The Cost of Anesthesia Care

Summary:  The balance between providing excellent care and receiving reasonable reimbursement continues to be a tenuous proposition for anesthesia practices. As groups search for the best model and the best practices, there are daunting obstacles to overcome.

There are two common misconceptions that hospital administrators frequently use to taunt their anesthesia practices during contract negotiations. The first is that anesthesia practices can use standard business strategies to reduce the cost of the care they provide without compromising the quality of the care provided. The second is that anesthesia practices can play a much more important role in optimizing the efficiency and cost effectiveness of the operating rooms they support. The reality is that while not all anesthesia practices are managed as well as others, their ability to manage their costs and impact the behavior of the operating room staff is minimal. Essentially, anesthesia practices are quintessential service organizations and at the mercy of the environments in which they operate. Many have even suggested that anesthesia practices occupy the bottom rung of the medical food chain—captive to every other department for their income and lifestyle.

This hospital perspective is the result of a failure to understand and appreciate the potential impact of five significant factors:

• ● The ability to modify the amount of staffing needed to meet the requirements of the facility.
• ● The ability to modify their staffing model to reduce the cost of care provided. 
• ● The ability to enhance their collections through payer contracting and billing strategies.
  
• ● The ability to enhance provider productivity.  
  
• ● The ability to align the incentives of the providers with those of the facility.
  

Staffing Requirements

Anesthesia practices must provide enough staff to meet the coverage and call requirements of the facility and these are usually non-negotiable. Because hospitals compete for surgeon loyalty, they strive to provide as much availability as possible. This usually means early morning starts. Too many operating rooms are only partially used because surgeons will bring a few morning cases and then return to their offices. The situation is especially frustrating for anesthesia practices when these same surgeons return in the late afternoon for add-on cases. The result is a very unproductive OR schedule, but hospital administrators tend to focus more on the key surgeons whose loyalty they can encourage, rather than the overall utilization statistics of the facility.

Call requirements are another staffing challenge. Since 75 percent of the revenue generated in an operating room is typically realized between 7 AM and 3 PM, requiring staff to be available for late cases and emergencies is an unprofitable burden to the anesthesia practice—especially if providers have to remain in house. Although this may be changing, it is the rare facility that determines its anesthesia cover and call requirements based on utilization or profitability.

The irony here is that anesthesia practices have more and better data about what kinds of cases are being scheduled and how profitable they are. There is starting to be considerable interest in sharing their data and the insights gained by anesthesia staff, but there is yet to be much evidence that anesthesia recommendations are being given much consideration.

Staffing Model

The vast majority of anesthesia services are being administered by CRNAs, either in a care team model or by unsupervised CRNAs. The perception is that modifying physician-only staffing models to include CRNAs will reduce the cost of the care. The evidence supporting this proposition is mixed. CRNAs salaries in most parts of the country are closing in on physician compensation. Where there is medical direction of the CRNAs, a net cost advantage may only be realized if the cost of the physician is leveraged over at least 3 CRNAs; but such a cost advantage still assumes a reasonable level of operating room utilization. To be profitable, the cost of providing the care must be more than offset by the actual revenue generated.

The real challenge arises when a group decides to change its staffing model. Suppose a 20-physician practice wants to start employing CRNAs. It is completely unrealistic to think that the practice will simply vote some of its members off the island. The practical reality is that such modifications to staffing can only be implemented over time, as physician attrition opens up slots. It is true that sometimes the staffing model is a result of a particular culture and orientation. Some physicians simply prefer not to work with CRNAs, and this may be a cultural barrier that simply has to be overcome.

The reality is that in the current environment the issue is less one of physicians or CRNAs, but of permanent versus part-time or locum staff. It is true that an anesthesia practice may be able to reduce its manpower cost by having more providers who can simply be plugged in as needed, but this creates a much more complicated staffing situation that may or may not be acceptable to surgeons who always prefer to know who the anesthesia provider is.

Revenue Enhancement Options

The actual collections for an anesthesia practice are a function of three factors: the volume of cases, the acuity of care as measured in average units per case, and the net yield per unit of billed anesthesia. Clearly more cases will result in more revenue, but anesthesia cannot impact this in most facilities. Not only does the anesthesia practice have no influence in the determination of the cases performed and the billable units being generated (with the possible exception of orthopedic cases where nerve blocks and ultrasonic guidance may provide some revenue enhancement), but the fact is that, with the expansion of anesthesia for endoscopy, the average units per case has actually been declining.

What is the potential, then, to enhance the net yield per unit billed? There are three options. Payer mix is the most important factor. Minimizing the impact of public payers, Medicare and Medicaid, would enhance collections because commercial rates are always higher; but anesthesia has no impact on this. For the relatively small percentage of patients covered by PPO and HMO plans, there might be some potential to negotiate higher rates; but payers are starting to push back hard.

The only real option left to most practices is to negotiate some level of financial support from the facility. The problem is that this is the very thing hospitals are trying to avoid.

Provider Productivity

How hard do anesthesia providers work? For the most part they are as busy as the operating rooms and delivery suites need them to be. We used to say that, if an anesthesiologist could generate an average of 50 ASA units per day and realize a net yield of at least $40 per unit billed, there would be no need for a subsidy. The sad reality is that most providers cannot consistently generate 50 ASA units per clinical day.

A growing number of anesthesia practices are using their data to calculate and monitor operating room utilization; but, all too often, this is simply an idle academic exercise. Unless the calculations can be used to actually improve utilization, the exercise is a waste of time. There is a common belief that practices with productivity-based compensation plans encourage providers to be more productive. Actual analysis does not support this belief. Such systems tend to encourage a focus on what is most productive for the provider and not necessarily for the facility.

Impact on Hospital Policy

Ultimately, the question is: how much influence does the group have to align the incentives of the practice with those of the facility? This may be the light at the end of the tunnel. In 1982, an article was published in the New York News Day magazine entitled, "Who is that masked man?" It was an exploration of the mysterious specialty of anesthesia. Much has changed since then. Hospital administrators have come to appreciate the importance of the anesthesia value proposition to an efficient operation. The challenge for anesthesia is to educate administration staff. It turns out that the economics of anesthesia actually mirrors that of the hospital.

There is no doubt that the cost of anesthesia can be reduced, but it cannot be done unilaterally. Given the economic realities of today's healthcare market, reducing cost can only be accomplished by resetting expectations. Coverage and call requirements need to be adjusted based on economic realities. Making anesthesia providers hospital employees will not lead to a collaborative solution. Innovative approaches and solutions will continue to require anesthesia independence. What needs to change is the context and focus of the relationship. Teamwork and collaboration are the only viable options for the future.

For an evaluation of where your group stands in terms of revenue trends and potential, please contact your account executive or reach out to us at info@anesthesiallc.com.