Click here to request your copy of the 2012 Anesthesia Subsidy Survey Report.

This is one of the biggest concerns hospital CFOs have in paying an anesthesia subsidy. And in many cases it’s a valid concern for the following reasons:

• Complexity: Anesthesia billing is complex. Not fully understanding accurate time documentation, contract compliance, or charge captures, to name a few, can lead to money being left behind – at times as much as 30%!
• Control vs. Risk: Anesthesia groups have complete ‘back-end’ control over their contracting, billing and collections, with no checks and balances for adequate business performance, or process for disclosure. In a subsidized arrangement, this poses a substantial risk to the hospital.
• Expertise: Good doctors aren’t always good billers. Not only is anesthesia billing unique and complex, but it also requires good contracting and revenue cycle management skills that many doctors may not have when billing for their own services.
• Incentive: Anesthesia groups that are provided a guaranteed income through a hospital subsidy may lack the incentive to optimize their billing performance.
• Complacency: When outsourcing the billing to a 3rd party billing company, many anesthesia groups have a false sense of security of that company’s expertise and performance. In our experience, some billing companies pursue only those payments that are easy to collect and don’t take the time to verify patient data or follow up on denials to maximize collections.

The solution? Hospitals would be wise to track contracting and billing performance in any subsidized anesthesia arrangement. Evaluating the group’s payor contracting strategy, for example, and aligning it with the hospital’s own contracting principles is a good first step. Understanding how the “actual blended unit rate” compares with the “expected” gives insight into how the company is collecting relative to contract allowables. Many standard revenue cycle measures are just as relevant in anesthesia billing as elsewhere, such as days in A/R, cash flow, and denial rate. In addition, an independent anesthesia billing consultant can evaluate the current documentation and billing procedures for possible changes that can increase billable revenue and collections.

Chart A: The Four Main Drivers of Anesthesia Subsidies

The need for hospitals to subsidize for anesthesia services is a complex topic (see Chart A). Though it’s unlikely that improvements in anesthesia contracting and billing performance will eliminate the anesthesia group’s need for a subsidy, it could reduce the hospital’s subsidy payment, with no impact on service level, by as much as 30%!

Table A - MD Anesthesiologist/CRNA Compensations

The anesthesia staffing matrix used to cover anesthetizing locations, whether it’s MD only or some mix of MD/CRNA, is typically decided by the anesthesia group. With a difference in medium compensation of more than $260,000 between the two types of providers ($423,500 for MDs vs. $158,000 for CRNAs, see Table A), this decision can have a large financial impact on the group and, consequently, on the anesthesia subsidy paid by the hospital.  

There are numerous factors that affect this decision, including case volume, complexity, after-hours workload and subspecialty coverage requirements. Regulations and hospital/group policy also play a role.

Table B - States that Allow Independent CRNAs

Currently the federal government requires CRNAs in a hospital environment be supervised by a physician (anesthesiologist or surgeon) to bill for Medicare/Medicaid. Surgeons have historically been reluctant to take on the perceived potential liability of a supervisory role. Data also supports the view that independent CRNAs can provide a high level of clinical care (click here). And, with a continued shortage of MD anesthesiologists, recruitment of an MD in some areas of the United States can still be difficult, especially in rural areas. Because of this, sixteen states have opted out of the federal regulation (see Table B). Yet, good clinical practice (and also some States’ more restrictive regulations) still necessitates an MD anesthesiologist for certain cases and specialties. All of these factors have led many anesthesia groups and hospitals to establish policies of their own for CRNA supervision/ direction. So, while an all MD model is expensive and unnecessary, an all CRNA model is not suitable in most urban hospital settings. Finding the right balance of MDs and CRNAs for the unique environment of each hospital is the key – and a critical step in potentially saving hospitals hundreds of thousands of dollars in anesthesia subsidy. 

Anesthesia staffing model design is complex, requiring scheduling, clinical and billing expertise. Hospital administrators would be wise to hire a consultant familiar with these intricacies to evaluate the model currently used by their anesthesia group and consider ways to reduce costs without compromising patient care.

In our next post, we’ll evaluate another important driver of anesthesia subsidies: Billing & Contracting Performance.   

The number of anesthetizing locations a hospital system requires, and how these locations are staffed, is perhaps the single biggest contributor to anesthesia subsidy requests.

In a perfect world, anesthesia groups would provide services for only busy and efficiently-run ORs. OR downtime would be kept to a minimum so that nearly all of an anesthesia provider’s time would be billable for the group. The anesthesia group’s fixed costs would be spread across many high-revenue generating locations. Maximized revenue generation and controlled costs would allow the anesthesia group to self-sustain, and no subsidy from the hospital would be required.

But, (snap fingers) wake up! There’s no such thing as a perfect world.

The reality is that anesthesia groups are also staffing slow and inefficient anesthetizing locations. With poor scheduling and utilization, delayed starts, cancellations, and slow turnover, the anesthesia group is paying for its doctors and nurses to staff a location that is not always producing adequate revenue to pay their own costs. The more locations like this a group is servicing, the higher the subsidy a hospital can expect.

There are a myriad of reasons for why a hospital might keep a slower anesthetizing location open, including patient care, surgeon satisfaction, hospital politics, marketing and strategy. However, hospital administrators should be fully aware of the consequences of these decisions, weighing all the costs and benefits, including the impact on their anesthesia subsidy.

Our experience is there are always ways to improve the revenue and efficiency of every site. Evaluating the OR processes can be the first step: does your OR team meet national benchmarks for utilization, on-time starts, turnaround time, and pre-admission testing? For example, with better efficiency, perhaps one room could be closed during non-peak hours, thereby reducing staffing costs.

But, in our current healthcare mindset of reducing costs, we shouldn’t forget how sometimes increasing revenues can ultimately reduce (anesthesia subsidy) costs. Hospital administrators should evaluate what other services they can bring to their various locations, including pain management, GI or orthopedics, to build revenues for both the hospital and anesthesia group alike.

In our next post, we’ll evaluate another important driver of anesthesia subsidies: Staffing Mix.

Average MD and CRNA Compensation

Beginning in the mid-1990s, there was a dramatic drop in anesthesia MD and CRNA graduates, yet the number of surgeries, and thereby the need for anesthesiologists, was continually growing. This imbalance in supply and demand caused a dramatic increase in anesthesiologist compensation. In 2000, the average salary for an MD anesthesiologist was approximately $280,000 per year.¹ Today, the average salary is $423,000.² While CRNA compensation has not grown at the same rate, it has still increased from $140,000 to $158,000 in just the last 4 years.³

But, as you might expect, reimbursement rates for anesthesia services have not increased at the same rate. This has left a large shortfall for many anesthesia groups trying to recruit anesthesia providers to their practice.

There is no immediate fix for this driver of anesthesia subsidies – anesthesia providers will continue to seek fair market compensation for their services, and hospital and groups will be forced to pay fair market value to service their ORs. However, groups and hospital administrators should evaluate what they are getting for their money. Are there performance-based incentives in place for the anesthesia providers to meet hospital objectives? Is the hospital getting the most revenue it can from its providers, or are late starts, poor OR utilization, and cancelled cases creating missed opportunities in revenue generation and efficiency? Can the group or hospital add (more) CRNAs to provide care at a reduced cost? Is the group getting the best rate from its payors to compensate for provider costs and services?

1.”Physician Compensation and Production Survey,” Medical Group Management Association (MGMA), 2008
2. Physician Compensation and Production Survey,” Medical Group Management Association (MGMA), 2010
3.”Practice Profile Survey,” American Association of Nurse Anesthetists (AANA), 2010

Three years later, where are we today? Are hospitals nationwide paying MORE or LESS today for anesthesia coverage, and what is contributing to the change?

To answer these questions, we need your help.

Please complete the 2011 Anesthesia Subsidy Survey, one survey for each hospital. Your submission is completely anonymous and will take less than 5 minutes to complete. 

CLICK HERE TO BEGIN THIS SURVEY

Thank you in advance for your survey submission! Results will be posted to this website. Please contact us at info@drivinghp.com if you have any questions or comments.

In 2008 we wondered the same, specifically what is the national cost of anesthesia subsidies? HPS conducted a survey of 2,340 facilities with 25 beds or more to find out if and how much each facility was paying in anesthesia subsidy, and what might be contributing to each: size, specialty coverage, staffing model used.

From the survey results we estimated the 2008 total national impact of anesthesia subsidies to be $4.2 billion! Other findings include:

• Anesthesia subsidy payments ranged from $0 (13%) to more than $3 million (9%) per year per facility
• The average annual subsidy amount was $1.25 million per facility or $140,000 per location
• Cardiac and OB specialty coverage appears to increase the amount of anesthesia subsidy

Click here to view the final report: Anesthesia Subsidy Survey 2008

Three years later, where are we now? Are anesthesia subsidy requests and payments going up or down?

At HPS, we’ve seen anesthesia groups that have never received a subsidy now requesting one. But we’ve also seen large subsidy payments significantly reduced. MD and CRNA salaries are still going up. Anesthesia reimbursements are declining. Hospitals, seeking to be more competitive, are increasing their specialty care coverage and anesthetizing locations thereby increasing costs to anesthesia groups. But, we are also seeing more collaboration between hospitals and anesthesia groups to improve OR efficency and utilization, growing revenues and reducing costs. Additionally, anesthesia group are becoming more proactive in their billing, collections and contract managment, often through merging or outsourcing, contributing to improved financial stability for the group. Many factors affect an anesthesia group’s need for a subsidy, and at the moment, it’s still unclear which way the trend is going.

In the next few weeks we will be inviting hospitals to participate in the 2011 Anesthesia Subsidy Survey. Participation will be anonymous, and results will be e-mailed and posted to our website. To be included in the survey, send an e-mail to info@drivinghp.com.  We welcome your comments and questions!

Does this sound familiar at your hospital?

Over the past decade, the percentage of hospitals paying anesthesia subsides has skyrocketed from 15% to 75%. The magnitude of subsidy requests has also escalated dramatically, weakening a facility’s bottom line. But why? What drives the need for anesthesia subsidies? And how can hospital executives arm themselves in subsidy negotiations?

Hospital executives need to understand the four main drivers, or ‘legs’, of anesthesia subsidy requests and who controls each:

Changes, or poor performance, in any one area can fuel the anesthesia group’s need for a higher subsidy.

But how do these drivers affect your particular hospital and subsidy payment?

In upcoming posts, we will look more closely at anesthesia subsidies, why and how each driver affects subsidies, and provide you with tips for working with your anesthesia group and reducing your hospital’s subsidy. We’ll also outline ways to improve OR efficiency, surgeon satisfaction, and much more!