s third-party payments for hospitals decrease and hospital costs increase, hospitals are challenged to find innovative ways of increasing volume by adding new services at minimal increased costs while decreasing costs of existing services.^1,2 Additionally, publicity of patient convenience and safety are at the forefront of hospitals’ attempts to lure new patients. Anesthesiology often is viewed as an integral part of the global packaging of these efforts, and anesthesia groups increasingly are being asked to expand their services at an unprecedented rate, especially into new nonoperating room anesthetizing, or NORA, sites.^3,4 Requested anesthesia expansions may include:

• starting a preanesthesia evaluation clinic

• staffing increasing numbers of NORA sites

• staffing new O.R.s within the main O.R. suite

• staffing a new ambulatory surgery center

• incorporating other anesthesia practitioners from a newly acquired facility

• extending full-time coverage to obstetrics

• starting an acute and/or chronic pain service

• providing medical direction to hospital-employed nurse anesthetists

• assisting with allied health training (EMTs, RTs).

The O.R. suite is the largest cost center in the hospital, while anesthesia costs are only 5-6 percent of total hospital costs.⁵ Staffing costs, however, represent the major cost factor for anesthesia groups in providing anesthesia services,⁶ and subsidies for these services can be substantial. If the O.R.s are run inefficiently, the staffing costs are even greater.⁷ In the face of their own decreasing reimbursements and increasing regulations, the increased costs for staffing the anesthesia expansions often outstrip any added reimbursement to the group.

However, is an immediate reaction that “if the hospital feels it needs expanded services, it should pay for it” always the best philosophy for an anesthesia group to follow? Are there instances whereby it might be in the group’s best interests to incorporate the expansion costs as value-added services to their customers as a cost of doing business? Many factors must be considered before taking the stand that a subsidy for the expanded services is or is not needed, but the options should be carefully weighed by the group. Such considerations might include:

Market Forces for the Hospital
• Is the hospital profitable now, or is it struggling in the local market?
• Does the hospital view the expansion of anesthesia services as essential to improving its market share and profitability?
• Is anesthesia viewed as an efficient team player in the hospital’s market goals?
• How would an anesthesia subsidy, or an increase, impact the hospital’s bottom line at this time?
• What is the time line for absorption of expansion costs by anesthesia before the hospital can afford to subsidize the expanded anesthesia services?
• What are the abilities of the hospital to use alternative anesthesia sources to provide the expanded services at a cost it deems it can afford?

Market Forces for the Anesthesiology Group
• How secure is the group within the hospital? How badly does the group want to continue to provide services at that hospital?
• Is the group viewed as a “team player” by the hospital administration? Are the surgeons, patients and nursing staff satisfied with the group’s services?
• How much of an impact will the expanded services have on the group’s bottom line? Is the group’s financial situation such that it can afford to absorb the costs of expanded services, at least temporarily?
• What is the significance of the time line for the expanded services to be financially self-sustaining for the group or for the hospital to provide some financial assistance?
• What is the availability of other anesthesia groups and practitioners in the geographic area and their willingness to provide services at a reduced cost?
• If the group has an exclusive contract, what are the terms of the contract regarding expanding services?
• Are there other options?

The question that the group must ultimately ask itself is: How much, and for how long, can the group invest in expanded services for the sake of good will between the group and the hospital? If it feels that the hospital is not in a financial situation to provide a subsidy immediately, but that the group’s participation in the expanded services will ultimately improve the group’s and/or the hospital’s financial situation, it may elect to absorb the costs with a proviso to re-examine the finances of the expansion with the hospital in the future. If, within an acceptable time frame, the expansion becomes more profitable for the group on a fee-for-service basis, it might determine that it is in its best interests not to try to recoup the start-up costs from the hospital at all. On the other hand, if the expansion improves the hospital’s financial picture but worsens the group’s financial situation beyond its ability to absorb the costs on a continuing basis, the group must determine whether, and when, to negotiate for a subsidy from the hospital to continue the group’s participation. Most all financial arrangements between the hospital and the group will be on a time-limited basis, with periodic re-examination required in the contract. The group should be able to track the financial performance of the expanded services from the start. The future of any financial arrangement will be determined on hard data, and the group must be able to show real evidence of impact in its negotiations with the hospital.⁸

There are alternatives to a flat subsidy from the hospital. “Gain sharing” from the overall improved bottom line of the hospital is an option. Such an arrangement shares the benefits of the expansion as well as the risks. “Pay for performance” is another option, with collaborative benchmarks set for the group, and periodic payment being made by the hospital for meeting those goals.

As in any negotiation process, the group’s position is only as good as its next alternative. If the group feels it simply cannot find a way to provide the expanded services at the price the hospital is willing to pay, it may feel it has little choice but to terminate its affiliation with the hospital. There are, however, many alternatives to a subsidy, refusal to participate or leaving. Groups should carefully consider the hospital’s situation, as well as their own, before deciding on a course of action.

References:
1. Cross DA. Solving physician-hospital administration conflicts: A physician strategy for the 90s. Physician Exec. 1992; 18:39-42.
2. Lee KH, Melnick GA, Myrtle RC. The effects of case mix on hospital costs and revenues in managed care environments. J Health Hum Serv Adm. 2005; 28:96-134.
3. Lalwani K. Demographics and trends in nonoperating-room anesthesia. Curr Opin Anaesthesiol. 2006; 19:430-435.
4. Bell C, Sequeira PM. Nonoperating room anesthesia for children. Curr Opin Anaesthesiol. 2005; 18:271-276.
5. Macario A, Vitez TS, Dunn B, et al. Where are the costs in perioperative care? Analysis of hospital costs and charges for inpatient surgical care. Anesthesiology. 1995; 83:1138-1144.
6. Schuster M, Standl T. Cost drivers in anesthesia: Manpower, technique and other factors. Curr Opin Anaesthesiol. 2006; 19:177-184.
7. Abouleish AE, Dexter F, Epstein RH, et al. Labor costs incurred by anesthesiology groups because of operating rooms not being allocated and cases not being scheduled to maximize operating room efficiency. Anesth Analg. 2003; 96:1109-1113.
8. Pedersen T. Evidence-based anaesthesia and health economics. Best Pract Res Clin Anaesthesiol. 2006; 20347-20360.

David A. Cross, M.D., is a staff anesthesiologist at Scott and White Memorial Hospital and Clinic, Temple, Texas.