ost academic anesthesiology groups and a few private groups exist in the context of a multispecialty clinic or practice group. Many departments of anesthesiology believe that those who are independent have a better deal. While it is a constant of human nature to covet that which we do not have, and to believe that others have a better deal than we do, is this grievance justified? Do other specialties benefit by inclusion of anesthesiology to the detriment of anesthesiologists?

At the outset, the reader should realize that this is a complex question and that, by request, I present a one-sided article dedicated to expounding on the problems. Accompanying this article is a “pro group” practice article (on page 13), and most of the points made in that article are correct as well. The most common complaints revolve around the following concepts: coverage, contracting and hidden subsidies.

Coverage
Anesthesia is one of the few specialties that often maintains 24/7 in-house coverage. Few centralized practice groups, when contracting with the hospital, fully appreciate the financial burden on the anesthesiology department when considering the range of services it offers. This after-hours call coverage is expensive. Five 16-hour days and two 24-hour days (more in weeks with holidays) mean 128 hours per week of call. Assuming the full-time clinical anesthesiologist works 50 hours per week, that is about 2.5 clinical full-time equivalents (FTEs). It requires about 1.4 FTEs to cover one 100-percent clinical FTE due to an average of six weeks vacation and meeting time, 10 holidays and an average of 17 percent academic time¹ (52/{44*(100%-17%)}). This means about 3.5 (2.5 x 1.4) academic FTEs are needed to provide after-hours coverage. At a very conservative average cost of $300,000 per attending ($220,000 salary plus $25,000 malpractice with 25 percent fringe benefits), 24/7 in-house coverage costs greater than $1 million per site. At our institution, with three mandated in-house attendings per night, the department reels under the $3 million cost. Collections after hours offset a relatively small part of the cost; late-night work is inefficient once the day’s elective cases finish and often involves the underinsured.

Similarly anesthesiologists are continually asked to extend coverage to support an ever burgeoning out-of-operating room procedural slate. If we do not do so, we are labeled non-team players and nonsupportive. Neither the practice plan nor the interventionalists seem routinely interested in hearing how being in the immediate vicinity of an anesthetic often dictates 1:1 coverage and a halving of the typical academic department’s faculty productivity. Furthermore, scheduling is much more variable than in the operating room, where a typical anesthesiologist can bill for about 70 percent of his/her actual hours on site. It can be much less (in our practice <50 percent) in off-site areas due to inefficient scheduling, less efficient patient transport and increased set-up times.

Contracting
All of these unfunded mandates could be absorbed if the Centers for Medicare & Medicaid Services (CMS) were to pay us according to the value we bring to the care of patients. We are underpaid, however, by government entities, leading to commercial contracting problems. In a centralized practice plan, no one intuitively understands anesthesia billing. Once the practice administrators finally understand the almost two-fold disparity between CMS and commercial payments for anesthesia versus other specialties, and can appreciate the difference between an anesthesia Relative Value Unit (RVU) and a Resource-Based Relative Value Scale RVU, that administrator moves on, and intensive re-education must occur all over again. My anecdotal information suggests repetitive re-education seems to be the norm in many academic group practices. This entails costs because only very high level clinical administrators seem to be able to get this point across. It also engenders stress and loss of political capital as the anesthesiology department is seen as getting a “special deal” all the time. Independent contracting outside of the group would eliminate this problem.

As we all know, anesthesia gets about 35 percent of the commercial usual and customary rate. Everyone else gets close to 80 percent. 1.25 of MCR (the basic contract) is 100 percent for everyone else. It is about 50 percent for anesthesiologists. The only way around this is carve-outs (a contracted Medicare multiple rate for everyone in the practice except anesthesia), and a lot of time and effort is necessary to get the contracting office to do it. Finally, in terms of what one receives per anesthesia unit from contracting, departments of anesthesiology can probably do much better on their own. It is a rare event when the group practice lays down an ultimatum on behalf of an anesthesia carve-out rate. Yet accepting contracts at lower than the actual cost to provide anesthesia can often be part of the “bargain” to get the entire practice into a contract.

The whole strategy of group contracting (rarely walking away from a contract) ignores some of the most basic business concepts of cost-volume-profit analyses (i.e., you have to make a sufficient profit per patient on average to offset your overhead). Maximizing profit is a mathematical problem often dealt with in political terms in a group practice. The practice almost always insists on volume rather than profit, fearing unfilled capacity, despite the fact that most bankrupt practices are operating at maximum capacity! United Airlines, when declaring bankruptcy, had very high occupancy of its airline fleet. If you lose money doing something 100 times, you lose twice as much doing it 200 times. Furthermore, in contracting, trade-offs of lower rates for Department A so Department B can get the business it wants, and vice-versa, may net a decreased total profit margin for everyone versus independent contracting.

Hidden Subsidies
The negative impact on revenue is only part of the problem with being part of a group. There also are multiple hidden subsidies that transfer funds to the rest of the practice. Group practices rarely embrace the standard business practices of using activity-based cost accounting. This means you pay for what you use in a certain area of administrative support. Take billing for example. If 3 percent of the time/ effort of a billing group is used to collect anesthesia fees, the department should be charged 3 percent. Instead, percent of revenue is most often used as a surrogate for assigning costs. It costs a lot less to collect $1,000 from one anesthesia or surgical bill than $1,000 from 20 X-ray bills or 20 return office visits, but all four of these collection efforts result in an identical practice charge. That is why outsourcing anesthesia billing almost always costs less than in-house services.

Professional liability costs may constitute another form of hidden subsidy. In the 1980s when many practice groups formed their malpractice assessment “rules,” anesthesia was quite risky and, in a five-tier system, assigned a classification of group 4B (second worst). Now we are 1B or 2A, one of the best, due to our patient safety efforts and resulting error reduction. In my somewhat limited experiences at two large groups, this high initial assessment from which you want relief provides a starting point bias whereby the reductions anesthesiologists have earned seem too much to grant (i.e., if you start at $100, $20 seems cheap. If you start at 10 cents, $20 seems expensive). In a limited informal survey by Committee on Economics Chair James P. McMichael, M.D., only one of about 10 academic groups had objective rates set by insurance firms; the rest were using some practice group formula that resulted in rates above community rates.

Another hidden subsidy is included in the fringe benefit rate (FBR). The FBR is usually calculated as (total fringe benefit cost/total group practice salary plus fringe benefit costs) * (100% + % univ profit). The highly compensated therefore subsidize those with lower salaries. Why? Fringe benefits pay for certain things as a percent of salary that does not vary with salary — tuition benefits, health care, dental care and life insurance. If you make more than the average, you lose. And anesthesiologists do. If you were separate from less well-compensated physicians, the same benefit package would cost less.

There are a few other hidden subsidies as well. For example, many private groups simply “steal” insurance information from the chart of the hospital finance office. In a group practice, the anesthesiology group may be assessed (and, usually, as a percent of revenue) for front-office registration. The anesthesiology group also is asked to pay (and, as usual, as a percent of revenue) for systems that the department may not fully utilize, such as practice-wide computerized billing and scheduling systems. Not only do anesthesiologists not need the clinic booking function, but some of the more popular programs have a decidedly mediocre anesthesia module (which you subsidize with adjustments to make it work).

The final hidden subsidy is in clinic costs. In some multigroup practices, the clinic operations are “hospital-based” or group-practice supported. These often do not generate sufficient revenue to cover their costs, even though the entire hospital operation may be profitable. If some of your taxes go to pay for this, you are subsidizing the rest of the practice.

On the other side of this equation is the most recent Society of Academic Anesthesiology Chairs data that suggest the level of support of academic anesthesiology groups now approaches and, in some cases, exceeds the total tax paid by an anesthesiology department. Undoubtedly, this is temporary. As soon as anesthesiologists are in cheap supply, we will once again be sheared of as much wool as we can spare.

In summary there are many financial pitfalls to working within a multispecialty practice group. The benefits are described elsewhere in this NEWSLETTER and, to be fair, are quite important to balance against what is described here. I am lucky to be part of a group practice that has been tremendously supportive of the department since my recruitment a few years ago, and I have no plans to take our practice outside the group. Common sense suggests, however, that being armed with knowledge about the financial impact of participating within a practice group will make you a more successful and savvy participant.

Reference:
1. Tremper K, Shanks A, Sliwinski M, Barker SJ, Hines R, Tait AR. Faculty and finances of United States anesthesiology training programs: 2002-2003. Anesth Analg. 2004; 99:1185-1192.

David A. Lubarsky, M.D., M.B.A., is Emanuel M. Papper Professor and Chair, Department of Anesthesiology, Perioperative Medicine and Pain Management, University of Miami School of Medicine, and Professor, Department of Management, University of Miami School of Business, Miami, Florida.