Operating Room Metrics Applied to
Hospital Service Contracts
ASA Conference on Practice Management
Pre-Conference
AACD
Friday January 29, 2010
10:15-11:30
Joe Laden
Business Manager
Anesthesia Associates of Louisville, PSC
Since 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 MRI
11:00 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
STANDARDS OF PERFORMANCE REPORT FOR
ANESTHESIA SERVICES
WEIGHTS OF GENERAL
APPRAISAL CATEGORIES
CATEGORY
WEIGHT
Patient Care Concerns
30%
Productivity and Management
20%
Medical Staff Relations
25%
Financial Responsibility
10%
Human Resources
Management
TOTALS
15%
100%
Scorecard
CATEGORY
WEIGHTED
SCORE
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 Mix Measured by ASA RV Units
Payer
Medicare
Medicaid
Red Shield
MegaHealthy
Workers Comp
Cosmetic
No Pay
Blended Rate
% of Units
40%
10%
28%
14%
4%
1%
3%
Unit Rate
$20
$14
$60
$62
$35
$70
$0
$37
Payer Mix Measured by ASA RV Units
Payer
Medicare
Medicaid
Red Shield
MegaHealthy
Workers Comp
Cosmetic
No Pay
Blended Rate
% of Units
25%
3%
34%
30%
4%
3%
1%
Unit Rate
$20
$14
$60
$62
$35
$70
$0
$48
+25%
Payer Mix Measured by Hourly Rate
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 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 nonprime.
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 nonprime 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.
Appendix D
Additional
Quarterly
Compensaton
Non-Prime to
Prime Percent
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
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 Up
Were 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. Monea
http://www2.asahq.org/publications/pc-288-16-2008-chapter-24-preparing-the-financial-case-forhospital-support.aspx
Staffing Costs and Underutilized Operating Rooms
K. Bierstein with J. Laden & M. Monea
ASA Newsletter 2007; June 2007, Volume 71
http://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. Laden
http://www2.asahq.org/publications/p-162-abstracts-from-the-2005-conference-on-practicemanagement.aspx
The cost of inefficient O.R. utilization.
K. Bierstein with J. Laden & M. Monea
ASA Newsletter 2004; September 2004, Volume 68
http://www.asahq.org/Newsletters/2004/09_04/pracMgmt09_04.html
How many rooms do we need?
K. Bierstein with J. Laden & M. Monea
ASA Newsletter; June 2004; Volume 68
http://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 Manager
Anesthesia 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 billed
Patient revenue per unit of anesthesia time billed
Patient revenue per OR per year
Hospital stipend per OR per year
Overall utilization rate of ORs covered
Idle hours per OR per day during prime time
Personnel cost per OR
Personnel cost vs. patient revenue gap per OR