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Winter 2018

What Is the Value of Data and What Data Has Value? Today’s Anesthesia Management Challenge

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

What is it that makes today’s anesthesia providers so good at managing patients safely through the trauma and discomfort of surgery? While many will cite the value of experience, the most critical factor is the availability of timely and relevant data that facilitates critical management decision making at appropriate junctures in the case.

The curious irony is that what has proven to be such a useful management strategy in the operating room is rarely applied to the management of the practice itself. Not only do most practices rely on data prepared by others that may or may not be relevant to the practice’s current management challenges or completely accurate, but they also fail to recognize that reliable management data is worth what they are willing to pay for it.

Serious students of management data understand that effective business decision making requires data that meets three tests. 1) It must be accurate, which might not seem like such a big deal, but is more of a challenge than most would admit. Too many practitioners do not fully understand the challenges inherent in deciding whether the numbers should be based on date of entry (DOE) or date of service (DOS). 2) The information must be timely in order to allow real-time and proactive management decision making. Too often, practices must wait weeks for standard monthly reports, by which time critical opportunities may have come and gone. 3) Ultimately, any useful data must be specific to the business question being addressed. Inevitably, the data that is easiest to pull and compile, (i.e., the data contained in the most standard management reports) is of the least utility.

Meeting these three criteria requires management to clearly identify and define its management reporting needs so that those preparing the information can understand and appreciate what is needed. Points of reference and benchmarks must be established in order to validate the numbers. There must also be a commitment to use the data for decision making. Data for data’s sake has little to no value. In other words, the consistent preparation of useful management information requires a commitment and an investment. While a practice inevitably will have ad hoc reporting requirements, the best data is that which has been carefully monitored and refined over time. Ideally, data management should always be a proactive process, focused on trends and exceptions to those trends.

Well-managed anesthesia practices consistently apply these principles to at least five aspects of their business:

  1. Production data
  2. Performance metrics
  3. Productivity analysis
  4. Financial monitoring
  5. Quality measurement

Many do an excellent job in some of these areas, but few are consistent across the board. Given the competitive nature of today’s healthcare market, each is critical to the practice’s long-term viability. Many an anesthesia practice has recently lost its contract and franchise because it was not monitoring key management metrics closely enough to identify and anticipate critical practice challenges.

Production Data

An anesthesia practice gets its monthly report from the billing office. According to the report, the month just closed resulted in only 1,200 cases, while the month before generated 1,500. Why the discrepancy? If the report was generated based on DOS, which should be the norm, then the most recent month cannot be considered complete; cases are still in process. What then, is the value of such a report when only the previous month’s data are complete?

So maybe the numbers are based on DOE? Why does this matter? Because neither is correct if the intent is to know how much work was produced. In DOE reporting there is no correlation between DOS, when the work was actually performed, and DOE, when it was reported. This is just one of the many data challenges practices must appreciate in designing their production tracking tools.

This challenge aside, what is the purpose of production data? Conventional wisdom holds that production data is intended to predict cash collections. There are at least three common means of measuring production and innumerable variations on the theme. Some providers like gross charges billed, but this is a very crude and imperfect metric. Others prefer number of cases, but a case is not always a case, even within the same line of business. Still others will look at unit production, since this is a more reliable predictor of revenue potential. One must always remember that anesthesia utilizes the most complex billing methodology involving a combination of ASA units, time units and flat-fee services paid based on a fee schedule. Such measures, however, only really allow one to trend production as up, down or flat over time.

If the intent is to monitor specific lines of business, then much greater specificity is required. Monitoring units per case may be a particularly useful way of determining if acute pain services are being used for orthopedic cases, for example. With the expansion of so many practices into the outpatient and office environment, it is often especially useful to track projected or expected revenue by line of business, but to do so requires careful attention to the assumptions used in determining expected collections by payer. Any measure of expected collections requires constant revalidation of the impact of contract rates and bad debt.

One huge factor is the impact of operational issues on production data. A drop in cases may not actually reflect a drop in production, but rather, a glitch in charge capture. For example, sometimes ultrasound guidance charges may be held for lack of necessary documentation of the reason for using guidance to perform a block. As a general rule, about a week’s worth of charges is always still in process at the end of the month, although with the implementation of so many automated anesthesia record systems, the mandatory lag time to process charges has been increasing. In some academic practices using Epic, the lag time is as long as 10 days.

The challenge of medical direction cannot be overlooked in the design of management reporting. In the truly medically directed practice, CRNA production is ignored as it is attributed to the physician, but this may not always be appropriate. Sometimes it is useful to know how productive each CRNA is. Special consideration must always be given to ensure there is no double-counting of cases. As in so many things, it is all a matter of determining the practice’s business needs.

The basic principle of data management must allow for convenient migration from the general to the specific. Dashboards can be very useful in providing an overview of significant production trends, but the database must allow for logical drill-downs to identify underlying trends and issues. Reporting tools must reflect the dynamic nature of practice trends. Variance analysis can be very effective as long as it is not too simplistic. Be wary of billing options that allow only a limited menu of reporting options.

The typical anesthesia database contains a wealth of invaluable information. But data is not knowledge. What are the real-time business or management questions one needs to address? Data should be actionable. There is no value in reporting numbers for the sake of reporting numbers. They should either confirm that production is on track or identify potential areas of decline or weakness. One final point: whatever data served the practice’s needs yesterday probably will not meet the practice’s needs tomorrow. Business decision making is always a work in progress. While one cannot predict the future, most anesthesia practices are continually evolving. Careful monitoring of production trends, and especially, of payer trends, can help anticipate challenges and opportunities.

Performance Metrics

While production data allows practice management to track workload changes, performance metrics are critical to assess how effectively the billing staff are resolving the accounts receivable (AR). Are they collecting everything that is collectible based on industry standards? No billing office or outsourced billing vendor can resolve every account to the client’s complete satisfaction. There are simply too many variables. A common myth holds that big billing companies only collect the “easy dollars,” and that they don’t make serious efforts to collect on all patient balances that are due and owing. There is very little evidence that in this age of cell phones and caller ID, collection calls to patients yield much return.

Four standard industry metrics are used to assess AR management: 1) days in accounts receivable (DAR), 2) percentage of total AR over 120 days (% over 120), 3) bad debt percentage and 4) net collections percentage. It should come as no surprise that the last one is the most useful but the most difficult to define.

DAR measures the half-life of the AR; i.e., how long it takes to resolve the average account. DAR can be a useful metric to track over time. Any increase would indicate that there has either been a change in the practice or a change in the billing process, and the change should be carefully investigated. This is such a commonly used metric that it is easy to find benchmark data. The Medical Group Management Association (MGMA) is the most common source. The reality is that such benchmarks often simplify what is actually a complex process. Ultimately, historical trending is the most useful way of assessing DAR data.

It is often said that AR is like vegetables: the longer it sits on the shelf, the less value it has. This is why practices like to monitor the % over 120 day AR. Since collectability of accounts diminishes greatly over time, an increase in the % over 120 day AR portends lost revenue potential and may also indicate inadequate attention to problem accounts. Invariably, however, increases in % over 120 day AR are usually directly related to processing issues with specific payers. Managed Medicaid plans are a constant challenge, for example. While they may impact total AR, the actual value of unresolved accounts may not be all that significant.

The industry standard is for practices to track all AR based on gross charges—in other words, based on how the charge was billed. Because of the increasing disparity between charge and payment rates, many are starting to prefer AR reports based on expected collections. As will be discussed, this makes good sense, but the devil is in the details.

It has been said that any billing company can make its AR metrics look good simply by writing off old, unresolved accounts. This is why bad debt measures are useful. Bad debt can be defined as the disparity between actual and expected collections. Unfortunately, it can only be truly defined for participating payment plans. If the Blue Shield rate is $60 per unit and the practice routinely nets only $58, then there is a bad debt percentage of two percent. The question is how one determines the bad debt when the group charges $100 per unit to a patient with no insurance and the payment is $10 per unit. Can we really say there is 90 percent bad debt? Probably, yes. This is why overall bad debt will vary greatly based on the payer mix.

It is always useful to clarify what constitutes bad debt. There is value in tracking it, but the results must be interpreted carefully. As with other AR metrics, the goal is consistency.

Net collection ratio (NCR) is a very appealing concept. Ideally it measures how much of what is collectible is actually being collected. The underlying assumption is that, when the case is entered and the charge is calculated, it is also possible to predict the expected value of the case based on the patient’s insurance. While it is relatively easy to predict the allowable for a participating plan, it is not always possible to predict what the actual payment will be given that part of the payment will come from the payer and part from the patient. There may even be a coordination of benefits. Incidental services paid based on a surgical fee schedule such as invasive monitoring, nerve blocks, ultrasonic guidance and obstetric anesthesia charges often pose a special challenge.

As a general rule, NCR is more accurate and useful for contracted payers than for non-contracted plans and selfpay patients. The rule of thumb is that NCR should average 95 percent or above. The real question is how this is determined. If the calculation is based on DOS, then the only relevant data is at least six months old. DOE calculations will have no consistent relevance because there is no direct relationship between charges and payments.

The most effective strategy is to rely on a combination of metrics and a careful understanding of the specific implications of payer mix. These are essentially dashboard metrics that are intended to identify exceptions or negative trends at a general level. Meaningful analysis must progress from the general to the specific.

Productivity Analysis

There are four ways to increase provider compensation in an anesthesia practice: 1) attempt to negotiate better rates with contracted payers; 2) lean on the billing office to pursue open accounts more aggressively; 3) find ways to reduce the number of providers needed; or 4) improve utilization of nurse anesthetists and nurse practitioners. Most practices have had only limited success with the first in the current environment; as the percentage of government payers increases, the ability to negotiate meaningful increases in collections diminishes. Many would like to believe that micromanaging the billing process enhances collections, but the reality is that it really does not. Insurers consistently deny about 10 percent of all claims and patients pretty much pay what they can.

The one area where most practices are now focusing is operating room utilization and provider productivity. Pushing back on inefficient operating room utilization and right-sizing manpower and staffing are among some of the last options practices have to remain viable. This is where reliable and timely billing data can prove invaluable.

On both the facility and provider sides, the key to useful management is normalized data. Operating room utilization metrics must be normalized by anesthetizing location, and many prefer to normalize metrics by location and shift. In other words, how many rooms are in use from 7 am to 3 pm Monday through Friday, and what is the average productivity? Typical metrics include: cases per location day, units per location day, hours of anesthesia time per location day, and actual or expected collections per location day. Of these, the last two are probably the most useful. It is generally accepted that an anesthetizing location should generate 50 ASA units per day shift. Ideally, this generates at least $2,000 per shift if the yield per unit is $40. There are two reasons why practices need financial support from the hospital. Either productivity is well below the 50 unit per day target, or the impact of payer mix makes $40 an unrealistic target.

How does one use this kind of information? It must form the basis of a strategy for communicating with and educating administration. The key stakeholders must come to understand that the economics of anesthesia are in almost perfect alignment with those of the facility. The problem is that for years anesthesia was a free good. Realigning expectations with new economic realities can be a tedious and frustrating process. Appropriate data can help greatly in this regard. Ultimately, numbers don’t lie.

Provider productivity is the flip side of the same coin. Does the practice have the right staffing and the optimal mix of physicians and CRNAs, and are they all equally productive? It is often said that in most organizations 20 percent of the staff does 80 percent of the work. While this is probably never the case with an anesthesia practice, the principle of disparate levels of productivity still applies. Some practices will attempt to overcome this by means of complicated compensation and incentive systems. Others pay a salary and hope for the best. The harsh reality is that one cannot manage what one does not measure.

At the same time, mastering anesthesia productivity metrics is not a simple flip of the switch exercise. Assumptions must be carefully assessed. Typically, obstetric activity is excluded. Most prefer to focus only on weekday activity by shift. Each anesthetizing location should be clearly designated. Flip rooms must be accounted for. A decision must be made about what to do with acute pain revenue. Most prefer to attribute acute pain collections to the location where the surgical case was performed. The analysis of productivity for non-OR anesthesia (NORA) procedures can be tricky, as procedures may actually be performed in a variety of venues. The idea, though, is to establish a set of baseline metrics that can be tracked over time. Management data has no value unless it is actionable. The practice must be willing to act on its data.

Profitability by Business Line

It can be said that healing is an art, medicine is a science and healthcare is a business. Such is the new reality of anesthesia practice management. It is not enough to manage patients through the trauma and discomfort of surgery. It is not enough to focus on what happens within the four walls of the OR. It is what happens outside that will determine a practice’s success or failure. Cost accounting is anesthesia’s new reality. How much service can the practice provide, and for what price?

Anesthesia practices are becoming ever larger and more complex. Even relatively small practices are exploring a variety of expansion options that may include ambulatory surgery centers, specialty surgical hospitals, endoscopy centers, doctors’ offices and chronic pain management. Risk taking is increasing in the effort to grow market position and leverage. This represents a paradigm shift. It is easy to make mistakes. Not all opportunities pan out. Each business line’s profitability can have a significant impact on the practice as a whole. Many a practice has overcommitted itself to surgicenter and doctors’ office only to discover that it was actually losing money, which, with the proper financial management tools, could have been avoided. It is also a potential fraud and abuse issue—providing services to a referral source at below cost can implicate real liability under the applicable fraud and abuse regulations.

The organizations that manage growth best have clear guidelines for acquiring new sites. They conduct a careful financial analysis of the coverage requirements and the revenue potential. They have enough experience to know when the data provided by the facility is reliable, reasonable or just wishful thinking. The bottom line is that any new site must give the practice an economic or strategic advantage. This is where the use of outside advisors proves to be so valuable.

The first step must be a clear understanding of the group’s baseline profitability. If the practice is currently generating $2,000 per anesthetizing location day, then it makes no sense to take on contracts for facilities that will yield much less unless there is some other justification. Before a group takes on a new venture, it would be prudent to perform careful review of the applicable fraud and abuse laws as well as financial modeling. This is the new reality.

Quality Measurement

It is often said that the focus on the economics of medicine means that the practice is more about the dollars than the quality of care. The opposite is true. Practices have to be able to justify their value empirically and not just anecdotally. Almost every exclusive contract now includes quality metrics.

This latest data challenge to anesthesia practices comes from a number of directions. On the federal level, the Quality Payment Program has made it necessary to comply with the submission policies of a Qualified Clinical Data Registry, such as that offered by ABC. This entails decisions about the measures to track and the means to capture and report them.

Hospital contract quality metrics may go beyond these. Adding a new data element to the list of what must be captured for every case is a three-step process: 1) the measure must be defined; 2) providers must have a user-friendly way of reporting it; and 3) the results must be confirmed, validated and timely so that issues may be acted upon. Many a physician has observed that this process is becoming less and less about the care and more and more about how the care gets reported.

Thus far, pay-for-performance measures have not had a significant financial impact on most anesthesia practices, but the evidence of their importance is growing. The consistent changes and confusion associated with quality measures require a dynamic data management strategy that can respond quickly to new regulatory realities.

Closing Thoughts

Anesthesia has evolved dramatically over the past few decades. Some may have found this particularly challenging, while others saw significant opportunity. The fact is that the specialty is uniquely positioned for the new realities of American medicine. Data has always been the key to effective clinical decision making. It is simply time to pull the lens back and put things in a broader perspective. It is a difference of degree, not of kind—a refinement of an existing skillset.

Just as anesthesia used to be viewed as a free good in the days when hospitals did not need to subsidize anesthesia departments, the data captured by billing companies used to be viewed as a free benefit of the relationship. It is now clear that you get what you pay for on both accounts. If you want to use anesthesia to sell more operating room availability, you have to pay for it. By the same token, if you want someone with a clear understanding of your practice’s business needs to mine the billing database, then it has value and a cost. If you want specific tools to address specific problems, then you need someone qualified to develop them for you. After all, if you have seen one anesthesia practice, you have seen one anesthesia practice.

Jody Locke, MA, serves as Vice President of Anesthesia and Pain Practice Management Services for Anesthesia Business Consultants. 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 is a key executive contact for groups that enter into contracts with ABC. Mr. Locke can be reached at