Author: Tony Mira
Projecting group revenues into the coming year is a difficult proposition for many practices. At the very least, groups should calculate the likely potential relative to three key factors: case volume, case acuity and unit yield.
As we close out 2022, most of our clients are wondering what their revenue will be for calendar 2023. It is a very good and useful question. The fact is that there are three distinct variables in the revenue equation, and each has been impacted by a variety of internal and external factors. The three factors are the volume of cases, the acuity of care provided and the net yield per billed unit. Because surgical cases determine the majority of practice revenue, let us isolate time-based surgical activity for purposes of identifying the factors we should be focused on to get a reasonable idea of the trends that will determine 2023 revenue. The information upon which this review is focused all comes from standard FA reports. While we have identified a sample of large clients for this discussion it is well worth the time to review how each of these factors and issues may determine your cashflow projections.
Surgical Case Volume
While anesthesia providers love to measure their productivity in terms of cases, this is a very imprecise and impractical unit of measurement. There was a time when the average surgical case took about 90 minutes and generated about 12 billable units. This is no longer the case. As anesthesia has responded to the demands of its customers, the scope of every practice has increased. Too often, we refer to this as scope creep because new areas of responsibility are no longer as profitable as the core services. Many of the large practices pursue mergers with other practices and new service venues. This kind of growth may increase the total number of cases covered but may also increase the logistical complexity of covering all the anesthetizing locations. In other words, big is not always better.
A review of five years of data from 15 client practices distributed across the country clearly indicates that a number of key factors determines exactly how many surgical anesthetics are performed by the practice. First, there was the pandemic that dramatically affected surgical volume from March 2020 onward. The average practice in our sample practices experienced a 15 percent drop in total cases from 2019 to 2020. This represented the overall impact of a dramatic drop in volume from March through the summer, with a strong rebound at the end of the year. 2021 was a recovery year in terms of total case volume, but overall surgical case volume was only up by about one percent from 2019. In fact, if we measure the overall increase in surgical volumes from 2018 to 2022, volumes are only up an average of one percent. Obviously, there are exceptions, and some practices gained but most stayed flat or lost volume.
Acuity of Surgical Care
The acuity of anesthesia care is measured as average billable units per case. This is a particularly useful metric to track over time as it reflects the actual level of work produced by the practice. Anesthesia staffing is determined by expectations of case volume, but the revenue potential of the practice is a function of billed units. The reason most anesthesia practices now require substantial subsidies from the facilities they serve is that they are producing fewer billable units per anesthetizing location day. In fact, one of the most useful ways to track operating room utilization is to track the average number of billable units generated per location day—which, in most practices, is declining.
The most significant development over the past couple of decades has been the migration of cases from traditional inpatient venues to outpatient and ambulatory venues. By definition, ambulatory cases tend to be shorter and less risky. While the average inpatient surgery generates about 12 units per case, the average outpatient procedure only generates 8 or 9 units. It is a curious fact that, as a result of the pandemic, fewer outpatient cases were performed in 2020, and so the average units per case rose by five percent. As outpatient volume recovered in 2021, the average units per case also returned to normal.
Of particular note has been the impact of endoscopy, which so many practices have pursued aggressively. For many, this has been the fastest growing and most profitable line of business. Because of this, however, endoscopy has been a targeted line of business. CPT code changes have resulted in lower average units per case. Also, some insurance plans refuse to pay for ASA I and II patients. Although CMS has confirmed the importance of patients getting paid for their anesthesia, not all insurance plans are in agreement. There could be significant reductions in anesthesia revenue for endoscopy in the months and years ahead. This is why it is so critical to monitor the level of endoscopic activity per month and to monitor actual productivity in terms of billable units per anesthetizing location and actual payments in terms of yield per unit.
Net Yield Per Surgical Unit
After a careful review of actual productivity and the overall impact on unit production of each of the venues where cases are performed, nothing is as important as payer mix and its impact on the net yield collected for each unit billed. Insurance plans tend to fall into three broad categories, and the relative percentage of each can have a significant impact on practice revenue. The first category, and the one that is slowly becoming the most significant, is public payers. At between $20 and $24 dollars per unit, Medicare pays less than 30 percent of commercial rates. Depending on the state, Medicaid is not far behind in discounting the value of anesthesia care. Just by way of example, New York state Medicaid only pays $10 per unit, when it pays. The fact is that, with the aging of the American population, the average practice is seeing a one percent increase in the Medicare population each year. Depending on the location of the practice, Medicaid trends can be similar. When the total public payer percentage exceeds 50 percent that creates a significant financial challenge.
PPO and commercial insurance plans used to represent the financial offset to declining public payer rates. Aggressive contracting used to be the key to practice viability. Here, too, new challenges are constantly resetting practice expectations. Major plans, such as Blue Cross of California, have essentially let providers know that there is no more negotiating payment rates While it is still critical to monitor individual plans closely and try to negotiate fair rates, this is an increasingly frustrating exercise. It is also important to monitor payer compliance with the terms that have been negotiated. Commercial plans are notorious at testing the ability of billing staff to identify under payments.
And the third category consists of those patients with no insurance. Although this is not usually a significant percentage of patients, it can be a frustrating thorn. Given the fact that so many patients now have cell phones with caller ID, it is increasingly difficult to communicate with patients with open balances. National No Surprise Billing (NSA) regulations make this an even more challenging part of the population.
And so, the impact of all of these factors is cumulative and inexorable, as indicated in the chart below. Over five years, the average practice in our sample has seen its yield per surgical unit drop 3 percent. Of particular concern is the fact that most practices saw a drop from 2021 to 2022. This may be an ominous portent of things to come.
We would all love for things to have returned to a steady state, now that the pandemic is essentially behind us. The reality is that we are constantly defining a new reality. Every time a practice gets to one of those rare points when they have the right staffing and a good revenue stream, something happens, and it is back to the drawing board or out looking for work. Afterall, no one saw Covid coming till hospitals started canceling elective surgeries. But that was just the most dramatic example. Hospitals merge and practices lose their contracts. The hottest topic in anesthesia practice management these days is the size of hospital subsidies; some are mind-blowing. Never has the specialty of anesthesia been in such a state of flux. We love to look for trends and try to project them out into the future. Just as it is the nature of anesthesia that providers are always vigilant for those never events, so too managing a practice can be like navigating rough seas. The key to success is constantly monitoring for changes at every level.
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