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ractice
profitability depends on the efficient utilization
of clinical staff. Efficient staffing depends
on the efficient utilization of operating rooms
(O.R.s). In the real world, hospital O.R.s are
in use considerably less than 100 percent of the
time.
According to the Medical Group Management Association/ASA
“Cost Survey of Anesthesia Practices: 2007
Report Based on 2006 Data,” the O.R. utilization
rate at most hospitals ranges between 51 percent
and 75 percent. Reasons for idle O.R.s include
cases finishing early, unanticipated patient medical
problems, planned gaps between cases by different
surgeons to allow sufficient turnover time, hospital
and surgeon demands for extensive open block time
— much of which may remain unused —
and late arrivals of personnel, patients and/or
surgeons.
How do you calculate the cost of keeping anesthesiologists,
nurse anesthetists and anesthesiologist assistants
(AAs) available to cover rooms that go empty during
regular O.R. hours — and who should bear
that cost? The facility that benefits from the
ability of a group to provide personnel without
delay should pay for what economists call the
“lost opportunity costs,” obviously.
The costs should be commensurate with the salary
and benefits of the waiting providers and are
often a sizable portion of the hospital compensation
packages negotiated by anesthesiology groups.
Joseph Laden, Michael J. Monea, W. David Ackley,
Carey H. Costantini, M.D., and Robert Ison (programming)
of the Kentucky/Ohio Anesthesia Managers Association
(KOAMA) have previously offered ASA members valuable
data analysis techniques and tools for determining
the cost of inefficient O.R. utilization (see
the “Practice Management” columns
in the June
and September
2004 issues of the ASA NEWSLETTER). In
the balance of this article, KOAMA describes a
new spreadsheet that users may download from www.ASAhq.org/Newsletters/2007/06-07/KOAMA.html
to calculate the precise costs of staffing unused
or underutilized O.R. rooms. Messrs. Monea, Ackley
and Laden have used their financial models to
great success in hospital negotiations and wish
their colleagues the best of luck in similar endeavors.
Disclaimer: ASA makes no representation regarding
the benefits or accuracy of the proffered spreadsheet.
First Building Blocks: Understanding the Additional
Revenue That Could Be Realized at a Higher Utilization
Rate
In the September 2004 NEWSLETTER article
“The
Cost of Inefficient O.R. Utilization,”
Monea, Laden et al. showed how to compute the
actual utilization rate and the concomitant potential
revenue that a higher rate could have produced
for a given facility. They define “utilization
rate” as the sum of reported anesthesia
time and turnover time divided by the sum of scheduled
O.R. time and overtime.
Utilization Rate
reported anesthesia
time + turnover time
scheduled O.R. time + overtime
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With an actual utilization rate of 62.01 percent,
a realistic target of 75 percent and a realized
hourly revenue rate of $304 (total revenues divided
by the total number of hours billed), the potential
billable revenue (additional would have increased
by $1,050,871 in the first variation in Table
1 on page 34. The second variation postulates
a 75-percent utilization rate in a hospital that
uses fewer O.R.s for longer hours and has a 15-minute
rather than a 20-minute turnover time between
cases.
The spreadsheets and examples in the 2004 articles
demonstrate the calculation of “Total Available
O.R. hours,” the numbers of unused O.R.s
and the other variables on which the final dollar
value of the “lost” revenue is based.
While these models served to show the waste created
by inefficient O.R. utilization as well as the
amount of money that might be earned by reducing
turnover time or by scheduling more cases in each
room, the new Laden-Monea-KOAMA methodology below
puts a resource-based price tag on ongoing underutilization.
More Building Blocks: Computing the Cost of Staffing
Underutilized O.R.s
By far the greatest expense in anesthesiology
practices is the compensation of clinical personnel.
The hourly cost of anesthesiologists, nurse anesthetists
and AAs idled by inefficient management of the
O.R.s is the best measure of the dollar amount
required to make the group whole. In other words,
that hourly cost is a sound basis for determining
the fair market value to the hospital that demands
excess anesthesia coverage. The new Laden-Monea-KOAMA
model assumes the following staffing and overhead
costs:
Explanation of items in yellow:
1. Avg M.D. FTE Comp: Average total annual
compensation for full-time equivalent anesthesiologists
in the hypothetical group in the model. Survey
data would also be acceptable.
2. Avg CRNA FTE Comp: This includes anesthesiologist
assistant (AA) compensation. See preceding paragraph
(#1).
• If the group is using locum tenens providers,
Laden and Monea recommend adjusting the M.D. and
CRNA comp values upward proportionately for the
higher cost. They suggest a typical factor of
140 percent for each locum tenens.
3. M.D.s: The number of physicians necessary
to staff the O.R. when running at full capacity:
six in the model.
4. Overhead: Billing and collection operations
are generally the second largest anesthesia practice
cost. They run approximately 5 percent to 10 percent
of net collections and, for purposes of the model
discussed here, contribute to a 7-percent overhead
rate. The potential additional revenue is net
of all overhead in Table 2 on page 35. (This is
a refinement to the 2004 model, which did not
distinguish between gross and net revenues.)
Table 2 shows that if the O.R.s in the hypothetical
hospital were utilized 75 percent of the maximum
available time, up from 62.01 percent, group size
could be reduced by nearly two anesthesiologists
and 2.5 FTE nurse anesthetists/AAs. Salary expenditures
could be reduced by $1,151,877 if the baseline
utilization rate were 62.01 percent and by $551,087
if the baseline were 68.78 percent. (More realistically
those personnel could and would be deployed elsewhere
by the group.) Instead, with utilization only
at 62.01 percent, over the 12-month cycle, the
group is giving the hospital $1.152 million worth
of staff time so that the hospital can keep unused
and underutilized O.R.s open.
Highly focused readers will notice that the staffing
costs (column “NR” of Table 1) at
the less efficient levels significantly exceed
the potential additional net revenue if the excess
staff were redeployed to another hospital (column
“KR”). The mismatch occurs because
the staffing costs are spread out over other facilities
and/or over nonsurgical services: obstetrics or
pain medicine collections, for instance, or other
hospital compensation packages might well contribute
to covering the expenses of staffing this particular
O.R. suite. If those revenues are not generated
at the hospital we are analyzing (and perhaps
even if they are, but that is another story),
then they should be off the table in negotiating
for either greater efficiency or income replacement.
The spreadsheet of which Tables 1 and 2 are excerpts
also will allow “what if” calculations,
showing the impact upon utilization and costs
if the hospital chooses to increase or decrease
the number of required O.R.s. In the model, the
hypothetical group is required to staff nine O.R.s.
The spreadsheet outlines various staffing models
and the financial impact of each model. We encourage
readers to download the spreadsheet file and to
use it for their own modeling. The download includes
detailed explanations regarding the practice data
to be entered and the logic of the calculations
as well as the impact of potential overtime hours.
Also in the download package is an important note
regarding the exclusion of obstetrical anesthesia,
chronic pain and critical services from the analysis
offered in this phase.
Conclusion
Total clinical staff costs for inefficiency in
the analysis presented here reflect actual payments
to the staff. The total personnel cost for unused
O.R.s therefore represents fair market value.
Compensation for the fair market value of services
— including on-call and “on-tap”
services — is prohibited by neither the
antikickback nor the self-referral laws. If occasioned
by the hospital’s utilization choices and
calculated accordingly, the value of the underutilized
or unused anesthesia staff time is an obvious
basis for establishing the size of the compensation
package that the group may seek and the hospital
may offer. Joe Laden, Mike Monea and their colleagues
have given ASA NEWSLETTER readers another
valuable tool for their hospital negotiations.