Anesthesia Subsidy Solutions

Demystifying the
Anesthesia Stipend

ACHIEVING MORE COVERAGE
& BETTER QUALITY
FOR LESS COST

October 27, 2009 2:15 p.m. EST

The Problem


Effects of the Rising Subsidy

75% 66%
75% of hospitals 66% of hospitals
are experiencing are limiting
an increase in access to
surgery wait operating rooms
times
2º anesthesia staffing issues
--American Society of Anesthesiologists

Effects of the Rising Subsidy

47% of hospital
administrators are reducing
or re-directing operating
room procedures due to
anesthesia staffing issues.
- ASA Hospital Study


Why? Cost of Current Staffing Model


Why? Salaries Above FMV


Why Are Salaries Rising? Supply & Demand


The Anesthesia Supply/Demand Gap

Retirees Outnumber Graduates

Residents entering anesthesiology practice
between 1990 and 2002 declined by 15%. – AMA

Practicing anesthesiologists
AMA study of 30,000 Anesthesiologists:
Approx. 60% are age 45 or older
More than 25% are 55 or older
Only 12% are residents

Practicing CRNA
Shortage is more than 5000 – US Dept. of Health


Common Stipend Solutions

Scenario 1 – Pay more for same coverage
Pay doctors more
Provide more robust perquisites
Scenario 2 – Cut-back on coverage
Sacrifice efficiency, surgeon, nurse and patient satisfaction
Reducing or re-directing operating room procedures due to anesthesia
staffing issues
Scenario 3 – Demand Anesthesia Cover its Costs
Attract less qualified anesthetists
Sacrifice efficiency, surgeon, nurse and patient satisfaction
Scenario 4 – Make your problem someone else's problem
Anesthesia is #1 outsourced service – Waller Landsen

Anesthesia Subsidy Trends
de-mys-ti-fy : Expected to Continue Growing
-(verb) to rid of Resulting In:
mystery or
obscurity; Decreasing OR Coverage
clarify
Decreasing OR Revenue
Increasing Stipend
Dissatisfied:
Surgeons
Patients
www.somniainc.com Hospital Leaders


Anesthesia Subsidy
Solutions
de-mys-ti-fy :
-(verb) to rid of Today’s Agenda:
mystery or Lower Anesthesia Expenses
obscurity;
clarify Increase Anesthesia Revenue
Increase OR Coverage
Increase Surgeons, Patient &
Leadership Satisfaction
Text Questions to be
Answered at End of
Presentation
www.somniainc.com


Presenters

Dr. Marc E. Koch Dr. Larry Schecter

Co-Founder & CEO Somnia CMO Providence Regional
Anesthesia Medical Center Everett
National Provider of Medical Degree from
Anesthesia Services Hahnemann Medical College
Including Leadership, in Philadelphia and surgical
Recruiting, Revenue Cycle training at UCLA and West
Mgmt., Payor Contracting & Los Angeles Veterans Hospital
QA Former Medical Director of
Yale University School of Santa Monica-UCLA Medical
Medicine: Anesthesia Center
Fordham University: MBA 30 year career as a General
Surgeon in Santa Monica, CA

Presenters

Dr. Marc E. Koch Dr. Larry Schecter

Strategies to Managing the
Reduce Your Subsidy/Service
Subsidy & Balance
Increase
Coverage


Presented By:
Dr. Larry
Schecter
Managing the
CMO
Anesthesia Subsidy
Providence
Regional & Service Balance
Medical Center
Everett, WA

Achieving Quality, Cost
www.providence.org
& Satisfaction


Providence Regional Medical
Background Center Everett
Everett, Washington
372 Bed Acute Care Hospital
14 ORs
Approx 12,000 surgical cases/yr.
#1 in Approx 4000 OB deliveries
Washington for Cardiac, Thoracic, Vascular, Neurology,
cardiac and Ortho, Urology, General, ENT
critical care, Top 100 Hospital (Thomson/Reuters)
stroke, and Distinguished Hospital for Clinical
general surgery. Excellence (4 yrs. Running)
www.providence.org


Achieving the Right Balance


Achieving the Right Balance

Subsidy Expectations Service Expectations
In Synch with Hospital Coverage at or Near 100%
Goals On-Time Starts
Formal QA Program to Quick Turnover
Prove Results Avoidance of Pre & Post-
Professional Behavior Op Bottlenecks
Active Citizens of Larger Thorough Pre-Op
Organization Evaluation


The Balanced Scorecard



Quality
Importance of Quality Management Data
Anesthesia Company Should Provide
Also Do it Yourself (the Anesthesia Scorecard)
Compatibility
Focused on Same Goals as Hospital
Citizens of Larger Hospital Community
Same Professionalism as Hospital Leadership
Other
Collective data for group
Individual data by provider
Should drive process improvement



Cost (Stipend)
Compensation Competitive with Region based on FMV
Based on Performance Objectives
Not Based on Physician Salaries



Satisfaction
100% Coverage
On-Time Starts
Pre-Op Interviews
Post-Op Examinations
Avoidance of Post-Op PONV
Meeting Attendance
Patient and Surgeon perception


The Challenge: Replace the
Incumbent Group

ADVICE: GET IT RIGHT THE
FIRST TIME – YOU DON’T
WANT TO DO THIS TWICE.


The Needs
More Robust Level of Service
The Challenge: Ability to Demonstrate Superior
Quality Outcomes
Replace the Group Compatibility with Hospital
Incumbent Work Collaboratively to Reduce the
Anesthesia Subsidy
Group


Timeline & Tasks
Less than 90 days to get a new
The Challenge: solution in place
Understand & Define our Needs
Replace the Solicit RFPs
Incumbent Interview Top Prospects
Anesthesia Negotiate Contract
Group Attract 30 clinicians in 30 days!!


The Early Results
Clinicians Successfully Recruited
The Challenge: Starting to See Competencies of Each
Provider
Replace the Noticeable Dedication, Attitude,
Incumbent Behavior
Anesthesia Anesthesia Leadership both Local &
National are Major Components of
Group Successful Transition
Implementing MD/CRNA Mix
Challenging but Rewarding


PRMCE’s Anesthesia Scorecard:
OR Efficiency
The Challenge: Available ORs
Turn-Around Time
Prove On-Time Starts
Anesthesia Obstetrics
Results C-Section Delays
Epidural Timeliness
Epidural Success
Quality & Citizenship
SCIP Standards
Meeting Attendance
Med Staff Participation
And Many More…


Lessons Learned

Get as much information as possible prior to
transition-Don’t hesitate to visit the OR!
Do It Right the First Time – Transitions are Tough
on the Facility and Tough on Staff
Anticipate credentialing challenges
Expect attrition and turnover
Be Totally Honest With Your Customers
There is No Substitute for Being in the Trenches
“Hard Times Flush Out the Chumps”


Presented by :

Dr. Marc E. Koch
Co-Founder and CEO of
Somnia Anesthesia

Strategies to Reduce
Your Subsidy &
Increase Coverage
www.somniainc.com


Before Reducing Your Subsidy You Must
First Understand It


Intervention possible but goals must be
realistic. Deriving maximal value is
realistic. Low cost and high quality is
magical.


Define Quality Nexus


Patient

• Unrushed /thorough Pre-Op
• Attentive Post-Op
• Avoidance of PONV
• Limited Pain
• Physical
• Financial


Surgical
Leadership

Surgeon-Centric Schedule ≠ “Efficient” Schedule
On-time Starts = Abundance of anesthesia staff
Quick Turnover = Abundance of anesthesia staff
Good working chemistry/trust
Additional Anesthesia Services


Nursing
Leadership

Surgeon-Centric Schedule
Support and assistance with challenging issues
Solve more headaches than they create
On-time Starts = Abundance of anesthesia staff
Quick Turnover = Abundance of anesthesia staff
Good working chemistry/trust
Additional Anesthesia Services


Administrative
Leadership

“Efficient” Schedule (Note: ≠ Surgeon-Centric Schedule)
Exploration of cost efficient staffing models
No Subsidy or Subsidy supports
FMV Compensation
FMV Benefits
Savvy contracting with payors, to a point
Stellar revenue management
Pro-growth mindset


“Revenue”= Funds to Support Anesthesia Department

There are only 3 Sources of Funds

1. Patients

2. Insurance Companies

3. Facility (Stipends)


Anesthesia “Revenue” from Patients

1. Patient mindset makes it a difficult line to walk

2. Surgeon alienation limits utility

3. Hard to count on


Anesthesia “Revenue” from Payors

1. Out-of-network, a pyrrhic victory, since it interferes with
Hospital contract
Surgeon
Surgeon referral sources
2. In-network, battles can be won
Mindful of co-insurance/deductible = from Patient
Guile of payors: holdbacks, abrupt policy shifts
Optimal rates requires out-of-network intermediate step
Stomach of hospital CFO predicates success


Indigenous Anesthesia “Revenue”

Nuts and Bolts
• Compliantly obtain unit rates
• Define sources of revenue (OP, IP, OB, GI, Lines, Etc.)
• Define units by revenue source
• Define reimbursement by unit
• Calculate revenue by payor
• Calculate net collections from gross revenue


Identification and Quantification of Revenue Sources
Inpatient assumes 13-15 Units per Case OB assumes 15-20 Units per Case
Outpatient assumes 9-11 Units per Case Acute Pain and Lines are $ per case
GI Endo assumes 7-9 Units per Case
INPATIENT CASES % OF PATIENTS UNITS UNIT RATE REV/PAYOR ACUTE PAIN REVENUE CASES % PATIENTS UNITS CASE RATE REV/PAYOR
AETNA 18 0.83% 229 $89.21 $20,428
BLUE CROSS 297 13.67% 4,746 $65.30 $309,910 AETNA 6 0.94% $357.67 $2,146
CDPHP 552 25.40% 8,392 $36.32 $304,760 BLUE CROSS 91 14.33% $145.47 $13,238
CIGNA 9 0.41% 142 $89.67 $12,733 CDPHP 164 25.83% $100.15 $16,425
COMMERCIAL 65 2.99% 1,032 $54.84 $56,599 CIGNA 6 0.94% $326.83 $1,961
MEDICARE 756 34.79% 11,580 $19.00 $105,746 COMMERCIAL 21 3.31% $279.19 $5,863
MEDICAID 129 5.94% 1,606 $14.13 $22,685 MEDICARE 264 41.57% $32.59 $8,603
MVP 102 4.69% 1,668 $73.12 $121,962 MEDICAID 8 1.26% $35.38 $283
SELF PAY 9 0.41% 162 $32.53 $5,270 MVP 22 3.46% $330.32 $7,267
UH 101 4.65% 1,597 $96.96 $154,850 UH 27 4.25% $220.85 $5,963
WC/NF 135 6.21% 2,499 $25.07 $62,647 WC/NF 26 4.09% $127.77 $3,322
TOTAL 2,173 100.00% 33,653 $34.99 $1,177,590 TOTAL 635 100.00% $102.47 $65,071

OUTPATIENT CASES % OF PATIENTS UNITS UNIT RATE REV/PAYOR Lines CASES % OF PATIENTS UNITS CASE RATE REV/PAYOR
AETNA 34 1.03% 342 $87.35 $29,875
BLUE CROSS 694 21.09% 6,980 $54.38 $379,589 AETNA 1 1.19% $106.00 $106
CDPHP 1,001 30.43% 9,761 $36.56 $356,854 BLUE CROSS 11 13.10% $96.36 $1,060
CIGNA 15 0.46% 159 $97.31 $15,473 CDPHP 34 40.48% $76.85 $2,613
COMMERCIAL 141 4.29% 1,396 $49.73 $69,420 CIGNA - 0.00% $0
MEDICARE 694 21.09% 7,446 $19.00 $68,221 COMMERCIAL 3 3.57% $56.33 $169
MEDICAID 182 5.53% 1,681 $30.20 $50,768 MEDICARE 24 28.57% $29.04 $697
MVP 193 5.87% 1,916 $104.78 $200,759 MEDICAID 4 4.76% $25.00 $100
SELF PAY 29 0.88% 232 $47.62 $11,047 MVP 3 3.57% $241.67 $725
UH 226 6.87% 2,236 $84.62 $189,217 UH 2 2.38% $61.00 $122
WC/NF 81 2.46% 904 $23.61 $21,340 WC/NF 2 2.38% $54.00 $108
TOTAL 3,290 100.00% 33,053 $42.13 $1,392,563 TOTAL 84 100.00% $67.86 $5,700
10.0
OB REVENUE CASES % OF PATIENTS UNITS UNIT RATE REV/PAYOR GASTRO REVENUE CASES % OF PATIENTS UNITS UNIT RATE REV/PAYOR
AETNA 5 1.12% 136 $99.40 $13,518
BLUE CROSS 92 20.67% 2,060 $62.43 $128,598 AETNA 1 1.12% 7 $102.86 $720
CDPHP 209 46.97% 4,717 $42.88 $202,281 BLUE CROSS 16 17.98% 124 $65.00 $6,383
CIGNA 2 0.45% 44 $74.80 $3,291 CDPHP 26 29.21% 208 $32.98 $6,860
COMMERCIAL 20 4.49% 406 $72.65 $29,495 CIGNA 1 1.12% 8 $18.25 $146
MEDICARE 6 1.35% 221 $19.00 $4,199 COMMERCIAL 2 2.25% 16 $28.88 $462
MEDICAID 69 15.51% 1,229 $16.70 $20,528 MEDICARE 31 34.83% 258 $19.00 $4,602
MVP 24 5.39% 463 $71.75 $33,219 MEDICAID 3 3.37% 23 $10.00 $230
UH 18 4.04% 401 $78.29 $31,393 MVP 4 4.49% 38 $59.74 $2,270
WC/NF - 0.00% - $0.00 $0 UH 5 5.62% 40 $87.63 $3,505
TOTAL 445 100.00% 9,677 $48.21 $466,522 TOTAL 89 100.00% 722 $25,178
Total projected revenue $3,132,624
Net Collections (95% of gross) $2,975,993


Revenue Augmentation Intervention

1. Sources of Revenue
Conversion of local cases to sedation
Cover GI
Cover pediatric radiology
2. Calculate net collections from gross revenue
Confirm historical figures benchmark to MGMA
Days AR
0-30 Days AR Bucket
30-60 Days AR Bucket
>120 Days AR Bucket
Ensure actual verses contracted payments sync
Scanning, rapid charge entry, rapid coding, e-submissions, robust billing
system, audits


“Expenses”= Costs to Run an Anesthesia Department

There are 2 Buckets of Expenses
1. Direct Expenses
Clinical Staff, Equipment, Supplies
2. Indirect Expenses = Management Costs
Technology: Telephony, computers, servers, software (i.e. Billing System)
Credentialing with Payors and Hospital
Payroll & Benefits Administration
Scheduling
Revenue Management and Collections
Quality Assurance Program
Risk Management
Legal
Accounting


Anesthesia Staffing (Direct) Expense: Nuts and Bolts
Total Coverage Cost
Management Fee 25%
Total Direct & Indirect Expense
$          1,316,214
$        10,090,973
1. Define rooms
Revenue
Shortfall/Surplus
$          6,612,163
$        (3,478,809)
& hours of coverage
Shortfall per month $            (289,901)

Coverage by hours General Hospital‐ In Patients and OB
2. Define staffing model & MD‐CRNA
Monday ‐ MD
OR 1
24
OR 2 OR 3 OR 4 Float MD
8
OB
24 including ratios, break folks, etc
Monday ‐ CRNA 12 12 10 8 24
Tuesday ‐ MD 24 8 24
Tuesday ‐ CRNA 12 12 10 8 24
Wednesday ‐ MD 24 8 24
Wednesday ‐ CRNA 12 12 10 8 24
Thursday ‐ MD 24 8 24
Thursday ‐ CRNA 12 12 10 8 24
Friday ‐ MD 24 8 24
Friday ‐ CRNA 12 12 10 8 24
Saturday ‐ MD 24 24
Sunday ‐ MD 24 24
Total Hours ‐ MD 168 40 168
Total Hours ‐ CRNA 60 60 50 40 120
Number of  MD hours per week 376
Number of MD hours per year
Number of CRNA hours per week
19,552
330 3.  Sum hours of work for MD and CRNA
Number of OB hours per year 17,160

Model with Expenses
MD CRNA
OR, Endo & OB Coverage
Total Hours (week) 526 630
Total Hours (year)
Per FTE Hours/Week
27,352
54
32,760
40 4.  Based on # of hours work per FTE calculate headcount
Per FTE Hours/Year 2808 2080
Required to cover OR 9.7 15.8
Required to cover vacations 2.0 2.0
Chief MD (incl as float)
Site Director  (incl as float)
Total MD and CRNA  on Staff
Compensation
12 18
$             421,801 $                190,000 5.  Calculate compensation per clinician
Cost of OR Coverage $          4,952,259 $            3,372,500
Subspecialty Stipend $                      ‐
Chief of Anesthesia Stipend
Vice Chief
$             100,000
$               50,000 6. Add‐in premiums (Chief, directors, subspecialists,
OB/Cardiac/Peds Stipends $               50,000
Administrative Costs
Coverage Cost
$             250,000
$          5,402,259 $            3,372,500
beeper call, etc.)
Total staffing expenses $
8,774,759

“Direct Expense” = Mostly Science …

Survey Title: Midwest (US)
Market - Northeast US (NY) BASE SALARY INCENTIVE COMPENSATION
Data Effective Date Surveyed Data Adjustments
25%ile 50%ile 75%ile Age Data Geograph Total 50% Median 25% 50% 75%
Base $ Base $ Base $ Jul-09 Adjust. Base Comp. Incentive Total comp Total Comp. Total Comp.
Economic Research Institute Data 07/09 $223,386 $250,447 $285,571 100.00% 100.00% $250,447 $17,426 $248,785 $267,873 $415,421
Anesthesiologist: DesMoines

Sullivan Cotter Physician Survey Data 03/08 $220,000 $259,000 $302,306 106.67% 101.00% $279,029 $65,357 $262,412 $344,386 $455,534
Anesthesiology Staff Physician MidWest US

Sullivan Cotter Physician Survey 03/08 $234,662 $296,341 $349,100 106.67% 103.00% $325,580 $61,990 $284,691 $387,570 $501,545
Anesthesiology Staff MD US Group Practice

Medical Group Mgt Assoc (MGMA) 01/08 $295,912 $364,758 $436,505 107.50% 103.00% $403,878 $327,649 $403,878 $483,320
Anesthesiology: All Orgsm US Group Practice

Hospital & Healthcare Comp Svc (HHCS) Data 04/08 $269,000 $306,407 $390,000 106.25% 103.00% $335,324 $294,387 $335,324 $426,806
Physician Survey: Anesthesiologist : Group Practice

Hospital & Healthcare Comp Svc (HHCS) Data 04/08 $237,844 $265,160 $313,425 104.58% 101.00% $280,086 $251,233 $280,086 $331,068
Physician Survey: Anesthesiologist : All Groups

AAMC Data 06/07 $250,000 $296,250 $341,250 110.42% 103.00% $336,923 $284,323 $336,923 $388,101
Clinical Science: Anesthesiology All Orgs

Averaged Results $247,258 $291,195 $345,451 106% 102% $315,895 $48,258 $315,623 $364,153 $421,801


“Direct Expense” = Some Art…

Aging Data
Large escalations
Local supply and demand idiosyncrasies
Regional COL variations run counter to
compensation
Accounting for job stress, case volume, call
stress, etc.


“Direct Expense”: Interventions to Lower

• Sophisticated determination of fair market
value salary

• Sophisticated determination of fair market
value benefits

• Explore alternative staffing models


Lower Expenses: Staffing Model Options


Direct Expense Management

Various Models to Cover 4 ORs
Model MD CRNA Rooms Covered Hands on Deck Gross $ Cost/Room
MD Only 4 0 4 4 people 1,600,000 400,000
CRNA Only 0 4 4 4 people 800,000 200,000
MD/CRNA 1 4 4 5 people 1,200,000 300,000

The CRNA Only model provides lowest cost per room.
• Liability and Revenue Management Issues

The MD/CRNA model provides second lowest cost per room.
• Avoids Liability or Revenue Management Issues


“Indirect Expenses”= Costs to Run an Anesthesia
Department

Technology: Telephony, computers, servers, software (i.e. Billing System)
Credentialing with Payors and Hospital
Payroll & Benefits Administration
Scheduling
Revenue Management and Collections
Quality Assurance Program
Risk Management
Legal
Accounting
Insurances


“Indirect Expenses”=Costs to Run an Anesthesia
Department

Percent of Revenue Allocated to Administration Functions

35.0%

30.0% 26.7%
25.0%

20.0%
13.9%
Percent of Revenue

15.0%

10.0%

5.0%

0.0%
Total Administrative Costs Billing and Insurance Related Costs
Source: American Hospital Association, 2005
Physician Groups

Indirect Expense Intervention

The average medical practice spends
between 14 and 25% on administrative costs.
Working with larger entities permits
economies of scale and economies of scope
and can drive down costs. Larger entities
have access to the most effective technology
and highly sophisticated human resources.


Review: The Anatomy of a Subsidy

Revenue - Expenses = Subsidy
• Patients • Clinicians • Fixed Amount
• Payors • Management • Revenue Threshold
• Case/Payor Mix Guarantee
• Cost Plus


Subsidy Forms

Fixed Amount
Hospital defers revenue/expense risk and reward
If sum proves insufficient, is insolvency an option?
Revenue Threshold
Hospital on the hook for group’s billing
Due diligence on revenue management and contracting required
Contemplate bonus schedule to align interests
Case/Payor Mix Guarantee
Hard to quantify impact of payor mix drift
Case guarantee relatively easy to quantify
Hospital avoids revenue management risk
Cost Plus
Hospital retains all revenue/expense risk and reward
Bonus schedule critical to align interests

Review: Interventions to Reduce Subsidy

Revenue - Expenses
-Savvy Payor Contracting -Sophisticated compensation analysis
-Pristine Revenue Management -Ensuring FMV salary and benefits
-Leveraging technology -Deploying cost-efficient staffing models
-Leveraging technology

SOUND ADMINISTRATION


Is There Relief on the Horizon?

2,000 70%

Growth in Number of New Anesthesia Graduates 60%
1,800

50%
1,600

40%
1,400

30%
1,200

YoY % Growth
# of Graduates

20%
1,000
10%

800
0%

600
-10%

400
-20%

200 -30%

0 -40%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

The Data is Not Encouraging…
Note the unfilled demand
100%

18% 20% 21% 23% 25%

80%

60%
49%
49% 50%
50%
50%

40%

20%
33% 31% 29% 27% 25%

0%
2001 2002 2003 2004 2005

CRNA's Anesthesiologists Unfilled Demand


Closing Remarks: Defining Victory

Deriving the most value per dollar spent
Clinicians are paid a fair day’s wage for fair day’s work
Fair benefits
Obtaining a robust quality management program
Making sure that all potential revenue is captured
All revenue streams explored
Contracts with payors are optimized
Revenue management is smooth, efficient and error-free


Questions
Marc E. Koch, MD MBA
Somnia President and Chief Executive Officer
877-476-6642
www.somniainc.com


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