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Fall 2013

What is the Value of A Chronic Pain Practice to an Anesthesia Group?

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

Many anesthesia practices across the country are hybrid entities, consisting of a subgroup of anesthesiologists and CRNAs who provide only surgical and obstetric anesthesia and another subset who spend part or all of their time in the management of chronic pain. The circumstances that have encouraged the development of such entities vary considerably, but it is a common phenomenon across the country in all types of settings.

In some cases, the different sets of providers appear to work quite harmoniously but these are the exceptions rather than the rule. Most struggle with a consistent set of challenges that derive directly from the fundamental differences between the two types of practices. Even a cursory review of any of these practices reveals just how different the criteria are for success in chronic pain as compared to O.R. or obstetric anesthesia. Simply put, the demands of a hospital-based anesthesia practice bear little or no resemblance to those of an office-based pain practice. While the one thrives on harmony and collaboration, the other feeds on individualism and a desire to take more control of one’s destiny. Some would even say that is it almost paradoxical for the two to co-exist successfully in the same entity. It is not at all uncommon for such arrangements to ultimately end in a complicated and messy divorce. Why then do we see so many such arrangements and why does the question keep coming up: what is the value of chronic pain medicine to an established anesthesia practice?

Etiology of Pain Practices

Two factors are typically attributed to the initiation of a chronic pain practice within the anesthesia group: one is an offshoot of the very nature of the specialty and its preference for individualism; the other is a more subtle and sometimes elusive strategic argument. Consider the following prototype: twenty anesthesiologists have bound themselves together into a group practice. Over time two or three members start to perform nerve blocks on a very selective list of patients in the recovery room during their downtime in the afternoon. Based on this limited experience they pursue the concept of a more active chronic pain service. One or two physicians often make the argument that a dedicated pain service would be in the best interest of the practice and the relationship with the hospital. Sometimes a few other providers will agree to contribute to the new service. Once the practice starts down the path it is not at all uncommon for the result to be a dedicated practice model that requires separate management to accommodate the needs of all the patients being scheduled. Inevitably, despite the arguments to the contrary, it is fundamentally the desire of the pain physicians to do something different and have more personal control over their practice and activities that encourages to evolution of the practice.

This is not to say a business case cannot be made for an expansion into chronic pain. A hospital-based anesthesia practice, especially one that is fundamentally tied to one facility or system, has limited strategic options. The volume of cases is tied to the community of surgeons and the reputation of the facility. The payer mix is a function of the population being served. By all accounts the practice is captive to the system for its revenue potential and viability.

The good and the bad news about chronic pain is that the practitioner starts each day with a blank slate or an open schedule. As a practical matter he or she has relatively free rein to take the practice in whatever direction suits the preference of the provider. There is ample evidence to indicate that motivated and strategically insightful pain physicians have the ability to work as hard as they choose. They have a unique opportunity to build referral bases and thereby change their payer mix by encouraging more referrals from physicians with patients with better insurance. Pain physicians can also dramatically impact their income by virtue of the kinds of services and procedures they perform. Well managed pain practices typically see their providers generating at least 50% more in gross collections per clinical day than their colleagues working in the operating room. To put this in concrete terms: most anesthesia staffing models for physician-only practices are based on a gross revenue potential per anesthetizing location day of between $1,900 and $2,100. It is not at all uncommon for pain medicine professional fees, not including facility payments, to exceed $3,000 per provider day. Those willing to accept the risks and responsibilities of managing a free-standing pain clinic can net significantly more per clinical provider day.

Given these facts, why wouldn’t every anesthesia practice want to find a couple of qualified pain specialists and set them up in practice? It is the answer to this question that reveals just why so few anesthesia-based chronic pain practices are successful and why so many group practices that have a pain component wish they didn’t. As is so often true in business, the devil is in the details. A failure to understand and appreciate the management complexity of a busy chronic pain practice probably explains most of the frustration and dissatisfaction.

It is probably worth noting that most successful anesthesia practices don’t realize how good they have it. There is an oft-quoted, but unfortunately quite misleading, notion that success begets success. The anesthesia practice that has benefitted from a favorable location, payer mix and consistently strong surgical volumes may prove to have very unrealistic and naïve ideas about launching an entirely different practice model whereas the practice that has always had to focus on every aspect of the budget to hire and retain qualified providers to meet the expectations and service requirements of the hospital probably has a better understanding of what is involved in building an entirely new service line. After all, they probably have nothing to lose.

Managing the Patient and Payer Mix

Simply put, any surgical practice relies on patients, procedures and payments for its livelihood and success. This might sound simple, but these requirements can be deceptively complex to consistently achieve. Having the necessary management oversight, monitoring tools and infrastructure are critical prerequisites. Invariably an unwillingness to hire the necessary staff, invest in appropriate technology and commit resources to monitor the practice closely sets these practices up for failure from the outset.

The ultimate challenge in each case lies in knowing what the right objective is. It is easy to say that patients make the practice but too many pain physicians confuse filling the schedule with developing a referral base. They tend to accept all comers initially and then, if they are lucky and still in business, end up paying the price down the road. Just as it can be said that many college students spend their sophomore year trying to distance themselves from the friends they should not have made their freshman year, so too, pain physicians often spend their second or third year in practice wondering why they are working so hard but making so little money when the answer is quite simple: they should have been more selective in the early phases of the practice.

The ideal sweet spot for a chronic pain practice involves a population of patients that allows for two things: the ability to manage patients for a limited period of time and patients whose insurance will cover the costs of providing the care. Three to five encounters with a patient is probably optimum. This would involve a comprehensive evaluation, a series of procedural interventions and a discharge. This would absolutely not involve the patient who has been referred for medication management that requires regular follow-up visits for refills without any opportunity for procedural intervention.

The mix of patient insurance is absolutely critical but often challenging to manage effectively. Every American physician understands that what Medicare pays does not really cover the cost of care and Medicaid in most states is even worse. Having a population of patients with good commercial insurance is essential. In some states, Workers’ Compensation can be a godsend, but this, too, is changing, especially in states like California. What too few pain physicians understand is both the need to encourage referrals and the impact this can have on their bottom line. Fundamentally, they do not appreciate the need for marketing and promotion. A practice whose physicians believe they are too busy to promote the practice is a practice that is doomed never to change its financial viability or profit potential. Let us suppose that the number of Medicare patients is a given. The practice cannot improve its revenue potential by reducing the number of Medicare patients, but it can do so by increasing the number of non-Medicare and commercial patients. Sometimes you solve one problem by creating a bigger problem.

Volume and Value in Chronic Pain Practice

Another dimension of the chronic pain practice that is poorly understood by the non-pain provider is the distinction between the evaluation of patients and the interventional modalities used to address their conditions. Consultative pain physicians must distinguish the value of the service they perform by critically evaluating their patients before any interventional modalities are performed. The practice that does not appreciate this will be relegated to the category of “block shop” and quickly displaced by cheaper alternatives more willing to provide services and discount their rates. Medicare policy makes it abundantly clear that any injection of steroids must be preceded by a comprehensive review of previous attempts to address the patient’s condition and an assessment of appropriate treatment options. Since the typical chronic pain patient is a 43 year old male who has been to see 6.8 other providers prior to contacting the pain physician, the expectation is that that specialist will be a better diagnostician than the previous providers. The objective, therefore, is not to default to the role of replaceable technician but to define a different value proposition for the patient.

When we talk about the financial significance of the procedural aspect of the pain practice it must be viewed through the lens of the overall management of the patient. While it is true that a pain physician who can consistently perform three or four steroid injections an hour can make a considerable income in the short term, his earning potential will be quickly eclipsed by either boredom or competitive options that are more focused on the whole patient. Unfortunately, too few practices have reliable or comprehensive outcomes data, because this is what patients and payers want. Each treatment plan should be carefully considered based on the patient’s history, medical condition and resources for improvement.

Pain Management Practice Costs

Even so, having good providers doing all the right things for their patients is still no guarantee of success. All is for naught if they cannot be paid appropriately. Here is where anesthesia practices are at their most naïve. They think that just because they have negotiated a favorable percentage-of-revenues fee with their billing agent, they will get the same level of service in chronic pain. Despite what claims may be made by billing agents, it is an absolutely impossible proposition. A quick review of the basic economics of the matter underscores the problem. Suppose the typical anesthesia case nets $400 on average and the cost of billing is four percent. This results in $16 of revenue per case for the billing office to code, bill, resolve the patient’s account and provide the necessary reporting so that the practice has a level of comfort that they got what they were entitled to. Now let us consider the average revenue per pain encounter, which we will define as all the services rendered to a patient on a date of service. Under the very best of circumstances this could be as high as $200 but is more likely to be closer to $150 and might be even lower than that. Now the revenue potential to the billing office has dropped from $16 to $8 or less per encounter. Ask any coder or biller and he or she will tell you that the average pain claim inevitably involves more interaction and follow-up than the corresponding anesthesia claim. The challenge is then further compounded by the very complexity of treatment options and payment modalities. Instead of wanting confirmation that all Blue Shield claims were paid at the contractual per unit rate, the pain physician wants to know that every CPT code billed was paid according to the contractual fee schedule and reflected the appropriate application of such things as the multiple surgical payment rules and special considerations for bilateral procedures. Is it any wonder why some billing companies simply refuse to take pain practices? Effective pain management billing necessitates line item billing and the ability and resources to identify all inaccurately paid claims and review them.

In addition to these anxiety-creating realities for the billing staff, consideration must be given to the basic management requirements of scheduling, insurance verification and pre-authorization that are virtually nonexistent in anesthesia practice management. Record keeping can be another area of huge concern and consternation. Dictating, reviewing and approving patient evaluations and operative reports is considerably more time-consuming and onerous than completing anesthesia records, especially when the typical surgical anesthesiologist sees an average of five patients per day while a moderately busy pain physician sees between 12 and 20. While the average total practice overhead for an anesthesia practice should not exceed 10 percent, including billing, it is not uncommon for the overhead of the pain practice to be two or three times this much. It is true that the anesthesia practice that is able to partner with the facility may be able to avoid some of these costs, but in so doing they also limit their revenue potential.

Understanding the Load and the Rewards

All of these considerations start to explain why pain physicians tend to believe that they work much harder than their colleagues in the operating room. The principle that perception is reality is often the single most divisive factor in a hybrid practice, especially one that pays all shareholders or physicians equally. Why should a pain physician go out of his or her way to work longer hours, offer flexible office hours or aggressively pursue referrals if there is no financial incentive to do so? Any group that does not recognize the unique requirements and opportunities associated with chronic pain practice in the details of its compensation plan will ultimately sell itself short. Human nature being what it is, people need a reason and a motivation to work harder and take more risks.

Other issues can prove equally divisive. The allocation of call assignments can be especially problematic, especially when the assumption is that those physicians who perform chronic pain service must share the surgical and OB call burden. More than a few practices have separated base don this issue alone.

There is a perception that the inclusion of a chronic pain practice is perceived as a positive service enhancement by hospital administration. The anecdotal data is somewhat inconclusive on this point. It is certainly true that the ability to draw patients to a hospital and to generate facility fees for the institution should be considered a positive aspect of any pain practice. One could even argue that in the current environment, with the anticipated changes of healthcare reform around the corner, a hospital administration would view any expansion of services as positive. Some have even entered into serious discussions with groups that have provided a limited scope of pain management services to explore co-management options. The politics of chronic pain can be a little tricky in cases where anesthesia has not been involved historically. More often than not the revenue potential is not viewed as significant enough to disrupt established relationships. It is always an angle worth pursuing but it is clearly one that should be carefully and completely analyzed. The administration will no doubt expect a full pro forma and probably expect an outside consultant to perform a qualified analysis. Administrators are notoriously skeptical of propositions that propose a significant influx of new revenue. They are trained to look for the catch, or the capital they are being asked to invest so that the pain practice can be successful.

Anesthesia practices need to be especially prudent in any discussion of the establishment of a free-standing clinic. The last thing an administrator wants to hear is that the group intends to set up an independent entity that may well compete with the hospital for patients even if this is ultimately the most profitable option for the group. It is always best to play this card very carefully and only after all other options have been considered and discussed.

With all these considerations in mind we return to our original question: should anesthesia practices pursue chronic pain management as a reasonable way of diversifying the practice and mitigating some of the market risk they face in the current environment? The answer is yes, if, and only if, they are willing to make the investment in developing a business plan that is realistic and practical, in hiring or identifying qualified providers, in giving them the necessary tools and rewards to be successful and investing in the necessary infrastructure. It is an all or nothing proposition. A poorly-managed pain practice is much worse for all concerned than no pain practice. The opportunity lies in careful planning, committed execution and constant monitoring and oversight. Ultimately, it is the very challenges that will provide the opportunities for those practices willing to do it right.

Jody Locke, CPC, serves as Vice President of Pain and Anesthesia Management for ABC. Mr. Locke is responsible for the scope and focus of services provided to ABC’s largest clients. He is also responsible for oversight and management of the company’s pain management billing team. He will be a key executive contact for the group should it enter into a contract for services with ABC. He can be reached at