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July 1997
Volume 61 |
Number 7
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PRACTICE MANAGEMENT
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| How Many Anesthesia
Practices Have Exclusive Contracts? |
Karin Bierstein,
Practice Management Coordinator
A recent survey of anesthesia groups revealed that 58 out
of 113 respondents, or 51 percent, currently have exclusive contracts
with their hospitals. The survey was conducted by Genie G.
Blough, M.B.A. (Anesthesia Services PC, Mobile, Alabama), David
Fugate, M.S. (Anesthesia Associates of Ann Arbor PC, Ann Arbor,
Michigan) and Shena Scott, M.B.A., CMPE (Brevard Anesthesia Services
PA, Melbourne, Florida). The authors of the survey, all members
of the Anesthesia Administration As-sembly (AAA), the specialty
section within the Medical Group Management Association, reported
their results at the annual meeting of the AAA held in Boston
in May.
Demographics of responding practices:
The survey was sent to the nearly 500 members of the AAA. This
sample represents a small proportion of ASA membership, but it
encompasses some of the most sophisticated practices across the
country. Still, the survey results are to be considered with caution,
given that a low absolute number of answers produced many of the
statistics and that the response rate to many questions was less
than 20 percent.
Eighty-six of the survey responses came from private practices;
24 respondents identified themselves as academic. [Not every respondent
completed every question, which accounts for totals of less than
113.] Forty-two practices were in the Midwest, 34 in the South,
24 in the Northeast and nine in the West. The largest practices,
with more than 20 anesthesiologists, accounted for 30 percent
of the total. The smallest, consisting of fewer than five anesthesiologists,
constituted 10 percent of the total.
Eighty percent had competing facilities, i.e., other hospitals
or freestanding ambulatory surgical centers in the immediate service
area.
A trend toward exclusive contracts?
Of the 49 percent of groups that do not currently have an exclusive
contract, 61 percent do not expect to confront a contract within
the next two years. Thus, 30 percent of the total anticipate a
contract-free existence for at least another two years. This figure
includes practices that have a de facto exclusive relationship:
35 percent of the 113 respondents reported such de facto "franchises,"
leaving only 14 percent (16 practices) in an open competition
situation.
Characteristics of the respondents' exclusive
contracts:
- Medical staff privileges: Potentially the most onerous
provisions in anesthesiologists' hospital contracts are those
that tie clinical staff privileges to the contract term. We
have assumed that these provisions are very common and difficult
to resist, but among the 58 practices with exclusive contracts,
only 53 percent had privileges tied to the contracts. Of those,
nearly one-half had some form of protection in the event of
termination of privileges based on termination of the contract.
Protective devices include liquidated damages, automatic appeals
to the Medical Executive Committee to review any possible adverse
impact on quality of care, sometimes coupled with a super majority
voting requirement, and lengthy (e.g., 12-month) notice of termination
requirements.
A show of hands among the practice administrators attending
the presentation of the survey results in Boston revealed that
a minority had contracts linked to privileges.
- Duration of the contracts: The term of the contracts
in the survey was most commonly just one year (18). Another
15 were three-year contracts and eight were for two-year terms.
Five had five-year terms and one was for more than five years.
As most readers are aware, of course, a three- or five-year
term is meaningless if the contract can be terminated without
cause upon 30, 60 or 90 days' notice. In that case, it is a
30-, 60- or 90-day contract. The vast majority of the surveyees
with contracts had 90-day termination clauses (25). Two contracts
required less than 45 days' notice and four required a full
year.
Seventy-four percent of the respondents' contracts had automatic
renewal provisions.
- was a reasonable amount of stability in the anesthesiology
groups' relationships with their hospitals: 19 had been in effect
for more than 15 years; 18 for five to 15 years; nine for two
to five years, and 13 for less than two years.
- Chronic pain: Thirty-three groups reported that their
exclusive contracts expressly included chronic pain services.
Inclusion of chronic pain was common among the audience members
with exclusive contracts, and usually the exclusion applied
only to other anesthesiologists, not to neurologists or other
specialists.
- Noncompete clauses: Five groups were required to limit
their services to the contracting hospital. Another 23 were
prevented from working at competing facilities within the geographic
area. Where there was a noncompete clause, it typically applied
to the whole group rather than just to the anesthesiologists
working at the facility.
- Hospital negotiation of managed care contracts: Seventy-four
percent of the responses to this question indicated that the
hospital had not been given the right to negotiate managed care
contracts on behalf of the anesthesiology group. A similar proportion
of the Boston audience appeared not to have authorized hospital
negotiation of their agreements, either through exclusive anesthesia
contracts or through single-signature arrangements. Seven groups
responding to the written survey, however, did allow the hospital
to bind them, without any floor. In the seven other cases where
there was a negotiation floor, the average level at which the
floor was set was 66 percent of charges.
- Coverage required: Sixty-five percent of the groups
were required to provide in-house coverage. For the others,
39 percent were required to be within 30 minutes of the hospital;
34 were required to be within 15 minutes and 10 percent could
not be more than 10 minutes away.
Eighteen groups (13 private, five academic) were obli-gated
to provide a designated call team to a specific department or
departments (obstetric, cardiac, trauma, ICU and pediatrics).
Having to provide separate call teams to multiple departments
is extremely onerous, since multiple anesthesiologists and nurse
anesthetists may need to be available during a given call period.
- Stipends: Twenty-seven of the responding groups had
contracted for stipends. Where stipends were paid for coverage
of a specific department, six institutions paid more than $100,000
for obstetrics coverage and four paid that much for general
in-house coverage. Stipends were also paid for ICU, trauma and
pediatrics coverage, typically at more than $50,000 per year.
Stipends offer a means for both the hospital and the anesthesiology
group to achieve specific purposes in contract negotiations.
For example, the amount of a stipend can be related to an efficiency
index to provide an incentive to limit O.R. turnover time.
- Medical director contracts: Thirty-six respondents
reported that a member of their group received a stipend for
serving as operating room medical director. Another 33 were
paid for directing an ambulatory surgical center and 33 also
earned a stipend for directing a chronic pain clinic. Twelve
of the stipends for O.R. medical directors exceeded $100,000
annually (10 of these were at academic institutions). The majority
of ambulatory surgical center contracts were for less than $50,000
per year, and most pain clinic contracts were for less than
$25,000. Thirteen institutions were considering decreasing or
increasing the stipends. Seven were considering instituting
compensation.
- Hospital employment of anesthesiologists: Nine groups
indicated that their anesthesiologists were employed by the
hospital, either for all services or just for airway management
or pain management. Four of those nine groups retained control
of billing. The other five were paid a fixed amount by the hospital,
which billed and collected for their services.
- Employment of nurse anesthetists: The majority of the
108 groups represented in the answers to this question, i.e.,
67 (62 percent) employed nurse anesthetists. Fourteen respondents
came from facilities where nurse anesthetists were not used.
Twenty-two hospitals employed the nurses. Three respondents
reported that the nurse anesthetists were independent, and two
reported that the nurses were employed by both the group and
the hospital.
- groups were responsible for billing for the nurse anesthetists'
services. Some of these groups may be providing billing services
to independent nurse anesthesia practices.
Conclusion
Understanding patterns and trends in one's industry is critical
to successful contract negotiations. Knowing that a majority of
anesthesiologists now appear to work under a formal or de facto
exclusive arrangement and that only 30 percent of the respondents
to the survey expect to remain without a hospital contract for
more than the next two years may make a practice invest more energy
in determining the best possible deal than in resisting a demand
for an exclusive. Having data to show that "clean sweep"
provisions linking anesthesiologists' hospital privileges to the
term of their contracts, far from being universal, are found in
only about half of the contracts sampled may support a very important
argument.
I would like to thank Ms. Blough, Ms. Scott and Mr. Fugate for
having made the results of their survey available for this column.
I would also like to thank the respondents, to this and to the
multiple surveys that ASA is fielding. If you seem to be spending
more and more time completing more and more questionnaires, you
are probably a good observer of reality. Surveys are a chore,
a very necessary one. Data is the name of the game.
Next AAA Annual Meeting:
The 1998 meeting of the Anesthesia Administration Assembly will
take place in Denver on May 3-6.
Medicare's Undervaluation of Anesthesia Services Explained
The following text, describing the manner in which Medicare undervalues
anesthesia services, originally appeared in the "Practice
Management" column in the June 1997 NEWSLETTER
as part of a longer article. Inadvertently, several lines of text
were omitted from the printed version. This omission gives us
the opportunity to republish in full an explanation of why the
undervaluation of anesthesia persists, a topic on which the ASA
Washington Office receives numerous communications.
Medicare undervalues anesthesia services. Many payers
are attempting to adopt the Medicare Resource-Based Relative Value
Scale (RBRVS) as a payment system for all specialties, and they
typically offer physicians 110 to 130 percent of Medicare payment
rates. Anesthesiologists confronting a contract with an unacceptable
conversion factor that is based on the Medicare Fee Schedule may
wish to show the carrier that anesthesia remains relatively undervalued
by Medicare.
The 22.76-percent increase in the Medicare anesthesia work values
that took effect on January 1, 1997, reflected a strategic compromise
rather than the actual change needed for parity, in ASA's view.
The multispecialty panel of experts convened in the first phase
of the Abt Associates Inc. study of anesthesia work values recommended
an increase of approximately 35 percent. The AMA/Specialty Society
Relative Value Update Committee (RUC) invited ASA to attempt to
validate this recommendation through a survey of double-boarded
anesthesiologists. The result of the survey was a set of work
values that were, on average, 30.3 percent higher than those contained
in the report of the multispecialty panel.
Following this "validation," the original multispecialty
panel reconvened to review its recommendation and the survey findings.
In general, the panel concluded that the survey values were too
high, but that the survey did warrant a modest adjustment to the
panel's original recommendation, which went from a 35-percent
to a 40-percent increase in work values.
ASA's final recommendation to the RUC in August 1996 was for
a 35-percent increase. A redistribution of Medicare dollars, this
being a budget-neutral exercise, of that magnitude was unpalatable
to the other specialties on the RUC. Nevertheless, recognizing
the merits of ASA's argument about undervaluation and of the Abt
study methodology, the RUC voted unanimously to recommend a 22.76-percent
increase to the Health Care Financing Administration (HCFA). In
its final rule on the Medicare Fee Schedule for 1997, HCFA adopted
that recommendation.
The 22.76-percent increase in work values was implemented through
a 15.95-percent increase in the 1997 Medicare anesthesia conversion
factor (CF). (Because of budget-neutrality adjustments that applied
equally to all specialties, the final increase was 9.1 percent.)
Had the multispecialty panel's and ASA's recommendations for a
35-percent increase been adopted, the adjustment to the CF would
have been 24.29 percent. The difference between 24.29 and 15.95,
i.e., 8.34 percentage points, arguably represents, at the least,
Medicare's ongoing undervaluation of anesthesia services.
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