10 Steps to Prepare for and Respond to Anesthesia Subsidy Requests

As surgery centers and surgeons struggle with a Medicare payment system which reimburses at rates that are often barely high enough to break even on procedures, let alone make a profit, it is easy to overlook how reimbursement declines, along with rising costs and increases in the number of Medicare patients, is affecting another critical member of the surgery team: Anesthesiologists.

For many years, anesthesiologists were fiscally solvent providing services at hospitals and later ASCs, but over the last decade, anesthesiologists and their groups have seen a steep decline in revenue as Medicare and private payors tightened reimbursement rates, while at the same time higher reimbursing procedures left the hospitals for ASCs (and lower reimbursement). This revenue decline has occurred at the same time that groups have seen starting salaries for certified registered nurse anesthetists and newly-graduated anesthesiologists nearly double, says Thomas Wherry, MD, principal of Global Anesthesia Solutions, an anesthesia consulting and management firm.

As a result of decreasing profits and increasing costs, anesthesiologists have sought — and in many cases received — subsidies from hospitals for their services, with many of these subsidies now surpassing $1 million annually, says Steve O'Neill, president of Delmarva Healthcare Solutions, a healthcare consulting and ASC management/ development firm and principal of Global Anesthesia Solutions. While most surgery centers are not yet paying subsidies, this is likely to become an issue and potential financial challenge that many ASCs will encounter in the future.

To help you prepare for the day when your anesthesiologist approaches you to talk about a subsidy, it is important to understand why this may soon affect your ASC. It is also valuable to understand 10 steps you can take to prepare for and respond to your anesthesia provider requesting a subsidy.

Beginning of subsidies
It was around 2000 when anesthesia providers started approaching hospitals for subsidies on top of their contractual arrangement, particularly in smaller to moderate-sized markets where there is less anesthesia competition and also fewer procedures, says Mr. O’Neill.

“The reason why this is such a major challenge to the smaller markets in the country is the fact that most of the bread and butter surgery that’s going to the ASCs is coming directly out of the hospital,” he says. “Anesthesiologists are being asked to cover more rooms, and incur more costs serving the same amount of cases and the same individuals that they served a year ago prior in the main hospital.

“From their perspective, there really isn’t any opportunity to grow their units and off-set this additional cost,” he says. “Unfortunately, they need to make it up somewhere and they need to get a stipend to remain whole.”

Under the anesthesia “unit” system, each anesthetic is billed a specific base unit per case plus one time unit per 15-minute increment. Base units are determined by the acuity of a case. ASC cases tend to be less acute and have a base unit of around 3 to5. Thus, an average ASC case will be billed (base + time) 7 to 8 units while a hospital average case will be billed out at 11to 12 units. However, despite the difference in units per case, the provider can do better in an ASC as surgery centers pack their day full of cases.

Hospitals have been willing to give the anesthesia providers their stipend to help offset this difference and keep the providers because the alternative is not a comforting thought.

“The CEOs that we have talked to are very nervous, upset and angry (about paying stipends), but they are happy with the clinical care and hear horror stories from their colleagues who lost anesthesia coverage,” says Dr. Wherry. “They want to maintain local control and have a local relationship, and they are willing to pay this money to avoid losing the group.”

Effect on surgery centers
The good news for surgery centers is that they are still very desirable working environments for anesthesia providers.

“There is no shortage of providers — both nurse anesthetists and anesthesiologists — that are willing to take a little less money to work in a 9:00–5:00 or 7:00–3:00 work environment with no call and no weekend,” says Dr. Wherry. “With more choices, it’s minimizing the full impact of the need for a subsidy.”

But this is not true for every surgery center, especially some of those that share anesthesia providers with their hospital owners.

“It’s definitely trickling down to the surgery center arena, especially the joint-ventured ASCs and the hospital-owned ASCs,” says Mr. O’Neill.

In these scenarios, some hospitals are expecting the ASC to pay for a proportionate share of the subsidy.

“What we’re hearing from hospital CEOs recently is the hospital has been subsidizing the ASC, but now it is going to stop and the ASC is going to have to start kicking in their fair share,” says Dr. Wherry. “It’s going to get worse as the population continues to age and there’s a greater amount of Medicare recipients. Anesthesia payments from Medicare are extremely low and (the anesthesia groups) are not going to be able to make up the shortfall with the managed care contracts.”

Even surgery centers that are not involved in these joint-venture scenarios may not be able to avoid subsidies for much longer.

“(Anesthesia) groups have become savvier in the last five years as stipends have grown at the hospital level,” says Dr. Wherry. “These guys are getting paid large stipends or income guarantees often exceeding $1 million, so they’re guaranteed to make very competitive salaries but they are not performing as many cases as they were doing 10 years ago. So essentially they’re being paid to be non-productive.

“In some markets, the income guarantee/stipend is so high at the hospital level that the surgery center is not very attractive and that’s where some ASC are struggling” to retain their anesthesia providers, he says. “Suddenly that surgery center, which was very enticing 5–10 years ago, is not as enticing because an anesthesiologist can go to the hospital, get the day off after call, is not as busy and can make more money than at the surgery center.”

10 steps to follow
It is likely only a matter of time until your ASC is asked to subsidize its anesthesia provider, if it hasn’t already faced this request. Here are 10 steps to take that will help you prepare for that request, know how to respond to the request and even potentially prevent or postpone hearing the request.

1. Engage the anesthesia group
Anesthesia providers ask for subsidies when they are struggling financially. Unfortunately, says Dr. Wherry, many ASCs do not have a good understanding of the success or struggles of their anesthesia providers, so the ASC is not exploring ways to ensure their anesthesiologists are seeing strong returns on their work.

“I would strongly recommend that the management of any center should develop a relationship with the anesthesia group,” he says. “It sounds obvious but many are not doing it, surprisingly since anesthesia is such an important component of the surgery center.”

Management should identify a point person within the anesthesia group and start having a regular dialogue on how the group is performing and its experience at the ASC.

“You want to understand how the group is doing financially; is the center a good thing for them; are they having problems; and how’s their reimbursement, without getting into specifics,” says Dr. Wherry. “If the management company and or administrator showed an interest in the viability of my group and my practice … speaking as an anesthesiologist, that would go a long way.”

Include your anesthesia provider in discussions about scheduling efficiency and allocation of block times, for example, as these components of your operation can have an effect on the anesthesiologist’s financial performance.

“That doesn’t cost the management anything to include the anesthesiologist in that process,” says Dr. Wherry. “That alone would go a long way in keeping things at bay.”

2. Reward your anesthesiologists
Surgery centers can make a number of inexpensive gestures to show appreciation for their anesthesiologists, says Dr. Wherry.

“It's little things like providing an office with Internet access,” he says. “Or if it’s a profitable center, I’ve never understood why ASCs don’t provide some sort or incentive or bonus program for the group for hitting certain performance measures such as patient or staff satisfaction, or managing cost issues.”

An ASC may even want to consider naming one of its anesthesiologists as the center’s medical director and paying a small stipend for the work. This is likely to help develop a closer relationship with the anesthesiologists, which may encourage discussions on important issues such as financial challenges before problems turn into crises.

“The problem is the vast majority of ASCs view anesthesia groups and providers as a contracted service; they don’t really view them as team members,” says Mr. O’Neill. “I think any successful ASC management group or administrator will say that the center works better if anesthesia is part of the team and they help in making the day-to-day decisions.”

3. Ask for and understand anesthesia’s specific needs
If an anesthesia provider asks about a subsidy, do not hesitate to ask why exactly the provider is struggling and try to find out the particulars of the situation, getting down to the provider’s daily needs.

“What the ASC needs to understand from the group is what does the group need per day as a whole,” says Dr. Wherry. “During a ramp-up, for example, where you have two busy rooms and cases are starting to spill over into a third room, anesthesiologists may say they can’t afford to hire a CRNA (for the third room) because there’s not enough cases to pay for that CRNA. But if rooms one and two are busy enough, there may be more than enough of that revenue as a whole to cover the cost. You have to consider all three rooms.

“Try to understand how many cases the group needs per day as a whole to cover its costs — how many units does it really need to cover each room per day; it’s better to talk in units than cases,” Dr. Wherry says.

4. Require full disclosure
If, despite all of your efforts, you are unable to keep your anesthesiologist group financially secure and you are asked and agree to provide a subsidy, do not do so blindly. It is perfectly reasonable to ask the group to fully disclose its financial records so you can understand why the subsidy is necessary, says Dr. Wherry.

“I’ve seen stipend subsidies given when the group hasn’t really disclosed what the problem is — they don’t want to show their finances,” he says. “I don’t know how you can ask for multi-hundreds of thousands of dollars without that. When I deal with my hospital administrator, he has full access to my billing company so he can see where we’re at and how we come up with a budget.”

It is critical that your surgery center involve its accounting team or find someone who understands budgets to review the group’s financial records. This will put you in a place to truly understand the group’s position.

5. Consider a third-party representative
With hundreds of thousands of dollars potentially tied to a stipend, it is very easy for emotions to run high and the relationship between the facility and anesthesia group to become strained. One option to help prevent this is to find a third-party representative to come in and help determine a fair stipend and any parameters the group must meet to receive the stipend (see step 8).

“In order to take the emotion out and understand what the need is and what the right dollar amount is for both sides, I think it’s often worth seeking out a neutral party to access actual need and what the actual coverage requirements are,” says Mr. O’Neill. “This will help broker a deal where both sides can feel it’s a win-win.”

6. Understand the factors that should influence stipends
The subsidy that is provided should not just be based upon the group’s revenue. If the group is failing to capture the reimbursement it deserves or is overspending, it is not the facility’s responsibility to make up the group’s shortcomings.

A third-party representative — or someone within the facility with knowledge of providing anesthesia and perhaps running a group — should assess whether the anesthesia group’s subsidy request is appropriate based on the group’s internal efforts to maximize its revenue and minimize costs. Some questions Dr. Wherry suggests assessing about the group includes:

  • Is the group’s productivity appropriate?
  • Is the billing appropriate?
  • How aggressive is the group at pursuing good third party contracts?
  • Is the group staffing efficiently?

“All of that should impact the subsidy; all of those need to be answered in determining the subsidies, and I think sometimes organizations don’t look at all that,” Dr. Wherry says. “(Some groups) say, ‘here is our budget, here’s how much we’re making and you need to make up any difference.’ That’s a really dangerous approach because then it almost becomes an entitlement.”

7. Avoid one-way deals

Stay away from case/volume guarantees and money guarantees, Dr. Wherry suggests.

“What’s the incentive for the anesthesia group to be aggressive in billing and not to cancel cases inappropriately,” he says. “Guarantees become a disincentive. You really want some sort of shared risk where ‘we’ll help you, but it’s not if you don’t earn $30,000 this month, we’ll make up the difference.’ That’s where I’ve seen ASCs get burned.”

This is why it is beneficial to tie the stipend or subsidy to the group’s performance, Dr. Wherry says.

“I would strongly encourage any ASC or hospital — when entering into an arrangement — to try to get something in return, whether it is showing up on time, high satisfaction, good outcomes, participation in committees or accreditation help,” he says. “It really should be tied into performance.”

It is not unreasonable to make the financial performance of the ASC the first requirement necessary for the anesthesiologist group to receive a subsidy, says Mr. O’Neill.

“You don’t want to be paying them extra as the center is losing money,” he says.

8. Determine fair and attainable measures
If you are going to tie the subsidy to performance, both parties need to agree to the performance measures the group must meet. These measures should be measurable, attainable and not too easy, says Mr. O’Neill.

“These have to be something under their control,” he says. “So something like turnaround time is not always the best performance measure because there are so many things that impact turnaround time. It’s not fair just to measure the anesthesiologists on something out of their control.”

Reasonable performance measures may include:

  • showing up to the facility on time;
  • staying until the patients leave;
  • committee involvement;
  • providing in-service training to staff;
  • patient satisfaction (with surveys that include a rating for anesthesia); and
  • surgical outcomes such as postoperative nausea and vomiting rates.

Once the measures are agreed upon, you will want to put them in a well-defined contract. Also, depending upon which performance measures are chosen, the anesthesiologists would likely appreciate an invitation to become involved with the ASC’s efforts to improve efficiency in these areas, says Mr. O’Neill.

9. Keep subsidy contracts short-term
Subsidy contract terms should run between six-month and one-year terms. If the ASC is ramping-up and adding an operating room, consider a six-month term as it will give both sides an opportunity to revisit the contract after several months of use of the new room. This term may also help serve as motivation for your surgeons.

“The surgeons want to fill those rooms because they don’t want to lose the group,” says Dr. Wherry. “It helps the ASC management to motivate the surgeons to ramp-up volume because if they don’t, they’re still going to be paying the anesthesiologists whatever was brokered.”

The longest subsidy or stipend contract you will probably want to sign is one year, with a review process that starts about three months before the contract expires, says Dr. Wherry. This will allow ample time for a complete review of the ASC’s and the anesthesia group’s operations and profits. If the ASC is performing well, and the anesthesia group is benefiting from this growth, the ASC may want to explore whether a subsidy is still necessary or if providing a fair bonus or sharing of the profits for good work is a workable alternative.

“I don’t think ASCs are doing enough of that,” he says. “They’re not committing to anything. If the ASC has a bad year, no money is paid. If the ASC has a great year, why not give the anesthesiologists a small piece of the pie? That’s a better arrangement as it’s on more of a risk-sharing basis.”

10. Know your alternatives
Depending upon the relationship you have with your anesthesia provider, a subsidy request can come at any time — and unexpectedly. And the provider may expect an answer fairly soon after informing you of the need for a subsidy. It is worthwhile to regularly research alternatives for your anesthesia provider just in case you cannot satisfy a request for a subsidy and ultimately lose the service of your current group.

“It’s important to understand your alternatives,” says Mr. O’Neill. “You don’t have to put out (requests for proposals) or shop for other groups. However, it’s good to know your alternatives when you get to that point” of (discussing a subsidy).

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