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Hospital subsidy support for exclusive anesthesia group practices expected to rise

The percentage of hospitals financially subsidizing their anesthesia groups has been reported in excess of 80% for many years and is expected to rise even more. As a result, there has been an increased focused on this expense, along with fair market value requests from hospitals who are under pressure from their anesthesia groups to increase financial support. Looking into 2022, there are several factors which will likely put further pressure on an anesthesia group’s economics.

Anesthesia revenue per unit is likely to decline

The natural aging of America, and the corresponding change in payor mix, will have a disproportionately negative impact on anesthesia vs. most other specialty physician segments. The American Society of Anesthesia refers to the gap in commercial reimbursement to Medicare reimbursement as “the 33% problem.” The Medicare reimbursement for anesthesia is typically 33% of that for commercial payors. In modeling required financial support for an anesthesia service, one of the most important factors in determining the level of support is payor mix.

The rates for anesthesia professional services will likely fall as both governmental and commercial payors target the specialty for reductions in per unit reimbursement. In July, a major signal came when the 2022 Medicare Fee Schedule was released with a decrease of 2.5% to the anesthesia conversion factor.

To further the impact, the public discourse around surprise medical billing brought hospital-based specialties into focus, and resulted in the No Surprises Act which is scheduled to take effect January 1, 2022. As providers and payors look to position themselves prior to implementation of the No Surprises Act, VMG Health, a valuation and transaction advisory firm, has seen a number of previously in-network anesthesia providers becoming out-of-network with select payor plans. This change is expected to put renewed pressure from the commercial payors on anesthesia groups that have historically received above average reimbursement.

Pressure on wages as demand on providers increases

As a result of these reimbursement changes, classic economics would predict a decrease in the compensation of the providers of the specialty. However, in the short term, provider wages will likely not decrease due to the increase in demand on the specialty.

It is important to recognize that volume of surgical cases is only one driver of anesthesia provider demand. As hospitals take care of sicker patients, and seek to compete in more complex surgical interventions, there is a trend toward adding anesthesia providers to a hospital’s on-call shifts. That additional call responsibility can require significantly more labor demand without a corresponding professional anesthesia service revenue opportunity.

In addition to Anesthesia provider demand growing in hospitals, more Anesthesia services may be needed in ambulatory surgery centers as well. One reason is the major movement towards cutting healthcare costs includes seeking lower cost options for site of service. As a result, growth in ambulatory surgery centers is expected, creating additional demand for anesthesia providers in this space.

Finally, many hospitals are responding to the variation in case volume, in part due to COVID-19, by increasing availability of operating room locations. The result is a decrease in operating room utilization, which has a direct negative impact in exclusive anesthesia model economics.

The reimbursement pressure, new regulations, and increase in demand is a perfect storm for hospital leaders negotiating with anesthesia groups.

Solutions for Hospital Executives

Operating room strategy - Some hospitals are taking a fresh look at their operating room utilization. As anesthesia is often staffed by location, any increase in utilization will allow for more anesthesia billable time. Operating room governance can play a key role in increasing utilization.

Designing staffing models - Many anesthesia groups are looking to extend their staffing models to include more advanced practice providers (APPs). The shortage of all types of anesthesia providers is causing more traditional models to consider APPs in their staffing mix. In many coverage scenarios, adopting a care team (mixed physician and APP) approach reduces the total cost of coverage. In addition, independent CRNA practice is becoming more common with nineteen states having adopted legislation allowing for independent CRNA practice. Lastly, there is a significant uptick in the number of physicians and CRNAs choosing to work as independent contractors or locums. Designing staffing models and job roles that attract and retain anesthesia providers is critical to maintain more economical coverage.

It is more important than ever to understand the economic levers of anesthesia, and work collaboratively with your anesthesia provider to create a sustainable economic model. If your organization does not have in-depth expertise in this unique sector, your best bet is to identify a consultant, such as VMG Health, that has assisted with operating hundreds of anesthesia groups to provide sustainable solutions.

 

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