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

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

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

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

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

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

7. 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. 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. 9 Why Use Metrics? Management Planning Income Division Internal Comparisons External comparison

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

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

12. 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

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15. 15 MGMA Surveys ASA discount - Cost Survey for Anesthesia: www.asahq.org/publicationsAndServices/MGMAorderform.pdf Contact MGMA www.mgma.com 1-877-275-6462 www.mgma.com

16. 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. 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. 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. 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 Lost Revenue for Anesthesia Practice Good Stipend Negotiating Point Hospital & Surgeons Control Utilization X Available Hrs. X Revenue/Hr.  Revenue/O.R.

20. 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. 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. 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. 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. 24 MD:CRNA Ratios (concurrency) Practice Ratio Average Number of MD’s Scheduled to Work Divided by Average Number of CRNA’s Scheduled to Work

25. 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. 26 MD:CRNA Ratios (concurrency) Cost Ratio Divide Total Revenue by Total CRNA Cost Example: Total Revenue $12,000,000 CRNA Cost$ 4,000,000 Cost Ratio33% Result – One Third of Revenue is Consumed by CRNA Costs.

27. 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 different ratio of CRNA’s.

28. 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. 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. 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. 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. 32 Units Per Hour Allows Conversion of Revenue/Unit to Revenue / Hour: Revenue/Hr. = Units/Hr. X Revenue/Unit Example: 8.4 units/hr X $36/unit  $302/hr. Not Under Control of Anesthesiologist Slow/Teaching Surgeons Hurt Short cases Help

33. 33 Anesthesia Financial Models

34. 34 Diagram Model

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36. 36 Spreadsheet Model

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43. 43 Graphical Model

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49. 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. 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

51. 51 Model Software References http://www.modeladvisor.com http://www.xcelsius.com

52. 52 Contact joeladen@aalouisville.com