Physician Strategy News: October-November '07
Quantifying Anesthesia Subsidies
Anesthesia groups are increasingly asking for subsidies as a result of a number of factors, including poor Medicare reimbursement and a tight supply of practitioners.
Faced with this request, how can a hospital executive team formulate a rational decision regarding the appropriateness of a subsidy? We have utilized four different methods to evaluate the need for subsidy, and at times have used multiple methods to verify the need.
Method One. One approach is to develop a proforma projection of the group's performance, based on past performance (including tax returns) and industry standard. This method evaluates the group's revenue shortfall based on reasonable salaries, overhead expenses, and collections. As with all subsidy approaches it is intended to increase revenue so that salaries can be competitive.
Method Two. The second method looks at the competitiveness of pay exclusively. This approach entails a review of W-2s, and contrasts compensation with MGMA standards or gaswork.com job postings. When reviewing those job postings, it is important to compare compensation to similar jobs, ones with similar call demands and similar clinical complexity. Day jobs in outpatient centers pay less than jobs in tertiary centers with heart call, and gaswork.com will help you develop comparisons among similar jobs
Method Three. Operating suites that are well utilized will result in better financial performance by the group. As a rule of thumb, if your OR has a day shift utilization rate of 70% or above, a subsidy may not be justified. Below that level, you have built in inefficiencies for the group, and may need to compensate for those hours. An estimate of the impact of that can be calculated with the group by looking at their revenue per percent utilization of the OR and multiplying that dollar amount by the percentage below 70%.
Method Four. Many hospitals have built in standby time in their schedules. This relates to call requirements, staffing for the potential needs of non-operating room anesthesia sites, and requirements for full time OB coverage. Calculating the costs of this unproductive time is another approach to defining a potential subsidy.
Other techniques for addressing this issue likely exist, but these should get you started in defining a rational answer to the request for subsidy.
