Karin Bierstein,
Practice Management Coordinator

Anesthesiology groups' methods of allocating income exhibit a great deal of variety. Judging by the frequency of questions fielded by the ASA Washington Office, many groups are wondering whether their current income distribution methods meet their needs and objectives.

One group of 30 anesthesiologists in Albuquerque, New Mexico, recently undertook a systematic evaluation of their compensation scheme and adopted a radically different program reflecting the relative values attached by the group to various professional activities. Their Executive Vice President, Lynda F. Venters, summarizes the process and the results in the article below.

Lynda F. Venters, FACMPE
Executive Vice President
Anesthesia Associates of New Mexico, PC

With today's dynamic healthcare environment, many anesthesia groups are faced with changing their long-standing compensation systems to provide flexibility and appropriate incentives for physician providers. Groups do not have to fear this change - it is manageable.

There is no one plan that will work for all groups. Each group has its unique coverage issues and needs. With appropriate thought, planning, goal setting, research and consensus-building, however, changing your plan can be successful and create extremely positive outcomes.

There are two primary forms of compensation programs: equal distribution and productivity. Additionally, an income distribution system may be a combination of the two.

Equal share or equal distribution simply divides the revenue available for physician compensation by the number of physicians eligible. This is a popular program in that it creates a perception of fairness and equality and is easy to administer. The primary downside is its assumption of fairness. We all know that not all members of any group are "equal" by definition. All have individual strengths and abilities and make varying contributions to the group.

In reviewing productivity-based programs, a variety of options are available. Productivity can be based on charges, collections or different units of production such as work units, time units, billed units, etc. While this sometimes makes a productivity system seem very confusing and complex, it is also this choice of options that lets a group build a flexible program which meets the needs of all individuals.

Following is a "case study" of the development, implementation and results of moving from an equal share to a productivity-based compensation program. (I might add, just to hold your interest, it has been a tremendous success story!)

Our group has been in existence since 1978. Until 1994, the group had always had an "equal share" compensation system, where all physicians were paid the same regardless of their caseload, type of cases, actual time worked, administrative contributions and medical staff committee participation. The group always assigned cases based on an "equitable rotation" designed to ensure even distribution of cases and call. However, not everyone covered all types of anesthesia; some did not cover obstetrics, cardiac or neonatal cases.

As the group grew and more subspecialties were identified in anesthesia, it became necessary to develop a more equitable income distribution program. Specialty calls (neonate, pain, cardiac) and "special deals" were identified as issues resulting in discriminatory compensation patterns. The goal was to reward physicians for the time they were working on behalf of the group through a mechanism designed to include all variables within the same plan to insure fairness for all.

Additionally, with the growth of the group, increased flexibility in staffing was required. There were senior members wanting to decrease their workload as well as physicians who wished to have more time to fulfill family responsibilities. The group had a growing need for flexibility to cover various anesthetizing locations with differing schedules and requirements.

Also, as in most groups, a handful of the physicians participated in the leadership and administrative roles of the group. The time required for these administrative duties had increased significantly as a result of managed care and the advent of integrated delivery systems, physician hospital organizations, management service organizations, independent practice associations and a multitude of other collaborative arrangements. The group recognized the need to account for time out of the operating room for physician leaders to deal with these responsibilities and/or to reimburse them fairly for this time. The board of directors of the group recognized that these activities were as important to the survival and future success of the group as is delivering anesthesia in the operating room. With the board building consensus around this fact, the group was able to incorporate reimbursement for these duties into their productivity system.

After identifying the need for change, the group spent a good deal of time articulating the goals desired out of any change. These included:

• Fair system
• Increased flexibility
• Incentive for extra work
• Improved customer safety/satisfaction (patient, surgeon, operating room staff and employee)
• Improved efficiencies in the operating room (decreased turnover of anesthesia personnel; improved turnover times between cases)
• Reward mechanism for time worked on behalf of group either delivering anesthesia or performing administrative duties for the benefit of the group
• Internal recruitment of providers
• Elimination of arbitrary fixes ("Band-Aids" as they were termed) resulting in unfair compensation (selling/trading of call, selling/buying of vacation, etc.)
• Patient and surgeon satisfaction

Once the goals were clearly defined, a task force consisting of five physicians and the group administrator was formed to research options. Because it was clear that the existing equal share plan no longer met the group's needs, the focus turned to the creation of some form of productivity-based program.

The task force began a review and discussion of the various alternatives on which to base a productivity calculation. The following conclusions were reached for each:

Billed Charges: In today's managed care and discounted fee-for-service environment, billed charges is a meaningless unit of measurement, except in determining your production/payer mix. There is also the potential for individuals to upcode or add procedural-based activities to generate increased billed charges.

Collections: In reviewing the group's payer mix and process for assigning cases, it was difficult to see how compensating participants relative to the amount of their collections could be fair. The group did not always know the payer at the time a case was scheduled and, therefore, could not ensure fair distribution of the various payers (i.e., Medicare, Medicaid, commercial insurance, etc.)

Units of Production: Because anesthesia is billed utilizing base and time units it lends itself well to some form of unit productivity system for calculating productivity. There are many options to consider when investigating a unit-based system. A unit-based system may be predicated on any of the following (among others): total units of production, only base units, only time units, a percentage of total units, and arbitrary units of value assigned to each procedure/ function.

Before attempting to agree on a unit of production, the task force considered the group's mission and the goals of the income plan and identified those behaviors the group wished to reward. In this specific example, the group wanted to recognize the amount of time each individual was committing to the group, either in the delivery of anesthesia or in furthering the success of the group. This included: actual time in the operating room delivering anesthesia and other clinical time, time spent doing administrative duties, time spent developing new programs and services, time spent representing the group within the hospital(s)/network(s), approved committee work, and teaching/in-service work for employees and hospital staff.

The group's philosophy was that all individual members of the group make different contributions to the group, making the sum of its parts more important than any individual part; thus, fairness was the major issue. A specific example of this philosophy is the recognition that providers are needed to do tonsillectomies just as much as they are needed to do cardiac/neuro cases. The group did not want to inspire providers to vie for a particular type of case or be concerned about who the payer was.

The concepts of total units or base units alone were eliminated, as it was the consensus of the task force that these would create the wrong incentives. The task force felt that a system using total units or just base units as the measure would motivate physicians to compete for the cases with a heavy front end load or longer cases (e.g., cardiac/neuro, etc.).

Determining productivity based on collections was eliminated to dismiss the issues of payer identities and the inequitable reimbursement patterns they represent (e.g., Medicaid versus commercial insurance). There was no interest in creating an incentive that would result in adverse case selection because of payer. Again, the group's philosophy was that all cases had to be covered, regardless of type of procedure, length of case or payer, and the goal was to promote efficiency and patient/surgeon satisfaction.

Upon review of the group's goals and objectives for a new plan, it was the consensus of the task force that a timebased system created the greatest opportunity for fairness, flexibility and reward of desired behaviors/participation. A time-based program also allowed for the development of "time-related" units for contributions outside the operating room, thereby creating a mechanism to reward administrative work.

Having selected a time-based unit of production, the task force continued its work with the development of approved administrative activities and their associated units or "fixed units." Fixed units were developed for such tasks as board-approved committee work, group leadership, development and presentation of educational programs, in-house calls, procedures for which time is not recorded, etc. (A sample list of the types of tasks for which fixed units were determined appears in Table 1. Note that both a flat number of units and a set number per hour are used. Many of the values were modified after one or two years' experience with the system).

While this was an effort that took some thought, it was not difficult. The task force simply discussed each item and its relationship to a unit of time in the operating room. This is an area where tasks/behaviors were encouraged or discouraged, depending on the desired effect. As an example, more units were awarded for meetings held before 6 p.m. to minimize the number of evening meetings scheduled.

The remainder of the program is very straightforward. The following formula gives the steps used in determining the productivity distributions:

1. Time units (operating room billing times) and fixed units are totaled for each individual in the program;
2. Individual totals are summed for a grand total of time units of production;
3. The grand total of units is divided into the dollars available for distribution to give you the value of a single unit;
4. Each individual's units are multiplied by the value of a unit to derive the total dollars available for distribution for each individual;
5. Any salary draw (everyone gets a paycheck every two weeks which is considered a "draw against production"), pension contribution and each individual's share of "equal share costs" (defined below) are then subtracted from the total available for distribution to the individual, resulting in the individual's productivity distribution.

"Equal-share costs" or fixed costs are those costs that do not vary with the time that an individual is working They include professional liability coverage, medical insurance, legal and accounting fees, pension and benefit plans, etc. These costs are totaled and divided by the number of physicians in the plan to determine each individual's equal share. Volume-related costs (those that vary depending on the number of services provided) are included in the calculation of dollars available for distribution. Again, determining the breakdown of equal-share costs versus volume-related costs is not difficult, but takes time and thought; your consultant/accountant can provide valuable assistance with this step.

Adjustments for physicians working less than a full schedule can be made on the front end, thereby ensuring that no one ends up in a negative position at year end. This requires a reduction in salary draw relative to the expected percentage of work. Additionally, provisions need to be developed in the beginning to deal with the repayment of any distributions exceeding productivity within a reasonable timeframe.

It is also recommended that the group's attorney be involved in the process to ascertain the productivity program's compatibility with deferred compensation or buyout agreements. Likewise, a change in your compensation program will more than likely require a new/amended employment agreement for the physicians.

Fixed Units for Administrative/Nonbillable Activities

The most important step is education/communication of plan! With any change in the method of compensation, there will inevitably be fear and anxiety. You must build into the development and implementation of any new program an ongoing communication and education plan to reduce this fear and anxiety as much as possible. Remember, those who were not part of the task force have not had the benefit of all of the research and discussion leading to the end product. Summarize your research and reasoning throughout the process so there are no surprises. Tell them why you chose a certain alternative; understanding the why is more important than the what in most instances.

There is no one plan that will suit the needs of all groups. To create a program with the best results, a group must be willing to commit the time and resources necessary to do thorough research and thoughtful investigation into developing a program that meets the group's needs and rewards appropriate behavior/service. This does not have to be a difficult process, just an organized, thoughtful one!

The critical element is clear definition of the desired goals of any change in compensation program. Why does there need to be a change? What activities/behaviors do you want to reward? How will a change in your compensation program support your strategic plan/direction? Answering these questions first will give you the foundation necessary for developing a successful plan.

While all compensation systems are based on equal distribution, productivity distribution or a combination of the two, there is a multitude of productivity measures that can be utilized as the basis of production as well as a multitude of ways to account for costs of practice. The pros and cons of each should be thoroughly researched before selecting a unit of measure. Revisit the goals!

Be realistic about the time frame and resources needed for both development and implementation of any program change. Be careful that you develop resources to match the program. It does no good to develop a perfect program if you are not committed to appropriate implementation.

Finally, do not make it difficult. Establishment of fair goals, good organization, thorough research, thoughtful development, ongoing communication and extensive education will result in a positive outcome.

The income distribution system described by Ms. Venters (who can be reached at (505) 266-8704 or lfventers@ aol.com) is working very well for her group. It is most important to realize, however, that there are multiple systems, each of which needs to be customized depending on the individual practice's values, activities and needs. Other approaches to avoid the scramble for the high base unit cases with the best payers include the following:

1. All income is pooled and anesthesiologists are compensated according to a conversion factor representing total monthly income divided by total number of units for the group. Each member's units consist of 40 percent of the base unit value for each procedure performed plus actual time in 10-minute units, in order to de-emphasize base units. The units are computed on a rolling average basis to avoid monthly peaks and valleys.

2. The group compensates its members for days rather than for units earned. Multiples and fractions of a day are used for holidays, 12-hour days, nights, and short days. After determining the number of days an anesthesiologist has worked, that number is divided by the total number of days worked in the month by all physicians to determine each physician's individual production percentage factor. The individual production percentage factor is then multiplied by each physician's designated share factor (1.0, 1.1, 0.5, 0.6, etc.) to determine his or her adjusted share factor (shares). Each physician's adjusted share factor is then divided by the sum of all partners' adjusted share factors to determine a physician's relative production percentage for the month. Each member's share of expenses for the month is determined by multiplying expenses by his or her relative production percentage. A member's share of collected income for a specific month is determined by multiplying his or her relative production percentage by the net collected income for the month in question.

Each of the 54 Medicare carriers has a full-time medical director (CMD) who serves as the interface between Medicare and the practicing physician community. One of the CMD's most important responsibilities is the development of local medical review policies (LMRP). An example of an LMRP with which many anesthesiologists are familiar is the restrictive policy on monitored anesthesia care. One reason why this policy has been so problematic is the lack of any anesthesiologists in the CMD corps.

Five CMD positions are vacant as of this writing. The carriers are the following:

• AdminaStar Kentucky (Indianapolis)
• Health Care Service Corporation (Chicago)
• United Healthcare Mississippi
• Health Care Service Corporation (Detroit)
• National Heritage Insurance Co. (Massachusetts)

A software package that permits anesthesiologists to calculate the revenue impact of a fixed-rate relative value payment system is now available to ASA members. This package will be indispensable if your practice is asked to sign a contract for reimbursement under a system that uses average anesthesia time to set a constant payment amount for each service, like the scheme marketed by Cambridge Health Economics Group. Using your own practice's time data, the software would allow you to establish a target conversion factor that would make the new payment system revenue neutral. It could also help you to produce relative values that are scaled to the Medicare Fee Schedule.

The software was designed by Alexander A. Hannenberg, M.D., for the ASA Task Force on Procedure-Based Payment Systems. It is available to ASA members for a fee of $100 through the ASA Publications Department by calling (847) 825-5586.

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FEATURES

1998 ASA Annual Meeting

• Orlando - A World Showcase of Excitement and Fun
  
  
• Emery A. Rovenstine Memorial Lecture
  
  
• Lewis H. Wright Memorial Lecture
  
  

ARTICLES

• Changes Continue for Scientific Paper Presentations
  
  
• Refresher Course and Clinical Update Program
  
  
• 1998 ASA Clinical Forum Program
  
  
• Annual Meeting Placement Service
  
  
• Regulation Governing Assignment of Tickets
  
  
• 1998 Panels and Workshops
  
  
• Special Airline and Car Rental Rates Offered
  
  
• 1998 Breakfast Panel Program to Present Latest Advances
  
  
• Technical Exhibit Program
  
  
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• Special Program - Personalities, People and Workplace Challenges
  
  
• Problem-Based Learning Discussion Program for 1998
  
  
• Omitted PBLD Information
  
  
• 1998 Art Exhibit: Special Recognition for Children of ASA Members
  
  
• The Dutch Masters' Approaches to Chronic Pain Management

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The views expressed herein are those of the authors and do not necessarily represent or reflect the views, policies or actions of the American Society of Anesthesiologists.

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