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Summer 2015

Why Utilization and Productivity Metrics Matter

Jody Locke, MA
Vice President of Anesthesia and Pain Management Services, Anesthesia Business Consultants, Jackson, MI

You cannot manage what you cannot measure. This is today’s business mantra and no aspect of any serious business is exempt, from productivity of operations to quality of customer service. The goal is to use objective metrics to drive down cost and improve quality. Is it any wonder that the tools that are driving the management of business should be applied to medical and service specialties like anesthesia? Much as anesthesiologists and CRNAs may resist efforts to quantify their productivity and objectively assess the quality of care provided, this is becoming the new reality in medicine. To resist is to demonstrate one’s inflexibility and to invite alternative solutions. The largest and most aggressive players in the specialty are investing millions in the tools and technology of productivity and quality measurement. Whether this is ultimately good for the specialty is another question for another day.

From OR Utilization to Provider Productivity

The concept of productivity management in anesthesia is undergoing a significant evolution. Many practices have implemented tools to monitor operating room (OR) utilization, which is an essential first step. Operating room productivity metrics define the opportunity for production in a given facility. They measure the appropriateness of scheduling patterns. An OR that consistently generates six hours of billable anesthesia time in an eight-hour day is inherently more desirable than one that only generates an average of four billable hours. In many institutions the disparity between optimum utilization and actual utilization serves as the basis for the calculation of hospital subsidies or revenue guarantees.

Once some basic calculations have been mastered, the resulting utilization metrics may prove useful in identifying opportunities for more effective operating room utilization. We all know that the typical anesthesia billing system has more and better data about what happens in the OR suite than can be found for any other single source; the question is how best to use the data? While many anesthesia practices still consider themselves captive to surgeon preferences and OR scheduling practices, others are definitely making considerable headway in demonstrating to their respective administrations that the economics of anesthesia is very similar to that of the facility. An anesthetizing location that does not generate enough revenue to support the cost of the anesthesia staff to cover it is most likely a loss leader for the hospital as well.

Practices that are serious about trying to close the gap between coverage requirements and revenue potential are starting to further fine-tune their analytical tools to assess individual provider productivity, a concept that is considered controversial in most practices. Many practices where physicians are paid based on a productivity-based compensation system, i.e., one where provider compensation is based on hours or units billed, delude themselves into thinking that such systems encourage provider productivity. In fact, such systems tend to encourage differential levels of production. Essentially they simply reward the hardest workers, but do little or nothing to encourage greater provider productivity except among providers who are already predisposed to generating more income. It is the rare anesthesiologist or CRNA, however, who cannot be made more productive and efficient with appropriate monitoring and incentives.

Those practices that are serious about remaining competitive in the current environment are also using their data to assess staffing models. Physician-only practices are re-assessing the assumption that they provide better care without CRNAs. While an Anesthesia Care Team (ACT) model is not always the cheaper solution, practices that are unwilling to seriously consider alternatives to having anesthesiologists do their cases alone are quickly being dismissed as old school. It is the nature of today’s businesses that they have to anticipate change and be able to reinvent themselves quickly to survive. Why should it be any different in the specialty of anesthesia?

All of this speaks to an inevitable paradigm shift within the specialty. It used to be that a good practice was defined by busy operating rooms and a favorable payer mix. The anesthesia group’s destiny was ultimately in the hands of the surgeons and administration. Why should this be? Why should practices not use their experience and data to suggest practical solutions for process improvement? This is exactly what is happening as anesthesia providers climb up the medical food chain to take more control of their own destiny.

Operating Room Utilization

As is true of so many common analytical challenges, the data that is most useful to the goal at hand is probably not immediately available to the practitioners. Establishing useful operating room productivity metrics requires some forethought, consistent quality control and a very flexible toolset. There are many confounding factors. Knowing what data points to include and to exclude is essential. Business intelligence must always result in actionable indicators.

While it is possible to generate some primitive utilization metrics without actually capturing the anesthetizing location, these will have only limited utility in the long run. If you truly want to measure what is happening in each operating room and be able to use this information to modify hospital behavior, the room number must be captured by the billing system, which in many cases is a challenge in and of itself. Consistently capturing the room number requires a clear list of locations, a place on the anesthesia record for the location to be captured and consistent collection by the billing staff. Without rigorous quality control for this process, most practices will miss 10 to 15 percent of the cases in their utilization calculations.

The next step is to define reasonable and realistic subsets of the practice. Including and averaging too large a sample of data may invalidate the value of the metrics produced. Special consideration must always be given to the needs of specific service lines, especially in larger facilities. Obstetric activity is usually the first carve-out. Cesarean sections may be included to the extent that they are scheduled in operating rooms as surgical cases. Specific facility requirements must be identified and delineated but of much greater significance is the ability to identify lines of business for purposes of benchmarking and comparison. The following is a typical hierarchy of lines of business: 

  • Inpatient operating room
  • Outpatient operating room
  • Endoscopy
  • Cardiovascular (heart room)
  • NORA (non-operating room anesthesia)

At issue here is the need to assess performance on a “same-store” basis. Comparing utilization in an endoscopy center to a heart room, for example, would be of little relevance or utility. Some of the factors that make comparisons useful include type of cases performed, coverage and call requirements and staffing options. Table 1 demonstrates how the overall results may appear unchanging, while significant differences for a single OR may surface from one quarter to the next.

Defining Useful Metrics

Knowing what metrics to calculate can be a little daunting as there are many options. The key, though, is to use normalized data. Typical production data is divided by clinical day. In other words, we are interested in cases, units, hours or collections per day. If there are five operating rooms, some of which are used five days a week and some of which are only used infrequently, we only want to tally days of actual use for purposes of calculating metrics. It is also useful to limit the timeframe being evaluated. Since 75 percent of all activity typically takes place between 7 AM and 3 PM, the most reliable data only includes activity for week days during this time frame. Typically cases that start before 7 AM or run later than 3 PM are truncated for purposes of calculating the hours applicable.

The following are some general considerations to guide the selection of an appropriate metric or metrics.

  • Cases are easy to tally and provide a clear reference to the schedule. The problem is that since there is such variability in acuity of care and case times it is difficult to draw any meaningful conclusions about utilization from normalized case tallies per day.
  • Billed ASA units may provide a very useful metric in that they reflect both time spent and acuity of care. Units are also the primary determinant of financial performance potential. The only challenge here is that if the intent is to share this data with administration, hospital folks tend not to understand how anesthesia charges are calculated. 
  • Hours per location day may not reflect the acuity of care but they do equalize the actual time spent in a billable or production mode, and, as such, can be very useful in assessing both OR utilization and provider productivity.
  • Ideally, one would like to be able to assess the financial yield per location day, but this is actually more challenging than might appear. The problem lies in determining when the cases performed are paid in full. Lagging collections performance is one approach but then one may not be measuring current performance levels.

A key issue in the development of performance metrics is the critical distinction between OR utilization metrics and provider productivity. The two are often related, but each must be assessed independently. Anesthetizing location utilization focuses on average and normalized metrics by venue. Let us suppose that a given hospital with ten main ORs consistently produces 5.6 hours of billable anesthesia time per day shift. This value allows us to compare the utilization of this suite of ORs to other practices and benchmark data. If the numerator is eight hours then this represents 70 percent utilization (5.6 divided by 8 hours). Generally, the target for a well-managed OR is 80 percent. With this number we can assume there is some upside potential for improved utilization. Where is the opportunity, though? Comparing individual operating rooms might shed some light on the question, especially if one or more of the rooms are consistently underutilized. It might also be useful to compare activity by hour of the day. Maybe there are holes in the schedule that could be better managed. These are all utilization options which assume that anesthesia is just one of a number of stakeholders in determining utilization.

The ultimate goal here is to identify lines of business and anesthetizing locations that are efficient and profitable. One could also say the goal is to categorize each location as sustainable or unsustainable. Typically, the goal is to identify underperforming venues that require financial subsidy. Truly useful metrics should support and justify closing rooms or modifying coverage requirements. Truly useful provider productivity metrics should allow for the identification of best practices and inefficient providers. When used appropriately and judiciously, utilization and productivity metrics can greatly reduce the need for financial support and enhance the independence of an anesthesia practice.

Educating Administration

Most anesthesia groups make a common mistake in assuming that their hospital administration understands the economics of anesthesia; most have no clue about what makes for a profitable anesthesia practice. As in any activity intended to modify behavior, the key to success is to educate stakeholders. They must come to understand and appreciate the anesthesia perspective. This does not happen overnight and it does not happen without a commitment to serious communication. Those practices that only sit down with administration every couple of years to renegotiate the terms of the exclusive contract are at a serious disadvantage. If an anesthesia practice wants to be seen as part of the solution and not as part of the problem it must be creative and proactive in its interactions with hospital staff.

The chair of one of our clients was feeling particularly besieged by regular requests to add anesthetizing locations that he knew would not generate additional revenue consistent with what the staff required. He had a report designed that tracked actual hours of billable anesthesia time against coverage hours by anesthetizing location by month. In other words the report showed how many hours he was expected to staff and then what the resulting billable anesthesia hours might be. In doing so the chairman created his own productivity metrics that, basically, measured the effect of scheduling on anesthesia profitability. Utilization percentages varied by lines of business; it was a large practice that was expected to cover more than 30 locations a day. It took a while for administration to buy into the methodology but month after month the chairman would simply drop the report on the COOs desk. Eventually the administration saw the wisdom of the approach and over time took the information into consideration as it made strategic planning decisions affecting the operating rooms. The administration started to accept and understand the chairman’s position that he would not staff any location that would not generate 45 base and time units per location day.

Educating hospital administration requires finding a common language and vocabulary. Take a simple example. Hospitals tend to tally cases and hours of OR time. Anesthesia providers tend to track units and minutes billed. In anesthesia revenue potential is a function of units billed, but most hospital administrators have no idea what base and time units are and would be suspicious of any metrics based on them. While anesthesiologists tend to default to dollars generated, this is not such a good starting point because most administrators believe that anesthesia is overpaid. The challenge, then, is to find a common frame of reference that has meaning and relevance to both parties. Once this is established the hospital staff has to have time to get comfortable with the data and validate its accuracy. This can be a very frustrating process for providers used to making life and death decisions in ten to fifteen seconds in the operating room.

Once a dialogue is established then it is important to focus the discussion. Service providers gain the trust and confidence of administration by starting small. Identify problems for which solutions can be suggested. Demonstrate the value of the assistance. Small wins lay the groundwork for bigger changes. There is a saying in sales that “each yes gets one step closer to the big yes.” So it is in working with administration.

Too often anesthesia practices fail to see their staffing and coverage challenges from the administration’s perspective. This can be a huge obstacle to behavior modification. As Steven Covey writes in Seven Habits of Highly Effective People, “seek first to understand.” In business, the best solutions are always the ones in which all parties benefit. Collaborative problem-solving is always more effective than unilateral demands for support.

Here is a typical example. An anesthesia group went to administration with a request for a $1.5 million subsidy. The group was starting to fall apart. Poor management had resulted in a very unstable practice. Given that there had been no meaningful dialogue with the practice, nor any indication as to just how much the practice was struggling, the CEO called in a consultant to verify the calculations and make recommendations. The consultant confirmed that it would take at least $1.5 million to cover the costs for providing care based on the current coverage requirements. The real value of the consultant’s report, however, was a discussion of hospital coverage requirements. Ultimately, the necessary subsidy was greatly reduced when the hospital reduced its coverage requirements. Had the anesthesia practice started with this or had they been providing the hospital regular reports showing their utilization metrics, the consultant would not have been necessary. Basically, all the consultant did was bridge the communication gap.

Today’s successful anesthesia practices are built on partnerships with administration: the more communication, the better; the more sharing of data, the better and the more collaborative problem-solving, the better. Knowing what to share and how to share it is not always easy, but it is an essential survival skill that must be mastered in the current environment. Most hospital administrators do not want to change anesthesia solutions, nor do they want to have to bring anesthesia in-house, but many simply come to the conclusion that they have no choice. This is the new reality that all groups must come to terms with.

A Leaner and More Efficient Anesthesia Practice

The real problem in anesthesia is that staffing models tend to be defined based on historical and cultural models that may not fit the current requirements. There is a great divide in the United States between physician-only practices and ACT practices. Western anesthesia practices tend to be physician-only practices and so this model has become the norm. Why a practice in Philadelphia believes that the anesthesia care team is the best way to deliver care while a similar practice in Pasadena has never seriously considered using nurses is one of the great mysteries of the specialty.

Another curious and defining factor for an anesthesia practice tends to be its lack of business focus. Most consultants and observers would agree that the typical anesthesia group is more of a medical professional fraternity than a clearly focused business entity. One of the most obvious results is that physicians are vetted and then hired to become members of the fraternity. They are assumed to be competent and productive until found to be otherwise. Most have no clear mechanism for monitoring and evaluating shareholders and partners. And the biggest and most divisive challenge any practice faces is the need to discharge a member.

It is these factors that make the concept of monitoring provider productivity so challenging and even controversial. It is the rare anesthesiologist who accepts the notion that he or she needs to be monitored and measured. Nevertheless, it is a basic principle of sociology that social control requires identification of the actors. One cannot improve provider performance and effectiveness if one cannot objectively evaluate and compare providers for the same types of work. Herein lies the challenge and the opportunity for the practice that has just received word that there is no additional money in the hospital budget for a larger stipend and that the hospital actually wants to reduce it.

Can the monitoring and measurement of provider productivity make a difference? It has actually been the key to success for most businesses. Good business is about creating maximum value. Since payroll is an anesthesia practice’s greatest expense it is the area where the greatest gains can be achieved. It is clearly the belief of the nation’s largest anesthesia groups that the goal to long-term viability lies in driving down the cost of care, which must inevitably mean more leveraging of physicians through the use of CRNAs and more closely monitoring individual physician productivity and quality metrics. See Figure 1 for an example of the results of measuring individual provider productivity by both average hours per day and utilization.

Managing Change

The specialty of anesthesia has evolved through three phases. For most of its history, anesthesiologists were generally busy enough and the payer mix favorable enough that there was no need for financial support from the hospital. As the environment for the hospitals became more competitive and anesthesia practices were being asked to provide more coverage and services, many groups were able to negotiate stipends or revenue guarantees. Currently more than 75 percent of all anesthesia practices receive some form of financial support from the facilities they serve. Now this is changing. The number one line item most hospital administrations and hospital systems want to reduce is the amount paid for anesthesia.

It used to be that a successful practice was defined by its gross receipts. Enough money solved all problems. Through most of their history anesthesia practices have focused on generating revenue. They did this through payer contracting, their management of billing offices or outside billing vendors and the negotiation of hospital subsidies. By most estimates all three options hold only limited potential to support practice balance sheets. Now the focus is starting to shift to the expense side of the ledger. Those who have come to understand the importance of being lean and effective are gaining market share while those that refuse to accept the inevitable are losing ground and losing their franchises. Effectiveness and efficiency are the new keys to success.

Strategic planners love to remind us that more often than not the beliefs and strategies that have gotten us to where we are today will not get us to where we need to be tomorrow. It would appear that anesthesiologists would be well advised to give this some serious consideration. As anesthesia becomes more and more of a commodity, its monetary value diminishes. Understanding this and finding ways to offset the decline are why metrics matter.

If you are not currently monitoring your own operating utilization metrics and measuring provider productivity and you are an ABC client, feel free to request a free analysis from your account manager. If you are not an ABC client and are curious how your metrics compare please contact our consulting team for a proposal and analysis. ABC has a vast repository of benchmark data for OR utilization and provider productivity for you to benchmark your practice.

 Jody Locke, MA serves as Vice President of Anesthesia and Pain Practice 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. Mr. Locke can be reached at