Operating Room Metrics Applied to Hospital Service Contracts

ASA Conference on Practice ManagementPre-Conference

AACDFriday January 29, 2010

10:15-11:30

Joe LadenBusiness Manager

Anesthesia Associates of Louisville, PSCSince 1981

20 MD’s & 30 CRNA’s Serving Norton Hospitals for 30+ Years

joeladen@aalouisville.com

Objectives 

To define and illustrate several operating room metrics that can be applied to anesthesia service contracts.

To demonstrate how operating room metrics can be used in anesthesia service contracts to calculate hospital financial support. 

Types of Operating Room Metrics Used in Anesthesia Service Contracts

 1.Specify the number of anesthetizing locations the contracting anesthesiology group will cover including hours and days of coverage.

2.As elements of practice performance standards.

3.In the calculation of hospital financial support (stipends)

1. OR Metrics Specifying Operating Room Coverage

•Number of ORs covered

•Hours of Operation of ORs

The Number of Operation Rooms to Be Staffed By the Anesthesia Group is a Simple Metric but . . .

If not specified properly in the contract, this can be a problem for the group

ANESTHESIA SERVICES AGREEMENT  “Anesthesia locations” shall be defined as all those services in Hospital where anesthesia services are required, including, but not limited to, operating rooms, cardiac catheterization labs, lithotripsy, ECT therapy, and certain imaging procedure rooms. Anesthesia Services from Group shall be available according to the following schedule: Monday through Friday: fully staffed and scheduled coverage is required for:

Six(6) anesthesia locations from 7:00 a.m. to 3:00 p.m. Two (4) anesthesia locations from 3:00 p.m. to 5:00 p.m.

Saturday: fully-staffed and scheduled coverage shall be available for two (2) anesthesia locations from 7:30 a.m. through 3:00 p.m.

Sundays and weekday holidays: coverage is required for cases performed when the operating surgeon determines that the procedure is urgently necessary for the benefit of the patient.

Emergency on-call coverage shall be provided for one (1) anesthesia locations twenty-four (24) hours per day, Monday through Sunday.

Group shall provide pre-admission consultation services for patients scheduled to receive anesthesia, in collaboration with the Hospital Pre-Admission Testing service.

  “Anesthesia locations” shall be defined as all those services in Hospital where anesthesia services are required, including, but not limited to, operating rooms, cardiac catheterization labs, lithotripsy, ECT therapy, endoscopy and certain imaging procedure rooms. Anesthesia Services from Group shall be available according to the following schedule: Monday through Friday: fully staffed and scheduled coverage is required for:

Six (6) anesthesia locations from 7:00 a.m. to 3:00 p.m. Two (2) anesthesia locations from 3:00 p.m. to 5:00 p.m.

Saturday: fully-staffed and scheduled coverage shall be available for two (2) anesthesia locations from 7:30 a.m. through 3:00 p.m.

Sundays and weekday holidays: coverage is required for cases performed when the operating surgeon determines that the procedure is urgently necessary for the benefit of the patient.

Emergency on-call coverage shall be provided for one (1) anesthesia locations twenty-four (24) hours per day, Monday through Sunday.

Group shall provide pre-admission consultation services for patients scheduled to receive anesthesia, in collaboration with the Hospital Pre-Admission Testing service.

Operating Room Coverage Specified in Hospital Contract

• Number of ORs covered (staffed)

• Days of Week ORs are covered

• Beginning and Ending Hours of Coverage

• Type of Coverage (sub-specialty)

Example:

Group agrees to cover 12 ORs

but . . .

Hospital expects coverage of endo suites “when needed” even when all 12 ORs are in operation

Alternate Anesthetizing Locations

• Cath Lab• MRI• Radiology• Endoscopy Suite• Lithotripsy

Handling the Number of ORs Potential Problem

Contract should specify in some form that group will be responsible for coverage of no more than N simultaneous anesthetics.

Coverage in out of operating room locations should be scheduled from existing operating rooms.

Example:OR 2 7:30 D&C 8:30 Anesthesia to MRI11:00 Hysterectomy

“Anesthesia locations” shall be defined as all those services in Hospital where anesthesia services are required, including, but not limited to, operating rooms, cardiac catheterization labs, lithotripsy, ECT therapy, endoscopy and certain imaging procedure rooms

The time of an anesthetic should include:

• Time to interview the patient and place lines and post operative pain blocks.

• Time to bring patient to recovery room

• For non-operating room locations, travel time to location should be included.

Definition of Beginning of Coverage

Does 7:00 a.m. mean “room ready”, “patient in OR”, “anesthesiologist reporting time” or “cut time”?

Example:

If contract beginning coverage time is “cut time” at 7:00 then anesthesia personnel need to be in the hospital – and paid – from 6:15-6:30 especially for cases with lines and regional blocks.

Ending Time of Anesthesia Coverage

Usually means the time of day after which anesthesia personnel are no longer needed on a continuous basis in the operating rooms referenced.

What Happens if Case Time Extends Past Contracted Coverage End Time?

• Anesthesia group wants to accommodate surgeons• Running ORs late can end schedule earlier• Late ORs can be an opportunity for extra billing

But • Will need to pay overtime or fund late shifts• Habitual lateness wears on staff• Not funded by hospital if not in contract• Non prime hours are paid at same rate by third party payers

Example:

Group receives an inadequate $259 per hour from third party payers.

Actual cost to deliver services is 26% higher or $326.

Personnel costs are 50% higher after hours

Reimbursement from hospital will be:

$326 X 1.5 = $489 less $259 collected from payers resulting in a net of $230 per hour.

What Happens if Case Time Extends Past Contracted Coverage End Time?

• Contract can specify monetary penalty for coverage overruns

e.g.: Hourly rate for case hours beyond hours specified in contract, billed to hospital monthly (less collections for this time period)

• Contract renegotiated if hours beyond coverage specified in contract exceed a certain number or percentage of total hours to be covered

Virtual Operating Room Problem

• Contract specifies coverage for 12 ORs and hospital is licensed for 12 ORs, but actually has 14 ORs

• Hospital wants to use extra ORs for “flipping rooms”

• This should be addressed in contract as coverage for 14 ORs for certain days and hours

• Flip rooms usually have lower utilization and need additional financial support from the hospital

Review of Potential Contractual Problem Areas

• Number of simultaneous anesthetics

• Beginning Coverage Time

• Ending Coverage Time

• Out of Operating Room Coverage

• Virtual operating rooms

Bottom Line:

When initiating or renegotiating a hospital service contract, precisely define Number of ORs covered, Operating Times and any financial remuneration from the hospital for coverage overruns.

Suggestion:Review your current contract and actual hours of coverage provided by group when you return from this meeting. You are probably providing uncompensated services in excess of that specified in your contract.

2. Practice Performance Standards Related to Operating

Room Metrics

Typical Practice Performance Standards/Measures in Anesthesia Service

Contracts

• Adherence to hospital rules• Scores in patient surveys• Scores on surgeon surveys• Physician behavior • Attendance at hospital meetings• Compliance with Joint Commission measures• Adherence to documentation standards• Use of low-cost drugs and disposable supplies• PQRI participation

WEIGHTS OF GENERALAPPRAISAL CATEGORIES

CATEGORYWEIGHT

CATEGORY WEIGHTED

SCORE

Patient Care Concerns 30%

Productivity and Management 20%

Medical Staff Relations 25%

Financial Responsibility 10%

Human Resources Management

15%

TOTALS 100%

STANDARDS OF PERFORMANCE REPORT FORANESTHESIA SERVICES

Scorecard

Practice Performance Standards Related to OR Metrics

 • Percentage of cases cancelled by anesthesia

• Percentage of cases delayed by anesthesia

Practice Performance Standards Related to OR Metrics

•  May be part of overall “scoring” system that could cause review or cancellation of the anesthesia service contract.

• These measures should be clearly defined in contract and that the group has a method to review and correct erroneous reporting by hospital.

• Performance standards scores could be tied in to financial support.

3. Calculating Hospital Financial Support Based on Operating Room

Metrics

Two OR Metrics That Can Be Specified in a Hospital Service Contracts

• Operating room utilization percentage

• Percentage of case time outside prime hours (e.g. outside7:00 a.m. – 3:00 p.m. weekdays)

Types of Hospital Financial Support Fixed amount

OB coverage

In-house Call Stipend

Trauma Stipend

Medical Directorship

Pre-admisson Testing Clinic

Negotiated “Gap” amount

CRNA Support

Types of Hospital Financial Support Variable Amount

Revenue Guarantee

Low Utilization Supplement

Excess/Late Hours Supplement

Payer Mix Support

Coverage Overrun Penalty

Locum Coverage Payments

The Problem of the “GAP”

Personnel Cost to Provide Contracted OR Coverage

Greater Than

Patient Revenue Less Billing Costs

Resulting in a Need for Hospital Financial Support to close the gap.

Personnel Cost Is Determined by:

• Number of personnel to provide OR coverage specified in anesthesia service contract by number of operating rooms and hours of operation.

• Prevailing area MD and CRNA salary and benefit requirements.

Both of these factors are mostly out of the control of the anesthesiology group.

Patient Revenue is Determined by:

• Payer Mix

• Units or Hours Billed Per Operating Room

Both of these factors are out of the control of the anesthesiology group.

Payer % of Units Unit RateMedicare 40% $20 Medicaid 10% $14 Red Shield 28% $60 MegaHealthy 14% $62 Workers Comp 4% $35 Cosmetic 1% $70 No Pay 3% $0 Blended Rate $37

Payer Mix Measured by ASA RV Units

Payer % of Units Unit RateMedicare 25% $20 Medicaid 3% $14 Red Shield 34% $60 MegaHealthy 30% $62 Workers Comp 4% $35 Cosmetic 3% $70 No Pay 1% $0 Blended Rate $48

+25%

Payer Mix Measured by ASA RV Units

Payer % Hours Houly Rate

Medicare 40% $140

Medicaid 10% $98

Red Shield 28% $420

MegaHealthy 14% $434

Workers Comp 4% $245

Cosmetic 1% $490

No Pay 3% $0

Blended Rate $259

Payer Mix Measured by Hourly Rate

Payer mix by hourly rate will be easier for hospital administrators to

understand than ASA RV units

Lets Do the Numbers . . . .

Example:

Total Practice Budget to Cover 20 ORs Personnel Cost + Billing cost + Other Corporate Overhead = $9,000,000

Cost per OR per day: $1,800 = $9,000,000 / 250 days / 20 ORs

Example:

20 Operating Rooms

5.5 Average Hours of Anesthesia Time Billed Per OR

Patient Revenue = $259/hour of Anesthesia Time Billed

Result: 5.5 x $259 = $1,425 per OR per day.

Personnel Cost per day = $1,800

Gap = $375 per OR per Day.

Total Gap Calculaton

$375 / OR per day

x

20 ORs

x

250 days

= $1,875,000 Total Per Year

The OR Metric that Controls the Magnitude of the GAP is Operating Room Utilization

Higher OR Utilization Results in More Hours of Anesthesia Billed Per OR and vice versa

Increasing OR Utilization Will Increase Patient Revenue Without Increasing Personnel Needed to Staff the OR

Defining Operating Room Utilization

OR utilization measurement can vary depending on definitions of case time an whether turnover time is used.

Use hospital’s definition (e.g. AACD Raw Utilization)

From your billing system, use anesthesia hours billed during prime time.

Main concern is the difference between target utilization and actual utilization.

Two Utilization Problems Can Occur

• Hospital/Surgeons Underutilize Contracted Prime Hours

• Hospital/Surgeons Overutilize non-Prime Hours

Example:

Prime OR hours are 7:00-3:00 (8 hours)

We use anesthesia hours billed without turnover time. (slightly > raw utilization)

Assume 5 of 5.5 total hours are in prime time

Utilization rate is 5/8 = 62.5%

Coupled with poor payer mix ($259/hr.) results in considerable gap.

How can the OR utilization rate be increased to reduce the “gap” in this example?

• Move Late Cases Into Prime Time (only have .5 hrs.)

• Increase Surgical Volume in Existing Operating Rooms(would need to increase volume 26%)

• Reduce Number of ORs, Increasing Volume in Remaining ORs

How can the OR utilization rate be increased to reduce the “gap” in this example?

• At $259/hr. it would take 6.95 hours of anesthesia time per OR to generate $1,800 in patient revenue / OR / day (divide $1,800 by $259)

• .5 hours occur after prime time, so 6.45 hours will be in prime time

• Utilization needs to be 6.45 / 8 = 80.6% (w/o turnover)

Conclusion:

62.5% OR utilization Causes $1,875,000 Gap

80.6% OR utilization brings gap to zero

Each percentage increase in utilization reduces gap by $103,591. ($1,875,000 / (80.6% -62.5%))

How Can OR Utilization be Implemented in Hospital Service Contract?

• Measure OR utilization on a monthly basis

• Hospital pays group $1,875,000 / 12 = $156,250 per month if utilization stays at $62.5%.

• This is amount is adjusted upward or downward by $103,591 / 12 = $ 8,633 per month for each percentage change in the OR utilization percentage.

Why use OR utilization in service contract?

• The hospital support amount is out of the control of the anesthesiology group but is potentially controlled by the hospital

• The hospital will have an incentive to increase OR utilization and reduce payments to the anesthesiology group

Even if not ultimately used in the group’s hospital contract, discussing OR utilization with the

hospital during stipend negotiations can educate hospital administration on the problem of low OR

utilization and how it effects anesthesia reimbursement.

Another Approach to Increasing OR utilization

Reduce the number of ORs, increasing utilization in remaining ORs.

This may seem drastic to the hospital, but it will drive home the point that underutilization caused by too many ORs will result in the need for hospital financial support of the anesthesia group.

Example:

To generate $1,800 per day in patient revenue, 6.45 billable anesthesia hours are needed per OR per day.

Currently , there are 5 prime hours per OR per day for a total of 100 hours for 20 ORs.

Number of operating rooms needed at 6.45 hours per day Equals 100/6.45 or 15.5 ORs.

Anesthesia group does not need hospital financial support if number of ORs is reduced to 15.5.

Example:

Contract language:

“Hospital will provide $1,875,00 annual support to anesthesia group to cover 20 operating rooms and shall reduce or increase this support by $450,000 ($9,000,000 / 20) for each change in the number of ORs covered.”

“Hospital will give group 6 months notice before changing the number of operating rooms to be covered under the terms of this contract . . . . . ”

Non-Prime to Prime Hours OR Metric

Non-prime time surgical hours divided by prime hours

Prime time usually 7:00 a.m. to 3:00 p.m. (8 hours)

All other hours on weekdays and weekends are non-prime.

This OR metric measures overutilization of ORs

Hours outside prime time are more expensive to cover

• Overtime is usually paid

• Recruiting is difficult for practices with high non- prime to prime ratios resulting in higher personnel costs.

• Patient revenue is the same during prime and non-prime hours.

Contract Language:

“In addition to monthly support of $200,000, the Group will be compensated for after hours coverage as specified in Appendix D where Prime Hours are 7:00 a.m. to 3:00 p.m. weekdays and Non-Prime Hours are all weekday surgical hours outside these hours and all weekend and holiday surgical hours.

Non-Prime to Prime Percent    

Additional Quarterly

Compensaton

0.0% - 19.9% $0

20.0% - 21.9% $30,000

22.0% - 23.9% $36,000

24.0% - 25.9% $43,200

26.0% - 27.9% $51,840

28.0% - 29.9% $62,208

30.0% - 31.9% $74,650

32.0% - 33.9% $89,580

Appendix D

Benefits of Contractually Tying Hospital Support to Operating Room Metrics

Hospital controls OR metrics and can control anesthesia support by changing the metrics.

Negotiating with hospital using OR metric demonstrates the relationship between these metrics and the need to provide financial support to the anesthesiology group

Hospital administration can more easily explain to hospital board and other stakeholders the need for anesthesia department support based on low prime time utilization and after hours surgical scheduling.

Why negotiations based on OR underutilization and Overutilization can be useful

Detailed numerical discussions with hospital negotiators may provide enlightenment as to the anesthesia group’s problems with sub-optimal utilization and non-prime overutilization.

The hospital’s surgical profit margin may be so great that underutilization and overutilization are not a financial concern.

Remember:

After implementation, contracts are usually scrutinized only after a problem occurs and a

dispute needs to be resolved.

Wrap UpWere objective met?

To define and illustrate several operating room metrics that can be applied to anesthesia service contracts. To demonstrate how operating room metrics can be used in anesthesia service contracts to calculate hospital financial support.

Please Complete Your Evaluation

Additional Reading

Abstracts from the 2008 Conference on Practice Management 2008 - Chapter 24 - Preparing the Financial Case for Hospital Support  J. Laden & M. Moneahttp://www2.asahq.org/publications/pc-288-16-2008-chapter-24-preparing-the-financial-case-for-hospital-support.aspx

Staffing Costs and Underutilized Operating Rooms K. Bierstein with J. Laden & M. MoneaASA Newsletter 2007; June 2007, Volume 71http://www.asahq.org/Newsletters/2007/06-07/pracMgmt06_07.html

Abstracts From the 2004 Conference on Practice Management Chapter 7 - Minimizing the Impact and Cost of Inefficient O.R. Utilization  M. Monea, J. Ladenhttp://www2.asahq.org/publications/p-162-abstracts-from-the-2005-conference-on-practice-management.aspx

The cost of inefficient O.R. utilization.K. Bierstein with J. Laden & M. MoneaASA Newsletter 2004; September 2004, Volume 68http://www.asahq.org/Newsletters/2004/09_04/pracMgmt09_04.htmlHow many rooms do we need?

K. Bierstein with J. Laden & M. MoneaASA Newsletter; June 2004; Volume 68http://www.asahq.org/Newsletters/2004/06_04/pracMgmt06_04.html

Questions and Answers

Your Experiences

Comments and Suggestions

For Questions, Comments, Help or to Share Your Ideas:

Joe Laden, Business ManagerAnesthesia Associates of Louisville, PSC

332 W Broadway Louisville, Kentucky 40202

www.joeladen.com

JoeLaden@aalouisville.com

Extras

Can You Answer these Questions Today ?

How many total units billed per year and per OR?How many total hours billed per year per OR?Average number of cases per day per OR?Percentage of case hours billed outside of prime time?Patient revenue per hour of anesthesia time billedPatient revenue per unit of anesthesia time billedPatient revenue per OR per yearHospital stipend per OR per yearOverall utilization rate of ORs coveredIdle hours per OR per day during prime timePersonnel cost per OR Personnel cost vs. patient revenue gap per OR