Marc Koch
Dyann Bartus Calder

The right choices regarding staffing models, compensation, and type of anesthesia provider a hospital or health system needs can control anesthesia subsidy costs and keep surgical units strong.

At a Glance  

Four key considerations can affect the size of an anesthesia subsidy:  

  • Staffing models  
  • The fair market value compensation for clinicians  
  • The type of provider the organization needs  
  • The payment approach for management of anesthesia services  

In the current market, anesthesia revenue is rarely sufficient to cover expenses, leading most hospitals to support their anesthesia departments with subsidies to guarantee high-quality anesthesia coverage. However, as hospitals face ever-increasing costs, understanding how to hire the right number and right kind of anesthetists at the right price is critical to both controlling costs and promoting surgical volume retention or growth.

Careful consideration of four key factors-staffing model, fair market value, the type of provider that will work best for the organization, and payment options-can enable healthcare finance executives to make the right choices for their organizations. But before reviewing the size of a hospital's anesthesia subsidy, it's important to remember the initial rationale for subsidies and the factors fueling their use.

Anesthesia Subsidies: Everyone Is Doing It

In 2000, after more than a decade of decreasing anesthesia revenue, hospitals and health systems found themselves forced to begin subsidizing their anesthesia departments, according to a report by the American Society of Anesthesiologists (Hospitals & Health Systems 2000 Stipend Survey). Just five years later, the association's 2005 survey found that every hospital and health system surveyed was paying a stipend.

As subsidy implementation grew, so did the amount of the subsidy. Factors driving anesthesia subsidy rates upward include the following.

Payment declines. The root of the problem began in the late 1980s, when Medicare deployed the resource-based relative-value units system, significantly lowering payment rates. Private payers followed suit. Because Medicare patients accounted for a low percentage of procedures, nearly a decade passed before the effect was truly felt by anesthesia groups.

Increase in surgeries provided at ambulatory surgical centers. As of 2007, outpatient surgery accounted for almost 72 percent of all surgical procedures performed in the United States. There are now more ambulatory surgery centers (5,757) than hospitals (5,708), the American Hospital Association (AHA) reports in its AHA Hospital Statistics, 2009 Edition. Many procedures once deemed too complicated outside of a hospital environment are now performed in surgical facilities.

Clinician supply and demand issues. The decentralization of surgery also lured new and seasoned anesthesiologists with the promise of better work hours, a less stressful environment, or fewer weekend and call obligations.

To further complicate the problem, a severe shortage of both anesthesiologists and certified registered nurse anesthetists (CRNAs) developed. The American Medical Association reported in 2002 that the number of medical students choosing an anesthesiology specialty dropped 15 percent between 1990 and 2002. As for CRNAs, in 2003, the American Association of Nurse Anesthetists reported a shortage of more than 5,000 CRNAs.

Increasing anesthesia demand. The aging baby boomer population created never-before-seen increases in surgery. In addition, advancements in anesthesia, such as local and regional blocks, as well as other cutting-edge techniques were making surgery more accessible than ever.

Four key considerations can affect the size of an anesthesia subsidy:

  • Staffing makeup
  • The fair market value compensation for clinicians
  • The type of provider the organization needs
  • The payment approach for management of anesthesia services

Staffing Model Choices

Facilities can choose from three staffing model options for anesthesia services:

  • Physician only
  • Physician-CRNA mix
  • CRNA only

Each model has its own strengths and weaknesses, and the appropriate choice for a facility depends on a wide variety of factors, including state laws governing CRNA duties; community culture; the comfort levels of surgeons, nurses, anesthesiologists, and CRNAs; the number of operating rooms; and the types of cases.

The need for a physician-only model may be tied to the types of cases an organization handles, but more often it is dictated by tangibles such as community, clinical, or administrative comfort levels. Facilities that handle high volumes of complicated cases are likely to enjoy the greatest success with a physician-CRNA mix.

In seeking the right model, facilities also should consider outcomes and costs.

Outcomes. Studies have both supported and rejected claims that either physicians or CRNAs provide better outcomes, but none are conclusive. It is largely accepted that neither clinician has the monopoly on clinical excellence.

Cost. Generally, the physician-only model is most expensive, followed, in turn, by the physician-CRNA model and the CRNA-only model. The exhibit below presents a simplified look at staffing and costs for each model to cover four operating rooms.

To understand the differences among medical direction, supervision, and independent practice, several definitions should be kept in mind.

Exhibit 1


Medical direction. With a medical direction approach, the anesthesiologist directs up to four CRNAs. In its "seven rules for medical direction," the Centers for Medicare & Medicaid Services (CMS) establishes that, under this approach, the anesthesiologist must perform the preoperative evaluation, prescribe the anesthesia plan, participate in the most demanding procedures, perform any procedures in the anesthesia plan, monitor anesthesia administration at frequent intervals, be present and immediately available for emergencies, and provide postanesthesia care.

Supervision. With this approach, the surgeon or anesthesiologist may supervise any number of CRNAs and is not required to follow the rules CMS has outlined for medical direction.

Independent practice. Twelve states permit CRNAs to function with the same scope, function, duties, and obligations as an anesthesiologist. They are Arkansas, California, Idaho, Iowa, Kansas, Minnesota, Montana, Nebraska, New Hampshire, North Dakota, Oregon, and Washington.

The Determination of Fair Market Value for Clinicians

The fair market value fluctuates from city to city and from facility to facility. To best determine fair market value, hospitals should analyze and compare up to seven regional base salary and incentive compensation reports that break out compensation and benefits in the 25th, 50th, and 75th percentiles.

These reports can place hospitals in the right ballpark, but hospitals also need to consider factors such as local supply and demand idiosyncrasies, regional cost-of-living variations that run counter to compensation, case volume, call stress, and length of contract.

Understanding these needs and tying them to hospital considerations gives an organization a reasonable chance of attracting the best and brightest clinicians, without necessarily paying more than a hospital should.

Exhibit 2


Choice of Provider

Although some hospitals prefer to employ their own anesthetists, many outsource anesthesia services to a management group. A Waller Lansden survey, Outsourcing 2008: Patient Care Services and Information Technology, found that 80 percent of facilities outsource at least one clinical service, and the most popular outsourced service is anesthesia. Serving this market are local groups, regional groups, national multispecialty management companies, and national single-specialty management companies. Each approach, including employment, has its pros and cons.

Employee model. The advantage with employment is that the facility has complete control of clinical and economic outcomes. The disadvantage is that additional expenses come with full-time employees, including the expense of recruiting, benefits coordination-management, scheduling, training, quality assurance systems, and revenue cycle management.

Local groups. This approach offers the advantage of an existing relationship and familiarity with group leadership. The disadvantages are that a local group may have difficulty providing coverage through staffing shortfalls and lack leverage to negotiate payer contracts and manage collections. Local groups often do not have access to robust quality management programs.

Regional groups. The pros and cons with regional groups are the same as for local groups, except that regional groups but may have more leverage in contracting and collections.

National single-specialty management companies. These companies offer the advantage of having management that is focused only on anesthesia. Contracting and collecting on a national level increases leverage and lets local anesthetists concentrate entirely on patients. The disadvantage is that this approach provides another layer of accountability and responsibility.

National multispecialty management companies. These companies offer the advantage of savings across the board on multiple specialties such as anesthesia, radiology, and emergency medicine. The one limitation is that, with this approach, all eggs are in one basket. If anything happens to the company, or the relationship deteriorates for one or more services, the arrangement becomes difficult to untangle.

Management Payment Options

The key to a functional management payment option is to align interests between the facility and the anesthesia management group to limit risk for both parties and ensure efficient revenue management and contracting quality.

Fixed amount. With a set subsidy amount for a determined period of time, revenue and expense risk are transferred entirely to the anesthesia group. However, if the subsidy proves insufficient, the group may become insolvent, creating a much larger problem for the hospital.

Revenue threshold. In this model, the anesthesia group is guaranteed to collect a certain amount of revenue each month. The presumption is that the group bills for and collects what it can, and the hospital makes up the difference. A bonus or incentive schedule can help align interests but only helps to maximize the upside rather than minimize the intrinsic downside risks.

Case and payer mix guarantee. Hospitals avoid revenue management risks with this model. Hospitals guarantee the number of cases and the payer mix, and if they fall short, they make up the difference to the anesthesia group. Although the case guarantee is relatively easy to quantify based on historical data, it can be difficult to quantify the occurrence and impact of payer mix drift. The benefits for the hospital are that increased volume can reduce the amount of subsidy.

Cost plus. With this model, hospitals agree to make up for expenses after all revenue is collected. Hospitals generally choose this model to achieve better transparency and control. If expenses are at market and revenue is maximized, this model permits a hospital to pay the least on a gross basis and benefit the most from volume increases, optimized payer contracting, and stellar revenue management. Because the anesthesia group takes no risk, the management fee should be lower than with any other model.

Defining Success

Of course, there is a big difference between achieving the lowest possible stipend and achieving the best anesthetist value. The best measure of success is the hospital system's bottom line. By focusing careful attention on these four key decision points, hospitals can reduce anesthesia subsidy expenses, maximize revenue, and improve the value of coverage and services provided.

Marc Koch is CEO, Somnia Anesthesia, Inc., New Rochelle, N.Y. (

Dyann Bartus Calder is a vice president, Somnia Anesthesia, Inc., New Rochelle, N.Y., and a member of HFMA's Hudson Valley New York Chapter ( 

Publication Date: Friday, April 01, 2011

Login Required

If you are an existing member, please log in below. Username and password are required.



Forgot User Name?
Forgot Password?

If you are not an HFMA member and would like to access portions of our content for 30 days, please fill out the following.

First Name:

Last Name:


   Become an HFMA member instead