Anesthesia groups are facing a significant shortage of available providers during a time of increased demand for services from the hospitals they serve, pushing groups to pay significantly more for provider compensation as they vie for the limited number of providers in the marketplace. This intense competition, and increased provider cost, has caused consternation for both the hospitals, which are already cash-strapped, and the anesthesia groups, who are often uncomfortable confronting hospitals for more money. Yet in these difficult times, reasonable financial support from the hospital may be the only means of survival for an anesthesia group.
The need for a sustainable subsidy is not driven only by the provider shortage, but also by increasing facility expectations of anesthesia groups. The days when hospital expectations were confined to providing superior anesthesia care are long gone. Hospitals often expect all of the following as well:
- Participating in effective operating room management from booking to discharge, including leadership in efforts such as the perioperative surgical home;
- Covering often far-flung non-OR anesthesia cases such as endoscopy, MRI, cardiac catheter lab and OB;
- Devising and implementing quality improvement programs;
- Assisting in the development of new service lines;
- Driving OR efficiency and developing and implementing OR cost containment strategies; and
- Aligning anesthesia with operating room goals and hospital goals.
Each of these expectations may come with the need for additional anesthesia providers.
Perhaps the most difficult hospital expectation to meet is aspirational coverage. Hospital leadership, especially in competitive markets, tends to err on the side of excess capacity in order to attract surgeons. From the perspective of the anesthesia group, the economics of anesthesia is determined by the revenue potential of each anesthetizing location with the main question being: does an operating room generate enough revenue to cover the anesthesia cost? Getting the hospital to understand the cost of wasteful practices like surgeon requests for flip rooms or underutilized surgeon block times is often a difficult task.
This article will provide: (1) practical information on the process for determining the type and amount of hospital financial assistance needed by the group; and (2) a discussion of the legal considerations that should be contemplated during the drafting of the professional services agreement.
UNDERSTANDING THE TYPES OF HOSPITAL FINANCIAL SUPPORT
There are a number of arrangements that are commonly used to structure the financial support of a hospital including:
- Collections guarantee: The parties agree on the amount of money needed to sustain the anesthesia practice. The hospital makes regular support payments with a periodic (or annual) audit of professional collections and a reconciliation process to ensure total revenue collected by the group does not exceed the agreed upon amount. Under a collection guarantee arrangement, the hospital assumes the risk of empty ORs, eroding payor mix and group collection issues, leading to the common hospital demand of complete financial transparency from the anesthesia group.
- Fixed subsidy: The parties agree to a fixed amount of financial assistance and the hospital makes periodic support payments to the anesthesia group. There is no audit or reconciliation process as the amount is fixed regardless of collections. Under a fixed subsidy, the anesthesia group assumes the risk of empty ORs, eroding payor mix and group collection issues.
- Hybrid arrangement: The parties agree to a fixed amount of financial assistance and the hospital makes periodic support payments to the anesthesia group, but the parties also define a maximum threshold for professional collections, after which the group remits a portion of collections over the threshold to the hospital. There is the potential that the hospital’s subsidy will decrease if collections are robust. Under this arrangement, the anesthesia group assumes the risk of empty ORs, eroding payor mix and group collection issues.
Regardless of the type of arrangement, there are five key factors that motivate the parties and put guardrails around the staffing and hospital financial support needed: (1) the number of required anesthetizing locations; (2) the staffing model; (3) the cost to staff the required anesthetizing locations; (4) the group’s revenue cycle management performance; and, (5) the legal requirement that the amount of hospital financial support is at fair market value.
THE NUMBER OF REQUIRED ANESTHETIZING LOCATIONS
The OR schedule, including the number of anesthetizing locations needing anesthesia coverage at any given time, is essentially a hospital decision. The anesthesia group can try to influence the hospital decision-making process by providing data driven input on the actual use of the anesthetizing locations, the failure of a surgeon to consistently use his/her block time, and the types of cases being added on to the OR schedule at the end of the day (e.g., urgent v. emergent), but in the end the anesthesia group may have to accede to the aspirational coverage demands of the hospital with the only tool available to arrive at a reasonable coverage grid being the actual cost to provide the needed number of anesthesia providers (which often surprises hospital leadership, who greatly underestimate the cost of providing anesthesia services).
Regardless of the hospital decision on the number of anesthetizing locations, the group should ensure that the coverage grid in the professional services agreement accurately reflects the agreed-upon anesthetizing locations. This may include additional hospital or other freestanding clinics in the health system, the main OR(s) and all hospital non-OR locations. The coverage grid should also reflect the exact days and times that anesthesia is required, including call (and whether the expectation is for in-house call). By the time the professional services agreement is signed, the parties should understand exactly what the coverage requirements are—there should be no room for ambiguity.
The professional services agreement should also contain provisions for daily (not permanent) expansion of coverage, whether it includes a specific protocol for adding cases and/or anesthetizing locations or whether the OR leadership (including anesthesia) jointly makes the decision. If the hospital insists on consistent late additions to the schedule, the professional services agreement might include criteria for increasing the subsidy for overtime coverage.
For permanent additions or subtractions of anesthetizing locations or coverage hours, anesthesia groups should consider including language in the professional services agreement that:
- Makes the decision to change the number of anesthetizing locations mutual rather than simply dictated by the hospital;
- Triggers a review of coverage when certain criteria are met such as the passage of time or a percentage drop in case volumes;
- Provides sufficient time for the group to staff up (or down) in the event of a change in coverage requirements; and,
- Places the onus on the hospital to absorb the cost of locum tenens if it does not provide sufficient notice to the group to allow for retaining of additional providers.
THE STAFFING MODEL
Hospital negotiations often include discussion of the most cost-effective staffing model. In the best of worlds, the hospital trusts the anesthesia group to use its preferred staffing model without hospital interference, but in most instances the hospital understands that the staffing model drives the cost of anesthesia and insists that it be the most cost-effective method and codified in the professional services agreement. From a staffing and billing compliance perspective, the chosen model is most often medical direction in a care team. Anesthesia groups should be wary of hospitals that insist on saving anesthesia costs by over-leveraging anesthetists and demanding “highly stretched” models or by one anesthesiologist taking call for more than one hospital/facility because of patient care and billing compliance issues.
THE COST TO STAFF THE REQUIRED ANESTHETIZING LOCATIONS
As discussed above, the number of locations and the staffing model drive the cost to staff the hospital required anesthetizing locations. The staffing cost calculation should include all of the following expenses to the group:
- Provider salaries for professional services;
- Provider benefits including, but not limited to, health insurance, retirement contributions, disability insurance and life insurance;
- Number of weeks of vacation;
- Working post-call;
- Ancillary costs like licensing and CME;
- Provider compensation for administrative services such as the Department Chair, Anesthesia Medical Director, Anesthesiologist in Charge and Perioperative Surgical Home Medical Director; and,
- Cost of running the group for such things as the total compensation for the practice administrator, cost of revenue cycle management and cost of any other administrative staff.
Groups should expect hospital leadership to require transparency regarding these costs; the hospital may want to see information confirming the quality of the group’s revenue cycle management or W-2s supporting provider and administrative salaries and benefits. Groups are reminded that hospital leadership often has to justify the amount of financial support to the Board of Trustees, and unfortunately the price of taking financial assistance from the hospital is loss of privacy of business practices.
Lastly, during these times of anesthesia provider shortages, anesthesia groups may want to press hospitals for an annual fair market value subsidy adjustment tied to the consumer price index or the like. This avoids having to serially renegotiate the financial support.
THE GROUP’S REVENUE CYCLE MANAGEMENT
In the event that the parties adopt the collections guarantee or the hybrid arrangement, the amount of financial support varies depending on the anesthesia group’s net collections (all fees and revenues paid by any individual and/or third-party payor as consideration for group’s performance of anesthesiology services for patients at hospital less refunds to patients and payors). It is, therefore, common to include language in the professional services agreement that allows the hospital to conduct audits of relevant group books and records pertaining to the financial support to substantiate effective billing and collections. Groups should decide what records and information they are willing to share with the hospital and seek to codify those guardrails into the professional services agreement.
THE LEGAL REQUIREMENT THAT THE AMOUNT OF HOSPITAL FINANCIAL SUPPORT IS AT FAIR MARKET VALUE
To ensure compliance with regulatory requirements governing financial arrangements between hospitals and anesthesiologists (e.g., Anti-Kickback Statute, Stark and other regulatory considerations), the parties should ensure that they obtain a fair market value (FMV) review to determine a range of potential support payments that is market based and consistent with FMV parameters. The details of the applicable legal and regulatory framework is beyond the scope of this article. However, anesthesia groups should be aware that:
- Hospitals must pay fair market value for anesthesia and related services;
- The professional services agreement needs to clearly specify services that are included in cost calculations;
- The coverage expectations should be clearly outlined in the FMV report; and,
- The cost calculations should be detailed in the FMV report.
Hospitals often select their own FMV experts, but the best way to collaborate in determining an FMV subsidy is for the parties to mutually agree to the expert and share the fees and expenses. Anesthesia groups should try to include language in their professional services agreements that requires such mutual agreement, or at least the right to work with the hospital to outline the relevant facts for the expert and the right to review all draft and final FMV reports.
RECONCILIATION
The final piece of the collections guarantee or hybrid arrangement is the periodic reconciliation to determine if the hospital paid the agreed upon amount of financial support. The reconciliation can be drafted to occur at any interval agreed to by the parties, but rarely extends past one year of support. For the collections guarantee, normally the language in the professional services agreement requires that the group provide the hospital with its net collections for the designated time period. If the net collections exceed the money provided by the hospital, the group must refund the difference. If the net collections did not meet the agreed upon amount of support, the hospital must pay the difference between the collections and the guarantee amount to the group. It is common to include language that puts an end date on the hospital’s right to request a refund. This is necessary so that the group can have certainty as to its financial obligations as it walks through the next year of services and collections.
CONCLUSION
As discussed above, anesthesia groups are facing unprecedented times where a significant shortage of available providers is occurring at the same time that hospital patient acuity is increasing and payor fees are decreasing—with no discernible end in sight. In these difficult times, anesthesia groups must be willing to show their hospitals that financial assistance is essential to provide requested, high quality anesthesia services.
Vicki Myckowiak, Esq. is a partner at the Health Law Partners, PC in Farmington Hills, MI. Ms. Myckowiak has been practicing healthcare law for over 30 years and focuses her practice on representing anesthesia and chronic pain practices on issues including compliance programs, reimbursement, third-party payer coverage issues, Medicare audits, commercial payer audits, fraud and abuse defense, contracting, chronic pain informed consent and HIPAA.
Ms. Myckowiak has helped implement and maintain compliance programs for dozens of anesthesia and chronic pain practices across the country. She also works extensively with third-party billing companies. A graduate of Franklin and Marshall College and The National Law Center at George Washington University, Ms. Myckowiak is a member of the American Bar Association, the American Health Lawyers Association, and the Health Care Compliance Association. Ms. Myckowiak frequently writes and speaks nationally on trends in healthcare law, including contracting, fraud and abuse, government enforcement efforts and regulatory initiatives, and compliance programs. She can be reached at vmyckowiak@thehlp.com.