Anesthesia Subsidies: How to Get Your Arms Around This Beast

Facility administrators are increasingly faced with new or escalating requests for anesthesia subsidies. Over the past decade, the percentage of hospital based anesthesia groups requiring financial support has rocketed from approximately 15% to 75%. The magnitude of subsidy requests has also escalated dramatically, making the “anesthesia subsidy beast” an increasingly dangerous predator stalking the facility bottom line.

Anesthesia providers are fundamental to providing operating room services; abruptly replacing an anesthesia group is fraught with clinical and financial pitfalls. Therefore, administrators often feel disadvantaged in contract negotiations. This article will identify key drivers which facility leaders should understand when facing an anesthesia subsidy request. These may be considered the Four Legs of anesthesia subsidies, and we recommend that each is evaluated during negotiations with anesthesia providers.

The Four Legs

Only two of the four legs are under the control of the anesthesia provider group, as shown below:

What is Fair?

Fair market value is determined by anesthesia provider supply and demand. Over the past decade, a substantial increase in demand for anesthesia services, combined with a reduced supply of providers, has led to rapidly escalating compensation. Surgical Centers offer an attractive lifestyle and reimbursement platform for anesthesia providers. Thus, to attract and retain providers, hospital administrators have had to increase compensation. This has driven the median anesthesia compensation dramatically upward over the last decade. This first leg of anesthesia subsidy is market driven and there is little that facilities or providers can do to impact this number. However, contract negotiations do present the opportunity to incorporate incentive pools which are designed to support a wide range of deliverables including clinical and customer service parameters.

How many rooms do we run?

The second leg, anesthetizing locations, is considered the primary driver of anesthesia staffing requirements. The number of locations is normally controlled by the facility. Due to surgeon demand, administrators are often under pressure to open additional locations. Adding additional locations without increasing the net number of surgical minutes in the OR suite decreases anesthesia utilization – leading to lower anesthesia provider productivity. Decreased provider productivity will lead to fewer anesthesia units billed resulting in an increased subsidy required to keep the providers at fair market compensation.

The number of anesthetizing locations is a multi-factorial decision, with important implications for the ability to grow caseload and market share. Nonetheless, one of the considerations to weigh when making this business decision is the impact on anesthesia subsidy.

How do we cover our rooms?

Leg three is the anesthesia staffing used to cover the required anesthetizing locations. Several factors impact a reasonable staffing matrix, including whether the group functions in a physician only model, or utilizes CRNA’s. Considerations in designing staffing models are numerous and must take into account many factors including the volume and complexity of the cases, after-hours workload, call obligations, and subspecialty coverage requirements. Since the addition of a single provider will have a large financial impact, an expert review of the proposed staffing matrix is recommended in any subsidized arrangement.

Where is the money?

Administrators who are subsidizing anesthesia groups are either directly or indirectly responsible for the ability of the group to bill and collect. Choice and oversight of the billing company is frequently left to the group, so there is a clear disconnect between the flow of dollars and the incentive to collect those dollars. Thus a facility which is not continually assessing the performance of anesthesia billing is like a corporation which doesn’t follow the factors allowing it to collect revenue at one of its divisions. Not a likely scenario at any successful company, but curiously common in the world of anesthesia.

We therefore recommend that the entire revenue cycle be tracked in any subsidized anesthesia arrangement. Properly implemented, tracking can identify areas of underperformance; quantify the potential financial opportunity; and benchmark against key billing performance indicators.

Keep the Beast Under Control.

Armed with an understanding of the main drivers of anesthesia subsidies, what can facility leaders do when entering into discussions with providers?

Implement contractual arrangements which facilitate ongoing tracking and benchmarking of key performance indicators tied to specific deliverables. Look closely at anesthetizing locations and the associated anesthesia staffing model. Understand and develop an ongoing data tracking mechanism to oversee billing performance. Engage experts as necessary to help bridge the gap in understanding and to help define “what is reasonable” in setting expectations of both the facility and providers.

By focusing on and addressing the individual legs of this subsidy beast, you may not be able to achieve complete containment, but can take steps to mitigate the bite to your bottom line.