While there is always risk associated with any business model, potential perils to an anesthesia practice can be minimized through effective communication with the facility administration. This includes understanding how administrators think and educating them with sound data.
Anesthesia providers and hospital administrators look at the world through very different lenses. One might say the latter group has a big picture view—given their need to manage many specialties—while anesthesia providers have a very specific practice view. In some ways, anesthesia providers are always trying to establish the relevance and importance of their specialty in the overall scheme of hospital operations. It is useful to remember that, for many years, anesthesia was essentially a free service to the hospital; fee-for-service revenue covered the cost of providing the care. The anesthesia group’s need for financial support is a more recent phenomenon.
A Difference in Perception
It is often said that clinicians are not business people, and administrators are not clinical providers. While there may still be some truth to this, changing market conditions have seen considerable evolution, and communication is definitely improving. Even so, there is still a gap, and many providers would do well to learn the administrator’s perspective. Nothing is more important to the viability and success of the anesthesia practice than an open and productive dialogue with administration. Regular interaction is critical.
Most hospital contract negotiations involve a detailed discussion of O.R. utilization, productivity and staffing. This is often the first disconnect. Hospital administrators measure production in terms of cases, which can be particularly confounding to anesthesia providers who measure productivity in units billed. Administrators tend to assume that ultimately a case is a case. Their concept of an average case may have little or no resemblance to actual activity. A practice that provides cardiovascular anesthesia will have an entirely different set of requirements from a community hospital with no cardiac care.
More important, though, is how cases are scheduled. Administrators tend to assume that more cases are better, irrespective of the type of case and its payer mix. In an ideal world, each operating room would generate at least 50 billed units per eight hour day, and the payer mix would support an average daily revenue of $2,400.
As scope creep has changed the nature of administration expectations, anesthesia practices are having to cover more locations with less revenue potential per anesthetizing location. The problem is that administrators think in terms of an uber-anesthesia model. Like using the ride-share service, they want to be able to ask for an anesthesia provider when needed and only pay for that episode of care. Hospital administrators seem to take the attitude that anesthesia providers always have downtime. They think they can add on services without there being any significant repercussion. This constant expansion of the service requirements without a commensurate recalculation of its financial impact is the bane of existence for too many practices. The real problem is that this requires a rethinking of a traditional anesthesia belief: if the hospital asked providers to jump, the only question was how high.
It is not clear how seriously most hospital administrators take the current anesthesia manpower shortage. The biggest challenge most anesthesia practices face today is generating enough revenue to recruit and retain a sufficient number of qualified providers. There is a very popular belief among hospital administrators that, if the practice will simply hire more CRNAs, the cost of providing the care will decrease. Unfortunately, this is really not true. While there was once a point at which CRNA compensation was less than half of physician compensation, that is no longer the case. Appropriate staffing is now much more a matter of determining the right number of providers rather than the mix of physicians and CRNAs.
Evaluating Future Risk
Especially given the impact of the pandemic three years ago, it has become clear that every arrangement involves risk. Anesthesia providers are especially subject to three types of risk: changing surgical case volume, changing mix of surgical cases and payer mix changes. While 2023 was a pretty consistent recovery year for most anesthesia practices and while things look good for 2024, one never knows how the future will unfold.
As the American population continues to age and as Medicare rates continue to decline, there is a significant downward pressure on practice collections. The fact is that, with current compensation rates, it is ever harder to manage the cost of providing care. The bottom line is that anesthesia practices cannot be expected to bear all the financial risk for changing market dynamics.
Virtually all anesthesia practices now require some level of financial support from their primary facilities. This used to be a hospital issue but now many ambulatory facilities are having to guarantee revenue potential. There is a saying in this business that anyone can calculate the financial support needed to balance the practice budget today, but will it still be appropriate tomorrow or down the road? Facility support should ideally address two key issues: what is necessary to balance the budget so the practice can remain viable, and what level of insurance will it provide to protect against the vagaries of the market. Herein lies the biggest negotiating challenge.
Exchange of Ideas and Data
Ultimately, what all of this means is that it is increasingly important to make sure that anesthesia practices and hospital administrators are on the same page. It is impossible to run a hospital without a strong and reliable anesthesia team. The challenge is to educate the administration so that its members understand and appreciate the true value of quality anesthesia care. The sharing of relevant and useful data is critical to this process.
Be sure to involve us in any negotiations with your facility. If you have questions about this topic, please reach out to your account executive.