Healthcare Performance Strategies is engaged in all aspects of strategic, analytical and supporting roles in the contracting, subsidy analysis, governance and group redesign of anesthesia provider groups. This case study gives an overview of a reduction of an anesthesia subsidy through a typical HPS subsidy reduction initiative.
Situation Description
A local anesthesia group was covering a Hospital in the Southeast with 6 anesthetizing locations as well as obstetric coverage. The group utilized 4 CRNA’s in the operating rooms as well as 4 anesthesiologists. Obstetric coverage was provided by a dedicated anesthesiologist during the day and on call at night. The group was currently receiving a subsidy through an income guarantee. Their trailing 12 month subsidy was $800,000. The anesthesia contract was coming up for renewal and the group was requesting an increase in the income guarantee amount by $700,000. With their projection of steady revenues, the estimated subsidy level would increase to $1.5 Million.
Engagement Objective
HPS was engaged by the Hospital to work with the OR leadership team and the facility CFO to evaluate options for subsidy reduction, seek alternative staffing models, assess the anesthesia revenue cycle and consider other viable options for anesthesia coverage.
Approach
1. Financial Analysis/ Pro-Forma Development
Several anesthesia group pro-formas were developed utilizing detailed caseload/payer mix, coverage requirements, several alternative coverage models and other key anesthesia metrics. Operating Room log analysis looked in detail at utilization of staffed time for the facility, but did not identify the opportunity to reduce anesthetizing locations. Managed Care rates were found to be below national averages and other comparable rates in the state.
2. Staffing Model Review
HPS evaluated the current and several alternative staffing models at the facility. Substantial financial opportunity was identified by expanding the medical direction ratio from 1:2 to 1:3, while maintaining an MD in OB to ensure adequate physician resources for call. The impact of this change reduced anesthesia costs by $600,000.
3. Analysis of Key Subsidy Drivers
HPS analysis identified opportunities in 2 of the 4 main drivers of anesthesia subsidies. In addition to the $600,000 identified through staffing model efficiency, another $200,000 reduction opportunity was identified in the current anesthesia revenue cycle as well as another opportunity to increase revenue $250,000 in the next year through aggressive payer negotiations.
4. Onsite Evaluation
The onsite portion of the evaluation included an HPS physician consultant engaging in discussions with the administrative team, OR leadership, key surgeons, and the anesthesia group. The picture which emerged from these key stakeholders was a group with strong service levels and clinical care, and a stable but non-aggressive internal billing/management organization. The anesthesia providers were open to more aggressive contracting, and accepted the revised staffing model as proposed. Detailed discussion with the facility administrative team regarding the subsidy model led to the realization that the income guarantee structure exposed the facility to the risks of poor anesthesia revenue cycle management.
5. Analysis and Recommendations
The analysis supported a renewal with the existing provider group, however under a flat subsidy arrangement due to the fact that the group had shown poor performance in billing and collections. Since the group enjoyed significant surgical staff support and was felt to be a competitive advantage in the local market, it was recommended that facility not seek competitive bids from other anesthesia service providers. A 50/50 split of projected gains to be realized by rate increases was recommended as well.
6. Outcome and Implementation
During a follow up meeting with both the facility and anesthesia leaders, the new staffing model and revenue cycle improvements were agreed upon with an impact of $800,000. Due to the projected impact of the payer rate negotiations over the course of one year, and the anesthesia contract duration of 3 years, it was agreed that the agreed upon annual reduction in subsidy would represent 50% of the projection, or $125,000. The contract was now structured with a flat subsidy at an annual rate of $575,000 representing over a 60% reduction from the original subsidy request.
Results
The anesthesia subsidy assessment and completion of negotiations was achieved in 1 month, reducing the anesthesia subsidy from a requested $1.5 Million to an agreed upon $575,000. The ROI on the cost of the HPS subsidy reduction initiative was over 20 to 1.
