eAlerts

What is Your Cost Per Anesthetizing Location?

Jody Locke, CPC
Vice President of Anesthesia and Pain Management Services

Whether your practice is currently engaged in a hospital contract negotiation or not, it is hard to ignore the daily balancing act of scheduling available staff to best meet administration and surgeon expectations. If your practice is like most, discussions of coverage requests, new venues, and other clinical opportunities consume considerable amounts of time at group meetings. The real question is how you resolve such discussions and what criteria you use to make objective assessments of each request.



Obviously, the challenge lies in the fact that coverage and call determinations are both financial and strategic. The financial part of the equation should be the easiest part, but somehow it is not. It should be easy to determine whether the economics of a venue justify the level of coverage requested, but somehow this is the hard part. Deciding what is politically in the best interest of the practice invariably determines the outcome. This aspect often seems easier and safer. Such logic can be rather short-sighted and, too often, practices find themselves teetering on the brink of disaster because of decisions that were made months or years earlier.

Just as parents are advised not to permit what they will regret tomorrow, so too, anesthesia practice managers should remember that economics is not a discipline that respects one’s wishes. Unreasonable commitments ultimately come to haunt not only the people who made them, but the practice that has to make good on them. Successful practices have learned that the careful monitoring and management of three distinct phenomena can make all the difference. The first is revenue maximization and a detailed appreciation of all the factors that are responsible for the group’s cashflow, from managed care contracting to revenue cycle management. The second is expense management and a clear set of criteria and benchmarks for determining just how generous the practice can really afford to be to its employees. The third, and most critical, is the arcane science of cost-accounting applied to the even more obscure management of a competitive cost structure. Knowing whether the practice is appropriately staffed and what services it can reasonably be expected to provide may seem complicated; actually it is not. Like so many disciplines, this is just a matter of understanding a few key principles and knowing how to apply them judiciously.

It is the rare anesthesiologist or CRNA who does not know that he or she should be paid for the services performed; unfortunately, too few can actually establish this objectively based on the practice’s payor mix and production levels. A mastery of revenue cycle management necessarily involves an understanding and mastery of accounts receivable performance metrics. Any serious effort to benchmark a practice must begin with a careful review of the factors that create value. No serious negotiation with a hospital can ignore the need for complete and reliable management information such as unit production, payor mix, and accounts receivable metrics such as Days in AR (DAR) and bad debt percentages.

The same is true of expense management. There is no substitute for regular financial statements and an appreciation of the insidious chasm between provider expectations and the practice’s financial realities. It is curious that so many anesthesia practices eschew the notion of budget and yet, in ignoring the need to establish reasonable levels of income and expense, they leave themselves especially vulnerable to the vagaries of the market. Intuitively, all anesthesia providers know that one cannot manage what one does not measure, but somehow the application of this important business concept gets lost in the management of the practice as a whole.

It is not enough, though, to have a clear understanding of the revenue cycle, nor is it enough to manage expenses aggressively; these are relative management tools and can be very misleading without an objective reconciliation to market realities. In the atomistic world of anesthesia this can be especially intimidating. Every practice wants to believe that its situation is unique and that compensation should be commensurate with the specific services provided in the local market. While there is always some element of truth to this view, its relevance is much less significant than most are willing to admit.

Today’s successful practices understand and appreciate the concept of normalized productivity metrics. Consider the problem. Two practices provide similar coverage. One relies exclusively on physicians and the other on a leveraged care team model. Since their cost structures are so different, how does one determine what is reasonable, especially when it comes to asking for financial support from a hospital? When faced with such a problem, a growing number of consultants are now turning to a simple calculation that yields the net cost per anesthetizing location.

Table 1



Table 2



Understanding this notion requires a disciplined view of the practice. For purposes of this discussion an anesthetizing location is defined as an actual or virtual location that requires dedicated anesthesia staffing for part or all of a 24 hour period. This will include operating rooms, delivery suites, and dedicated coverage for non-OR anesthesia (NORA). Consider Table 1 on page 4, which represents the coverage requirements of a hypothetical practice. You will note that coverage is simply defined as the number of locations that must be staffed each day of the week. For purposes of highlighting the methodology, we have used an example in which the number of rooms varies by day of the week. Some will argue that one must also consider how long each room will run and how many hours of coverage are necessary for each location. This can be a relevant enhancement to the model, but it may also complicate the analysis needlessly, especially when the objective is to use this information for an objective and meaningful comparison to other practices.

Applying this coverage map to our analysis requires multiplying each of the coverage tallies by the number of days associated with that day. In other words if there are four non-holiday Mondays in January then the total Monday coverage days equals 48 (12 * 4). Table 2 above provides a summary tally of the total location days the practice must cover in 2008, a leap year. While it is useful to know how to perform this calculation, the key to the analysis is to know the total (3,280 Hospital Location Days) for it is this number that ultimately drives all subsequent cost calculations and benchmark comparisons.

Based on the determination of total annual anesthetizing locations, it is possible to calculate both the revenue metric and the cost metric, and ultimately to work through various scenarios to balance the two.

The objective of the revenue metric calculations is the establishment of the revenue per location day. This number is relatively easy to identify when one looks back in time, because actual net collections can be divided by actual coverage tallies. Doing the calculation prospectively can be a little trickier because it will require a reasonable estimate of expected collections levels. This subtle challenge notwithstanding, let us suppose that we agree the practice will collect $5,000,000 after refunds. The result would be a revenue per location day of $1,692.00, which according to the 2007 MGMA Cost survey, is close to the average cost per location day of those practices that contributed.

By most staffing models, this level of coverage would require at least 15 FTE (Full-time Equivalent) anesthesiologists in an MD only practice. Obviously, actual staffing will vary based on a variety of factors, but this is intended as a representative example for purposes of establishing a point of comparison for one staffing model versus another. Based on this assumption, the cost per location day is considerably higher than the revenue, which is an all too common phenomenon across the country and the reason why so many practices must seek financial support to maintain coverage levels.



Many an anesthesia practice will get this far in their calculation of the need for financial support and think they are ready to present their subsidy request to administration. Nothing could be more perilous. Establishing the level of support to be requested is only the first step. The calculations presented thus far only speak to the economics of coverage as viewed from the anesthesia perspective. Failure to assess the potential request from the hospital’s perspective is sure to have serious tactical, not to mention, financial repercussions.

Hospital administrators have two perspectives when it comes to hospital based physicians. They always start by asking what the current terms of the contract are and why they need to change. If the discussion survives a logical review of market factors and new coverage requests, then it moves to the second big question: why can’t the group accommodate the hospital’s requirements by modifying the way it provides the services? Administrators have come to believe in the notion of care-extenders, and often push back on the practice to “simply hire more CRNAs.” It has become almost a matter of course that hospital administrators will ask for an analysis of a more leveraged care team model. If the group does not do its homework and prepare the necessary analysis prior to the first meeting, the results are sure to be disappointing for all parties involved.

The fact is that well-managed practices should be performing the following assessments on a periodic basis. Think of mastering these financial tools as practicing for the big game. The more comfortable one gets with the basic concepts, the more reliable the analysis will be and the more adeptly it can be applied to a variety of practice scenarios, from simple coverage decisions to hospital negotiations.

In the example in Table 5, a total annual cost per CRNA of $175,000 is used. This is actually somewhat below market, and is used here simply to highlight the argument and beliefs of hospital administrators, that it is the cost of the physicians that is creating the need for the subsidy. Two points of comparison are provided according to an assessment of reasonably equivalent staffing ratios based on a determination of FTE providers per 10,000 units billed. Option A simply highlights the financial impact of a nominal change in staffing model, while option B demonstrates the potential impact of a wholesale shift in the model. The savings of such a restructuring are significant. Of course, such an analysis fails to address the implications of actually executing such a transformation, not to mention the challenge of hiring so many new providers.

Table 5



Why is it becoming ever harder for anesthesia practices to negotiate the levels of stipend that many were obtaining so consistently even a couple of years ago? The answer has to do with three words that should be a source of great concern to anesthesia practice administrators: fair market value. This is not a consideration when a hospital employs the CRNAs. Hospitals can pay their own employees whatever they want to. They are also free to hire as many individual providers as their budgets permit.

The minute the cost of anesthesia services involves a payment to another entity, however, there is an entirely different set of guidelines and limitations. Fair Market Value (FMV) assessments are essential to compliance with Stark, anti kickback, and in some cases even the antitrust laws. Administrators and their legal counsel talk about such determinations as if they represented an objective science. The reality is much closer to the appraisal of a house where the outcome is always influenced significantly by the agent performing the analysis. Anesthesia practices should understand that FMV is the hospital’s ultimate refuge and protection from the anesthesia subsidy request.

This is exactly why the notion of anesthetizing location is so critical to the future of today’s anesthesia practices. Hospital stipends fall into three main categories: those based on a negotiated annual amount, those based on staffing requirements, and those based on coverage requirements. There is a variation on the second that will involve the identification of loss leader services such as cardiac or OB anesthesia. When it comes to negotiating leverage, the real opportunity for the typical practice lies with arrangements that provide an alignment of incentives between the hospital’s desire to maximize availability for surgeons to book cases and the cost of providing the necessary anesthesia providers to get the work done. This is where the location rate card can be played so effectively. Doing so, however, requires careful planning and preparation. As with the acquisition of many new skills and techniques, the first few times you use them you immediately come to understand how you could have used them differently and more effectively.



An understanding and appreciation of the value of anesthetizing location may not solve all the financial challenges of an anesthesia practice. In fact, it may reveal challenges and issues that practice had never even considered. What the use of such calculations does provide, however, is a form of communication that puts anesthesia practices more on a level playing field with hospital administrations, a form of common currency that allows for more effective discussion of the real challenges facing both the anesthesia practice and the hospital. If used logically and as an educational tool, such an approach will definitely change the tenor and tone of the discussion between the group and its hospital. This is not a panacea, but a tool that must be used carefully and with discipline. As anyone who has used the tool can attest, though, it is probably one of the most useful and innovative tools today’s anesthesia practices has. Whatever your situation it is hard to ignore the potential of such an opportunity.

Picking The Right Battles



Tony Mira
President and CEO, ABC

I am pleased to share another issue of the ABC Communique with you. It is always an interesting challenge to decide which of the many timely and interesting submissions we should include in our anesthesia practice management journal. So many topics seem so important at the time they are identified; it is just not that easy to know which ones will truly impact the future of the specialty. As recent events have clearly highlighted, sometimes the battles we steel ourselves most for, ultimately resolve themselves. Too often it is the seemingly insignificant sideline that consumes our time. Let us hope that the ABC crystal ball is reliable and that we have once again identified topics and opportunities that will be relevant and useful to you in the management of your practice.

Consider some of the challenges that have become hot topics at recent anesthesia management meetings. Only a year ago we were all bracing ourselves for another reduction in the Medicare Conversion factor. Despite all the dire predictions, the rate was increased by a larger percentage than I can remember ever having been approved for a single year. More recently, Aetna appeared to be destined to set a precedent that would change reimbursement policy for endoscopic anesthesia; a disproportionate amount of time was dedicated to this topic at the ASA Practice Management Conference in Tampa. Once again, wiser heads prevailed and Aetna backed down. PQRI would appear to be next in line as one of those public issues that confuses and confounds our clients. The concept is simple enough; provided that CMS and the insurance plans could agree on a set of criteria and a mechanism for paying practices for their compliance. My read on this one is that we are all in a wait and see mode. Meanwhile, another drama is playing itself out in HCA board rooms across the country. Having shelled out close to $96 million in anesthesia subsidies last year, the company has gone on the aggressive to control its anesthesia costs. We can only hope this remains a HCA issue, but I hardly think we will be so lucky. There is a reason anesthesia incomes only went up about 1.8% last year as compared to the 10.6% the year before. Hospital administrations nationwide are really pushing back on anesthesia requests for support and the traditional arguments are just not working so well any more.

Each spring the American Society of Anesthesiologists Conference on Practice Management provides us a timely reality check. Program Chair Robert Johnstone, M.D., who assumed the position of ASA’s Vice President for Professional Affairs when Alexander Hannenberg, M.D. was elected First Vice- President last fall, described ten issues that are defining the future of anesthesia practice. These included “healthcare reform resulting from the 2008 congressional and presidential elections, marketplace battles over payer policies, workforce scopes of practice, and the roles of anesthesiologists in perioperative care.” Thriving in this changing environment, according to Dr. Johnstone, will involve “enlarging the perspective of each issue, understanding the drivers of change, and including regulators, legislators, and public citizens in the solutions.”

The 2008 ASA Practice Management Conference consisted of more than twenty five presentations on topics both timely and of enduring interest. The dominant theme was—as it has been for several years, consistent with our experience—preparing financial information and negotiating with hospitals. Summaries appear in the ASA Newsletter and in the very valuable compendium of abstracts that you may order from ASA. For those of you who are not aware of this annual meeting, let this note serve as an introduction to what has become the most important practice management meeting of the year. The conference, and the abstracts, are a good place to start your own strategic review and planning process. They certainly helped us kick-start ours.

Another fundamental management topic, understanding comparative costs per anesthetizing location, is the focus of the lead article in this issue of the Communique. We hope that this article and others here will help you to manage your practices more productively and give you a few valuable insights that you could not find anywhere else.

Please know that we always welcome comments and feedback on our editorial choices as well as suggestions for future topics. Nothing would please us more than to have a reader contribute his or her assessment of a key issue. It is never easy to pick the right battles, much less to know how to resolve them definitively. If there is one thing I have learned over the years no matter how good our individual judgment it can always be honed with the critical experience of experts.

The 2008 MGMA Cost Survey for Single Specialty Practices

Joe Laden
Business Manager, Anesthesia Associates of Louisville (Ky.)

You are at the negotiation table with your hospital administrator to discuss your subsidy request. You slide your proposal over to the other side of the table. The hospital’s subsidy verification consultant takes your proposal and at the same time pulls a copy of the MGMA Cost Survey from her briefcase and says, “Let’s see how your numbers compare.”



Do you panic, not knowing if the cost survey will support your proposal, or do you smile with confidence because you know your numbers line up favorably with MGMA’s data from similar practices?

If your practice is to be measured against others using the MGMA Cost Survey, it is imperative that you participate in the survey and have your numbers counted. The higher the participation rate, the more useful the survey will be.

Your participation in the survey will result in many benefits, including:

• MGMA members receive free copies of survey reports in which their organization participates. The nonmember price of the Cost Report is $500, and the price to members who did not participate is $285.
• You will obtain a free customized ranking report benchmarking your practice against its peers.
• You will qualify for discounts on the Cost Survey Report CD. The interactive report CD has additional information and stratification not available on the printed report.
• You may participate in the MGMA “Performance and Practices of Successful Medical Groups” and receive a free copy of this report. (Nonparticipating MGMA member cost, $300; non-member cost, $515.) Better performing groups may be highlighted in this publication and receive an award certificate.

The MGMA Cost Survey for Single Specialty Practices can be used to benchmark your practice against other anesthesiology practices nationwide. Some of the practice parameters that can be compared are:

• Charges and collections per provider
• Revenue (collections) per ASA unit
• CRNA costs
• Fringe benefit costs
• Billing costs
• Costs per case and per ASA unit
• •Accounts receivable aging and days in A/R
• Charges by payer
• Number of support staff and costs per anesthesiologist
• Financial support for operating costs (hospital subsidy)

For those of you who regularly complete the MGMA surveys, you should encourage your colleagues in anesthesiology to do the same. This applies especially to colleagues who have not completed the survey in the past and who have called you asking for survey information.



A high participation level by anesthesiology groups in the past has allowed the MGMA to produce an anesthesia specific cost report in conjunction with the MGMA Anesthesia Administration Assembly (AAA). If participation levels remain high, the Cost Survey for Anesthesia and Pain Management Practices will be available in 2009.

Data from your practice’s billing and accounting systems will be needed to complete the cost survey. Practices that have outsourced billing, accounting, and management should ask for the assistance of their service provider to complete the survey. A few practice management systems produce special reports tailored to MGMA survey requirements. If there are any questions about completing the survey, the MGMA staff is willing to assist via telephone or email.

The Cost Survey is available in PDF, as well as Excel-based, and online web based versions. The online web-based version is preferred because of the extensive real-time editing features and because your data is input directly to the MGMA resulting in greater accuracy. You can complete the web-based cost survey in multiple sessions and from any location with internet access. Online help is available while you are answering the survey questions. Data from your prior survey is also available online.

Since this article was written, the May 2 deadline has passed. If you have completed your questionnaire, you will receive your Cost Survey report by mail. If not, you may order a copy of the report from the MGMA.

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Medicare Now Values CPT - Code 00797 at the Correct Level - 11 Base Units



When the 2008 Medicare Fee Schedule first appeared, the American Society of Anesthesiologists (ASA) contacted the Center for Medicare and Medicaid Services (CMS) to report an error posted on the CMS website. The error incorrectly listed the base units for CPT Code 00797, Anesthesia for intraperitoneal procedures in upper abdomen including laparoscopy gastric restrictive procedure for morbid obesity. The correct base unit value, 11 units, is now listed on the CMS website at http://www.cms.hhs.gov/center/anesth.asp.

ASA was informed by CMS that Medicare carriers received the correct base unit information printed in the HCPCS file in late 2007. Until recently Medicare therefore processed all 2008 claims for 00797 at the 11 base unit value rather than the incorrect posting of 8 base units. ASA noted that some private payers may have used the incorrectly-posted base unit value from the CMS website.

On behalf of our clients, we have reviewed the CPT code 00797 payments paid to our clients and we will contact any third party payers to ensure proper reimbursement. For others, we highly recommend sharing the corrected web posting with your third party payers so you may be reimbursed properly.
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ABC Organizes the Kick off Meeting of the WAAG
Karin Bierstein, JD, MPH
Vice President for Strategic Planning and Practice Affairs, ABC
Who are some of the people most likely to have solutions to problems such as an unintelligible new payer directive or the spread of rumors among local anesthesiologists that Medicare is going to stop paying for procedures performed in the outpatient setting? Officers and managers of other groups who have already addressed an issue that has just surfaced in their geographic area are often an excellent resource.
Recognizing the value of a local network to foster the exchange of information (but not potentially anticompetitive information such as fees!) among anesthesiology group leaders, ABC brought together twenty physicians and administrators for a half-day meeting in a Washington, D.C. hotel on April 1, 2008. Our model for this venture was the Tristate Anesthesia Administrators Group or “TAAG” that has been convening representatives of practices in Pennsylvania, New Jersey, Maryland, and more recently Delaware for a number of years. Stephen Comess, a recent TAAG past president, joined us to explain the achievements and operations of that group.
Our guests included not just ABC clients, but also others who responded to an open invitation posted on the listserv of the Medical Group Management Association’s Anesthesia Administration Assembly (MGMA AAA). The first speaker at the WAAAG meeting was the attorney whose expertise in anesthesia issues is second to none: Judith Jurin Semo, Esq., who practices in the Washington area—and across the country. Ms. Semo provided a fresh perspective on “When the Hospital No Longer Wants to Pay: Contract Negotiations.” If you feel that your hospital is demanding far more than it ever did in the past, you are not alone.
A second attorney, Catherine D. Bertram, Esq. (the WAAAG meeting took place in Washington, D.C., where some say that every 20th person on the street is a lawyer) spoke next. Ms. Bertram is a trial lawyer and former hospital risk management counsel who demonstrated many of the skills with which she keeps the attention of juries as she explained what anesthesiologists should do to make sure that they never meet her across the table at a deposition, let alone in the courtroom. Note: participants raised the question whether anesthesiologists should personally discuss the risks of anesthesia and personally obtain the patient’s informed consent. This is an issue that continues to arouse debate in the specialty; Ms. Bertram, however, was as unequivocal as every other lawyer you have heard on the vulnerability of the anesthesiologist who delegates this function to a non-physician.
We were fortunate enough to have a third speaker, Richard Rauh, Executive Director of Southeast Anesthesiology Consultants, P.A. and Southeast Pain Management, PLLC in Charlotte, NC. Mr. Rauh described the many components of the highly successful pain practice he has helped his group build.
ABC’s major objective was met when Denise A. Lascar, RN, MBA, MHA, President of the Center for Ambulatory Surgery, Inc. in Washington, DC, an ABC client and an active member of the AAA, volunteered to become the first president of the WAAAG and to organize its second meeting. It was most satisfying to the ABC staff who organized the kickoff to see the enthusiasm of the participants for an ongoing local best-practices forum.
Readers who would like to make sure that they are on the WAAAG mailing list should send their contact information via email to meetings@anesthesiallc.com.
Readers in “the other Washington” who would like to attend a similar event should note that ABC and AAI1 are planning to convene the first meeting of the SWAAG (State of Washington Anesthesia Administrators Group) in Seattle on June 4, 2008. If you are interested in attending, please send an email, including your contact information, to mailto: meetings@anesthesiallc.com
ABC CEO Tony Mira is a strong believer in the value to our clients, and to others, of regional networking. Plans are in the works for us to help launch local interest groups in Michigan, Wisconsin and North Carolina. We encourage potential speakers and other participants to contact us.
¹ Anesthesia Business Consultants, LLC (ABC) and Anesthesiologists Associated, Inc. (AAI) announced January 23rd the completion of a business combination.
1. Anesthesia Group (Un)Governance
2. Succeeding At Negotiations Through Preparatory Work And Psychological Operations
3. OIG Workplan 2008: Interventional Pain Procedures Included
4. OR Succession Planning, Change Management, and Leadership Development