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Fall 2010

Breaking Down the Business of Anesthesia

Joseph F. Answine, M.D. Assistant Secretary Treasurer, Pennsylvania Society of Anesthesiologists
Fred Rosetty, Practice Administrator and Chief Operating Officer, Riverside Anesthesia Associates, Ltd.
Kevin Slenker, M.D., President, Anesthesia Associates of Lancaster, Ltd.

During most doctors’ undergraduate and medical education, understanding the business side of the industry is the furthest thing from their mind. They want to be a doctor, help people, and somehow miraculously it would come with a paycheck.

Most go through their residency years expecting to compile significant debt. But that is OK because, the thinking goes, all the debt would go away and their ignorance to the financial side won’t be a factor.

However, in today’s world of being a doctor and anesthesiologist, the initial payout is larger, the debt is huge, overhead isn’t shrinking to say the least with malpractice premiums at the top of the list, and reimbursement is dwindling with projections of becoming significantly worse. In a private anesthesia group, many times the physicians in the group are too busy to realize when they have reached a critical mass and the need has arisen to hire a professional businessperson to take over the day-to-day management of the practice.

The most successful private practice anesthesiagroupshaveahighlyfunctional and symbiotic relationship between the physician CEO and the layperson practice administrator, executive director or chief operating officer.

Private anesthesia groups all have differing needs due to market demographics, payer markets, clinical needs of the facilities they cover and internal group dynamics. However, a seasoned practice administrator can work collaboratively with the group’s physician CEO, board of directors and/ or executive committee to improve three important underlying business dynamics: payer contracting process, governance/ strategic planning and managing the billing process.

The billing process can be managed either internally with an in-house staff or externally by working with a competent and established anesthesia billing company.

Both the Medical Group Management Association (Physician Compensation and Production Survey and Cost Survey for Single Specialty Practices) and the ASA (Fee Survey) have compiled statistics and metrics that can be successfully used to negotiate and benchmark payer contracts. Most payer contracts can be broken down into three or four different components: surgical anesthesia, obstetrical anesthesia, non-anesthesia procedures (TEE monitoring, insertion of Swan Ganz catheters, insertion of Arterial lines, etc.) and chronic pain management.

Many anesthesia groups focus exclusively on negotiating a fair market value for the anesthesia unit conversion factor at the expense of factoring in how the remaining two or three components can dilute the overall expected value of the contract. Obstetrical anesthesia (labor epidurals, caesarian sections) claims can easily be underpaid or denied by payers because of the varying methodologies for billing anesthesia services for labor epidurals.

Units for epidural insertion, infusion time, units for anesthesiologist face- to-face time with the patient and units for removal of the epidural catheter may all be partially reduced or denied entirely depending on each payer’s claim processing system ability. For simplicity and improving the effectiveness of post payment monitoring, some anesthesia groups have successfully negotiated global fees for obstetrical anesthesia, which removes several impediments in processing obstetrical anesthesia claims.

Careful attention should also be paid to payer fee schedule rates for non-anesthesia procedures and chronic pain management. Historically most of these procedures have been assigned units via the ASA Relative Value Guide; unfortunately, since Medicare and most commercial insurers’ payment methodology is via a fee schedule unrelated to ASA units, most practices have abandoned the process of assigning ASA units to these procedures when managing their billing operations.

Payer fee schedule rates should be converted into per ASA Relative Value unit rates to effectively monitor the effect of these items on the overall payer contract that is being negotiated. By maintaining this practice, which assigns relative value to all of the services that a typical anesthesia group provides, multiple payer contracts or terms can be compared to determine the most favorable arrangements.

The following example illustrates how a seemingly innocuous payer contract with a unit conversion factor of $60 per unit can “net out” at significantly less money for the anesthesia group:

In this example, the dilutive effect of obstetrical anesthesia, non- anesthesia procedures and chronic pain management reduced the overall expected reimbursement of the contract by $7.50 per unit or 12.5 percent. Further significant dilution will occur when a payer’s policy is to split the anesthesia claim (reducing reimbursement to the attending anesthesiologist for medical direction of non-group employed nurse anesthetists). In the example above, if the anesthesia group medically directs 50 percent of the total surgical anesthetics, group reimbursement will be further reduced by $21 per unit ($60 per unit times 70 percent times 50 percent).

This is a simplistic example of how payers can dilute the value of an anesthesia contract without the anesthesia group knowing how and why the dilution occurs. Similarly, many anesthesiologists do not have a good understanding of some of the internalprocessesandmechanicsofthe health insurers that pay their claims.

An important concept to understand when interacting with health insurance payers· is the concept of ‘float.’ Financial ‘float’ occurs when premiums are collected ‘up-front’ by payers and invested until those premiums are paid out later as claims. The longer the payer holds onto the premium money collected, the more valuable the float becomes. In its essence, float is money and health insurance payers are conduits for investable cash.

Warren Buffett, whose holding company, Berkshire Hathaway, is one of the top 10 insurance companies in the world, described this concept wittily in “The Making of An American Capitalist:” “Initially, the morning mall brings in lots of cash and few claims. This state of affairs can produce a blissful, almost euphoric, feeling akin to that experienced by an innocent upon receipt of his first credit card.”

These examples serve to illustrate that sophisticated market forces are at work and can adversely affect the financial fortunes of anesthesiologists. I would encourage all anesthesiologists to devote as much time as possible to understanding some of these forces and to obtain business education either by working with experienced practice administrators, attending the ASA PracticeManagementConferenceor registering for the ASA Certificate in Business Administration Program.

It is not enough just to provide a great clinical service in today’s marketplace. To those anesthesiologists who venture into private practice without a fundamental understanding of market forces, I will close with “Caveat emptor.”

Joseph P. Answine, M.D. is a past president of the Pennsylvania Society of Anesthesiologists and is currently serving as Assistant Secretary Treasurer. Dr. Answine is also a delegate to ASA’s House of Delegates.

Fred Rosetty, MBA earned his Bachelor’s and Master’s of Business Administration degrees from Shippensburg University and has also done graduate and postgraduate work in Healthcare Administration at Penn State University Harrisburg. Mr. Rosetty worked for Highmark BlueShield from 1989-1992 as a Senior Financial Analyst. From 1992- 2007 he worked as Administrative Director for a 35+ physician anesthesia group and since June, 2008 he has served as Executive Director of a 45 physician anesthesia group.Mr. Rosetty’s expertise includes payer contracting, practice benchmarking, financial and revenue cycle analysis and physician/staff recruitment and development. Mr. Rosetty has also been an Adjunct Professor of Business Administration at Central Pennsylvania College in Summerdale, PA since 2002. He may be reached at

Kevin F. Slenker, M.D., President, Anesthesia Associates of Lancaster, Ltd. and Staff Anesthesiologist, Lancaster General Hospital. Dr. Slenker may be contacted at