By Jeffry A. Peters

Asking a hospital to provide financial support for anesthesia has become more common, but it is not getting any easier. Most hospital administrators do not understand anesthesia economics very well, so convincing them of the need for financial support is an uphill battle. At the same time, anesthesia groups often do not have a very good handle on their own financial operations. They have a hard time framing their revenue situation and making a persuasive case for assistance.

The two sides come to the table with very different ideas about the appropriate level of support. For the hospital, the ideal number is zero; for the anesthesia group, the dollar figure is a blend of real balance sheet losses and rumors about stipends received by practices across town, or across the state or country. There is little basis for a rational discussion. Financially, the immediate loser is the anesthesia practice. However, the failure to develop a workable coverage agreement ultimately hurts the hospital as well.

Anesthesia groups can circumvent such problems and get the financial support they need by leading a fact-based discussion. Based on my experience with dozens of stipend negotiations across the country, the key is following a seven-step process focused on the realities of anesthesia practice.

1. Define the hospital’s service goals. This step addresses a major cause of conflict between hospitals and anesthesiologists—the hospital administration does not really understand what it is asking for. Begin by identifying the anesthetizing locations and hospital services to be covered. In addition to the main OR, this will typically include hospital-owned ambulatory surgery centers, obstetrics/gynecology (OB/GYN) and pain coverage, and any special procedures performed outside the OR. For the main OR, identify the number of rooms and hours open; take account of call and post-call requirements.
2. Define the anesthesia staffing requirement. Once you have determined the number of rooms and services to be covered, define the required staffing level. Depending on your coverage model, allocate physician and nurse full-time equivalents (FTEs) by room and service. Take into account vacation and paid time off; then, add up the various room/service FTEs to an FTE total by provider (Table 1).
3. Estimate provider costs. Convert the total FTE requirement into a total cost of provider services. Physician costs include compensation, retirement and health plan expenses, malpractice insurance, continuing medical education benefits and payroll taxes. Similarly, calculate costs associated with certified registered nurse anesthetists and multiply by the number of providers (Table 2).
4. Define the anesthesia group’s existing revenue. Calculate the group’s net annual collections. Add any other sources of revenue that the practice may have.
5. Verify your collections effectiveness. Many anesthesia practices have poor collections processes that result in a high level of write-offs. Improving collections performance will reduce your support request, win goodwill from hospital administrators and improve your chances of negotiation success. Most practices can safely estimate their potential revenue improvement by projecting net collections, accounts receivable and other measures to median or top-quarter performance.
6. Define the required support. To your current annual revenue (see step 4), add your potential collections revenue improvement (from step 5) to get your net projected revenue. To get your total cost of coverage, add provider costs (see step 3), billing expenses (4% of gross revenue) and practice overhead (8.5% of gross revenue). Subtract the net projected revenue from the total cost of coverage. This figure is your practice’s total support requirement for the hospital’s service goals (Table 3).
7. Establish monitoring mechanisms. Because the entire OR/anesthesia relationship is fluid, any stipend agreement needs to include built-in mechanisms for monitoring performance and adjusting the support level. It is reasonable for the hospital to request monthly financial statements from the anesthesia group (including gross and net revenues, accounts receivable days by payer, net collections ratio and a detailed denial report). Anesthesia groups should have access to monthly OR volume reports, and the support agreement must provide for automatic adjustments by case volume.