Demographic Trends that Impact Anesthesia Practices
Today's anesthesia practices must understand the current shift in patient demographics and determine how that will impact their practice parameters and revenue. Groups must have plans in place to deal with the changing realities.
Anesthesia has been undergoing a significant paradigm shift. It used to be that the primary focus and concern of anesthesia providers was what happened within the four walls of the operating room. Successful anesthesia care involved a careful balance of art and science. What mattered was that each and every patient had a safe and comfortable surgical experience. It was all about the outcome. The problem was that outcomes were so consistently good that they became a given. As this occurred, the quality of care became less important than the economics of care. The fact is that, in today's dynamic healthcare marketplace, what happens outside the O.R. is now the key to a practice's success. The challenge, of course, is that what happens outside the O.R. and the hospital is almost completely out of the provider's control, and the tools and strategies that allowed them to be successful clinicians are virtually useless in this new context.
The most dramatic of these new dynamics is demographics. The composition of patient populations is changing dramatically as baby boomers pass into retirement. The unfortunate impact of this fundamental change is inexorably clinical and financial. Older, sicker patients require more care and expose providers to greater risk, despite the fact that payment rates for their care are tightly controlled and significantly discounted.
National Demographic Trends
The numbers are significant, and few practices are immune. Since 1900, the retirement-age population has grown almost eleven times. The charts below were developed based on available census data and clearly indicate the dramatic annual increases in both the number of seniors and their percentage of the entire population. The most dramatic shift has been the increase of Americans over 85, which now number more than 4 million. It is also notable that, as the population ages, the percentage of women is increasing. Some demographers refer to this as the feminization of America.
While it is true that the rate of increase is slowing somewhat as baby boomers retire, for four decades (from 1930 to 1960 ), the Medicare population increased by more than 30 percent of each decade. The fact is that we are an aging population. It is no accident that we now have the oldest president in history.
The Impact on the Typical Practice
The impact of this trend on anesthesia practices should come as no surprise as most practitioners have had to adjust their practices to an increasing number of cases related to the chronic conditions of the elderly, i.e., cataracts and colonoscopies. While some practices may still profit from a considerable number of orthopedic cases, the fact is that surgeries related to the acute traumas of youth will inevitably start to decline as a percentage of practice activity. The point is simply that most practices have seen the effect of these changes and not focused on exploring ways to use this information to formulate a long-term strategic plan.
If Medicare patients represent 12 percent of the U.S. population, then the question is how does this impact the payer mix of an anesthesia practice? The answer is demonstrated below in a chart that compiles data for three of our clients: one in Illinois, one in Pennsylvania and one in California. Each client situation and individual payer mix is different, as Is demonstrated, but the variances are less significant than the overall trends. Based on this limited sample, the average practice has experienced a five percent increase in its Medicare population in 7 years. This is a useful tool, and we would be happy to prepare this chart for any of our clients.
Ultimately, the next question concerns the financial impact of these trends. An ASA commercial rate survey in 2020 found that the national median commercial payment rate was about $73.00 per unit as compared to the average Medicare rate of about $22 per ASA unit billed. Although the survey only focused on five contracts, the results are quite significant—especially in that they represent a slight decrease (of $.79 per unit) from the previous year. In other words, each unit that gets billed to Medicare, instead of a commercial payer, results in the potential loss of $51 per unit. If the average anesthesiologist bills 10,000 units per year, then each percentage point increase in the Medicare population potentially results in a loss of $5,100.
There is a corollary challenge to all this, as well. The migration of cases with good commercial insurance to ambulatory venues will erode the surgical base of inpatient hospital care. It will become increasingly challenging to cover the cost of in-house call coverage.
Final Thoughts
While we may see some abatement in the rate of growth of the Medicare population in the next decade or so, this will be small consolation as demographic trends continue to play themselves out. There will be continued downward pressure on practice revenue. The impact of Medicare volume and rate changes is just one piece of the puzzle. Negotiations with commercial payers are becoming increasingly challenging, and some refuse to negotiate at all. Groups will inevitably have to find ways to manage the economics of their practices. The focus will be increasingly on the cost of providing the care. A careful focus on staffing and clinical productivity will become necessary survival skills.
If you would like to reach out to us concerning this topic, please contact your account executive or go to info@anesthesiallc.com.
With best wishes,
Tony Mira President and CEO