Always Avoid the Bad Jobs—Know How to Assess a Practice
Norman A. Cohen MD
In the sections immediately following, I will provide an overview of some of the key points to consider when evaluating a practice, both in general and for specific practice types.
ALL PRACTICE TYPES
All practice types have certain elements that must be carefully analyzed. The common factors include the practice’s relationship to the facility, the payer environment, use of nonphysician anesthetists, and call and case assignments.
RELATIONSHIP TO FACILITY
When evaluating a practice, one of the most important questions to have answered is the nature of the relationship between the group and the hospitals or other facilities where service is provided. If the group has a contractual relationship, it is vital to assess the current status of the contract. Go beyond the group’s description and check out alternative sources. The operating room (OR) manager, chief of surgery, or even the hospital administrator may be helpful in understanding the quality of the relationship. This suggestion applies whether or not the group has a formal contract with the facility.
When a group works at multiple sites, you will need to determine whether you will work at one, some, or all the group’s sites. Depending on the answer, the amount of homework that needs to be done may increase significantly.
In the ideal situation, the facility has reasonable expectations of the anesthesiology staff and has good relations with the group and with the medical staff as a whole. Typically, groups that focus on the service aspect of their mission and on delivering safe and cost-effective care maintain enviable relationships with their facility(ies). On the other hand, groups that fail to manage problems (or problem employees) effectively often have tenuous relationships. Taking a job with such a group means that you are assuming significant risk that you will be looking for another job soon.
When I served as a consultant working with troubled anesthesia departments, the most common service problem involved obstetric anesthesia coverage. Many groups just refused to cover the service, and many hospitals refused to pay a subsidy to “those lazy good-for-nothing gas passers” without exacting a pound of flesh. And that pound of flesh was control—control
over hiring, firing, and the group’s obligation to the hospital. In most cases, if the group had focused on serving the needs of the community and had chosen to work with the hospital’s leaders, they would have received some supplemental funding without giving up control of their group’s destiny.
over hiring, firing, and the group’s obligation to the hospital. In most cases, if the group had focused on serving the needs of the community and had chosen to work with the hospital’s leaders, they would have received some supplemental funding without giving up control of their group’s destiny.
The second most common problem that I saw was not dealing effectively with problem physicians. The chronic “pot stirrer” can undermine the group, damage its credibility, and occasionally even lead to litigation or loss of a facility contract. Most reasonable individuals expect that anesthesiologists will show up to work on time, be courteous to their patients, and diligently complete required paperwork. This is not the case more often than one might imagine. The consequences include patient complaints, surgeon and OR staff dissatisfaction, and in some cases much more dire consequences such as government audits or potential loss of accreditation for the facility. The latter two outcomes are not appreciated at all by facility administrators!
THE MONEY GAME
For most physicians, compensation is the most important job characteristic. Although I disagree about priority, I do agree that money is an extremely important matter. Revenue derived from clinical practice depends on patient demographics (also known as “payer mix”), case volume, and average anesthesia units. A simple metric that is useful for comparison is the resulting “blended” conversion factor. Although all solo practices, many single-specialty group practices, some multispecialty practices, and few academic and governmental practices tie pay directly to the insurance status of your patients, following the money is exceptionally helpful in understanding the viability of your practice opportunity.
Patient Insurance Demographics.
The key factor that determines payment for a given case is the patient’s insurance status. Ranging from those who pay at your billed rate (rare) to patients with no insurance (who rarely pay full fare and often pay nothing), gaining an understanding of the breakdown by payer and frequency can help you validate whether the practice’s estimates of your clinical income makes sense. When looking at an insurance demographic breakdown, pay particular attention to the self-insured, Medicare, and Medicaid groups. The larger their share, the smaller the group’s net income. As of 2005, Medicare pays about a third as much as the average commercial payer for anesthesia services. In most states, Medicaid’s rates are similar to Medicare’s. Notable exceptions include New York and California, where Medicaid payments are far less than those for Medicare. On the other hand, Alaska’s Medicaid rates have historically been near those of some private payers.
Other considerations include determining whether a particular payer has market dominance. If one does, then that payer has the ability, often
exercised, to ratchet rates downward. On the other hand, having multiple payers competing for the practice’s participation turns the tables and levels the playing field during rate negotiations.
exercised, to ratchet rates downward. On the other hand, having multiple payers competing for the practice’s participation turns the tables and levels the playing field during rate negotiations.
Volume and Total Units.
Once you have the insurance breakdown for the practice, the second key variable is case volume. It is fairly simple to take the insurance breakdown expressed as a percentage and multiply by total case volume to get volume by payer.
However, volume and insurance status is not enough information to calculate payments. The last element needed is average units per case. As will be explained in detail in the chapter on anesthesia coding and compliance, most payers value anesthesia services using the American Society of Anesthesiologist’s (ASA) anesthesia relative value system. The ASA system rates each anesthetic by base units that value the complexity of the case and the pre- and postanesthetic work, and time units that value the time involved in direct anesthetic care. Most payers recognize one time unit for every 15 minutes, but pockets of the country may bill more than four time units each hour. The ASA system also includes modifiers that take patient condition, extremes of age, and special anesthetic techniques into account; however, some payers, most notably Medicare, do not recognize modifier units.
One calculates payment for an individual anesthetic by the sum of the base, time, and modifier units. This value is multiplied by the conversion factor to get the total charge. The conversion factor is the amount of money paid for each anesthesia unit.
When looking at the practice as a whole, one can take the average number of units per case multiplied by the product of the insurer’s contribution to practice volume and the insurer’s negotiated payment rate to determine income from a given insurer. Taking this a step further, one can divide this number by total group clinical income to determine the importance of a particular insurer to the practice. Case volume by insurer and case income by insurer can be dramatically different. In a hypothetical practice, Medicare patients may make up 40% of total units billed but account for only 20% of total revenue. On the other hand, a large private payer contributes 20% of the patients but 30% of total revenue. It doesn’t take a rocket scientist to recognize the importance of this private payer to the group’s financial health.
“Blended” Conversion Factor.
Having all the insurance demographic, volume, and conversion factor data would be amazingly useful to an applicant trying to make a well-reasoned decision about a practice’s income stream; however, it is rare that a group will share all or even most of the information needed to perform the analysis described above. Fortunately, a simple metric exists to allow one to make an “apples-to-apples” comparison of provider income between different practices. This metric is known as the “blended”
conversion factor and is a weighted average of the conversion factors of all the payers in a practice. It is calculated by dividing total clinical income by total units billed. Once you determine the average number of units generated by a full-time member of the practice and know the “blended” conversion factor, you can multiply the two values to determine estimated gross revenue generated by a physician in the group. Assuming equal case volume and units per case, the greater the “blended” rate, the greater the clinical income per provider.
conversion factor and is a weighted average of the conversion factors of all the payers in a practice. It is calculated by dividing total clinical income by total units billed. Once you determine the average number of units generated by a full-time member of the practice and know the “blended” conversion factor, you can multiply the two values to determine estimated gross revenue generated by a physician in the group. Assuming equal case volume and units per case, the greater the “blended” rate, the greater the clinical income per provider.
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