Key Financial Metrics & Models For Anesthesia Practices Joe Laden joeladen@aalouisville

1. Key Financial Metrics & Models For Anesthesia Practices Joe Laden joeladen@aalouisville.com

2. Common Metrics Units: Base, Time, Modifying Minutes/Hours of Anesthesia Administration Revenue Payer Mix Pay Per Hour MD:CRNA Ratio

3. Metric Types • Collection Efficiency & Effectiveness • Provider Production & Efficiency • Case Characteristics • OR Characteristics • Personnel and Practice Costs • Payer Mix and Rates

4. Apply Measurements Over: • Time Periods (hours, days, months, years) • FTE’s (MD, CRNA’s) • OR (anesthetizing location) • Unit • Case • Payer • Hospital

5. Where Do The Numbers Come From? • Practice Management (billing) System • Billing Service / Practice Management Service • Payroll • Accounting System • Accounts Payable • General Ledger

6. How? • Standard Billing & Collection Reports • Special Reports • Ad Hoc Inquiries • PM System Export to Excel • Pivot Tables • Assembled to Spreadsheets

7. Anesthesia Metrics You Should Know • Revenue per Unit ($20-$50) • Revenue per Hour ($200-$450) • Unit Reimbursement Rate of Major Payers • Revenue Per OR ($300k-$700k) • Average Shareholder MD W-2 ($250k-$400) • Total non-W-2 Costs per MD ($60K-$110k) • O.R. Utilization (40%-80%)

8. Anesthesia Metrics You Should Know • % Work After Hours (0-30%) • CRNA Cost Per Hour Billed ($120-150) • CRNA Cost Per Unit Billed ($14-$18) • MD Hours In Hospital Per Week (40-55) • % Corporate Overhead & Administration (2%?) • % Billing Cost (3%-8%) • % Medicare Units (10%-60%) • Units Per Hour (7-10)

9. Why Use Metrics? • Management • Planning • Income Division • Internal Comparisons • External comparison

10. Internal Comparisons • Time Periods • Year Over Year • YTD vs. YTD • Month by Month • Provider vs. Provider • OR suites/Hospitals • Payer vs. Payer

11. External Comparison • Recruiting • MD Wages vs. Work Performed • Hospital Support • Negotiating Private Payer Contracts • Personnel Retention

12. Making External Comparisons • MGMA/Anesthesia Administration Assembly • Cost and Production for Anesthesia Practices • Physician Compensation & Production Survey • ASA • Payer Survey • Recruiting Firms • Consulting Firms – Focused Survey • State/Regional Anesthesia Organizations • Academic Authors: Abouleish, Dexter, Tremper

15. MGMA Surveys • ASA discount - Cost Survey for Anesthesia:www.asahq.org/publicationsAndServices/MGMAorderform.pdf • Contact MGMAwww.mgma.com1-877-275-6462

16. Key Metrics • Revenue Per O.R. • Revenue Per Unit Billed • O.R. Utilization Rate • % Hours Billed/Worked After Normal OR Shift • CRNA Cost per Hour/Unit Billed • MD:CRNA Ratios (Concurrency) • Weeks Worked per Year • MD non-Salary Costs • Units per Hour • Units Billed per MD FTE

17. Revenue Per Operating Room • Encompasses Two Important Metrics: • Utilization Rate and Pay/Hour • Fundamental in Determining MD Income • Hospital Negotiating Point • Affected When Adding OR’s • Primarily Controlled by Hospital and Surgeons • Divide Annual Revenue by O.R.’s Covered

18. Revenue Per Unit Billed • Equivalent to “Payer Mix” • Highly Influenced by Medicare/Medicaid • Limits the “Wealth” of the Practice • Good Metric to Compare Practices • Can Be Negotiated With Some Private Payers • Mix Not Controllable by Practice at a Facility • Divide Annual Revenue by Units Billed • Revenue/Unit X Units/Hr.  Revenue/Hr. • Goal to Increase Each Year

19. O.R. Utilization • O.R. Available Time Divided By Hours Billed • E.g.: O.R. Prime Time 7:00 a.m.-3:00 p.m. Group bills average of 5.5 hrs. during this time O.R. Utilization  62.5% • Low Utilization (<80%) Represents LostRevenue for Anesthesia Practice • Good Stipend Negotiating Point • Hospital & Surgeons Control • Utilization X Available Hrs. X Revenue/Hr.  Revenue/O.R.

20. % Hours Billed After Normal O.R. Shift Example: In addition to 5.5 hours billed during the 7:00 a.m. – 3:00 p.m. shift, anesthesia group also bills 1.1 hrs. or 20% more hours after 3:00 p.m.

21. % Hours Billed After Normal OR Shift • Increase Call Requirements • These hours are generally undesirable • Increased MD Staff Required • Hours after 8 in a day are more costly (CRNA) • Weekend Hours are Included • Can Be Used in Stipend Negotiations • Controlled by Hospital and Surgeons • Adds to Revenue

22. CRNA Cost Per Hour/Unit Billed • Hourly Rate = $60 • Hourly Rate with Benefits & Taxes at 33.3%  $80 • Hourly Rate for Hours Worked (40 days PTO)  $95 • Hourly Rate for Hours billed @ 70% Utilization $135 • Overtime, Shift Differential & Call May Increase • Converts to about $16-$17/unit • Can This Metric Be Controlled?

23. MD:CRNA Ratios (concurrency) • Nominal Ratio May Be 1:4, 1:3, 1:2 , However: • Some MD-only O.R.’s • Different Ratios: (some O.R. 1:2, some 1:3) • Ratios Change As Cases Start and Stop • Floaters Should Be Counted

24. MD:CRNA Ratios (concurrency) • Practice RatioAverage Number of MD’s Scheduled to Work Divided by Average Number of CRNA’s Scheduled to Work

25. MD:CRNA Ratios (concurrency) Practice Ratio Example: 10 OR’s Normally Scheduled as Follows: 8 CRNA’s in 8 O.R.’s 2 M.D.-Only O.R.’s 6 O.R.’s @ 1:3 2 O.R.’s @ 1:2 Total M.D.’s  5 Practice Ratio  5:8 or 1:1.6

26. MD:CRNA Ratios (concurrency) Cost Ratio • Divide Total Revenue by Total CRNA CostExample: Total Revenue $12,000,000 CRNA Cost $ 4,000,000 Cost Ratio 33% • Result – One Third of Revenue is Consumed by CRNA Costs.

27. MD:CRNA Ratios (concurrency) Cost Ratio • Therefore, 33.3% of Units Billed Per MD or Hours Billed Per MD or Revenue Per MD would need to be subtracted to compare to another practice with no CRNA’s or a differentratio of CRNA’s.

28. MD:CRNA Ratios (concurrency) Summary • The Effect of Concurrency is Difficult to Calculate • It Makes Comparison to Surveys Problematic • However, the MD:CRNA is Controllable by the Anesthesia Practice and Can Have a Significant Influence on MD Income.

29. Weeks Worked Per Year • Eight Weeks Time Off is the Average • Significant Differences Will Be Reflected in MD W-2 Wages. • Value of a Vacation Week Calculation:Total MD Compensation/Cost Divided by Number of Weeks Worked$440,000/44  $10,000/week

30. MD non-Salary Costs • Retirement Contribution $44,000 • Health Insurance $10,000 • Malpractice Insurance $18,000 • Disability Insurance $12,000 • Dues, Journals, Books $ 2,000 • FICA & Medicare Tax (employer) $10,000 • U.I., Workers Comp. Other $ 4,000 • Total $100,000

31. Units Per Hour • Calculate: Total Units Billed in O.R. Divided by Number of Hours Billed in O.R • Result is 4 time units plus the average number of base units (and modifying units) spread over the length of the case

32. Units Per Hour • Allows Conversion of Revenue/Unit to Revenue / Hour:Revenue/Hr. = Units/Hr. X Revenue/UnitExample: 8.4 units/hr X $36/unit  $302/hr. • Not Under Control of Anesthesiologist • Slow/Teaching Surgeons Hurt • Short cases Help

33. Anesthesia Financial Models

34. Diagram Model

36. Spreadsheet Model

43. Graphical Model

49. Situations Were Models Are Useful • Evaluating Additional O.R. Coverage • Advocating for Improved O.R. Utilization • Analyzing Proposed Change in MD:CRNA Ratio • Additional Facility to Cover • Additional Personnel to Improve Lifestyle • Changes in Vacation for Some or All MD’s • Changes in Payer Mix • Changes in Payer Reimbursement • Stipend Requests (New and Changed)

50. Steps to Develop & Use a Model • Objective • Inputs and Outputs • Determine Form • Gather Data • Validate • Compare to Surveys and Benchmarks • Project, Manipulate in Real time