar sources.
  • Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain persons with disabilities.
  • Medicaid, a health insurance program jointly funded by federal and state governments providing health insurance coverage for certain persons requiring financial assistance, regardless of age, which may supplement Medicare benefits for persons aged 65 or older requiring financial assistance.
  • The VA, through its Veterans Health Administration, is the country’s largest integrated healthcare network. It features 1,255 healthcare facilities that serve nine million enrolled Veterans each year. 

O&P practices often sign contracts with third-party payers, allowing them to provide their services to referred patients, as well as to be reimbursed. Contracts like these usually have stated terms of between one to three years. These contracts, however, may be terminated without cause with a 60- to 90-day notice by either party. If the practice has not met certain licensing/certification standards, or Medicare/Medicaid requirements, this notice could be reduced to 30 days.

Reimbursement for services, negotiated with the third party, is usually based on fee schedules. Market condition, geographic area, and number of people covered play a role in these negotiations. Commercial contracts are usually proportional to the Medicare fee schedule, relating to the product or service provided.

Government reimbursement, comprised of Medicare, Medicaid, and the VA, account for most O&P practices’ net revenues. Max reimbursement levels are set by these payers for O&P services and products.

Medicare prices are adjusted each year based on the Consumer Price Index for All Urban Consumers (CPI-U) unless Congress acts to change or eliminate the adjustment. Further adjustments are made based on the productivity adjustment (or the multi-factor productivity adjustment), an efficiency factor that helps determine final rate adjustments each year. Adjustments for 2019, 2020, 2021, and 2022 were 2.3%, 0.9%, 0.2%, and 5.1%, respectively. 

The profession has no assurance that future adjustments will not reduce reimbursements for O&P services and products from these sources. The O&P profession is subject to various Medicare compliance audits, including Recovery Audit Contractor (RAC) audits, Comprehensive Error Rate Testing (CERT) audits, Targeted Probe and Educate (TPE) audits, Supplemental Medical Review Contractor (SMRC) audits, and Unified Program Integrity Contractor (UPIC) audits.  

TPE audits are generally pre-payment audits, while RAC, CERT, and SMRC audits are generally post-payment. UPIC audits can be both pre- and post-payment audits, though the majority currently are pre-payment. TPE audits replaced the previous Medicare Administrative Contractor audits.  

Adverse post-payment audit determinations generally require practices to reimburse Medicare for payments previously made, while adverse pre-payment audit determinations usually result in payment denial. Practices can request a redetermination or appeal in these cases if they believe the adverse determination is unwarranted, which can take an extensive period to resolve (as long as six years or more).

Read the Full Report

State of O&PThis article was originally featured in the The State of Orthotics & Prosthetics:  2022 and Beyond. To read the full report, download your copy of the report here


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