practice management 2008 2009...starting out: a practice management guide for anesthesiology...

Starting Out:A Practice Management Guidefor Anesthesiology Residents

Starting Out:A Practice Management Guidefor Anesthesiology Residents

Prepared forthe American Society of Anesthesiologists

by Judith Jurin Semo, Esq.Squire, Sanders & Dempsey L.L.P.

5M108LC

520 N. Northwest HighwayPark Ridge, IL 60068-2573(847) [email protected]

ii American Society of Anesthesiologists

Starting Out:A Practice Management Guide for Anesthesiology Residents

published bythe American Society of Anesthesiologists.

ASA Executive Office520 N. Northwest HighwayPark Ridge, IL 60068-2573

(847) 825-5586

ASA Washington Office1101 Vermont Ave., N.W., Suite 606

Washington, DC 20005(202) 289-2222

Copyright © 2001 by the American Society of Anesthesiologists. All rights reserved. No partof this publication may be reproduced, stored in a retrieval system or transmitted in any form(electronic, mechanical, photocopying, recording or otherwise) without prior written permissionfrom the publisher.

Permission requests to photocopy portions for internal or personal use or to reprint this text inpart or in whole for noncommercial uses must be submitted in writing to the publisher.

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TABLE OF CONTENTS

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1A. HOW THIS GUIDE IS ORGANIZED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1B. ASA AND OTHER RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. PATIENT CARE AND PROFESSIONALISM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

III. WHAT’S WHAT: STATUTES, LAWS AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . 5A. FEDERAL LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52. Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53. Regulations (or rules) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

a. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5b. Rulemaking and the administrative process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

4. Federal versus state regulation and preemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6B. STATE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62. Conflict of laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

C. COMMON LAW AND CASE LAW (JUDICIAL DECISIONS) . . . . . . . . . . . . . . . . . 7D. “PRIVATE” LAWS AND CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7E. ETHICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

IV. PROFESSIONAL LIABILITY ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8A. AN INTRODUCTION TO TORT LIABILITY AND MALPRACTICE . . . . . . . . . . 8

1. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8a. Practice standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8b. Burden of proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8c. Administrative screening processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2. Individual liability, vicarious liability and “respondeat superior” . . . . . . . . . . . . . . . . . 93. Types of legal relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

a. Employer-employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10b. Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10c. Independent contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10d. Deciding who’s who . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

4. Attorney’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11B. LIABILITY AND MALPRACTICE INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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2. “Occurrence” versus “claims-made” coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113. “Pure” and “modified” claims-made policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114. Comparing the cost of coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

a. Comparing different types of policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12b. How are premiums calculated? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12c. How is the cost of tail coverage calculated? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

i. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12ii. What is the portability of coverage? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13iii. Free “retirement” tails . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

5. Who is your agent and how does the agent’s compensationaffect the agent’s advice? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

6. Statutory limitations on damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137. Policy limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138. Determining the scope of coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

a. Moonlighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14b. Administrative and quasi-clinical services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14c. Volunteer and professional association activities . . . . . . . . . . . . . . . . . . . . . . . . . 14

9. Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14a. “Contractually assumed” liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14b. “Riders” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

10. Asset protection insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15C. COMPARING AND SELECTING A MALPRACTICE CARRIER . . . . . . . . . . . . . 15D. OTHER INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1. General liability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152. Disability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

a. Questions to ask . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16b. Types of policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16c. Tax considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3. Errors and omissions (“E&O”) insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164. Health insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

E. THE NATIONAL PRACTITIONER DATA BANKAND REPORTABLE ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172. Types of reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

a. Initial report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18b. Correction, void previous report, revision to action . . . . . . . . . . . . . . . . . . . . . . . 19c. The dispute process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19d. Determining the reportability of actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

F. RISK MANAGEMENT ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201. Defining risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202. The risk management process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213. Amending medical records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214. Contractual obligations to report incidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

G. INFORMED CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221. What must be disclosed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

a. What a reasonably prudent physician in the community would disclose . . . . . . . 22b. What a reasonable person in the patient’s position would want to know . . . . . . 22

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2. In writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223. Problems in obtaining informed consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

a. Premedicated patients and patients in severe pain . . . . . . . . . . . . . . . . . . . . . . . . 22b. Patients with some limitation on cognitive function . . . . . . . . . . . . . . . . . . . . . . . 23c. Incompetent patients and emergency situations . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4. Do-Not-Resuscitate (“DNR”) orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235. Advance directives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

V. CREDENTIALING AND MEDICAL STAFF RELATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 24A. CREDENTIALING AND PEER REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

1. Overview of the credentialing process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242. Economic credentialing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253. Peer review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264. Medical Staff issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266. Utilization review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267. Challenging denial of privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

B. NONPHYSICIAN HEALTH PRACTITIONERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281. Scope of practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282. The anesthesia care team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

VI. BUSINESS, TAX AND RETIREMENT PLANNINGFOR THE SELF-EMPLOYED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30A. PROFESSIONAL PRACTICE AND STARTING OUT . . . . . . . . . . . . . . . . . . . . . . . 30

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302. Type of entity/form of organization and associated tax considerations . . . . . . . . . . . 303. Licenses needed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

a. State medical license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31b. DEA number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31c. Medicare provider number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31d. Electronic submission of claims to Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

B. RETIREMENT AND BENEFITS PLANNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

a. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32b. Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32c. Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32d. Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32e. Defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32f. Defined contribution plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32g. Qualified plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32h. Rollover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3. The first component of retirement planning:Qualified retirement plans and arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33a. Types of employer-provided plans commonly offered . . . . . . . . . . . . . . . . . . . . . . 33

i. Money-purchase pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33ii. Profit-sharing plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

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iii. 401(k) plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33b. Limited ability to negotiate pension issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33c. Comparing pension and benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

i. When does a new employee become a participant? . . . . . . . . . . . . . . . . . . . . 34ii. When does a participant vest in the plan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34iii. What are the contribution terms? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34iv. Does the plan accept rollovers? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34v. Can you self-manage your account? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34vi. Can you borrow or make other in-service withdrawals from the plan? . . . . . 34

d. General points: SEP or SIMPLE plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34e. Nonqualified plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35f. Whatever the plan, maximize contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35g. Retirement plan arrangements for the self-employed anesthesiologist . . . . . . . . 35

i. “Keogh” plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35ii. SEP or SIMPLE plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35iii. How to establish these plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

4. The second component of retirement planning: Personal savings . . . . . . . . . . . . . . . 36a. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

i. How much should you save? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36ii. How much risk should you take? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36iii. Investment return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

b. IRA Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36c. Non-IRA Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

5. The third component of retirement planning: Social Security . . . . . . . . . . . . . . . . . . 376. Estate planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

C. OBTAINING FINANCING FOR YOUR PRACTICE: LOAN AGREEMENTS . . 381. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382. Types of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383. Questions you need to ask when evaluating the terms of a standard loan . . . . . . . . . 38

a. Do you need to co-sign the agreement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38b. What is the interest rate of the loan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38c. What are the repayment terms of the loan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38d. What obligations and liabilities would you have? . . . . . . . . . . . . . . . . . . . . . . . . 38e. What security does the lender require? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38f. What covenants are attached to the loan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

D. GETTING HELP – HOW TO LOCATE/EVALUATE CONSULTANTS . . . . . . . . . 391. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392. Need for experienced consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393. Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394. Contract review services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395. What things cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

VII. CONTRACTING ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41A. ISSUES COMMON TO ALL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

1. If it is important, make sure it is in the contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412. If it is important, make sure it survives termination of the agreement . . . . . . . . . . . . 423. Pay careful attention to the definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

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4. What is the term, or duration, of the agreement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

a. Termination without cause can be a powerful tool against you . . . . . . . . . . . . . . 42b. With cause, and how subjective are the grounds for termination? . . . . . . . . . . . . 43c. Are the performance standards subjective? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44d. “Notice and cure” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44e. Mutual ability to terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

6. Do not agree to indemnify the other party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447. Any amendments to the agreement should be in writing and signed

by both parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458. Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

a. Make sure attachments are actually attached . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45b. Make sure important attachments are “incorporated by reference”

into the agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459. Notices in writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4510. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4511. Standard of care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4512. Access to records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4613. Governing law and venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4614. Dispute resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4615. Any blank spaces? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

B. EMPLOYMENT AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461. General considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

a. What does an agreement accomplish? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46b. Is the agreement a good idea? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46c. Negotiating strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46d. Revising the agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47e. So what is important? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

2. Common contract terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48a. Post-termination restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

i. “Tying” or “clean sweep” provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48ii. Covenant not to compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

b. Clear delineation of responsibilities and time commitment . . . . . . . . . . . . . . . . . 48c. Compensation (salary and benefits) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

i. Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49ii. Fringe benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

d. Opportunity for advancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50e. Liability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50f. What do you know about the Group? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51g. Corporate practice of medicine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51h. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

C. CONTRACTS WITH HOSPITALS ANDAMBULATORY SURGICAL CENTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521. Medical staff membership and clinical privileges issues . . . . . . . . . . . . . . . . . . . . . . 522. Requests for proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

a. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53b. The “nonconforming bid” strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

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c. Responding to an RFP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54i. Substantive suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

A. Summarize salient features of the proposal at the outset . . . . . . . . . . . . . 54B. Highlight additional credentials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54C. Discuss proposals to improve operations . . . . . . . . . . . . . . . . . . . . . . . . . 54

ii. Procedural suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54iii. The proposal as a marketing document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54iv. Professional assistance or review is advisable . . . . . . . . . . . . . . . . . . . . . . . . 54

D. CONTRACTING WITH MANAGED CARE ORGANIZATIONS (MCOs) . . . . . . 54E. AN INTRODUCTION TO ANTITRUST LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55F. CONTRACTS WITH OUTSIDE MEDICAL BILLING SERVICES . . . . . . . . . . . . 55

VIII. SUBSTANCE ABUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56A. GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

1. Nature of the disease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562. Progression of the disease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563. Incidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564. Detection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565. Addiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

B. GATHERING INFORMATION AND REPORTING THE FINDINGS . . . . . . . . . . 581. The information-gathering process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582. Potential legal issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

C. RETURN TO WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59D. WHERE TO GO FOR HELP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

IX. PAYMENT FOR SERVICES, THE MEDICARE PROGRAM AND OTHERGOVERNMENTAL PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61A. ASA RELATIVE VALUE GUIDE (RVG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

1. The origin of the ASA RVG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612. The current RVG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

a. What is included in a basic, or base, unit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62b. Time units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

i. Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62ii. Non-Medicare and commercial payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

c. Modifier units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63d. Ancillary services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63e. Multiple procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

B. AN INTRODUCTION TO MEDICARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

a. Reimbursement of hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63b. Reimbursement of physicians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

i. Pre-1992 “reasonable charge” reimbursement . . . . . . . . . . . . . . . . . . . . . . . . 63ii. Physician fee schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63iii. Coverage policies, including medical necessity requirement . . . . . . . . . . . . . 64

3. Participation in Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644. “Private Contracting” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

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a. Two-year bar on Medicare participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65b. Cautionary note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

5. Who is eligible to be paid: Medicare reassignment rules . . . . . . . . . . . . . . . . . . . . . 66a. Requirements for locum tenens and reciprocal coverage arrangements . . . . . . . 66b. Independent contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

C. MEDICARE RULES GOVERNING NURSE ANESTHETIST ANDANESTHESIA CARE TEAM PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

D. MEDICAID PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67E. WORKERS’ COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692. Coverage and general administrative information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

X. AVOIDING “FRAUD AND ABUSE” LIABILITY: BILLING COMPLIANCE . . . . . . . . . . 71A. OVERVIEW OF BILLING COMPLIANCE ISSUES . . . . . . . . . . . . . . . . . . . . . . . . 71

1. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712. What are billing requirements and what is billing compliance? . . . . . . . . . . . . . . . . . 713. Why is billing compliance important? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714. Accurate billing is a team effort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725. What information should you give to your billing staff? . . . . . . . . . . . . . . . . . . . . . . 736. Should you do your billing yourself or contract with an outside service? . . . . . . . . . 737. Enforcement and potential sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

B. OVERVIEW OF MEDICARE ANESTHESIA BILLING RULES . . . . . . . . . . . . . . 751. Personally performed services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

a. Continuous presence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75b. Prohibition on performing other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76c. Two-provider cases: When one-on-one cases are deemed to be personally

performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762. Medical direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

a. Seven steps of medical direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76b. Interpreting the “immediate availability” requirement . . . . . . . . . . . . . . . . . . . . 76c. Prohibition on providing additional services and exceptions to the rule . . . . . . . 76d. Providing relief breaks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77e. Defining “concurrent” cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78f. Whom can you medically direct? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

3. Calculating time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78a. Continuous, actual presence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78b. Discontinuous segments of anesthesia time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78c. One patient at a time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78d. Anesthesia start and stop times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78e. Actual time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

4. Services subject to greater scrutiny for medical necessity and proper classification . . . 79a. Monitored anesthesia care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

i. Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79ii. Distinguishing between MAC and general anesthesia . . . . . . . . . . . . . . . . . . 79iii. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79iv. Medical necessity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80v. Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

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b. Acute pain management services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80c. Chronic pain management services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

i. Coding: Use of E&M and surgical procedure codes . . . . . . . . . . . . . . . . . . . 80ii. Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

d. Consultation versus a visit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81i. Definition of a consultation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81ii. Distinguishing visits from consultations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81iii. Consultation followed by treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81iv. “New” versus “established” patient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

e. Critical care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82i. General definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82ii. Documentation issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82iii. Is payment bundled into payment to the surgeon? . . . . . . . . . . . . . . . . . . . . . 82iv. Critical care and the teaching physician . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

5. “Bundling” of services and “black box edits” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83C. DOCUMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

1. Documentation strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832. General guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

a. Personally performed cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83b. Medical direction cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

3. Documentation style . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844. Elements to be documented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845. Timing of documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846. Documentation in cases involving “intraoperative handoffs” . . . . . . . . . . . . . . . . . . . 857. Compliance programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

D. OVERVIEW OF FRAUD AND ABUSE LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851. False claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 852. Antikickback statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

a. In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86b. Agreements with hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86c. Professional courtesy discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86d. Investments in ASCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

3. Stark self-referral prohibitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874. Health care fraud and abuse and private payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875. Professional courtesy discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

XI. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

APPENDIX A: Glossary and Index of Acronyms, Abbreviations and Terminology . . . . . . . 89A. ORGANIZED BY TOPIC AREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

1. Abbreviations used in the text or commonly used . . . . . . . . . . . . . . . . . . . . . . . . . . . 892. Business/legal terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .903. Federal laws and federal programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .904. Federal agencies and agency abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .915. Medicare and Medicaid terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .916. Private organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92

B. ORGANIZED ALPHABETICALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92

s business considerations and gov-ernment regulation have increasing-ly become intertwined with medical

practice, anesthesiologists leaving clinical resi-dency programs and embarking on their careersincreasingly have felt ill-equipped to handle thenonclinical aspects of their new careers. Thisguide is intended to provide practical adviceconcerning the legal and regulatory aspects ofpractice to anesthesiology residents and anes-thesiologists who are just starting out in theirpractice.

This manual was principally prepared byJudith Jurin Semo, Esq., of the law firm Squire,Sanders & Dempsey L.L.P., in Washington,D.C., which serves as legal counsel to theAmerican Society of Anesthesiologists (ASA),in consultation with the ASA Committee onPractice Management. Marcelle M. Willock,M.D., M.B.A., prepared the chapter on profes-sionalism; Arnold J. Berry, M.D., M.P.H., Chair

of the ASA Committee on Occupational Health,prepared the chapter on substance abuse; andSorin J. Brull, M.D., an adjunct member of theCommittee on Quality Improvement, preparedmuch of the first part of the chapter on creden-tialing. Ms. Semo’s colleague, Samuel Black,prepared much of the text of chapter IV on re-tirement and tax planning. The manual reflectsthe firm’s comments and views on legal issues,and the views of ASA members on practical is-sues facing anesthesiologists as they enter prac-tice. The manual does not represent a state-ment of ASA policy or requirements.

Recommendations regarding the topicscovered in this guide do not constitute legaladvice. ASA members should consult withtheir legal counsel, business managers, accoun-tants and other consultants concerning specificlegal and business questions.

Starting Out: A Practice Management Guide for Anesthesiology Residents xi

PREFACE

A

American Society of Anesthesiologists

he transition to practice from resi-dency, with its focus on clinical is-sues, can be rocky, particularly if

the move is to private practice. In place of theattention on patient care in the academic set-ting, day-to-day practice is marked by manydifferent issues that compete for an anesthesiol-ogist’s attention. Although caring for patientsis foremost, an anesthesiologist is expected todeal with the business end of clinical practice.For many physicians entering practice, the in-creasing emphasis on contracts, business mat-ters and legal issues can be frustrating, both be-cause it detracts from the efforts placed on clin-ical practice and because, as entry-level physi-cians, they are not prepared to deal withbusiness issues when they complete residency.

This monograph is designed to providepractical guidance to anesthesiology residentsabout practice management issues that general-ly are not covered in residency programs, butwhich are essential for them to understand. Itmay also serve as a useful reference for practic-ing anesthesiologists.

A. HOW THIS GUIDE IS ORGANIZEDThe guide is organized into nine substantive

chapters that address specific areas of interestto physicians beginning their professional ca-reers. Where possible, information is organizedinto chart form in the “At a Glance” boxes, andkey points in a discussion appear in text boxesfor additional emphasis. For ease of reference,the anesthesiology group is referred to as the“Group,” and the hospital at which the Grouppractices is referred to as the “Hospital.” A de-tailed glossary of acronyms, abbreviations andterminology appears as Appendix A. It is or-

ganized both by topic area and alphabetically.

B. ASA AND OTHER RESOURCESA number of ASA publications address the

topics covered in this guide in greater detail.Specifically, Contracting Issues: A Primer forAnesthesiologists (1999) addresses numerousissues involved in negotiating the wide varietyof contracts that anesthesiologists may en-counter, including agreements used to formanesthesiology practices; agreements negotiatedwithin a practice, such as employment agree-ments and shareholder agreements; and agree-ments with outside entities, such as hospitals,billing companies, and software companies.That publication includes a forms supplementon the ASA Web site that contains a variety ofsample agreements. Contracts for Anesthesiol-ogy Care: A Handbook for Anesthesiologists(rev. 1994) contains a more detailed discussionof hospital contracting issues. Managed CareContracting: Considerations for Anesthesiolo-gists (1996) discusses managed care contractingprovisions and strategy, Calculating AnesthesiaCapitation Rates (1996) addresses capitation is-sues and Managed Care Reimbursement Mech-anisms: A Guide for Anesthesiologists (1994)provides useful information on how to evaluatea variety of compensation methodologies, in-cluding flat fee/fee schedule payment and capi-tation rates. Finally, Compliance withMedicare and Other Payor Billing Require-ments (1997) provides an overview of anesthe-sia billing compliance issues. ASA membersshould consult those six ASA publications foradditional information regarding those topics.

Additional resources on specific topics arelisted in the “Resource reference” boxes.

Starting Out: A Practice Management Guide for Anesthesiology Residents 1

I. INTRODUCTION

T

2 American Society of Anesthesiologists

s physicians, your proper focus is onthe patient and achieving the bestpossible outcome in each case. As

members of businesses, your emphasis mayshift to providing clinical care in the most cost-effective manner and to the business and legalissues of an academic and/or private practice inanesthesiology. But those latter emphasesshould not compromise the central focus on thebest interests of the patient and the delivery ofhigh-quality anesthesiology care. Legal obliga-tions tend to be framed in terms of minimumstandards of care. Ethical and moral obligationsfocus instead on what is right. You should aimfor a high standard of moral and ethical behav-ior with patients and within the profession.

Both the “Principles of Medical Ethics ofthe American Medical Association” (AMA) andthe ASA “Guidelines for the Ethical Practice ofAnesthesiology” emphasize the physician’soverriding obligation to place the patient’s in-terest foremost. Pronounced concern is devel-oping in the medical community that the com-plexities of modern society in general and thevariety of pressures on physicians in particular,including the increasing penetration and de-mands of managed care and the shrinking re-sources available to support health care for all,have shifted attention away from professional-ism and the essential values and obligations ofphysicians.

Professionalism is a set of values, attitudesand behaviors that focus on commitment to ser-vice. Among the core attitudes and behaviorsexpected of medical professionals are integrity,availability, accountability and altruism. Inpractice, these values should result in honestyin one’s dealings with patients and others; re-spect and compassion for patients; respect forfamilies, colleagues and coworkers; effectivecommunication; and the ability and willingnessto accept responsibility. Maintaining appropri-ate, timely, and legible medical records and ad-hering to rules and regulations of health care fa-cilities and licensing authorities are also re-quired. You must assure ongoing competenceby performing self-assessment and maintainingyour knowledge and skills up-to-date. Whilenot everyone is involved in teaching studentsand residents, the word “doctor” connotes“teacher,” and thus you are expected to be will-ing to instruct your patients, coworkers and oth-ers as needed. If you choose an academic ca-reer, you must recognize the obligation to theuniversity and its functions of teaching and re-search. Not everyone in the modern academicmedical center will be able to do research, but


II. PATIENT CARE AND PROFESSIONALISM

outline the professional responsibilities ofanesthesiologists. The AMA “Principles ofMedical Ethics” are reproduced as part ofthose ASA guidelines. All ASA standards,guidelines and statements appear on the ASAWeb site <www.asahq.org/Standards/homepage.html> and are reproduced in thewhite pages at the back of the ASA Directoryof Members.

(Continued from previous column)A

The ASA “Guidelines for the Ethi-cal Practice of Anesthesiology”

(Continued on next column)

Resource reference

collaborating and supporting colleagues, aswell as recognizing their contributions, are es-sential to the well-functioning department. An-other duty of academic faculty members is toserve as good role models for students and resi-dents and, in time, to become mentors to themand to junior faculty.

Lastly, how you conduct yourself withinand outside of the professional organization re-flects on you, your employer, your organizationand the profession. Your conduct in the clinicalsetting needs to be patient-focused. Negativeattitudes and behaviors — be they clinical, per-sonal or interpersonal — must be confrontedand changed for the integrity of the individual,the department and the institution. Engaging inpersonal phone calls in the operating room,surfing the Web or attending to other mattersduring patient care is not what is expected.Some anesthesiologists may feel that no onesees their street clothes when they come towork and therefore they need not dress profes-sionally. Colleagues and other staff do see youand, although clothes do not “make” the per-son, they can unmake the person. You need topay attention to how you dress in going towork, seeing patients, and participating in hos-pital events. While a good knowledge of re-sources — both institutional and personal — isneeded, an impression of “greediness” is detri-mental to all concerned.

As a member of a business, your duties alsoinvolve being a good citizen of the medicalcommunity and serving that community, be it at

the local level in the department, hospital orother health care setting, or in your professionalgroup or organizations at a regional or nationallevel, e.g., civic organization, medical society orASA. Interaction with knowledgeable col-leagues at other institutions can enhance yourknowledge and skills, can help to disseminateinformation about anesthesiology and can helpto provide a broad range of input to national or-ganizations that establish standards of care.Your participation in these activities also willbenefit your Group, as it will enable you to bringback a wide range of information to your Group.

Your professionalism will benefit not onlyyour patients but also your own standingamong your peers and professional organiza-tions.

In summary, responsibility for patients andplacing the needs of the patient first; honestyand integrity in dealings with patients and col-leagues; commitment to colleagues; and accept-ing responsibility for one’s actions are core val-ues of professionalism. Some physicians speakof a sense of assault that derives from govern-mental enforcement efforts and societal atti-tudes that assume that physicians are out to de-fraud payors rather than to heal patients. Yourchallenge as you enter practice will be to bal-ance the demands of day-to-day practice andthe increasing intrusion of legal and businessconsiderations into the practice of anesthesiolo-gy, yet to maintain these essential professionalvalues.


A. FEDERAL LAW

1. Constitution. As the foundation of thelegal system in the United States, the UnitedStates Constitution provides the framework forthe relationships (i) among the three branchesof the federal government – the Executive, theLegislative and the Judicial; (ii) among thestates; (iii) between the states and the federalgovernment; and (iv) between individuals andboth the federal and state governments.

2. Statutes. On the federal level, pro-posed legislation is introduced in either cham-ber of Congress – the House or the Senate. It isreferred to one or more committees with juris-diction over the subject matter, where hearingsare held and the public has a chance to beheard. It then is considered by the full chamberwith opportunity for debate. If it is passed, itthen is referred to the other chamber, where thecommittee and full chamber processes are re-peated.

Any conflicts between the versions passedby the House and the Senate are resolved in aconference committee consisting of representa-tives from both chambers, and the final versionof the legislation is sent back to each chamberfor passage. If passed by both chambers, thelegislation is sent to the President for signature.If the President declines to sign the bill (exer-cising the veto power), Congress may overridethe veto by a two-thirds vote.

Once enacted, statutes are incorporated intothe United States Code, which is a compendi-um of all United States statutory law. Statutesoften are written in broad language that is sub-ject to interpretation. The Sherman Antitrust

Act, by way of example, prohibits “contracts inrestraint of trade.” It is the job of the Executiveand Judicial Branches to interpret the laws –through the rulemaking process in the Execu-tive Branch and through court decisions in theJudicial Branch. Ultimately, it is the role of theExecutive Branch to administer the laws.

3. Regulations (or rules). a. In general. Congress may delegate

power to Executive Branch agencies to developregulations, also known as rules, that providegreater detail regarding how the law will be in-terpreted and enforced. Federal rules have theforce and effect of law and often are the sourceof the practical restrictions on private sector ac-tivity.

In the Medicare context, the Social SecurityAct establishes the Medicare program that pro-vides payment for medical services provided tosenior citizens. The regulations promulgatedby the Centers for Medicare & Medicaid Ser-vices (CMS), previously known as the HealthCare Financing Administration (HCFA), withinthe Department of Health and Human Services(HHS) define the conditions for payment foranesthesiology services to Medicare patients.

b. Rulemaking and the administrativeprocess. Administrative or Executive Branchagencies act in two fundamental capacities: aslawmakers and as adjudicators. The proceduralrequirements applicable to an administrativeagency depend upon whether the action beingtaken is “legislative,” affecting a broad range ofpersons, or “adjudicatory,” affecting a particulargroup of people. The distinction can be diffi-cult to make.

In order to promote uniformity and open-


III. WHAT’S WHAT: STATUTES, LAWSAND REGULATIONS

ness in the rulemaking process, Congresspassed the Federal Administrative ProcedureAct, which is the primary source of federal ad-ministrative agency law. Agencies seeking toissue regulations implementing legislation usu-ally must publish a Notice of Proposed Rule-making (NPRM) and afford the public an op-portunity for notice and comment. In general, asixty-day comment period is required. Inadopting final regulations, the agency must re-spond to the comments that were filed and ex-plain why it is adopting or rejecting the posi-tions advocated in the comments. Agency reg-ulations are subject to review in the courts. Thestandard of review is whether the rule is “arbi-trary and capricious.” On most substantive mat-ters, the courts defer to the expertise of theagency.

Agency notices, including NPRMs and finalrules, are published in a daily publicationknown as the Federal Register. It often is use-ful to consult the Federal Register version of afinal rule to review the preamble, which is theagency’s explanation of the need for the ruleand its reasoning in adopting the rule. Anagency’s section-by-section analysis of the reg-ulation and explanation of its intentions in ei-ther adopting, rejecting or modifying a pro-posed position can provide valuable guidanceregarding how the rule is intended to apply inpractice. Once final regulations are adopted,they are published in the Code of Federal Reg-ulations (CFR), which is updated annually. TheCFR typically contains only the text of the rulewithout the preamble or other explanatory ma-terial.

4. Federal versus state regulation andpreemption. Most governmental power is con-current, belonging both to the states and thefederal government. Under our federal system,federal law takes precedence over conflictingstate law. In particular, a federal statute or reg-ulation supersedes any state or local action thatactually conflicts with the federal rule. Thesame principle holds true if the state or locallaw interferes with achievement of a federal ob-

jective. Even if a state or local law does notconflict with federal law or objectives, it maybe invalid if Congress appears to intend to “oc-cupy” the entire field, thus precluding any stateor local regulation. If the federal law does notexpressly provide that it preempts state law, thecourts will consider several factors in determin-ing whether state law is preempted: the com-prehensiveness of the federal law – the less afederal law leaves uncovered, the more likely afinding of preemption – and whether a federalstatute creates an agency to enforce the law, inwhich case all matters arguably in the agency’sjurisdiction are generally deemed to be pre-empted.

B. STATE LAW

1. In general. State legislatures followmuch the same procedure as Congress in enact-ing legislation.

2. Conflict of laws. In some cases, aswhen a dispute involves parties from more than


Many federal resources are avail-able on the Internet. Information

about pending and enacted legislation, in-cluding committee reports, is available at<thomas.loc.gov/>. Federal agency regula-tions may be retrieved through the CFR onlineat <www.access.gpo.gov/nara/cfr/index.html>.Federal agency notices published in the Feder-al Register are available at ww.access.gpo.gov/su_docs/aces/aces140.html>.

Many state Web sites have linksto their state codes, regulations

and decisions as well as other material. StateWeb addresses generally have the word“state,” followed by the postal abbreviationfor the state, followed by “us” (e.g., <www.state.az.us>).

Resource reference

Resource reference

one state, a court is faced with the question ofwhat law should be applied to the case — aquestion that generally is known as conflict oflaws. The law of the site of the transaction giv-ing rise to the dispute is generally the law thatis applied. Parties many times will try to avoida conflict of laws question by specifying in acontract which state law will apply to interpre-tation of the agreement.

C. COMMON LAW AND CASE LAW(JUDICIAL DECISIONS)

Common law refers to a body of legalprecedents developed over centuries by judges.In a sense, common law is “unwritten” law, incontrast to statutory law enacted by legislatures.Frequently, the term is used to refer the body ofEnglish law on which American law is based.Many principles of common law are collectedin a series of publications prepared by theAmerican Law Institute titled Restatement ofthe Law, including Restatement (Second) of theLaw of Contracts and Restatement (Second) ofTorts. The purpose of the Restatements is toprovide a gathering of the nonstatutory, generallaw of the United States.

Case law, or jurisprudence, refers to thecollection of published court decisions that are

used in ruling on disputes. Although the deci-sions reached in court cases are not found instatutes, they often have much the same effectas statutory laws because the principles repre-sented in the decisions provide legal rules thatare used in judging conduct and disputes.

D. “PRIVATE” LAWS AND CONTRACTSA contract is an exchange of enforceable

promises and can be viewed as private law thatgoverns the relationship between parties to thecontract. A contract can impose more stringentrules than federal or state law otherwise wouldimpose. So long as a contract does not violatelaw or public policy and represents a mutualexchange of “consideration” or value, it will beenforced. See chapter on Contracts, beginningon page 41.

E. ETHICSStrictly speaking, ethical rules are not legal-

ly binding. The values that ethical rules em-body, and the moral obligations associated withthose rules, however, should be a part of thecode of conduct of physicians. See discussionof Professionalism, Chapter II, pages 3-4.


A. AN INTRODUCTION TO TORTLIABILITY AND MALPRACTICE

1. In general. Professional, or malpractice,liability refers to the potential liability associatedwith providing clinical services to patients. Inthe event of an adverse outcome, the essentialquestion is whether or not the adverse outcomewas simply an anticipated risk associated withthe procedure, or whether it was caused by thefailure of the physician to exercise due care inproviding services.

There are two grounds for finding thephysician liable: 1) failure to explain the risksof the anesthesia and to obtain informed con-sent and 2) failure to exercise due care in pro-viding services, either due to negligence (themore likely possibility) or to intentional wrong-doing. A third potential basis of liability – vio-lating a specific statutory duty – can result inboth clinical and criminal liability, dependingupon the specific law involved. If the risk wasanticipated and the physician obtained informedconsent from the patient to proceed notwith-standing the risk, then the patient is understoodto have assumed the risk. Accordingly, the pa-tient cannot later contend that he or she did notappreciate the risk. Judging the second basisfor liability, whether the physician exerciseddue care and was not negligent, underlies mostmalpractice cases that are litigated. Both sidescall upon experts to explain the standards in theindustry or profession and to explain how thedefendant either deviated from those standards(plaintiff’s perspective) or adhered to them (thedefendant’s position).

a. Practice standards. What standards areused? As a general rule, prevailing community

standards apply, although many aspects ofanesthesiology care may be subject to nationalstandards of care. Examples of the types of is-sues that may vary by community are whetherit is expected (or standard) to have in-houseanesthesiology coverage for surgical and obstet-ric cases, or whether it is expected or requiredthat an anesthesiologist will medically direct anurse anesthetist or anesthesiologist’s assistant.Some of these issues may be determined bystate law, Hospital policies, or rules and regula-tions of the department of anesthesiology.There would be little grounds on which to chal-lenge application of those authorities to a mal-practice case.

Anesthesiologists, like all physicians,should be versed in the standards of the profes-sional organizations in their particular fields.The should be familiar with general ASA stan-dards relating to what steps are included in pre-operative, intraoperative, and postoperativecare, or standards of medical subspecialty asso-ciations in subspecialty areas such as obstetricanesthesia, critical care anesthesia, pediatricanesthesia and chronic pain management. (Seethe Resource reference box on page 3 for in-formation on locating ASA standards, guide-lines and statements.) In the event of conflict-ing opinions of experts, a judge or jury is likelyto pay close attention to those professional as-sociation standards.

b. Burden of proof. The “burden of proof”and the related presumptions drawn from theevidence presented can be important in resolv-ing a claim of negligence. Presumptions re-garding whether a party has satisfied the burdenof proof can shift back and forth in a case, de-pending upon the nature of the claim and the


IV. PROFESSIONAL LIABILITY ISSUES

evidence presented. The burden of proof gener-ally is on a plaintiff to prove the allegations ofwrongdoing asserted in the “complaint,” thedocument the plaintiff files to begin a lawsuitthat outlines the basis for the plaintiff’s action.The plaintiff must establish both the facts thatoccurred as well as the theory of liability, whichin a malpractice case is that the defendant failedto adhere to the applicable standards and thatsuch failure caused the injury to the plaintiff.

Once the plaintiff has made that showing,the plaintiff has satisfied the initial burden andis entitled to a presumption that the defendantwas negligent. The defendant then mustdemonstrate why that showing is inaccurate orwhy the plaintiff has failed to establish a claimor, more accurately, a claim upon which reliefmay be granted. The defendant’s case may in-volve the assertion of defenses, legal groundsthat will shield the defendant from liability.Among the types of defenses that may be as-serted are lack of causation (that even given thefacts and standards as stated, the injury wascaused by another action or force) or an affir-mative defense (e.g., that the action is time-barred by the statute of limitations). The bur-den of proof is on the defendant to establishany affirmative defenses asserted. If the defen-dant successfully counters the plaintiff’s case orestablishes an affirmative defense, the presump-tion shifts to the defendant, who is entitled to afinding that the defendant was not negligent.

These determinations regarding what factshave or have not been established are for thefinder of fact to make. The plaintiff is entitledto request a trial by jury, and plaintiffs in mal-practice cases almost always seek jury trials. Ifthe plaintiff does not request a trial by jury, ajudge will determine the facts.

c. Administrative screening processes.Some states have an administrative procedure,such as a medical malpractice review board,that plaintiffs must pursue before filing suit incourt. Such procedures serve as screeningmechanisms to preclude frivolous or unfoundedclaims from being tried in court.

2. Individual liability, vicarious liabilityand “respondeat superior.” It probably willnot come as any surprise that individuals are re-sponsible for their own actions, whether work-related or not. Individuals also can be responsi-ble for the actions of others, based on severaldifferent theories of “agency.” In the most ex-treme case, under a doctrine known as “captainof the ship,” a surgeon is deemed to be in con-trol of all persons assisting, regardless of thenature of their tasks, even if they are not thesurgeon’s employees. Typically, this doctrinehas been used in cases against surgeons, ratherthan in cases against other physicians. The“captain of the ship” doctrine is based on thetheory that the surgeon has the absolute right ofcontrol of all personnel in the operating room,but it has fallen into disfavor.

Increasingly in medical malpractice cases,courts look to whether a non-employee assis-tant can be said to have become the “borrowedservant” of the defendant physician. Courts re-view the facts to determine whether the physi-


Does a physician’s failure to pass the boardcertification examination have any bearing onthe physician’s ability to provide services in ac-cordance with applicable professional stan-

dards? Several courts have considered whethera physician’s failure to pass board certificationexaminations or lack of board certification maybe admitted into evidence in a medical mal-practice case against the physician. Courtsgenerally have ruled that evidence of the physi-cian’s lack of board certification is admissible,but that evidence regarding failed board exami-nations is not admissible.

Courts have rejected evidence of a physi-cian’s failure of board certification exams wherethe physician actually passed the exams by thetime of the medical services that gave rise tothe lawsuit.


(Continued from previous column)

cian possessed, and exercised, the right to con-trol the actions of the assisting person, whethera nurse anesthetist or other nonphysician em-ployee. Liability is more likely when the physi-cian has the right to control the actions of thosepersons.

If you work in an anesthesia care team set-ting, you should understand that you can, andare likely to be, held responsible for the actionsof nurse anesthetists or other individuals assist-ing in a case, whether those individuals areGroup or Hospital employees. If the nurseanesthetist or other assisting individual is aGroup employee, liability can be imposedunder the theory of “respondeat superior,”under which the “master” – here, the physician– is responsible for the negligence of the “ser-vant,” when the servant is engaged in perform-ing the master’s work.

3. Types of legal relationships.a. Employer-employee. The hallmark of

the employment relationship is the ability of theemployer to control the actions of the employ-ee. Employers are liable for the actions of theemployee that are within the employee’s scopeof duties. An employer Group would be liablefor the clinical malpractice of an employeephysician or for improper claims submittedbased on insufficient documentation by an em-ployee physician. In contrast, the Group wouldbe unlikely to be found responsible for thewrongful actions of an employee physiciantaken outside the work context.

b. Agent. “Agents” are individuals orcompanies that have a business relationshipwith the “principal,” the person who is beingrepresented. Ideally, the scope of the relation-ship will be described in a contract, and the

agency relationship will be “express.” Thescope of the relationship may also be definedby business practice. In the absence of a writ-ten agreement, it can be unclear whether theagent is acting on behalf of the principal. If anagency relationship exists in those circum-stances, it is said to be an “implied agency.” Aprincipal is responsible for the authorized ac-tions of the agent – those duties that the agentperforms for the principal. The question thatarises is whether the agent had authority, or ap-parent authority, to act on behalf of the principal.

c. Independent contractor. An indepen-dent contractor is a person hired to perform aspecific task or set of services. An independentcontractor differs from an agent in that the in-dependent contractor is not acting on behalf ofthe person retaining the contractor’s services.The person who retains the contractor’s ser-vices generally is not legally responsible for thecontractor’s actions, because the hiring persondoes not have the right to oversee the way inwhich the contractor performs the specified du-ties. A person may be responsible for negli-gence in retaining an independent contractorthat would be based on harm the independentcontractor causes that is proximately related tothe failure to investigate adequately the contrac-tor’s qualifications. When a Group retains a“locum tenens” physician to fill in for a formeremployee physician until a new physician canbe hired, the temporary physician usually is anindependent contractor.

d. Deciding who’s who. The relationshipbetween a Group and a physician can be diffi-cult to determine. The substance of the rela-tionship, not the labels that the parties attach toit, governs the determination. The level of con-trol that the Group exercises over the physicianwill determine whether the physician is an em-ployee or independent contractor. Just becausea Group does not withhold taxes on a physiciandoes not mean the physician will not be foundto be an employee of the Group for tax purpos-es. Nor does calling a physician an indepen-dent contractor insulate the Group from poten-tial liability for the physician’s actions.


The fact that a nonphysician assisting in acase is not an employee will not shield a super-vising physician from liability. Liability is virtu-ally assured if the assistant is an employee andthe actions in question were within the scopeof the individual’s responsibility.

4. Attorney’s fees. Each party bears itsown attorney’s fees and out-of-pocket expensesin litigation unless the statute on which theplaintiff’s claim is predicated authorizes theaward of attorney’s fees to the successful plain-tiff, or unless the parties have a contractualagreement providing for one party to bear thelegal fees. By statute, attorney’s fees may beawarded to the plaintiff in antitrust, FalseClaims Act and various employment discrimi-nation actions, to name just a few.

B. LIABILITY AND MALPRACTICEINSURANCE

1. In general. As a resident, you did notneed to be concerned with purchasing liabilityinsurance; your residency program was respon-sible for obtaining insurance coverage for yourpractice. When you leave residency or changeprofessional affiliation, you need to understandthe type of insurance coverage you are purchas-ing and what exactly is covered. Probably themost important lessons to be learned from thisdiscussion are that professional liability policiesdiffer substantially and that the least expensivepolicy you are offered may be more expensivein the long run.

2. “Occurrence” versus “claims-made”coverage. Two general types of liability insur-ance are marketed – “occurrence” and “claims-made.” An “occurrence” policy provides cov-erage for the clinical services you provide dur-ing the time that the insurance coverage is ineffect no matter when a claim relating to thoseservices is asserted. In contrast, a “claims-made” policy provides coverage for claims as-serted during the time period that the liabilitypolicy is in effect. Once the claims-made poli-

cy expires or coverage terminates, you have noinsurance protection for clinical services pro-vided under that policy, unless you purchasewhat is known as “tail” coverage from the com-pany that issued the policy that is about to ex-pire or terminate, or unless you purchase“nose” coverage from the new carrier that willbe writing your next professional liability poli-cy. (A “modified” claims-made policy operatesdifferently; see discussion in subsection B.3.)

A “tail” policy provides coverage for claimsrelating to the medical services you providedduring the time the insurance policy was in ef-fect. “Tail” policies typically provide coverageback to the “retroactive” date: the date onwhich you first were covered by a claims-madepolicy. Another factor affecting the necessaryduration of the tail coverage for clinical ser-vices is the statute of limitations in your state.State tort liability statutes of limitation canvary. In addition, the time limit often is“tolled” or delayed until “discovery” of the al-legedly wrongful act, if the plaintiff-patientwould not reasonably have had knowledge ofthe injury until the later time. In the case ofminors (the age of majority depends upon statelaw), the statute of limitations may be evenlonger.

3. “Pure” and “modified” claims-madepolicies. In some areas of the country, includ-ing Illinois and Maryland, carriers offer a so-called “pure” claims-made policy. Pure claims-made coverage is the coverage described above:You are not covered against claims broughtagainst you unless your policy is in effect oryou have purchased tail coverage. The problemthat occurs is when you know of an incidentthat may lead to the filing of a claim. Duringthat interim period between the occurrence ofan adverse incident and the filing of the claim,you may be locked in with your current carrierbecause it will be difficult for you to obtaincoverage from another claims-made carrier thatwill ask about your prior history before agree-ing to insure you.

In contrast, under a modified claims-madepolicy, reporting an adverse incident that could


The ASA publication ContractingIssues: A Primer for Anesthesiolo-

gists (1999) contains a chart (page 48) listingthe 20 factors that the Internal Revenue Ser-vice (IRS) examines to determine whether ornot an employment relationship exists.

Resource reference

lead to the filing of a claim triggers protectionfor life for any claims resulting from the report-ed incident. If you are in the position whereyou need or wish to change liability carriers,and you know of an adverse incident but noclaim has yet been filed, you will have moreflexibility in changing carriers, because a newcarrier will not be responsible for covering theliability associated with the reported adverse in-cident. It still is necessary to purchase tail cov-erage with modified claims-made protection forunreported incidents. Modified claims-madecoverage is more widely available than is pureclaims-made coverage.

4. Comparing the cost of coverage. a. Comparing different types of policies.

An occurrence policy often is preferable, ifavailable, because it insures you against liabili-ty for clinical services regardless of when theclaim is asserted. With the advent of modifiedclaims-made coverage, the difference betweenoccurrence coverage and claims-made coverageis less pronounced. The cost of an occurrence-based policy cannot be compared with the oftenless expensive claims-made policy alone. Amore accurate comparison is the cost of the oc-currence policy in comparison with the cost ofthe claims-made policy and the tail coverage.

b. How are premiums calculated? Beforedeciding upon any policy, make sure you havein writing the projected cost of the premiumsfor at least the first five years. Often you can-not obtain fixed premium prices beyond thefirst year and must rely instead on projectedpremiums; fixed premiums are more desirable,if they are available. Some companies mayoffer you a very low rate for the first year ortwo out, and why not? As a brand-new physi-cian (from a liability perspective, your residen-cy training program generally covers any poten-tial liability associated with your actions whilea resident), you represent a very low risk for theinsurer. You do not want to sign with an insur-er that offers attractive low rates in years one,and possibly two and three, but compensatesfor those low rates with much higher rates in

subsequent years. The “mature” rate is therate you will live with as a practical matter, notthe introductory reduced rate.

If the insurer is quoting a rate that is a per-centage discount, or perhaps a decreasing dis-count, off the standard premium, you need todetermine whether the discount is applied to astable amount or an increasing amount eachyear.

To some extent, liability insurers rely on thefact that physicians tend not to make changes intheir liability carriers. With all of the businessand practice management demands on physi-cians who often simply want to practice medi-cine, physicians may not have as a top prioritywhich liability carrier will offer them lowerrates or other more favorable terms (e.g., costof tail coverage or representation and coopera-tion in malpractice cases).

c. How is the cost of tail coverage calcu-lated?

i. In general. How does the carrier calcu-late the cost of tail coverage, and what will tailcoverage cost? Tail coverage often is expressedeither as a percentage of the expiring year’spremium (e.g., 120 to 220 percent of the expir-ing year’s or the “mature” year’s premium,whichever is greater). If you change carrierswhen you are three years out of residency, andthe carrier charges you a percentage of the“mature” rate, you will pay substantially morefor the same tail coverage than if the carrier


Despite the focus of this discussion on finan-cial issues, probably the most important issue inthe choice of liability carriers is how fast thecarrier will move to settle, rather than tolitigate, malpractice cases. The cost of litigationis high, and a carrier may want to settle casesin which the plaintiff’s claim is not particularlystrong, rather than incur the substantial costs oflitigating a case through trial and possibly ap-peal. Any settlement made in a malpracticecase is reportable to the National PractitionerData Bank. If you think a patient’s claim isweak, you do not want to be represented by aliability carrier that wants to settle the case.

charged a percentage of the expiring year’s pre-mium. In that case, you may want to explorethe cost of “nose” coverage – coverage for thesame time period – from the “new” carrier thatwill be writing your new malpractice policy.

ii. What is the portability of coverage?Some liability insurers do not charge for tailcoverage if you leave one position and continueto practice in the same state and obtain coveragefrom the same carrier. The problem occurs whenyou change companies or if you practice else-where. If the insurer is a national company, thein-state limitation on the benefit might not apply.

In some cases, an employer (often the for-mer employer) will require you to obtain tailcoverage even if the carrier says it is not neces-sary because that former employer will nothave any way of knowing whether you subse-quently change liability carriers or move out ofstate. Some hospital-anesthesiology groupagreements require the Group to guarantee thateach anesthesiologist who leaves the Groupwill obtain tail coverage, in which case theGroup will have no flexibility to authorize anexception to the requirement.

iii. Free “retirement” tails. Some insurersoffer a free retirement tail. Although retire-ment and the related circumstances discussedin this section may seem remote when you firstbegin to practice, you still should considerthese issues. Are there limitations on the avail-ability of the free tail upon retirement, such asa minimum number of years that you need tobe insured with the carrier, a minimum numberof years you must have practiced or an agelimit? If the liability carrier offers a free retire-ment tail for individuals who are at least 55years old and have been insured by the carrierfor at least ten years, the free retirement tailwill not be free if you decide to retire frompractice at age 54.

5. Who is your agent and how does theagent’s compensation affect the agent’s ad-vice? If you use an insurance agent, make cer-tain you understand with whom you are speak-ing, how the agent is compensated, what finan-cial incentives the agent has and how those in-

centives may affect the advice the agent givesyou. So-called “independent” agents may ap-pear to be more objective than “captive” agentswho are employed by a liability carrier, but youmay need additional information to make thatdetermination. Is the independent agent bring-ing you all available options to consider, or arethere some insurance products for which theagent is not compensated and therefore will notdiscuss with you? Is the agent paid more byone carrier than another, which could lead theagent to be less than objective about whichproduct best suits your needs? These all arequestions to ask before, not after, the fact.

6. Statutory limitations on damages.Another factor determining the cost of liabilitycoverage is the existence of any statutory “cap”or limitation on tort liability in malpracticecases. Generally, those caps limit the amountof punitive damages that a judge or jury mayaward to a designated dollar amount. The limi-tation usually will not cover actual damages,which represent the costs the plaintiff patientincurs in correcting or dealing with the injury.A statutory cap on punitive damages directlyaffects the level of risk the liability carrier takesin insuring a physician, and rates for malprac-tice coverage often will reflect such a cap byproviding a lower rate for the same limits ofcoverage as would be charged in a state withoutsuch a cap. The fact that a state passes legisla-tion limiting tort liability does not necessarilyend the liability debate; a court may find thelegislation to violate the state constitution.

7. Policy limits. The so-called “limits” onthe policy – the dollar limits on the amount of


The American Medical Associa-tion <www.ama-assn.org> and the

American Tort Reform Association <www.atra.org/atra> may provide additional informationregarding tort reform and limitations on liabil-ity in particular states.

Resource reference

coverage being provided – will be determinedby factors such as the dollar limits required bythe Medical Staff bylaws of the facility atwhich you practice, whether your state has anyfund for compensation of victims (e.g., the Wis-consin Patients Compensation Fund), the agree-ment between your employer and the facility atwhich it provides services and the requirementsof participation agreements with different pay-ors. In some cases, managed care organizations(MCOs) may require higher limits of coveragethan the Group has obtained.

8. Determining the scope of coverage. a. Moonlighting. Even if your new em-

ployer provides insurance coverage, you needto understand the type of coverage provided.The scope of the coverage is particularly impor-tant if you plan to moonlight, or to provideclinical services on behalf of someone otherthan your employer. Depending upon how thepolicy is worded, you may not have coveragefor services provided outside of the Group.

b. Administrative and quasi-clinical ser-vices. If you participate in quality assurance,peer review or similar activities as part of yourresponsibilities under an agreement with an em-ployer anesthesiology practice or a hospital orambulatory surgical center (ASC), or if youmake recommendations regarding personnelemployed by others (e.g., OR or PACU person-nel), you need to determine whether your liabil-ity policy provides coverage for potential liabil-ity associated with those activities or whetheradditional coverage is required.

c. Volunteer and professional associationactivities. Many physicians become involved inthe activities of professional medical associa-tions and subspecialty associations. Whetheryou will need separate liability coverage forthose activities will depend upon your level ofinvolvement, the nature of your activities, thescope of coverage under your primary malprac-tice policy and the coverage, if any, provided bythe association. Some professional organiza-tions provide insurance coverage for their offi-cers and directors through separate “director

and officer” (or D&O) policies. Others mayagree to “indemnify” (i.e., to pay all costs asso-ciated with) association representatives (abroader term that would include committeemembers) against liability associated with ac-tions they take, provided that those actions arewithin the scope of their authority as associa-tion representatives.

9. Exclusions. You should understandwhat risks and liabilities are not covered byyour professional liability policy. Sometimesthe activities involving the greatest amount ofrisk are excluded from coverage. In under-standing the scope of the “exclusions,” it is im-portant to understand how key terminology isdefined.

a. “Contractually assumed” liability.One matter that frequently is excluded fromcoverage is “contractually assumed” liability,or the liability that a physician would not oth-erwise have but assumes solely by virtue of acontract. “Indemnification” or “hold harm-less” agreements are examples of contractuallyassumed liability. Common indemnificationclauses in agreements with hospitals or MCOscall for the Group to “hold the other partyharmless,” i.e., to pay all costs and expenses,associated with claims relating to the anesthe-siology and pain management services Groupanesthesiologists provide. Absent the indemni-fication clause, each party would bear its ownlegal fees and expenses and, if found liable,would pay for its share of the judgment. Anindemnification provision transfers responsibil-ity for payment to the party agreeing to the in-demnification. Because the indemnificationprovision goes beyond what the law otherwisewould impose, it is known as “contractually as-sumed” liability. This type of risk generally isexcluded from coverage under professional lia-bility policies. See discussion of indemnifica-tion in Chapter VII, section A.6, pages 44-45.


Understand when you need coverage andobtain it before a specific need arises.

b. “Riders.” If a risk is excluded fromcoverage, it may be possible to obtain coveragefor the risk by paying an additional premiumfor a “rider”(sometimes referred to as an “en-dorsement”), an addition to the policy coveringa particular contingency. For example, if a lia-bility policy expressly provides that it does notcover contractually assumed liability (such asthe liability associated with an indemnificationclause) or liability resulting from antitrustclaims, the liability carrier might agree tocover such liability through issuing a rider inexchange for an additional premium.

10. Asset protection insurance. You maywant to consider obtaining asset protection in-surance to cover the risk that your malpracticecoverage does not provide full protection. Theneed for this additional type of coverage willdepend upon whether state law limits punitivedamages in malpractice cases, the trend of juryverdicts in malpractice cases in the jurisdictionand the nature of the patient population and thegeneral level of health and preventive care theaverage patient in the community receives.These risk factors then can be intelligently bal-anced against the cost of the additional coverage.

C. COMPARING AND SELECTING AMALPRACTICE CARRIER

What is the nature of the carrier’s business?Does the carrier underwrite all types of com-mercial risks or does it limit its business tomedical malpractice? What is its underwritingphilosophy? Does it cover any physician whoapplies and is willing to pay for a policy or is itmore selective in covering physicians? Reviewcarefully the policy the company is offeringand consider having an independent, knowl-

edgeable consultant review it. Who owns thecompany and who manages the company alsoare important questions.

Depending upon your employment setting,you may not have the option to select a liabilitycarrier; you may be insured by whatever carrieryour employer selects. If, however, you arepurchasing your own liability coverage, youshould call different carriers and ask them whatquestions you should consider in purchasingcoverage. Those companies that are moreforthcoming about the issues you should beconsidering, and that are willing to comparetheir product with competing policies to helpyou to assess what coverage is most cost-effec-tive for you, may well be the carriers to consider.

You should check with other sources of in-formation to learn as much as possible aboutthe carrier, its operations, the level of dissatis-faction of other insureds and its financial stabil-ity. There are a variety of sources of publiclyavailable information, including the state insur-ance commissioner. Run a search on a data-base of newspapers and insurance publications(e.g., the LEXIS®-NEXIS® service) or a corpo-rate/financial on-line service (e.g., Dun & Brad-street) to learn more about what articles arebeing written about the company. Consult withthe state or county medical association to learnif it has any experience with the company.Once you start exploring the company, you mayidentify additional sources of information.

D. OTHER INSURANCE COVERAGE

1. General liability insurance. Someagreements with hospitals or with MCOs re-quire anesthesiologists to maintain general lia-bility insurance, which covers liability associat-ed with ownership or operation of physical fa-cilities. Most anesthesiologists do not maintaingeneral liability coverage unless they own achronic pain clinic and own or operate the facil-ity. Beware of this type of requirement inagreements.

2. Disability insurance. To someone just


Understand the cost of a rider before agree-ing to a contractual obligation. If you obtainyour own malpractice coverage, it is advisableto have a contact at the carrier who will pro-vide written responses to your coverage ques-tions.

starting out in professional practice, it mayseem odd to address disability insurance thatprovides protection in the event you are un-able to work. Because no one plans to be-come disabled, disability sometimes is viewedas a less likely occurrence and disability insur-ance may therefore be a lower priority.

a. Questions to ask. Review any disabili-ty policies carefully to identify how disabilityis defined, when benefits will be payable, whatexclusions from coverage are listed, and howlong benefits will be payable. How is partialdisability handled? How are disagreementsresolved, such as a dispute between the in-sured’s physician and the carrier’s physician asto whether the insured is disabled? Is theopinion of the carrier’s physician dispositive?Does disability mean inability to practice asan anesthesiologist or inability to practicemedicine? Will your carrier deem you to bequalified to practice medicine even if you can-not practice anesthesiology and need to com-plete another residency? Are benefits discon-tinued after a set period of time or after a setamount has been paid?

b. Types of policies. Insurers offer twotypes of disability coverage: short-term cover-age, which often is payable immediately butfor a shorter period of time, and long-termcoverage, which covers extended disabilityconditions and is payable over a longer periodof time. The specifics of coverage will be ad-dressed in the policy, which will be importantto review carefully. Understand the coverageyou are obtaining and consider whether it willmeet your needs. Ideally, you will want to

have both types of disability coverage but thecombined cost may lead you to balance thecost and benefits of the different types of cov-erage.

c. Tax considerations. Consider the “paynow or pay later” tax consequences associatedwith how the premiums are paid. Premiumspaid with pre-tax dollars may be attractive ini-tially but any benefits paid out will be subjectto federal income tax. In contrast, if you paythe premiums on the disability policy withafter-tax dollars, the benefits payable under thepolicy are not subject to federal income tax.

3. Errors and omissions (E&O) insur-ance. In the last several years, some insurershave started to offer various forms of E&Opolicies to protect physicians against liabilityfor billing errors and Medicare fraud andabuse. Although it is necessary to review thepolicy for the precise scope of coverage, thisnew form of insurance generally will cover thelegal and litigation expenses associated with agovernment investigation or a private payoraudit. It may also cover resulting fines andpenalties. An E&O policy typically will notprotect you against having to refund any over-payment (for this purpose, overpaymentmeans the amount paid on the claim, not thedifference between the amount paid and theamount to which you would have been entitledhad you billed correctly), but fines and penal-ties, along with defense costs, may be muchmore significant than the actual dollar amountof the overpayment. The federal False ClaimsAct provides for civil penalties of between$5,500 and $11,000 (adjusted for inflation forviolations occurring after 9/29/99), and theCivil Monetary Penalties provisions of theMedicare statute provide for $10,000 in civilfines, for each false claim plus triple theamount of the claim. In other words, a single$300 erroneous claim could result in $11,900in liability ($11,000 penalty, plus three times$300). As long as the billing errors underly-ing the claim are truly not intentional but re-sult from “reckless disregard” or “deliberateignorance” at worst, the statutory penalties –


As is true with other forms of insurance, it isimportant to acknowledge the underlying rea-son for purchasing disability insurance: peaceof mind. If you have a family or financialobligations to others, you need to consider howthose obligations will be met if you are unableto work. Many professionals have inadequatelong-term disability insurance and discovertheir need for it when it is too late.

$11,900 – should be covered by a good E&Opolicy.

Standard D&O liability, malpractice oreven E&O policies generally will not coverMedicare fraud and abuse fines or audit ex-penses. D&O policies typically exclude lossesbased on punitive damages, liquidated dam-ages, criminal or civil fines, sanctions, taxesand the multiplied portion of any damagesaward subject to doubling or trebling. Mal-practice insurance generally covers personalinjury, property damage or employee benefitsliability arising from the policy holder’s pro-fessional medical activities. These areas donot encompass reviews or investigations byprivate or governmental insurance programs orthe fines and penalties resulting from investi-gations.

Companies offering health care billingE&O insurance generally require as a condi-tion of coverage that the policyholder Grouphave in place a written compliance plan thatsatisfies their guidelines. Most carriers willbase coverage determinations and prices upona review of the practice’s compliance historyas well as the amount of the deductible, if any.Audits or investigations that are known to theGroup at the time it applies for coverage areexcluded from coverage, much like “prior ex-isting conditions” are not covered in mosthealth insurance policies. The lesson here isthat once you know of a problem, it is proba-bly too late to obtain the E&O coverage youneed.

E&O policies are generally written on aclaims-made basis. If you terminate coverageor leave the Group holding an E&O policyand want to protect yourself against liabilityarising out of any billings submitted duringthe term of the policy, you will need to ensurethat you purchase tail coverage.

It bears repeating that you should know thequality of the carrier and fully understand theterms of the policy you are considering. Doesthe policy cover only the costs of an investiga-tion? What is the dollar limit of the policy?Will it cover the costs of a “shadow” audit (an

audit you commission to assess the validity ofa government auditor’s conclusions) and pa-tient record reviews, which may be an impor-tant element of a defense strategy? Do youhave the option to increase the defense limits?

4. Health insurance. If the employerpays the premiums for health insurance, pro-ceeds from health insurance are excludable tothe extent they are i) amounts paid directly orindirectly to the employee as reimbursementsfor medical care, or ii) payments (or reim-bursements) of expenses incurred for medicalcare of the employee (or the employee’sspouse or dependents). Because these twotypes of payments are the ones that typicallyare made under a health insurance policy, theissues regarding the tax implications of whopurchases the insurance coverage and whetherpre- or after-tax dollars are used are less pro-nounced in the case of health insurance than inthe case of disability insurance.

E. THE NATIONAL PRACTITIONER DATABANK AND REPORTABLE ACTIONS

1. In general. In 1986, Congress passedthe Health Care Quality Improvement Act,which established the National PractitionerData Bank (Data Bank). The principal purposeof the Data Bank is to facilitate a comprehen-sive review of professional credentials. Since itbecame effective in 1990, the Data Bank hasmaintained records of licensure, clinical privi-leges, professional society membership andDrug Enforcement Agency (DEA) actionstaken against health care practitioners and mal-practice payments made for their benefit.Medicare/Medicaid exclusion reports wereadded to the Data Bank under an agreementwith HCFA and the Office of Inspector General(OIG) and are now disclosed to queriers alongwith malpractice payments and adverse actionreports. Information must be reported regard-ing physicians, dentists and other health carepractitioners who are licensed or otherwise au-thorized under state law to provide health careservices.


2. Types of reportsa. Initial Report. The initial report is the

first record of a medical malpractice paymentor adverse action submitted to and processed by

the Data Bank. The reporting entity submitsthe report to the Data Bank electronically andprints and mails a copy of the report to the ap-propriate state licensing board. An initial report


Who must report:

• Medical malpractice payors must report to the Data Bank and the appropriate State Licensing Boardwithin 30 days of a payment.

• Hospitals, other health care entities and professional societies must report to the Data Bank and StateLicensing Boards within 15 days of an “adverse action.”

• State Licensing Boards are responsible for reporting to the Data Bank within 30 days of the adverse li-censure action.

Who may query:

• Hospitals must query when a practitioner first applies for privileges and, thereafter, every two years onpractitioners who are Medical Staff members or who hold clinical privileges.

• Other health care entities, including professional societies, may query when entering an employmentor affiliation relationship with a practitioner or in conjunction with professional review activities.

• State licensing boards may query at any time.• Health care practitioners may self-query at any time. • Plaintiffs’ attorneys may query under certain circumstances.

Note: Medical malpractice payors may not query at any time.

Who must report:

Medical Malpractice Payors

State Licensing Boards

Hospitals & Other Health Care Entities

Professional Societies

What must be reported:

Payment resulting from a written claim or judg-ment.

Licensure disciplinary action based on reasons re-lated to professional competence or conduct.

Professional review action, based on reasons relat-ed to professional competence or conduct, ad-versely affecting clinical privileges for a periodlonger than 30 days; or voluntary surrender or re-striction of clinical privileges while under, or toavoid, investigation.

Professional review action, based on reasons relat-ing to professional competence or conduct, ad-versely affecting membership.

Reporting requirements

The National Practitioner Data Bank At a Glance

is the current version of the report until a cor-rection, void or revision to action is submitted.When the Data Bank processes an initial report,a report verification is sent electronically to thereporting entity, and a notification of a report inthe Data Bank is mailed to the subject practi-tioner. If you receive such a notification, youshould review the information to ensure that itis correct.

b. Correction, void previous report, revi-sion to action. A correction is a change that su-persedes the contents of the current version of areport. In contrast, a void is the retraction of areport in its entirety that results in removal ofthe report from the practitioner’s disclosablerecord. A revision to action is a new action thatmodifies an adverse action previously reported.Revisions to action include reversal of a profes-sional review action or reinstatement of a li-cense, clinical privileges or professional societymembership. A correction is distinct from a re-vision to action in that a correction overwritesthe initial report whereas a revision is treated asan addendum to the initial report.

c. The dispute process. A practitioner whodisagrees with a Data Bank report about him orher may dispute either the factual accuracy ofthe information in a report or whether a reportwas submitted in accordance with the DataBank’s reporting requirements, including the el-igibility of an entity to report to the Data Bank.The dispute process is not an avenue to protest

settlement of a medical malpractice claim or todispute the propriety of or basis for an adverseaction. If a practitioner believes that informa-tion in a report is factually inaccurate or shouldnot have been reported (e.g., a suspension ofclinical privileges for 30 days or ineligibility ofthe reporting entity), the practitioner must at-tempt to resolve the disagreement directly withthe reporting entity. Changes to a report maybe submitted only by the reporting entity. Noti-fication of a dispute is included with a reportwhen it is released to future queriers and is sentto all queriers who previously received the re-port. If the reporting entity declines to changethe report or takes no action, the subject practi-tioner may request that the Secretary of HHSreview the disputed report.

d. Determining the reportability of actions.Sometimes the reportability of a particular ac-tion is not clear. If an impaired physician whois a member of a hospital Medical Staff hasbeen repeatedly encouraged to enter a rehabili-tation program but continues to disregard thehospital’s advice and offers of assistance, no re-portable action occurs. If, in contrast, an autho-rized hospital official, such as the CEO or De-partment Chair, directs the physician to give upclinical privileges and enter a rehabilitation pro-gram or face investigation relating to possibleprofessional incompetence or improper profes-sional conduct, the surrender of clinical privi-leges is reportable to the Data Bank.


Examples of Reportable Actions

The following adverse licensure actions, when related to the professional competence or professionalconduct of a physician or dentist, must be reported to the Data Bank: • Denial of an initial application for clinical privileges or granting of more limited privileges than those

requested if the denial or limitation of privileges is the result of a professional review action and is re-lated to the practitioner’s professional competence or conduct;

• Denial of an application for license renewal;• Surrender of clinical privileges in exchange for not undergoing an investigation;• Reciprocal licensure disciplinary action taken by a State Board against a licensee or applicant for li-

censure renewal based upon a licensure disciplinary action related to the practitioner’s professional

(Continued on next page)

F. RISK MANAGEMENT ISSUES

1. Defining risk management. The JointCommission on Accreditation of HealthcareOrganizations (JCAHO) defines risk manage-ment activities to refer to clinical and adminis-trative activities that facilities undertake toidentify, evaluate and reduce the risk of injuryto patients, staff and visitors, and the risk ofloss to the organization itself. A risk is an ex-posure to the chance of injury or financial loss.Financial losses may be based on patient in-juries, the billing of clinical and other servicesprovided to patients, regulatory compliance is-

sues and enforcement or internal business dis-putes. Loss also may be nonfinancial in nature(e.g., loss of goodwill). Although the focus ofrisk management programs typically is on in-juries to patients and the claims they might file,it also encompasses injuries to hospital employ-ees and others, including physicians, who pro-vide services. With its focus on minimizing riskof injury to patients, risk management is part ofthe quality assurance program of any facility.

The most direct form of risk management isevidenced in the Medical Staff applicationprocess as the Hospital reviews an applicant’squalifications to ensure that the physician hasthe necessary clinical skills to perform thescope of practice that the requested privilegeswould permit. Toward that end, hospitals andother facilities increasingly are demanding thatmembers of their Medical Staff be board-certi-fied or board-eligible. Studies do not necessari-ly support the premise that board certificationhas a cause and effect relationship on the quali-ty of medical care delivered. Negligence in the


competence or professional conduct taken by another State Board;• Fines and other monetary sanctions accompanied by other licensure action, such as revocation, sus-

pension, censure, reprimand, probation or surrender; and• Involuntary entry by an impaired practitioner into a rehabilitation program if the entry is required by

a professional review action, is based on the practitioner’s competence or professional conduct andadversely affects the practitioner’s clinical privileges for more than 30 days.

Examples of Nonreportable Actions

The following adverse licensure actions should not be reported to the Data Bank: • Denial of an initial application for license;• Fines and other monetary sanctions unaccompanied by other licensure action, such as revocation,

suspension, censure, reprimand, probation or surrender;• A settlement agreement that imposes monitoring of a practitioner for a specific period of time, unless

such monitoring constitutes a restriction of the practitioner’s license or is considered to be a repri-mand;

• A licensure disciplinary action that is imposed with a “stay” pending completion of specific programsor actions;

• Voluntary relinquishment of a physician’s license for personal reasons not related to his or her profes-sional competence or professional conduct (e.g., retirement) ;

• Licensure actions taken against nonphysician, nondentist health care practitioners; or• Voluntary entrance of an impaired practitioner into a rehabilitation program if no professional review

action was taken and the practitioner did not relinquish clinical privileges.

The Health Resources and Ser-vices Administration within HHS

maintains extensive information regarding theData Bank on its Web site at <www.hrsa.dhhs.gov/bhpr/dqa/factshts/fsnpdb.htm#4>.

(Continued from previous page)

Resource reference

provision of clinical services is as much a func-tion of poor judgment as it is lack of clinicalskills.

If, in the course of participating in Hospitalrisk management activities, you comment onthe performance of other physicians or Hospitalemployees, you may incur liability in connec-tion with any negative comments you make re-garding the job performance of others, particu-larly if they are disciplined or terminated on thebasis of your evaluation. If you are joining agroup of anesthesiologists, ask whether theyhave negotiated for financial protection fromthe Hospital or other facility to cover potentialliability in connection with their participation inthese and other risk management activities. Seediscussion of indemnification issues, ChapterVII, section A.6, pages 44-45.

2. The risk management process. Ifthere is an adverse event, the Hospital’s riskmanagement team will assume responsibility tocoordinate the process. The risk manager islikely to bring in legal counsel in order to pro-tect conversations from discovery (the stage oflitigation where each party can learn about theother’s case by requesting documents and tak-ing depositions of key players).

The Hospital’s and the Group’s professionalliability carriers also will need to be notified.You should exercise caution in preparing anysummaries of events, as they could be subjectto discovery. It is best if any summaries areprepared in the context of attorney-client dis-

cussions in order to enhance the legal protec-tion that may be available against discovery.

You and your employer will need to consid-er, in consultation with legal counsel, how tohandle the bill for your professional fee.Billing the patient for the services may not bewise from a patient relations perspective, butwriting off the bill may raise other fraud andabuse compliance issues (see Chapter X, sec-tions D.2.c. and D.5 (pages 86-87).

Be prepared for the significant stress thatmay be involved in the aftermath of an adverseevent and obtain help if needed.

3. Amending medical records. A fre-quent question in this context is what changes,if any, may be made to a medical record afteran adverse event has occurred. You first needto consult any rules that your Hospital (or otherfacility) may have on the subject as well as anypolicies that your Group may have adopted. Asa general rule, do not alter existing documenta-tion or notes or backdate any entries. It may bepossible to add information in the form of anaddendum or other authorized means providedthat such information is clearly designated asnew information and the date of the addition isnoted. You should consider the need for addi-tional documentation, and whether it relates toclinical management of the patient, before de-ciding to add information.

4. Contractual obligations to report in-cidents. Buried in the mounds of paper thatconstitute your managed care agreements, maywell be language requiring you to notify theMCO of any adverse event, even if a claim hasnot been filed and even if the case did not in-volve an MCO member. Failing to complywith these reporting requirements would consti-tute a breach of the agreement and could leadto termination. Whether that potential is prob-lematic depends upon whether you are underpractical or legal pressure (e.g., due to your re-lationship with the Hospital or a contractualobligation) to participate with the MCO inquestion.


It is important to bear in mind that the Hos-pital’s legal counsel will represent the Hospital,not you or your Group. Ask your Group how itdeals with risk management issues and whatprocedures have been established to addressthat situation. Will the Group provide counselfor meetings regarding an incident? Do Hospi-tal rules allow separate counsel for the Group(or for the individual physician) to attend thosemeetings? You may want to retain separatecounsel to assess your possible exposure and toensure that your interests are being protected.

G. INFORMED CONSENT

1. What must be disclosed. The informedconsent process is intended to help patientsunderstand what will happen to them during thecourse of the medical care they receive and togive them realistic expectations of their care. Itis the legal recognition of the patient’s right topersonal autonomy in decisions regardingmedical treatment. State law governs thenature of the information that must be providedto the patient. In general, the information mustbe sufficient to allow the patient to understandthe risks and benefits of a recommendedtreatment prior to giving consent for thetreatment. Two standards have been used tojudge whether adequate information has beenprovided to the patient.

a. What a reasonably prudent physician inthe community would disclose. Traditionally,informed consent has been based on what a rea-sonable physician with similar training in thesame community would tell a patient about aprocedure and the risks of injury associatedwith the procedure. The risks to be disclosedwould be the probable risks.

b. What a reasonable person in the pa-tient’s position would want to know. More re-cently, the standard requires the physician todisclose information that a reasonable personunder the same circumstances would havewanted to know in making a decision regardingundergoing the treatment. Under this standard,the test for determining whether a particularrisk must be disclosed is its materiality to thepatient’s decision. Part of the consent processis also acknowledging the uncertainty of theoutcome, so that unexpected outcomes are not acomplete surprise.

Under this standard, a physician need notdisclose risks of which the average person isaware or risks that do not bear on the patient’sdecision. A more subjective variation of thisstandard would require that a patient be in-formed of all information that rational peoplewould want to know, as well as anything elsethat might affect the patient’s personal decision,including religious or cultural beliefs.

2. In writing. Written consent signed bythe patient is presumed to be valid but that pre-sumption may be rebutted upon proof that theconsent was obtained through fraud, deceptionor misrepresentation. Note that state law maycontain specific consent requirements for specif-ic medical conditions. Your state medical asso-ciation and even your liability carrier should beable to provide you with more information re-garding informed consent requirements in yourstate. If a patient decides to pursue litigation,good documentation of the informed consentwill be an important element of your defense.

Ideally, anesthesiologists meet with their pa-tients in advance of the day of surgery to dis-cuss the options for anesthesia, the risks in-volved and the patient’s questions. Informedconsent can be obtained at that time. In prac-tice, however, informed consent for surgicalanesthesia often is obtained in the brief meetingbetween the anesthesiologist and patient imme-diately prior to surgery. Do not rely on the sur-geon or attending physician to obtain informedconsent for anesthesia. If you do so, you mayfind that the information disclosed was insuffi-cient.

3. Problems in obtaining informed con-sent.

a. Premedicated patients and patients insevere pain. If you are first meeting with thepatient immediately prior to surgery, the med-ical condition of the otherwise competent pa-tient may raise questions about the patient’sability to give informed consent. The premed-icated patient, the laboring patient and the pa-tient under stress are examples of such patients.


The ASA Manual for AnesthesiaDepartment Organization and

Management contains a chapter on informedconsent which includes copies of anesthesiainformed consent statements.

Resource reference

b. Patients with some limitation on cogni-tive function. Patients with known mental ill-ness, organic brain disease or known dimin-ished mental capacity are capable of participat-ing in the informed consent process, but expertconsultation may be needed to determinewhether the patient is capable of understandingthe risks and options and making a decision re-garding them.

c. Incompetent patients and emergency sit-uations. If a patient is legally incompetent toconsent (e.g., the patient is a minor or has amental incapacity), the parent or guardian mustbe informed and must consent to treatment onbehalf of the patient. Emergency situationsgenerally are recognized as exceptions to therequirement for informed consent and consentfor the treatment is implied. To qualify as anemergency, you must determine that the pa-tient’s condition poses a threat to the patient’slife or health and that a delay in treatmentwould be harmful. You should document in thepatient’s record the nature of the surgical treat-ment, the nature and magnitude of the risk tothe patient’s life or health, the immediacy of therisk to the patient and, if applicable, the effortsto seek informed consent.

4. Do-not-resuscitate (DNR) orders.Many states recognize the right of patients todetermine in advance that they do not want toreceive emergency treatment to restart theirheart or breathing. A DNR order authorizeshealth care providers to withhold resuscitationmeasures. DNR orders are designed for indi-viduals suffering from serious, possibly life-threatening medical conditions and persons inthe final stages of a terminal illness who arecertain that they do not want to receive emer-gency treatment. Depending upon state law,legal guardians may be authorized to communi-

cate informed health care decisions on behalf ofa patient who is unable to communicate thesedecisions due to a physical incapacity or illness.States or hospitals may have varying policiesregarding different measures to be taken basedon the stage of illness or whether the patient isin partial, rather than full, respiratory or cardiacarrest.

DNR orders can be revoked in severalways, including verbally instructing emergencyresponders to disregard a DNR order. A patientcan revoke a DNR order at any time, regardlessof his or her mental or physical condition. Dueto the variation in DNR order policies fromstate to state and from hospital to hospital, youshould make sure to consult your Medical Staffpolicies and state regulations regarding when,how and by whom DNR orders may be eitherinvoked (implemented) or revoked.

5. Advance directives. In contrast to aDNR order, an advance directive simply ex-presses a person’s desires in the event of a fu-ture illness. An advance directive tells physi-cians the type of care to administer if that par-ticular patient becomes unable to make medicaldecisions.

Advance directives are generally short, un-complicated documents that come in a varietyof forms. For example, you may encounter for-mal attorney-drafted documents, standard formadvance directives or more informal patient-drafted documents. You should be aware ofyour Medical Staff policy and state regulationson the implementation and validity of advancedirectives.


The question is ultimately whether the pa-tient demonstrates the capacity to understandhis or her situation, as well as the proposedcare, its risks, benefits and alternatives.

Consult the ASA “Ethical Guide-lines for the Anesthesia Care of

Patients with Do-Not-Resuscitate Orders orOther Directives that Limit Treatment.”

Resource reference

A. CREDENTIALING AND PEER REVIEW1. Overview of the credentialing

process. The credentialing process refers tothe process for reviewing the professional cri-teria for membership on the Medical Staff of ahospital or ASC and for clinical privileges topractice at the facility. Verifying a physician’scredentials is an integral part of any facility’s(or insurance carrier’s) privilege-granting andrisk management process. It not only helps toinsure that credentials presented in an applica-tion are valid, it also serves as an initial screen-ing mechanism for quality in a health care de-livery setting. JCAHO guidelines identify fourcore criteria essential to establishing and main-taining a qualified and competent MedicalStaff: a) current licensure, b) relevant trainingor experience, c) current competence andd) ability to perform the privileges requested.

Current licensure is verified at the time ofinitial appointment and upon renewal of privi-leges either by confirming the license with theprimary source or viewing the applicant’s cur-rent license or registration. Confirmation ofrelevant training also is done through primarysource verification whenever possible and in-cludes reviewing letters from residency andfellowship programs. If you have just com-pleted training in a residency or fellowshipprogram, you may establish relevant trainingthrough a letter from the program director. IfBoard certification in anesthesiology is re-quired, the Hospital will consult the OfficialDirectory of Board Certified Medical Special-ists published by the American Board of Med-ical Specialists. For residents and fellows, cur-rent competence and ability to perform privi-leges requested will be confirmed by the direc-

tor of the training program. In the case of aphysician seeking reappointment, renewal orrevision of privileges, current competence isdetermined by the results of peer recommenda-tions and department recommendations, aswell as performance improvement activities, ifapplicable. The ability to perform privilegesrequested is confirmed in a renewal or reap-pointment application by approval of the de-partment chairman (or the chief of staff in anondepartmentalized hospital).

Credentialing also has a preventive ele-ment. By confirming the qualifications ofphysicians and their ability to perform clinicalprocedures, the goal is to minimize the poten-tial for adverse outcomes. The following cre-dentials are among those that typically are re-viewed:

• Medical education, including post-graduate internships, residencies andfellowships;

• Licensure from each state in which a li-cense has been or is currently held, in-cluding any history of discipline orsanction. The Federation of State Med-ical Boards (FSMB) maintains a data-base of these sanctions and often servesas a secondary verification source ofstate information. (Physicians have aright to obtain a copy of the FSMBprofile one time annually withoutcharge.);

• Board certification;• DEA certificate status;• Existing and previous hospital admit-

ting and outpatient treatment privileges,including a delineation of procedure-specific privileges and a history of priv-


V. CREDENTIALING AND MEDICALSTAFF RELATIONS

ilege suspension of 30 days or greaterin length;

• Professional liability insurance claimhistory and current limits and terms ofcoverage;

• National Practitioner Data Bank entrieson malpractice actions and settlements;

• Medicare, Medicaid or other federalprogram sanctions;

• Work history, including dates of serviceand contact information; and

• Personal and/or professional references.

Traditionally, credentialing has been doneby state medical boards, hospitals, ASCs andindividual insurance carriers. More recently,private centralized credentialing organizationsand state medical board credentialing serviceshave gained popularity in light of the rapidgrowth of managed care plans and increasingprovider participation in a wide range of plans.

Original source documents must be provid-ed directly to the credentialing organization.Documentation from the applicant typically isnot acceptable. One common element of mostapplications is the peer reference requirementin which a physician with a professional asso-ciation with another physician is requested toprovide an opinion regarding competence andability to interact with other physicians andwith patients.

MCOs, employers, malpractice carriers andregulatory agencies seek outcome data and in-corporate that information into their credential-ing and marketing efforts. Some states, suchas Florida and Massachusetts, now make cre-dentialing information available to the public.

Some facilities have developed a “Delegat-ed Credentialing” authority by which a man-aged care entity agrees to accept the facility’scredentialing packet as complete. This processallows the physician to proceed directly to theCredentials Committee for approval in place ofhaving to verify all original sources. Theprocess typically reduces the credentialing pe-riod from 90 days down to approximately 30days.

2. Economic credentialing. Economiccredentialing refers to the process of makingdecisions regarding the appointment or reap-pointment of physicians, or the delineation ofprivileges, based upon economic considerationsunrelated to the quality of care or professionalcompetence of the applicant. Such economiccriteria include the cost-effectiveness of thephysician’s treatment of patients or the numberof patients the physician refers to the hospitalor other facility. Although economic factors aresomewhat less applicable to anesthesiologists,hospitals still may engage in some degree ofeconomic credentialing, looking at factors suchas the size of a Group’s chronic pain practiceand the number of cases to be performed at theHospital or the Group’s practice at competingfacilities. Economic credentialing often occursin a subtle, rather than an overt, fashion andwhile inconsistent with a focus on quality ofcare, may be difficult to challenge - absentsome favorable state law barring reliance oneconomic factors in granting privileges or Med-ical Staff bylaws prohibiting consideration ofeconomic factors.


The following organizations canprovide more information:

American Board of Medical Specialties(847) 491-9091, <www.certifieddoctor.org>

American Medical Association(312) 464-5000, <www.ama-assn.org>

Federation of State Medical Boards(817) 868-4000, <www.fsmb.org>

National Practitioner Data Bank(800) 767-6732, <www.hrsa.dhhs.gov/bhpr/dqa/factshts/fsnpdb.htm#4>.

Resource reference

Consult the ASA “Statement onEconomic Credentialing.”

Resource reference

3. Peer review. The clinical services thatall Medical Staff members provide in the Hos-pital are reviewed periodically, usually in theform of peer review by the Hospital medicalboard. The reviews may include considerationof deaths, unimproved cases, infectious compli-cations, errors in diagnosis and results of treat-ment from selected cases currently in the Hos-pital, selected cases discharged since the lastmeeting of the Hospital medical board, analysisof clinical reports from each Hospital clinicaldepartment and reports of Medical and DentalStaff committees.

4. Medical Staff issues. As a member ofthe Medical Staff, you are likely to become in-volved in a variety of Medical Staff activities.Generally speaking, the Medical Staff activitiesthat have a greater competitive impact on fel-low Medical Staff colleagues are the ones thatare likely to carry a greater potential for liabili-ty. In particular, Medical Staff activities such aspeer review or credentialing have a greater po-tential to adversely affect a physician’s ability topractice. When reviewing professional opportu-nities, you may want to consider the possibilitythat such activities may involve potential liabili-ty and to consider whether the Medical Staff by-laws of the Hospital or the terms of the Group’sagreement with the Hospital provide for liabili-ty protection – in the form of financial or insur-ance coverage – for such potential activities.

5. Confidentiality. All medical informa-tion is confidential. The need for confidentialitystems from the sensitive and potentially stigma-tizing nature of personal medical information.Physicians and their employees should be awareof the pertinent state and federal laws govern-ing release of information and should under-stand that any release of information – whetherverbally or in writing – is subject to restriction.The increasing use of computers in the storage,retrieval and transmission of data provides newopportunities and challenges to maintainingcontrol over confidential information.

In December 2000, acting pursuant to the

mandate in the 1996 Health Insurance Portabili-ty and Accountability Act (HIPAA), HHS is-sued final regulations that prohibit “covered en-tities” from using or disclosing individuallyidentifiable health information except as autho-rized by the patient or as expressly permittedby the rule. The rule bars the use and disclo-sure of protected health information withoutwritten patient consent for purposes of healthcare treatment, payment and operations (e.g.,quality assurance, utilization review and cre-dentialing). Disclosure for certain national pri-ority activities such as public health and lawenforcement is permitted without patient autho-rization. Covered entities include health careproviders who transmit health information elec-tronically and health plans. Among otherthings, the regulation subjects physicians’“business associates,” a term that covers billingcompanies, to similar restrictions by requiringthat physicians have written contracts with theirbusiness associates to assure that the businessassociates will safeguard protected health infor-mation. Compliance with the final regulationsis required by April 2003.

6. Utilization review. Utilization reviewrefers to the design, quantitative assessment andsystematic improvement of patient care deliv-ery systems. Most utilization review effortshelp to establish medical necessity by progress-ing through a three-tiered review process. Thefirst tier consists of a clinical review of the pa-tient’s clinical history, including laboratory andother reports. This information often clearlyestablishes the medical necessity and the rea-sonableness of the treatment plan proposed.Licensed clinical personnel (e.g., nurses) oftenperform these reviews under physician supervi-sion. If medical necessity for the proposedtreatment is not established at the tier-one level,a physician reviews the plan of treatment andthe nurse’s recommendation for action beforedeciding on approval or disapproval of the re-quest. In some cases, this peer review can beaccomplished using a nonphysician (e.g., aphysical therapist may render a decision on a


physical therapy treatment). If the clinical re-view and peer review processes have failed toestablish the medical necessity, the issue can beaddressed during an appeals process in whichboth parties present the clinical evidence toclinical peers who are board-certified in thesame specialty and who typically work in thesame specialty as the treating provider.

Because of the nature of clinical care, theseprocesses must be accomplished in a narrowtime frame of a few days. While retrospectivereviews are useful in gathering data and intrending issues, concurrent review of the pro-posed care is an essential element in all utiliza-tion review efforts whether they are conductedinternally to reduce the length of stay or exter-nally to benchmark one physician or practiceagainst a large array of physicians or practices.

7. Challenging denial of privileges. Yourability to challenge a denial of privileges willdepend upon the facts surrounding the denial.Challenges to credentialing decisions generallyare based on one of several grounds:

• Breach of contract, alleging that thehospital action in denying or curtailingof privileges violates Hospital or Med-ical Staff bylaws requirements;

• Violation of due process rights; and • Violation of specific statutes such as fed-

eral antidiscrimination or antitrust laws.The success of these challenges depends in

the first instance on whether the facts demon-strate that the claimed wrong occurred. If aHospital fails to follow its own bylaws in de-ciding not to grant privileges, its action may besuccessfully challenged although the proceduraldefect is fairly easy to remedy. In order to es-tablish a due process violation, a plaintiffphysician would need to establish that the Hos-pital was a public or quasi-public entity thatowed the plaintiff due process. Under the U.S.Constitution, the federal and state governmentsare restricted from taking property without af-fording individuals “due process;” private enti-ties generally are not subject to due process re-strictions unless their actions are found to con-

stitute “state action.” Accordingly, a dueprocess claim asserted against a private hospitalis unlikely to be successful. Finally, whether adisappointed physician could establish that theHospital engaged in unlawful discrimination –on the basis of race, gender, national origin,disability, age or some other impermissibleground – would depend upon the facts sur-rounding the adverse action.

Many challenges to credentialing decisions,including in particular the denial of MedicalStaff privileges, have been based on claimed vi-olations of federal and state antitrust laws, withthe plaintiff physicians claiming that their ex-clusion from the Hospital constitutes an illegalrestraint of trade or, less frequently, an attemptto monopolize a market. Court decisions inthese cases often relate to proving elements ofantitrust claims, such as the existence of marketpower or concerted action (e.g., disputes overissues such as whether a Hospital and its Med-ical Staff were separate entities that could “con-spire” with each other or whether the Hospital’sactions “affected commerce” sufficiently tomeet the jurisdictional standard in federal an-titrust law). Courts generally have reviewedantitrust challenges to credentialing decisionsusing a “rule of reason” analysis that has al-lowed hospitals to offer legitimate considera-tions for their decisions. A successful antitrustchallenge to a credentialing decision would re-quire a rather exceptional set of facts.

The increasing prevalence of exclusive con-tracts for medical services, including anesthesi-ology services, has made it more difficult tochallenge hospital decisions denying MedicalStaff privileges to physicians who first applyfor privileges but who are not part of the Groupholding the exclusive contract. This situation isto be distinguished from challenges by physi-cians who hold Medical Staff privileges butwho are excluded from practicing at a Hospitalwhen the Hospital grants an exclusive contractto another physician or physician group. Thistopic is discussed in the context of hospital-anesthesiology group contracts in Chapter VII,section C.1, page 52.


State law may provide additional protec-tions to physicians against adverse credential-ing decisions by hospitals and other facilities.Several such laws are referenced in the tablebelow. Any physician adversely affected by acredentialing decision should consider theavailability of state law protection.

B. NONPHYSICIAN HEALTHPRACTITIONERS

1. Scope of practice. The authority forphysician and nonphysician health profession-als to practice their professions is set by statelaw. State law defines the qualifications re-quired to be licensed and the permitted scope ofpractice of different health professionals – thetypes of services that different health practition-ers may provide. For physicians, the grant ofauthority to practice medicine often is broadlyframed. The scope of practice for nonphysicianhealth care professionals, including anesthesiol-ogist assistants and nurse anesthetists, may bemore circumscribed in the specific services thatsuch professionals may provide. Anesthesiolo-gist assistants (who are physician assistants)and nurse anesthetists (who are registered nurs-

es) both have specialized training in anesthesiaand anesthetic techniques.

Nurse anesthetists are authorized to practicein all 50 states and the District of Columbia,while anesthesiology assistants are only autho-rized to practice in a few states, such as Geor-gia. State law varies markedly as to the level ofsupervision or direction required for practicewith anesthesiology assistants and nurse anes-thetists. The definition of what constitutes su-pervision or direction also may differ from onestate to the next. Similarly, state law is notuniform with regard to the rights, if any, ofnonphysicians to prescribe controlled sub-stances.


Florida (Fla. Stat. Ann. § 395.0191(4))

Illinois (210 Ill. Comp. Stat. 85/10.4)

Texas (Tex. Health & Safety § 241.1015)

Tennessee (Tenn. Code Ann. § 68-11-227)

Protects the right of the Medical Staff of a licensedfacility to review all applications for appointmentand reappointment to the Medical Staff.

Provides for a fair hearing to physicians whoseprivileges have been terminated or reduced as aresult of the award of an exclusive contract.

Prohibits hospitals from refusing to grant or renewstaff privileges on the basis of a physician’s provi-sion of services at a different hospital.

Prohibits hospitals from requiring hospital-basedphysicians to pay for the use of medical equip-ment and restricts the ability of hospitals to tie clin-ical privileges to a contract absent a separately ex-ecuted agreement to terminate clinical privileges.

Physician-Friendly State Laws

The ASA Office of GovernmentalAffairs (202/289-2222) has more

detailed information regarding the education,training, scope of practice and prescriptiveauthority of nonphysician health practitioners.The state component society of anesthesiolo-gists may also have additional information re-garding these issues.

Resource reference

State law defines the scope of permissibleactivity of licensed health care providers. Hos-pitals and other health care facilities may notgrant more expansive authority, but they mayadopt more restrictive requirements regardingclinical practice by nonphysician health practi-tioners within their institutions. Anesthesiologypractices similarly may limit the scope of prac-tice of their nonphysician employees.

2. The anesthesia care team. Nurseanesthetists and anesthesiologist assistants arean integral part of many anesthesiology prac-tices. Under the medical direction of anesthesi-ologists, nurse anesthetists and anesthesiologistassistants can provide quality care in a cost-ef-fective manner. With the increase in managedcare market share and the corresponding de-crease in payment, nurse anesthetists and anes-thesiologist assistant services may assist in con-trolling costs while ensuring the delivery ofquality services in cases in which normal events

do not require constant attendance by an anes-thesiologist.

Maintaining a productive, mutually benefi-cial working relationship with nurse anes-thetists and anesthesiologist assistants in a prac-tice is critical to the long-term success of thepractice. If an anesthesiology practice employsnurse anesthetists and anesthesiologist assis-tants, nurse anesthetist and anesthesiologist as-sistant relations must be a central considerationin wage determinations, benefit packagechanges and scheduling.


A cautionary note: At least one court hasruled that anesthesiologists and nurse anes-thetists compete with each other in the provi-sion of anesthesia services. (Although a similarruling has not been issued relating to anesthesi-ologist assistants, readers should assume thatthe same caution applies to them.) An employ-er (here, the anesthesiologist) may establish lim-its on the actions that an employee (the nurseanesthetist) may take. Outside the scope of em-ployment, greater caution should be exercisedbefore taking action (including engaging in clin-ically focused activities such as the adoption ofpractice protocols) that could restrict the abilityof non-Group-employed nurse anesthetists topractice. If you are in a position to take actionthat could adversely affect the ability of a non-physician anesthesia provider to exercise thefull range of legally permissible practices, youshould consult with counsel in advance to min-imize potential liability under the antitrust laws.

This cautionary note does not apply to le-gitimate approaches to legislative or other gov-ernmental authorities. Such activity is protect-ed under the antitrust laws under what isknown as the Noerr-Pennington doctrine.

A. PROFESSIONAL PRACTICE ANDSTARTING OUT

1. Introduction. The extent of businessplanning that you will need to do dependslargely on the type of practice and professionalsetting you are entering. If you join an estab-lished anesthesiology practice, the legal struc-ture of the entity and many associated decisionswill already have been made. If, in contrast,you will be practicing as a solo practitioner oras a member of an anesthesiology department,but independently of other anesthesiologists onstaff, you will need to address business plan-ning matters.

2. Type of entity/form of organizationand associated tax considerations. It is un-likely that you will want to practice as a solopractitioner in your capacity as an individualphysician. Liability considerations, specificallyunlimited personal liability for medical mal-practice and other business obligations, willlead you to a legal entity structure, such as aprofessional corporation or a limited liabilitycompany (LLC). Both types of entities offer alimitation on personal liability. They differ interms of structure, taxation and regulatory re-quirements (see summary table below). Thedecision as to which entity is best will dependupon the state’s professional corporation andLLC laws and your personal circumstances andobjectives. You should consult with counseland your tax advisor in making this decision.


VI. BUSINESS, TAX AND RETIREMENT PLANNING FOR THE SELF-EMPLOYED

C corporation(a corporation that has notelected Subchapter S status)

Limited liability (liability limit-ed to extent of capital contri-bution).

As an established type of enti-ty, corporations offer greaterpredictability of result in theevent of dispute and litigation.

Double taxation (taxation atboth the entity and sharehold-er level).

More specific structural andoperational requirements thanfor an LLC.

Type of Entity Advantages Disadvantages

(Table continued on following page)

Types of Business Structures At a Glance

3. Licenses needed. a. State medical license. If you will be

working in a state other than the one in whichyou are practicing or practiced as a resident,you will need to apply for a medical licensefrom the new state. Processing times can differ,so you should apply early to minimize potentialdelays.

b. DEA number. Under the authority ofthe Controlled Substances Act, the DEA, a unitof the United States Department of Justice, reg-isters all persons who handle controlled sub-stances. Legitimate handlers of controlleddrugs include manufacturers, hospitals, pharma-cies, practitioners and researchers. The goal ofcontrols is to ensure the ready availability of“controlled substances” for medical use whilepreventing their distribution for illicit sale andabuse.

c. Medicare provider number. You willneed to enroll with the Medicare carrier for thegeographic area in which you will be working.The general enrollment form, Form 855 (blue),was revised effective in 1998 and is significant-ly more complex than was the prior form. Besure to sign the form and to include a notarizedcopy of your medical license to ensure timelyprocessing of your application.

Even if you already are enrolled in theMedicare program, you will need to completeForm 855R, Individual Reassignment of Bene-fits (green), if the Group will be billing for yourservices. This same form is used to enroll anew physician Group in order to list all Groupmembers/partners rendering services within theGroup/partnership setting or to update the sta-tus of a Group (e.g., to delete physicians or toassign a physician to a new practice location).Information changes (e.g., changes to a physi-cian’s or Group’s name, mailing address ortelephone number) are reported using Form855C, Change of Information (pink).

Effective September 1999, applicants mustdisclose their Social Security Number (SSN)and/or Employer Identification Number (EIN),


Types of Business Structures at a Glance (cont.)

Type of Entity Advantages Disadvantages

S corporation

Limited liability company

Limited liability.

No double taxation.

Limited liability.

No double taxation.

Flexibility to structure and op-erate as desired (e.g., canmake disproportionate distrib-utions of income to memberswithout regard to members’ownership interests).

Restrictions on structure (num-ber and nature of share-hold-ers, only one class of stock).

“Phantom” income (realizingincome even though it has notbeen distributed).

Cannot offer tax-free fringebenefits to members.

As a relatively new type of en-tity, LLCs offer less predictabil-ity of result in event of disputeand litigation.

See further discussion of this topicin Contracting Issues: A Primer

for Anesthesiologists (pages 19-23).

Resource reference

as well as those of other persons and organiza-tions associated with the applicant, in the formHCFA 855. Even when you are working undera Group’s tax identification number, your SSNis required for you to receive a Unique Physi-cian Identification Number (UPIN).

d. Electronic submission of claims toMedicare. Completing the HCFA-855 does notautomatically authorize you to transmit elec-tronic claims to Medicare. You will need tocomplete the Electronic Data Interchange (EDI)enrollment form in order to submit your claimselectronically.

B. RETIREMENT AND BENEFITSPLANNING

1. Introduction. As a resident, you maythink that you are too young to be making plansfor retirement. In today’s economy, however, itmay well take a portfolio of several million dol-lars to ensure a comfortable retirement. It isnever too early, and you are never too young, tostart saving for that goal. Accordingly, this dis-cussion will cover the three common sources ofretirement income: a) an employer’s (or self-employed person’s) “qualified” retirementplans, b) your personal savings and c) SocialSecurity. This discussion will also touch onsome of the major tax aspects of these threecomponents of retirement savings.

2. Definitions.a. Contribution. An amount paid by the

employer, the employee or a self-employed in-dividual to a retirement plan.

b. Participant. An employee (or self-em-ployed person) who satisfies any eligibility re-quirements under his or her employer’s retire-ment plan and subsequently participates in theplan.

c. Beneficiary. The individual (or individ-uals) or entities that a participant designates toreceive his or her benefit under a retirementplan in the event of the participant’s death. Ifno beneficiary is designated by the participant,the plan may automatically distribute the partic-

ipant’s benefit to his or her spouse (or, if thereis no spouse, to other family members).

d. Vesting. The process, under a retire-ment plan by which a participant attains a non-forfeitable right to his or her benefit under theplan.

e. Defined benefit plan. A retirement planin which an employer promises to pay partici-pants a certain benefit amount upon retirement.The amount of the benefit is determined by aformula. The formula may calculate benefitsbased on a percentage of a participant’s annualcompensation and years of service, or may pro-vide for a flat benefit (e.g., a certain benefitamount regardless of compensation or years ofservice). Pension benefits under a defined ben-efit plan are not dependent on investment per-formance. Rather, the employer is obligated tocontribute enough to the plan to pay for thepromised benefits. In general, a defined benefitplan more heavily favors older or longer-serv-ing employees as a result of the manner inwhich benefits accrue.

f. Defined contribution plan. In a definedcontribution plan, a separate account is estab-lished for each participant. Employer contribu-tions, which are determined based on a formulaunder the plan, are periodically credited to eachaccount. Participant accounts are further ad-justed to reflect the plan’s investment perfor-mance. Thus, investment performance has a di-rect impact on the amount of the participant’stotal benefit. The employer may make contri-butions to the plan, and, in the case of a 401(k)plan, a participant may make before-tax contri-butions to the plan. This type of contributionby a participant is advantageous because it re-duces the participant’s gross income and allowsfor tax-free earnings under the plan. (See sub-section 3.a.iii below for further discussion of401(k) plans.)

g. Qualified plan. A retirement plan thathas been formally determined by the IRS tomeet certain requirements under the InternalRevenue Code (the Code), with the result thatproperly calculated contributions are deductiblein the computation of an employer’s or self-em-



ployed person’s taxable income and are exclud-able from the taxable income of the participant.In addition, the investment returns of a quali-fied plan are not subject to current taxation, andthe benefits paid out from the plan are eligiblefor special (beneficial) income tax treatment.

h. Rollover. The process of transferring avested account balance from one qualified planor individual retirement account (IRA) to an-other qualified plan or IRA.

3. The first component of retirementplanning: Qualified retirement plans andarrangements.

a. Types of employer-provided plans com-monly offered. Employers in the anesthesiafield today commonly offer two different typesof qualified plans, both of which are definedcontribution plans. The first is a money pur-chase pension plan. The second is a combina-tion of a profit sharing plan and a 401(k) plan.It is difficult to say whether one type is moreprevalent than the other. Whatever plan is of-fered, you should always maximize your contri-butions and those of your employer to all of theretirement plans offered by your employer.

i. Money-purchase pension plans. Amoney purchase pension plan is a defined con-tribution plan in which the employer has a fixedobligation to make contributions. Typically,contributions will be based on a certain per-centage of an employee’s compensation. Thefunds contributed to a money purchase pensionplan will be credited to each participant’s sepa-rate account, and adjustments will be made toeach account based on the plan’s investmentperformance.

ii. Profit-sharing plans. A profit-sharingplan is a defined contribution plan in which theemployer makes a contribution to the planbased on a formula in the plan. This contribu-tion can be, but is not required to be, madefrom the profits of the employer and is usuallydetermined on an annual basis. Often there isno mandatory employer contribution under aprofit sharing plan. Rather, the employer typi-cally retains discretion whether to make a con-

tribution to the plan for any particular year. Asin the case of a money purchase pension plan,funds contributed to a profit sharing plan arecredited to each participant’s separate accountand adjustments are made to each accountbased on the plan’s investment performance.

iii. 401(k) plans. A 401(k) plan is oneunder which a participant may elect to makebefore-tax contributions to the plan. This is ac-complished by a participant entering into asalary reduction agreement with the employerwherein the employer reduces the participant’scompensation by the amount of the partici-pant’s 401(k) plan contribution. The IRSplaces limits on the amount of compensationthat can be contributed to a 401(k) plan. For1999, the maximum amount that may be con-tributed in before-tax contributions is $10,000.Also, there are other restrictions that may affecthighly compensated employees. You will needto check with your employer to find out if thesewill apply to you. Often under a 401(k) plan anemployer will “match” a participant’s before-tax contribution. A participant also may beable to contribute after-tax amounts to a 401(k)plan (although after-tax contributions will notreduce taxable compensation, they will accrueearnings on a tax-free basis). A participant’saccount under a 401(k) plan is adjusted for in-vestment performance.

b. Limited ability to negotiate pension is-sues. Can you negotiate the terms of theseplans as part of your employment negotiations?The answer generally is no. Employers are notlikely to amend a plan, which requires a filingwith the IRS, to accommodate a new physicianemployee. But you can evaluate the retirementplan benefits offered by a particular employerand, if you are in the position of having morethan one employment offer, compare the plansthat are offered.

c. Comparing pension and benefit plans.Whether you have one employment offer ormore than one, it is logical to ask about theterms of retirement plans. A convenient wayfor an employer to respond may be to give youone or more “summary plan descriptions,” lay-

language documents circulated to all employeesdescribing the principal features of each quali-fied plan. The following discussion identifiesthe questions you should consider as you re-view any description of a qualified plan.

i. When does a new employee become aparticipant? Common entry dates are aftersix or 12 months’ employment or on the firstJanuary 1 or July 1 after such an anniversary.From your perspective, the sooner you can par-ticipate, the better.

ii. When does a participant vest in theplan? In some cases, an employer may requirea participant to complete a certain number ofyears of service to be vested in any employercontributions under the plan (you are always100 percent vested in your before-tax contribu-tions under a 401(k) plan). In general, the lawallows an employer to established a vestingschedule of up to seven years if contributionsare partially vested each year following the sec-ond year of service, or up to five years if contri-butions are not vested at all until completion ofthe fifth year of service. Some employers offerimmediate 100 percent vesting of employercontributions. Because vesting schedules varyfrom plan to plan, it is important to ask aboutthis issue.

iii. What are the contribution terms? Whatis the formula for the employer’s contributions?Is the employer’s contribution mandatory ordiscretionary? If discretionary, how often inthe past has the employer contributed to theplan? What is the formula for employee contri-butions? What are the maximum contributionsthe employer and the employee may makeunder each plan?

iv. Does the plan accept rollovers? If youhave a balance in a rollover IRA or in a priorqualified plan, that plan is required to allow youto make a rollover out of it. Will the new em-ployer’s plan accept the rollover?

v. Can you self-manage your account? Inother words, can you choose how that accountwill be invested? Who is the vendor that pro-vides the investment choices? What is the rangeof investment options available?

vi. Can you borrow or make other in-ser-vice withdrawals from the plan? What are theterms of any such borrowing or withdrawals?

d. General points: SEP or SIMPLE plans.Money purchase pension plans, profit sharingplans and 401(k) plans have complex nondis-crimination and “anti-top heavy” rules requiredby federal law. These rules require employerswho make contributions for the benefit of high-ly paid individuals, such as physicians, to makeproportionate contributions for the benefit ofless highly paid employees such as nurses, sec-retaries, and receptionists. (For purposes of thenondiscrimination rules, generally, an employeewho makes more than $80,000/year is deemedto be highly paid. Under this definition, physi-cians and most nurse anesthetists or anesthesi-ologist assistants employed by anesthesiologygroups would be highly compensated employ-ees.) The nondiscrimination rules also limit thecontributions that may be made for the benefitof highly paid individuals. These rules cancause the plans to be very expensive to main-tain while limiting the amount of benefits thatcan be provided to principals.

For this reason, many employers have optedout of these more complex plans and have cho-sen to establish SEP or SIMPLE plans. Undera SEP arrangement, an employer makes a con-tribution according to a formula under the plan(although the contribution may be discre-tionary) on a nondiscriminatory basis to allcovered employees. These contributions arethen funneled to IRAs maintained for the indi-vidual employees. The employer may take adeduction for its contribution of up to 15 per-cent of the compensation of its employees. Themaximum contribution to any single partici-pant’s IRA is $30,000.

Under a SIMPLE plan (short for “SavingsIncentive Match Plan for Employees”), an IRAis likewise used as a funding vehicle. Employ-ers are generally required to make contributionsof 2 percent of compensation to each IRA, andemployees may make before-tax contributions.Certain restrictions apply. For example, an em-ployer may have no more than 100 employees



(but may elect for this purpose to take into ac-count only those employees who received atleast $5,000 of compensation from the employ-er for the preceding year). The plan must meetcertain vesting, participation, administrative andsalary reduction requirements. Contributionsare likely to be smaller under a SEP or a SIM-PLE plan, but these plans leave more after-taxincome for private savings.

e. Nonqualified plans. In addition to (orin lieu of) one or more qualified retirementplans, an employer may establish one or morenonqualified plans. These plans generally arenot subject to the various nondiscrimination re-strictions affecting qualified plans. Therefore,under these plans the employer is able to con-tribute more to highly compensated employees.Nonqualified plans take various forms. Theemployer may impose vesting, distribution andother restrictions. Contributions under theseplans may be in the form of employer securi-ties. It is important to remember that unlikecontributions under qualified plans, contribu-tions made on your behalf to nonqualified plansgenerally are not protected from the rights of thecreditors of the employer. In the event that youremployer goes bankrupt or experiences othercredit difficulties, your benefit (even if vested) isnot guaranteed under a nonqualified plan.

f. Whatever the plan, maximize contribu-tions. Take whatever steps are needed to con-tribute and to make sure your employer con-tributes the maximum amount possible eachyear to all of your employer’s retirement plans.Even if you do not have the ready cash to makethe maximum contribution, it is worth takingout a short-term loan to do so by the deadlineas long as you know you will be able to pay theloan back within a few months. A better ap-proach is to have your maximum contributionwithheld from your regular paycheck. Manyphysicians have found that even these maxi-mum amounts of retirement savings obtainablethrough qualified plans are not enough. But bymaking the maximum contribution to all em-ployer-offered plans, you will achieve at leastthe greatest tax efficiencies.

g. Retirement plan arrangements for theself-employed anesthesiologist. If you aregoing to be self-employed, bear in mind thatyou may be able to create a professional corpo-ration, become an employee of your own cor-poration and set up any of the employer-provid-ed plans described above. If you are self-em-ployed and are not in a position to set up a pro-fessional corporation, but instead will practicein a partnership or proprietorship, you will havea somewhat different choice of retirement planarrangements. As a self-employed physician,you should follow the rule set forth above andmaximize your contributions to all qualifiedplan arrangements each year.

i. “Keogh” plans. The best-known quali-fied plan approach for self-employed physiciansis a “Keogh” plan arrangement, which can takethe form of a package of two plans, such as amoney purchase pension plan and a profit shar-ing plan, or a money purchase pension plan anda 401(k) plan. Both plans are defined contribu-tion plans. A Keogh plan is simply a pension orprofit-sharing plan that is tailored to operate in apartnership or proprietorship setting, with some-what different contribution limits than apply in acorporate setting because earned income is com-puted differently.

ii. SEP or SIMPLE plans. If you will notbe a participant in a Keogh arrangement, youcould establish a SEP or a SIMPLE plan.These plans are described in subsection 3.d,page 34. Depending on various rules, you maybe able to make contributions both to a SIM-PLE plan and to a Roth IRA (see subsection4.b, page 36) in the same year.

iii. How to establish these plans. You canset up any of these arrangements or plans withthe standard-form documents offered by an in-vestment firm. An investment firm will oftenprovide the documents at no cost if you placethe plan funds under their management. Besure, however, that you follow all of the IRSrules with respect to the filings for and mainte-nance of the plan. If you establish one of theseplans, you as the plan sponsor would be re-sponsible for ensuring that each plan complies

with the law. Even if your investment firm is atfault for not following IRS requirements, theIRS will penalize the plan sponsor. If the IRSdisqualifies a retirement plan for failure to ad-here to IRS rules, the employer will lose all de-ductions taken under the plan, and all contribu-tions made to the plan will become taxable toparticipants.

4. The second component of retirementplanning: personal savings.

a. In general. Since many physicians havefound that relying only on qualified retirementplans is not enough, you will want to consider aprogram of personal savings as well.

i. How much should you save? A logicalfirst question is how much you should save.You may want to consider discussing this ques-tion with a financial consultant. You may bebest off with a consultant who is compensatedprimarily from offering advice on an hourlybasis, rather than selling financial products, inorder to reduce the consultant’s bias in favor ofany one kind of investment product. Your dis-cussion should focus on the amount of incomeyou will need in retirement.

ii. How much risk should you take? Thediscussion will also cover the levels of risk orvolatility, risk of loss of principal and risk of in-flation with which you would be comfortable asan investor. This will indicate what portions ofyour portfolio ought to be in what kinds of in-vestments — such as bonds, U.S. equities andforeign equities — and what would be the logi-cal yield of your investment portfolio. Thiswill help the consultant calculate what youneed to be saving to achieve your desired levelof retirement income. As you become moreskilled at investment management, you may beable to do this kind of calculation yourselfusing the Internet.

iii. Investment return. The return on yourinvestments depends in part on whether the re-turn is tax-free, tax-deferred or taxable. Obvi-ously you will want to minimize taxes on yourportfolio. This suggests that you may want, es-pecially in your early professional years, to

keep the bonds portion (except tax-free bonds)of your investments in the tax-protected (quali-fied plan) part of your portfolio.

b. IRA Savings. Your first savings and in-vestment priority, after maximizing all contribu-tions to your employer’s or your self-employ-ment qualified plans, should be contributions toIRAs. All employee and self-employed physi-cians have at least one IRA savings optionavailable each year. You may, depending onthe kinds of tax-qualified plans you have anddepending on your earned income, invest per-sonally (that is, outside the employment or self-employment context) in Roth IRAs, regularIRAs or non-deductible IRAs. Contributions toa Roth IRA are non-deductible, but there is notax on a Roth IRA’s investment income andthere is no tax on most distributions (such as re-tirement distributions). Contributions to a regu-lar IRA are deductible, and there is no tax on aregular IRA’s investment income but there istax on distributions. Contributions to a non-de-ductible IRA are not deductible, but there is notax on a non-deductible IRA’s investment in-come and the tax on distributions is slightly lessthan in the case of a regular IRA. In any event,the maximum amount you can contribute eachyear to these types of IRAs combined is $2,000(up to $2,000 more if contributions are madefor your spouse). This amount may seemsmall, but IRA balances have a way of increas-ing rapidly. You should arrange for regularwithholding, or automatic debiting of yourchecking account, to make sure that these con-tributions are made.

Subject to certain other rules, you can con-vert your existing regular IRA, or part of it, to aRoth IRA if your “adjusted gross income” isnot more than $100,000 (same figure for a cou-ple). The amount you convert, however, is tax-able income in the year of conversion.

In future years, look for all these limits toincrease and the various rules applicable tothese kinds of IRAs to become more flexible.

You should maximize your contribution andthose of your spouse to all available retirementIRAs. Keeping records of your IRA contribu-



tions is important. This is a good reason tokeep your federal income tax returns and FormsW–2 indefinitely.

c. Non-IRA Savings. Beyond these IRAamounts, the next part of your retirement in-vestments may well consist of taxable securi-ties. You should arrange for regular withhold-ing, or automatic debiting of your checking ac-count, to make sure that you are adding to yourinvestment portfolio regularly.

To further minimize your tax burden, youcan invest in mutual funds that are “tax man-aged.” These are funds the management ofwhich takes into account the investors’ likelytax consequences on sales, so the funds aim forlonger holding periods, at balancing sales at again with sales at a loss, and at calculating thetiming of sales in such a way as to reduce taxburdens. You can further reduce your tax bur-dens on this part of your portfolio by lengthen-ing your holding periods, generally investingfor the long term, considering equities that em-phasize appreciation instead of dividends, andinvesting in tax-free bonds.

A tax-deferred annuity is an investmentproduct linked to a life insurance policy so thatthe investment income is tax-deferred. Whetherthis is a sensible investment for you is a ques-tion best answered by an unbiased investmentconsultant. If it does appear that this is a rea-sonable idea for you, you should ask whetherthe product fits into your investment approach,the quality of the investment assets offered, theamounts of any related fees and loads, the ex-tent you can manage the investments, the trackrecord of the product, the reputation of thecompany offering it and of the portfolio man-agers, and the quality of the local investmentprofessional (if any) representing the companywith whom you would be working.

Turning to life insurance, typically, an un-married physician with no children needs rela-tively little life insurance, a married physicianwith children needs life insurance in the seven-figure range, and a physician with a large liquidnet worth needs perhaps less life insurance,since liquid net worth can substitute for insur-

ance coverage. Again, in considering life insur-ance, you need to ask whether the product isappropriate for you, investigate the track recordof the company and the quality of its local rep-resentatives, and consider whether your premi-ums are fixed or could rise, whether you canborrow against any equity and the terms of thatborrowing.

5. The third component of retirementplanning: Social Security. Although SocialSecurity benefits typically will not be a largepart of the retirement income of a physicianstarting out today in private practice, it is never-theless appropriate to have an understanding ofthe program. Contributions to Social Securityare based on current Social Security tax rates asapplied to the “wage base” or the self-employ-ment income base. Both of these base amountsincrease from year to year depending on thecost of living. In general, of the contributionsrelating to you during your working career,one-half are taxable when contributed. On theother end, Social Security pension distributionsare taxable income. It is useful occasionally tocheck the Social Security Administration’srecords relating to your contributions to be surethey are accurate, and that is another good rea-son to retain your income tax returns and yourForms W-2 indefinitely. You could think ofSocial Security as an investment in a better-than-AAA debt instrument with a variable butlow yield. At this time, you cannot choosehow your accumulating contributions are in-vested but that could change if federal law isamended.

6. Estate planning. As part of your re-tirement planning, you will want to consultwith an estate planning attorney. Estate andprobate laws differ from state to state so youshould make sure that the attorney you use isan expert on the law that applies to you. Youshould ask the attorney to review the advan-tages and disadvantages of the various optionsavailable to you, such as the choice between awill and a “pourover will” coupled with a revo-

cable trust; the latter is an approach to avoidprobate. Asset protection – including consider-ation of your professional liability coverage, thecost of paying for tail coverage (assuming youare not eligible for a free retirement tail) incomparison with the cost of the probate processand whether the probate process will shieldyour estate from potential unmatured malprac-tice claims – is an appropriate topic for discus-sion as part of the estate planning analysis.

C. OBTAINING FINANCING FOR YOURPRACTICE: LOAN AGREEMENTS

1. In general. If you are joining an ex-isting practice or working for an employer, youprobably will not need to obtain financing. Ifyou are establishing your own practice, howev-er, you may need to obtain financing to start upa new practice to cover any potential cash flowshortfalls that may occur until you realize rev-enue. Even if your practice is responsible forsecuring such a loan, you may be affected bythe conditions of such a loan depending uponthe conditions of your employment agreement.Therefore, you should evaluate the loan’s termsin conjunction with the terms of your employ-ment contract or recruitment agreement in orderto determine whether the loan is compatiblewith your practice needs.

2. Types of loans. Your practice wouldmost likely opt to obtain standard financingthrough a bank or similar institution. Thesestandard loans are comparable with any type ofbank loan. If you will be practicing in a ruralor otherwise remote location, your practice maybe able to obtain recruitment assistance loansfrom a local hospital. These loans contain for-giveness provisions in exchange for a commit-ment to practice in the community for a certainperiod of time. Regardless of what type of loanyou or your Group chooses to secure, there areseveral issues of importance in evaluatingwhether a particular loan is compatible withyour practice needs.

3. Questions you need to ask when eval-uating the terms of a standard loan.

a. Do you need to co-sign the agreement?Even if your practice is taking out the loan, youstill may be obligated to co-sign the agreement.If you sign the loan agreement in your individ-ual capacity, you assume individual liability,which means that the lender can reach yourpersonal assets in the event of a default.

b. What is the interest rate of the loan?What is the rate of interest on the loan and willit change over the course of the agreement? Isthere a cap or limit on the potential increase inthe rate (e.g., a percentage above prime, beyondwhich the rate cannot increase during the termof the loan agreement)?

c. What are the repayment terms of theloan? These issues are crucial to your assess-ment of the loan agreement. You should assesswhether you can meet the financial expecta-tions of the loan’s conditions. For example, itmight not make sense if your practice were re-quired to pay a substantial percentage of theprincipal during the first few months of the loanrepayment. Generally, a lender can offer you aline of credit with a balloon payment that maybe a preferable type of loan depending uponyour projected cash flow.

d. What obligations and liabilities wouldyou have? If your practice will be taking out aloan, the bank will deal with your practice sep-arately rather than either directly or indirectlywith you. Regardless, if the practice is takingout a loan on your behalf, you may be subjectto certain obligations or liabilities pursuant toprovisions in your employment contract. There-fore, even if you are not required to sign theloan agreement, you need to review your em-ployment contract and the loan agreement toidentify any such obligations. For example,your employment contract may have a clausemaking you liable for the loan repayment if youleave the practice within a certain time period.

e. What security does the lender require?You should determine, for example, whetherthe lender would require attaching a security in-terest in your receivables as a condition of the



loan. Such a requirement could potentiallycause additional cash flow problems if you arestarting your own practice or could be in con-flict with your employment contract with an ex-isting practice.

f. What covenants are attached to theloan? There could be instances in which youmight breach the covenants at the outset of theloan agreement due to provisions in your con-tract. You need to assess how these covenantscould affect your practice and you should re-view your employment contract to see suchcovenants are consistent with it.

In determining whether a particular loan iscompatible with your practice, you need to re-view any prospective loan agreement in tandemwith your employment contract to make surethat their terms are consistent with one another.In this assessment, you should view theseagreements as if they were rolled into onetransaction. It may be advisable to have yourattorney or accountant on hand to review anyprovisions that you might find questionable.

D. GETTING HELP – HOW TOLOCATE/EVALUATE CONSULTANTS

1. Overview. It is important to surroundyourself with knowledgeable consultants.When starting out, you will need accountingand legal advisors who can help you establishyour practice, evaluate employment and busi-ness opportunities and provide basic tax plan-ning. If you join an established anesthesiologygroup, the Group may have a practice manager,benefits firm or consultant to serve as a re-source. As physicians face increased pressureto deal with business issues, they tend to be lesslikely to operate as sole practitioners. But ifyou choose that mode of practice, you mayhave greater need for support.

2. Need for experienced consultants.Finding consultants who have the qualificationsto meet your needs can be difficult. A time-tested way to locate consultants is to ask col-leagues for names of consultants they have used

and then to ask those consultants for referencesand to check those references. You want to findconsultants who have experience dealing withthe type of issues you are facing. An attorneywho specializes in real estate transactions is un-likely to be the person to help you negotiate amanaged care agreement or to addressMedicare billing questions.

3. Resources. Other resources includestate and national professional associations.ASA and state component societies can suggestnames of consultants in particular fields. TheASA Washington office maintains a list of at-torneys and consultants around the country whoare familiar with the variety of contracts thatanesthesiologists encounter, including hospital,employment and managed care agreements.

Your state and local medical societies alsomay have suggestions. Medical subspecialtyassociations may be able to suggest consul-tants. If the association does not maintain alist of consultants, ask the association for thenames of its attorneys and consultants whomay be able to recommend competent col-leagues. Professional associations in relatedfields, including the Anesthesia AdministrationAssembly and Medical Group Management As-sociation, may also provide a valuable resource.Finally, look at the authors of articles on issuesof interest and contact the authors for additionalinformation. As persons with experience in aparticular field, they may have a wide range ofcontacts in areas of interest to you.

4. Contract review services. State andlocal medical associations provide a variety of

The AMA web site <www.ama-assn.org/ethic/state.htm> lists con-

tact information for all state medical associa-tions; the ASA Web site lists contact informa-tion for state component societies of anesthe-siologists <www.asahq.org/asarc/statecomp.html>.

Resource reference

contract review services. In some states, statemedical association attorneys will review physi-cian employment or managed care agreementsfor a set fee and will provide a written analysisof the legal and practical problems in the con-tract. These contract analysis services often areavailable to nonmembers for a higher fee,which may be of interest if your state associa-tion does not offer this service. For significantpayors in the market, local medical associationsmay have existing analyses of each payor’sbasic participation agreement.

5. What things cost. Lawyers and otherconsultants generally charge for their serviceson an hourly basis. An employment or MCOparticipation agreement may be five pages or30 pages, which makes it difficult to speak interms of any average range of fees. The rangeof actual fees will depend upon factors such asthe lawyer’s experience and location. An attor-ney may be able to provide an estimate of feesin advance or, somewhat less commonly, mayagree to a set fee for the work.

The more organized you are, the more effi-cient your attorney can be. If you want to havea contract reviewed, assemble all related docu-ments (such as any sample agreement you weregiven), any correspondence (including e-mailcommunication) relating to the contract and anyprior versions of the agreement. Read theagreement carefully yourself and mark any lan-guage that you do not understand or to whichyou object. If the agreement refers to any at-tachments, make sure you have them (or haverequested them) before giving the document toan attorney to review. Make a list of the rele-vant facts to review with your attorney, includ-ing any specific questions you have. For exam-ple, if you are considering an employmentagreement, make sure your lawyer knows ifyou already are moonlighting and wish to con-tinue moonlighting after taking the permanentposition. Make a list of any items addressedduring your meetings with a potential employer,but which do not appear in the agreement. Thispreparation can save time when your attorneyreviews the document.



A. ISSUES COMMON TO ALLAGREEMENTS

1. If it is important, make sure it is inthe contract. If you were promised somethingduring your discussion, make sure the promiseis included in the written contract. If it’s not inthe contract, it’s not enforceable. Included inthe “boilerplate” (the general provisions oftenfound at the end of an agreement) of mostagreements is language stating that the writtenagreement supersedes all prior agreements be-tween the parties and reflects the entire agree-ment between the parties.

VII. CONTRACTING ISSUES

Chapter highlight: A contract becomes criticalwhen a relationship breaks down or simply comesto an end because it contains the blueprint for suchmatters as how fast the other party can terminatethe deal, what rights you will have upon termina-tion and what restrictions the other party will beable to enforce after the relationship ends.

The ASA publication titled Contracting Issues: A

Primer for Anesthesiologists addresses contractingstrategy and specific contracting issues in exten-sive detail. Consult that publication and the ac-companying forms supplement for more specificinformation. Managed care contracting is coveredin Managed Care Contracting: Considerations forAnesthesiologists, also published by ASA.

Background note: Most agreements that youwill encounter will be written agreements, andthe preceding discussion applies to the circum-stance in which the parties reduce their under-standing to writing. In that case, it is essentialthat all elements of the agreement be reflectedin the document.

An agreement does not have to be in writ-ing to be enforceable. Some oral agreementsare binding, particularly if one party has rea-sonably relied on the oral agreement orpromise to that party’s detriment. There arelimitations on the enforceability of oral agree-ments that will vary from state to state.

Contracting Basics At a Glance

✔ How long will the agreement be in effect?

✔ What options do you have to terminate?

✔ How fast and on what grounds can the otherparty terminate?

✔ If you are to be paid, how quickly will you bepaid, and are there any remedies (e.g., interestor a higher rate of payment) if the other party islate in paying?

✔ What obligations, if any, will you have after theagreement ends?

2. If it is important, make sure it sur-vives termination of the agreement. If a pro-vision will be important after the relationshipends (e.g., access to medical records), makesure the contract provides that the obligationsurvives termination of the agreement.

3. Pay careful attention to the defini-tions. If words are defined in the contract, theyonly mean what they are defined to mean. Acontract is an understanding between the par-ties. The parties are free to define words how-ever they choose. Do not assume that termshave their standard definition.

An especially important definition in con-tracts that anesthesiologists face is how is theword “anesthesiology” defined and, in partic-ular, does it include pain management? Thisdefinition can have enormous practical conse-quences for an anesthesiology practice. An ex-clusive contract for anesthesiology services thatcovers only surgical anesthesiology services isa far different item from one that covers allanesthesiology and acute and chronic pain man-agement services. In the context of managedcare contracts, a Group with an active chronicpain practice needs to understand the scope ofservices to which the negotiated price willapply.

4. What is the term, or duration, of theagreement? The term of the agreement is onlyas long as the period for notice of termination.Even if the agreement states that it is to contin-ue for one or two years, if it is subject to termi-nation on 30, 60 or 90 days’ notice, it is only a30, 60 or 90-day agreement.

Is the agreement automatically renewable?Automatic renewal means that the agreementcontinues in force without any action by eitherparty. If the agreement renews and you are toreceive compensation, you will want an escala-tor clause to adjust your compensation in sub-sequent years.

5. Termination. a. Termination without cause can be a

powerful tool against you. Can the other partyterminate the contract without cause? Withoutcause, or “no-cause,” termination means pre-cisely that: the other party can terminate for noreason – or no stated reason. If so, how muchnotice will you have and will that be enoughtime to relocate?


Sample language: Automatic re-newal (employment agreement)

Unless terminated earlier pur-suant to the provisions of this Agreement, theterm of this Agreement shall commence as ofJanuary 1, 2000 (“Commencement Date”), andshall continue through December 31, 2000,and shall automatically be renewed for succes-sive one-year periods upon the terms and con-ditions hereinafter set forth unless written no-tice is given by Employer to Employee at leastsixty (60) days prior to the expiration of the ini-tial term or any renewal term that this Agree-ment shall not be renewed, in which case theAgreement shall terminate at the expiration ofthe initial term or renewal term as the case maybe.

Concerns: If salary is a fixed amount,rather than formula-based, you will want toprovide for an increase in compensation insubsequent years. A separate concern is thatonly the Employer has the right to block auto-matic termination of the agreement. Depend-ing upon other provisions authorizing you toterminate, you will want a mutual right toblock automatic renewal of the agreement.

Sample language: TerminationWithout Cause (employmentagreement)

Either party may terminate this Agreement,without stated cause, upon sixty (60) days’ notice.

Concerns: The Group has an unrestrictedability to terminate you with only 60 days’ no-tice. In addition, the notice is not required tobe in writing, which could lead to questions asto whether notice actually had been served.

Advantages: The ability to terminate is mu-tual so that both parties have the same right.


This discussion of contract terminology andprotective provisions could end right here, with-out reviewing other contractual issues. Termi-nation without cause is a powerful remedy be-cause it allows a party to terminate the agree-ment without any reason, provided that it givesthe required advance notice. The terminationwithout cause provision allows a party to by-pass the “for-cause” grounds for terminationand to avoid any claims for wrongful termina-tion, because the other party does not need toprove that you did anything wrong in order toterminate the relationship. That means that theother party holds the cards, no matter what theissue and no matter what the agreement pro-vides. If tensions develop in the relationship,the other party – whether an employer anesthe-siology Group or the Hospital – can call it quitswell before the stated end date of the agree-ment. Note, however, that if you are the em-ployer, you would want to have the ability toterminate an employment relationship withoutcause, in order to avoid claims of wrongful ter-mination.

But a termination without cause provisionis commonly included in employment agree-ments and other contracts and you may be un-successful in having it eliminated. Your mainprotection will be time – the notice period be-fore the other party may terminate. Negotiatefor the longest possible notice period (30 daysis relatively short, 90 days is common and 180days is rather long in an employment agree-ment with a physician coming out of residen-cy). But bear in mind that the longer the noticeperiod to exercise the termination without causeprovision, the more likely the other party is torely on the more subjective grounds for for-cause termination if the other party truly wantsto terminate the relationship quickly.

A counterbalancing consideration is that thenotice period for termination is likely to be mu-tual: The longer the notice the other party mustgive you, the longer the notice you must givethe other party if you are the one terminatingthe relationship. This mutuality is a result ofcustom and negotiating posture, not legal re-

quirements. If you become truly unhappy witha relationship (e.g., an employment relationshipor an agreement with an MCO), a longer noticeperiod may be difficult for you to honor.

The type of agreement may affect the desir-ability of a termination-without-cause provi-sion. In contrast to employment agreementsand contracts with hospitals, in which termina-tion-without-cause provisions can be problem-atic, it may well be in your interest to have theability to terminate a relationship with an MCOwithout cause. If the MCO is sluggish in pay-ing, is slow in credentialing physicians or oth-erwise is causing difficulties in the relationship,although not technically in breach of the agree-ment, you would want the ability to terminatethe relationship without having to prove that theMCO breached a specific provision in theagreement.

b. With cause, and how subjective are thegrounds for termination? Under what circum-stances can the other party terminate the agree-ment for cause, and will you be afforded achance to rectify the claimed breach? For-cause termination generally results in immedi-ate termination. How subjective are thegrounds for for-cause termination? If thegrounds are subjective and the decision-makingpower to determine whether a breach has oc-curred rests with the other party, the supposedlyfor-cause termination begins to resemble with-out-cause termination.

Sample language: Termination WithCause (employment agreement)

This Agreement shall terminateprior to the date set forth in Paragraph 3 above[the Term of the Agreement] or on the expira-tion date of any extension thereof upon the oc-currence of any of the following events:…Upon the Employee engaging in any conductsubstantially harmful to the Employer’s businessor business reputation.

Concerns: The standard for breach is sub-jective, and the determination whether the stan-dard has been satisfied is entirely in the Em-ployer’s discretion.


In the employment context, if the Groupmay only terminate the agreement for cause,you may want to ask for a periodic evaluationof your performance in order to provide a basisto demonstrate satisfactory performance and tominimize the likelihood of the Group claimingunsatisfactory performance. If the Group mayterminate the contract without cause, this typeof provision is less significant, as the Group canalways access the without-cause option to endthe relationship.

c. Are the performance standards subjec-tive? Review performance requirements forsubjective standards that may be easilybreached.

d. “Notice and cure.” A “notice and cure”provision requires the other party to provideyou (or both parties to provide each other) withnotice of a breach and allows you a fixed periodof time to “cure” or fix the problem or to takesteps to begin to remedy the problem. If thefor-cause termination clause does not containthis provision, you should ask for one.

The issue that often arises in notice andcure situations is the adequacy of the breaching

party’s effort to fix the problem. If the non-breaching party truly wants to terminate the re-lationship or to exert pressure on the breachingparty, it may not be an objective judge of thesuitability of the breaching party’s efforts tocure. For that reason, you may want to providethat an independent third party will review theadequacy of the breaching party’s efforts to fixthe problem.

e. Mutual ability to terminate. Make surethat any termination provisions are mutual sothat you have an opportunity to terminate theagreement if you are unhappy. If the ability toterminate is one-sided, you may be tied to theagreement until it expires at the end of the term.

6. Do not agree to indemnify the otherparty. Any language that provides that youwill “indemnify” or “hold another party harm-less” from any and all costs that the other partyincurs as a result of some circumstance shouldbe closely examined and, if possible, deleted.Indemnification clauses can be (and usuallyare) drafted broadly to cover all costs that theother party incurs as a result of the actionsidentified (e.g., all services you provide, evenif you provide clinically appropriate services).Most professional liability policies do notcover contractually assumed liability. If theother party insists upon an indemnificationclause, you should 1) obtain a rider to your lia-bility policy to cover the indemnificationagreement and 2) include language in theagreement limiting the extent of your liabilityto such amounts as actually are paid underyour policy.

In contrast, you will want the other party toindemnify you against liability stemming fromany administrative or nonclinical services you

Sample language: Subjective Per-formance Standard (employmentcontext):

Physician shall remain satisfactory to thePresident of the Corporation, as determined bythe President in his/her sole discretion, in theperformance of any and all duties performedpursuant to this Agreement and in his/her per-sonal and professional conduct.

Physician shall not engage in any personalor professional conduct which, in the reason-able determination of Employer, does or maymaterially adversely affect the image or stand-ing of Employer.

Concerns: The performance standard isvery subjective and the determination whetherthe standard has been satisfied is entirely in theEmployer’s discretion. In most employmentagreements, material breach of any provision ofthe Agreement — such as this vague standard— would be grounds for “for-cause” termina-tion, which generally is immediate.

Sample language: One-Sided Ter-mination Provision (employmentagreement)

Employer may terminate this Agreement,with or without cause, on 60 days’ written no-tice to Employee.


provide under an agreement (e.g., service onHospital or MCO committees). The otherparty either can include you under its liabilitypolicy or compensate you for the cost of arider to your malpractice policy to cover thisadditional potential liability. In any event, youshould confirm whether your own professionalliability policy covers nonclinical services.

Another circumstance in which you maywant to request indemnification is if the otherparty insists on the right to direct you not tohire or to cease using an individual anesthesi-ologist or nurse anesthetist. In that event, youwould want a written statement from the otherparty explaining the basis for any such direc-tive as well as indemnification in the event theexcluded individual files suit alleging wrongfuldiscrimination or termination.

7. Any amendments to the agreementshould be in writing and signed by bothparties. If changes are not made in writing,the opportunity for misunderstanding as to theprecise nature of amendment increases. Man-aged care agreements often provide that theMCO can amend the agreement upon writtennotice to the physician. If the other party canchange the agreement, you are wasting yourtime negotiating.

If the parties want to make minor handwrit-ten changes to an agreement, each revisionshould be initialed by both parties in order tosignify their agreement with the revision.Handwritten notations to an agreement can beconfusing absent evidence of assent to thechanges.

8. Attachments.a. Make sure attachments are actually at-

tached. Review all documents referred to inthe agreement (e.g., attachments, policies ormanuals). If the agreement provides that adocument is attached, make sure it is attached.

b. Make sure important attachments are“incorporated by reference” into the agree-ment. Simply referring to an external docu-ment without incorporating it by reference into

the agreement can lead to ambiguity in inter-preting an agreement. If an external documentis important (e.g., a compensation formula),make sure that it is made part of the agreementand is binding on both parties by “incorporat-ing it by reference” into the agreement.

9. Notices in writing. All references inthe agreement to notice (e.g., of allegedbreach, termination or other matters) should bein writing to avoid any question as to whethernotice in fact was given.

10. Assignment. Ideally, an agreementshould provide that neither party may “assign”(or transfer) its rights or obligations under theagreement without the express written consentof the other party. It is not uncommon for hos-pitals, MCOs and even anesthesiology prac-tices to try to reserve the right to assign theirobligations. If an assignment occurs, you maybe working for a very different entity. Thisarea is one in which the obligations often arenot mutual. Parties negotiating with physiciansfor clinical or administrative services generallytry to restrict the ability of the physician or theGroup from assigning its obligations while pre-serving the right to transfer their obligations.At a minimum, you will want to negotiate foradvance written notice of any assignment bythe other party and a right on your part to ter-minate the agreement. In that way, if you donot want to continue the contractual relation-ship with the new “assignee,” you will have anoption to end the relationship. You also willwant language making the contract binding onall assignees or successors in interest in theevent that you do not want to terminate theagreement.

11. Standard of care. Do not agree toprovide the “highest” level of care or other su-perlative description of the standard of care.You may unwittingly be binding yourself to ahigher level of care than the law otherwisewould require.

12. Access to records. In most agreements,particularly employment agreements and agree-ments with hospitals, you will want to makesure that the other side will provide you withaccess to the medical records relating to theclinical services you provide during the agree-ment. Watch for limits on the circumstancesunder which you will have access, burdensomerequirements relating to the advance notice youmust provide or open-ended provisions relatingto your paying for copies of the records.

13. Governing law and venue. Some lo-cations are proximate to several different statesor jurisdictions. State law may differ on issuessuch as the enforceability of restrictivecovenants. It can be important to specify in theagreement which state’s law will govern anydisputes. In addition, some contracts identify alocation where disputes will be resolved(“venue” for resolution of disputes). Make surethat the location specified is not inconvenientfor you.

14. Dispute resolution. As traditional liti-gation becomes protracted and costly, partiesincreasingly are agreeing to alternative disputeresolution (ADR) mechanisms. Is a disputeresolution procedure specified? If so, whobears the cost – the party invoking the proce-dure or the party who succeeds? Must the par-ties meet to try to resolve their differences priorto invoking the dispute resolution procedure?Is the procedure binding so that the parties areprecluded from pursuing traditional litigation?

It is hard to generalize whether a disputeresolution procedure is good or bad. The an-swer will depend largely on the answers to thequestions posed in the preceding paragraph.

15. Any blank spaces? Make sure anyblank spaces in the agreement are filled in priorto execution.

B. EMPLOYMENT AGREEMENTS

1. General considerations.a. What does an agreement accomplish?

An agreement serves the useful purpose of fo-cusing the parties on whether they actually havereached agreement on the terms of employ-ment. Establishing the details of the relation-ship can minimize the potential for misunder-standings – time commitment, call responsibili-ty, compensation, outside employment, termi-nation and restrictions after employment. Theagreement serves as a written record of thedeal, which can be important down the road astime passes, memories fade and leadership inthe Group changes.

b. Is the agreement a good idea? Doesthe contract reflect what was discussed duringthe interview? What types of restrictions doesthe agreement impose? How fast can theGroup terminate the agreement? And whathappens when the relationship is over? Doesthe agreement bar you from practicing at theHospital (or other facilities) where the Grouppractices or does it broadly limit you frompracticing in a designated geographic area?Depending upon the baggage in the agreement,you may be better off without an agreement.

c. Negotiating strategy. As a resident orentry-level physician, you may feel that youhave relatively little bargaining power and thatthe chances of accomplishing what you wantthrough negotiation are slim. However trite itsounds, you will not know unless you try. Yoursuccess will depend upon several factors, manyof which are out of your control, but some ofwhich are in your control.

• Read through the agreement and sortout what issues are most problematic. ➡ Read through the contract yourself.

Make a copy of the agreement,mark any provisions you do not un-derstand and ask for clarification.


See discussion of dispute resolu-tion clauses in Contracting Issues:

A Primer for Anesthesiologists (pages 41-42).

Resource reference

Do not rely on others to identify is-sues of concern to you.

➡ Get a second opinion. Ask a col-league to review the agreement andsee what issues or problems the col-league identifies. Sometimes afresh eye can spot issues that youmissed.

➡ Be careful in reading, and make cer-tain that you review the definitions.Defined terms mean what they aredefined to mean in the agreement;do not assume that their ordinarymeanings apply.

• Assume that the contract is negotiableand ask for what you want up front.You often have less bargaining power asan employee than as a prospective em-ployee.

• Do not be overly aggressive in dis-cussing your concerns with the agree-ment. Stay calm and focused when dis-cussing your concerns with the agree-ment.

• How much is truly negotiable and howmuch is based on the Group’s agree-ment with the Hospital? If the Group’sagreement with the Hospital has ad-verse provisions (e.g., termination with-out cause on short notice or a covenantnot to compete), those are certain to bereflected in the employment agreementswith physicians and they will not be ne-gotiable. They may be completely ob-jectionable, but if the Group has no flex-ibility on those points, why waste time?

• Be selective in identifying your priori-ties. If the concern is with a policy thatbroadly affects all Group employees(e.g., moonlighting or vacation), theGroup is far less likely to agree to mod-ifications. Focus on the issues that youhave the greatest chance to change, un-less the point is of overriding impor-tance to you.

• Do not sign under pressure. Feel com-fortable with the agreement before you

sign, or at least determine that you havenegotiated each provision that is nego-tiable.

d. Revising the agreement. So how do yougo about negotiating an agreement, and whoshould do the negotiating? Absent special con-siderations, you may well be your own best ad-vocate. Bringing in an outside person to nego-tiate portions of the agreement is not necessaryunless you feel uncomfortable. A reasonablealternative may be to review the agreementwith an outside adviser, but to conduct yourown negotiations. If you are dealing directlywith a Group physician in negotiating theagreement, the process may be more manage-able than if the Group delegates the contractingprocess to a nonphysician manager.

The process of revising the agreement canbe straightforward. First, make a copy of theagreement so you always have a “clean” copyavailable. Take the copy of the agreement andedit it in the manner desired. If a provision iswholly unacceptable, delete it. If the provisionis acceptable in most circumstances, add a“proviso,” a clause that carves out an exceptionto the general statement (“provided that thissection [insert the section number] shall notapply in the event that [identify the circum-stances] . . .”). If a section is ambiguous, edit itto meet your understanding. In general, youare better off suggesting the language you wantrather than simply raising the issue and allow-ing the Group’s counsel to revise the agree-ment. Marking directly on the agreement al-lows the Group to see the particular problemsyou have identified. Make sure to keep a copyof whatever document you finally give to theGroup.

If you are uncomfortable revising the agree-ment yourself or if you have questions aboutwhat certain provisions mean, consider consult-ing counsel. Remember to locate counsel expe-rienced in reviewing employment agreements,preferably agreements in the health care industry.

e. So what is important? On a day-to-daybasis the employment agreement generally haslittle impact, as scheduling and case demands


will dictate your duties. As noted above, theemployment agreement becomes critical whenthe employment relationship breaks down orcomes to an end. The next section will reviewthe chief areas to consider in an employmentagreement.

2. Common contract terminology.a. Post-termination restrictions. If the re-

lationship does not work out, the post-termina-tion limitations on your practice are the provi-sions that will most significantly restrict youroptions, possibly even forcing you to relocate.

i. “Tying” or “clean sweep” provision.

Tying the continuation of your clinical priv-ileges to the contract (e.g., requiring you to re-sign your clinical privileges at the Hospital orother facility upon termination of your employ-ment agreement with the Group) means thatyou no longer can practice at the Hospital onceyour employment terminates. This restriction issignificant, but if the Group has an exclusivecontract with the Hospital (or hospitals), youwill be shut out of the Hospital without regardto what your employment agreement provides.You also need to determine whether the

Group’s agreement with the Hospital mandatesinclusion of this language in your employmentagreement. Many hospitals require that physi-cian groups include this type of provision intheir employment agreements in order to mini-mize the possibility that competing groups ofanesthesiologists will try to provide services inthe Hospital.

Because of these practical considerations, atying provision, while important, may drop inrelative importance with other negotiating pri-orities. See the related discussion in ChapterVII, section C.1, page 52.

ii. Covenant not to compete. A covenant,or agreement, not to compete with the Group(also known as a restrictive covenant) is anagreement on your part not to practice in a des-ignated geographic area for a specified periodof time. A noncompete clause can severely re-strict your options if your employment termi-nates and is likely to be a key negotiating prior-ity. The enforceability of restrictive covenantsdepends upon state law, but in most states theyare enforceable if they are reasonable in geo-graphic scope and time (two years probably isenforceable; five years may not be). This typeof provision is one that you should work toeliminate or narrow, particularly if you will bepracticing surgical anesthesia rather than painmanagement.

Some hospitals, concerned about the poten-tial diversion of their patient population to com-peting ASCs and physicians’ offices, restrict theability of contracted anesthesiologists from pro-viding clinical anesthesia or administrative ser-vices (e.g., medical director services) at area fa-cilities. The anesthesiology groups, in turn,must obtain parallel agreements from their em-ployee or contracted physicians. If the Grouphas this type of restriction in its agreement withthe Hospital, it will not have the ability to mod-ify this restriction in its employment agree-ments.

b. Clear delineation of responsibilities andtime commitment. How clearly are your re-sponsibilities outlined? Will you have exposureto the full range of cases? If the Group pro-


Sample language: “Tying” or“clean sweep” provision

The Medical Staff appointmentand/or clinical privileges of the Employee at theHospital and at any facility where the Employerprovides professional services shall terminateconcurrently with the termination or expirationof this Agreement, notwithstanding any provi-sions of the Hospital or Medical Staff Bylaws re-lating to notice, hearing, appellate reviewand/or other rights generally provided to mem-bers of the Medical Staff prior to adverse actionin respect to Medical Staff appointment andprivileges, all of which provisions and rights arehereby expressly waived. The Employee ac-knowledges that inclusion of this provision isrequired by the terms of the Hospital Agree-ment. Any and all such terminations of the Em-ployee’s Medical Staff membership and clinicalprivileges shall be deemed to have beenthrough voluntary resignation.

vides services at more than one location, wherewill you be assigned? If the Group covers anASC, you will want to be certain that you rotatethrough the main ORs to maintain your skills.

If the position is part-time, how is part-timestatus defined? Are weekends and eveningshandled in proportion to the part-time status?

How are scheduling and call coverage ad-dressed? Will you take more call than otherphysicians in the Group? Will you have lowerpriority in scheduling? If you have lowest pri-ority in the schedule and compensation isbased in whole or in part on productivity, youare likely to be disadvantaged. Does theagreement allow you to delegate call to some-one else? What is the response time when youare on call? Finally, does the employmentagreement contain a residency requirement re-lated to the call requirement?

c. Compensation (salary and benefits). i. Salary. Compensation obviously is im-

portant, but it should not be the key issue. Isthe level of your compensation clear? Willyou receive a bonus and on what basis, or isthe award of a bonus entirely within theGroup’s discretion? Is the amount of a bonusbased upon a formula or is it also within the

Group’s discretion? Who keeps any outsideincome you earn (e.g., honoraria, expert wit-ness fees)? Beyond your own compensation, italso is important to understand how the “part-ners” (who more likely are shareholders ratherthan partners) are compensated – not the levelof compensation, but the methodology. Dothey receive equal compensation, or is com-pensation productivity-based? How is produc-tivity measured, and is nonclinical time includ-ed in the mix? Is the risk of the payor mixblended (e.g., do the physicians receive the ac-tual collections from the cases they perform, oris the money pooled and then the average unitvalue calculated)? This last point is important,because if the funds are not pooled, it can leadto competition for cases and tension within theGroup.

Understand when your compensation ispayable. If compensation is expressed as alump-sum amount, the contract should statethat that amount is payable in equal install-ments. If your income will be based on a per-centage of the Group’s net income, make sureyou understand how “net” is defined. Whatexpenses are deducted from the Group’s grossincome to arrive at net income? In general,you should be wary of complicated formulaeused to determine your income. The Groupwill be in control of the calculations, and itwill be difficult for you to predict your level ofincome. If you have no choice, consider twoprotections: retain the ability to require an ac-counting to determine accuracy of calculations,and provide a base level below which your in-come cannot go (“provided that in no caseshall Employee’s annual salary be less than$[amount]”).


Sample language: Delineationof duties; part-time status

For purposes of this Agreement,the term “part-time” shall mean that the Em-ployee shall render the services set forth hereinto the Employer for three-fifths (3/5) of a full-time position, provided, however, that a) if an-other physician employee is on vacation, theEmployee shall provide full-time coverage forthat physician employee, and b) the Employeemay be required to take more than three-fifths(3/5) of the call on weekends during the term ofthis Agreement.

Concerns: Although the agreement is nom-inally part-time, the Employer has reserved anopen-ended ability to require the Employee tofill in on a full-time basis for colleagues whoare on vacation. In addition, the Employee’sweekend call responsibilities are not propor-tional to the three-fifths part-time status.

Sample language: Compensa-tion before revision:

Employer will pay Employee onehundred twenty-five thousand dollars ($125,000)per year.


ii. Fringe benefits. The type and scope offringe benefits can be a significant componentof compensation and deserve attention. If thebenefits are vaguely described (e.g., “such ben-efits as Employer provides to all employees”),the benefits are subject to change. Make sureyou understand the extent of employee contri-bution to benefits. Although disability mayseem a long way off, disability coverage is im-portant and you should understand how “dis-ability” is defined, when benefits are payable(is there a waiting period?), how long they arepayable and whether the benefits will be tax-able. What type of pension plan is offered?What is the vesting period and what are the eli-gibility rules for contribution?

As discussed above in the section regardinginsurance coverage (see Chapter IV, sectionD.2.c, page 16, and D.4, page 17), you shouldconsider the tax consequences associated withpaying premiums with before-tax versus after-tax dollars.

d. Opportunity for advancement. The fu-ture often is not addressed in an employmentagreement and for good reason. From theGroup’s perspective, it does not want to be tieddown to a commitment of advancement to arelative stranger. Even if an agreement pur-ports to address shareholder status or the timeframe to consideration, recognize the limita-tions of the Group’s commitment. Its promiseto advance you terminates along with theagreement (unless the clause expressly pro-vides that it survives termination). TheGroup’s historical practice and the experienceof the younger physicians in the Group may be

the best practical source of information regard-ing what the future will hold.

In negotiating provisions in this area, bemindful of the impression you are making andbalance the importance of specificity on theseissues with the potential for creating an ad-verse impression.

e. Liability insurance. In most employ-ment situations, the employer purchases themalpractice coverage for the employee physi-cian. Check whether the cost of the coverage isdeducted from your compensation or is other-wise charged to you. What type of coveragewill be purchased – “claims-made” or “occur-rence”? (See discussion of liability insurance inChapter IV, section B, beginning on page 11.)If the coverage is “claims-made,” are you re-quired to purchase tail coverage? How muchwill that tail coverage cost, and is the Group re-serving the right to deduct the cost of tail cov-erage from your final pay check? What aboutso-called “nose” coverage for your practiceprior to coming to the Group? If your onlypractice has been as part of the residency pro-gram, nose coverage is unlikely to be required.


If the agreement addresses advancement, ex-amine how specific the commitments are. Isthe Group agreeing that you will become ashareholder or an equal shareholder with thesame voting and compensation as other share-holders? An agreement to become a sharehold-er may not be what it seems if the Group hasdifferent classes of shareholders with differentvoting and different dividend rights. Has theGroup addressed a buy-in (i.e., an amount youwill be obligated to pay to “buy into” theGroup)? That amount may be addressed in theshareholders’ agreement, which may be amend-ed before you are eligible for advancement.Also, what is the basis of the buy-in? If theGroup practices only at one hospital and hasan exclusive contract with the Hospital that isterminable without cause on relatively short no-tice, and if the contract ties the clinical privi-leges of Group members to the agreement, thebuy-in should reflect the relatively precariousnature of the Group’s position.

After revision:Employer will pay Employee one hundred

twenty-five thousand dollars ($125,000) peryear to be paid in equal semimonthly install-ments on the 15th and 30th day of each month,beginning with the first month in which Em-ployee provides services to Employer.



f. What do you know about the Group?An employment relationship is one of the mostimportant relationships you will have. Makesure you know what you’re getting into beforeyou sign the agreement.

• Does the Group have a contract with theHospital or other facilities at which it practices?What is the nature of that agreement?

• Does the Group have a reputation forhiring physicians and turning them over after ashort period?

• What is the relationship among Groupmembers? Is the Group collegial, or are therefeuding factions?

• Does the Group practice in a care teammode? What is the typical medical directionratio? Are you comfortable practicing in thatenvironment? What is the relationship betweenGroup members and the nurse anesthetists?Does the Group employ the nurse anesthetistsand has it always done so, or did the Hospitalemploy them at one point? Were there any is-sues or problems when the Group assumed re-sponsibility for employing the nurse anes-thetists?

• Does the Group have a knowledgeablepractice manager and sophisticated informationmanagement systems?

• Has the Group focused on billing com-pliance issues?

• Has the income of Group membersgone down in recent years and, if so, why?

These issues are by no means a completelist of all points to consider, but they all areones that you should understand before youagree to join. Careful checking in the first in-stance can save unhappy discoveries later.

g. Corporate practice of medicine. A fewstates, notably California, Texas, Ohio and Col-orado, follow a rule known as the “corporatepractice of medicine” that prohibits corpora-tions from employing physicians. The concernunderlying this doctrine is based on public poli-cy: Corporate involvement in the practice ofmedicine would commercialize the professionand threaten physician autonomy. The rationaleis that physicians would not be free to exercisetheir professional judgment if they were re-quired to answer to nonphysician corporate em-ployers as their first allegiance would be to thecorporation, not to the patient. By way of ex-ample, the corporate practice of medicine doc-trine would prohibit HMO, hospital or otherhealth care corporations from employing physi-cians.

In some states other than California, Texas,Ohio and Colorado, vestiges of the corporatepractice of medicine doctrine still survive in

Suggestion: If you are required to purchasetail coverage, you may want to limit the cir-cumstances in which that obligation applies byproviding that the Group must purchase tailcoverage if it exercises its option to terminatethe agreement without cause. That provisionmay serve as a practical limitation on the other-wise unlimited ability of the Group to terminateyou without cause (if such a provision is includ-ed in the agreement).

Issue: It is important for you to know aboutthe Group’s agreement with the Hospital, buthow do you get a copy? Most Groups will bereluctant to share a copy of their agreementwith a prospective employee. You may need tosettle for asking questions regarding the natureof the agreement. The most important issuesare 1) how long has the agreement been in ef-fect and when does it expire; 2) is it terminablewithout cause and, if so, on how much notice;3) are privileges tied to the agreement; and4) does it restrict the Group from providing ser-vices at other facilities?

As a reality check, you also will want toknow the general history of the Group’s rela-tionship with the Hospital, including how longthe Group has been providing services at theHospital, with or without an agreement, andwhether there have been particular problemswith the Hospital over specific issues.

Another useful source of information is theHospital’s relationship with other hospital-basedphysicians. Have there been issues with otherdepartments and how have those issues beenresolved?

some form. Even in states recognizing thisdoctrine, enforcement has been lax and thisdoctrine tends to be more of a relic than a cur-rent restriction. Almost every state allows thepractice of medicine by corporations that arelimited to individuals who are licensed practi-tioners. The law also usually permits the prac-tice by HMOs and, in some instances, nonprofitcorporations.

In summary, the precise law governing thecorporate practice of medicine will vary fromstate to state. Although the reach of the corpo-rate practice of medicine doctrine is somewhatlimited, its existence is still worth noting.

h. Conclusion. Make sure you understandthe deal you are getting before you sign, notwhen problems have arisen and you are assess-ing your options. Even if you make only mod-erate progress in negotiating adverse provisionsin the agreement, understanding the dynamicsof how the agreement can operate if tensionsdevelop can empower you to select your courseof action more wisely.

C. CONTRACTS WITH HOSPITALS ANDAMBULATORY SURGICAL CENTERS.

1. Medical staff membership and clini-cal privileges issues. A “clean sweep” or otherclause that ties a physician’s privileges to theexistence of the agreement and provides for au-tomatic termination of those privileges upon

termination of the agreement is a common, butdistinctly disadvantageous, provision. A legiti-mate question is what the Hospital can do inthe absence of that language.

In general, ousted physicians have had littlemeaningful legal recourse when the hospitals atwhich they have practiced have entered into ex-clusive contracts with other providers. Courtstend to defer to the decision of a hospital to“close” a department and enter into an exclu-sive agreement with a group of physicians, evenif existing physicians on staff are forced out bythat decision, so long as the decision is a busi-ness, or administrative, decision. Even when ahospital is transitioning from an “open” depart-ment to a “closed” department, courts oftenconclude that the right to a hearing under theMedical Staff bylaws is not triggered unless theexclusion of a physician is based upon concernswith the particular physician’s performance orconduct.

It is extremely rare for courts to grant reliefto excluded physicians. If they do, there oftenare unique facts supporting the grant of relief orthere is a helpful state law (e.g., Florida law re-quires the Medical Staff to review all applica-tions for appointment and reappointment to theMedical Staff and provides for a right to a hear-ing; see page 28). Moreover, it may be harderto obtain relief when the excluded physicianshave themselves previously been the beneficia-ries of an exclusive contract. In some cases,courts have ruled that the excluded physician isentitled to a hearing. Such a hearing is of limit-ed utility, however, when the Hospital makes anadministrative decision to contract with anotherphysician group.

Thus, even in the absence of language“tying” the clinical privileges of Group physi-cians to the contract, a hospital generally is ableto do much the same thing – enter into an ex-clusive arrangement with another group andforce out Group anesthesiologists. Given thegenerally unfavorable case law, you may won-der why you should not simply concede thisissue and focus on other important issues in adraft agreement. It is important to understand


See additional discussion of em-ployment agreements in Contract-

ing Issues: A Primer for Anesthesiologists(pages 37-47).

This subject is addressed in detailin Part Three, Section I of Con-

tracting Issues: A Primer for Anesthesiologists(pages 57- 69).

Resource reference

Resource reference


the decided shift in power that occurs in favorof the Hospital if a Group agrees to inclusion oftying language. No matter how favorable othercontractual provisions may be, if the Hospitalasks the Group to take action – e.g., to sign aparticular managed care agreement or to pro-vide an additional anesthesiologist to staff anunderutilized operating room – and the Groupobjects, the Group will always be under pres-sure to yield to the Hospital’s request, or to riskthe possibility that the Group will be displacedupon termination of the agreement.

Beware of seemingly innocuous languagethat does not tie the clinical privileges of Groupmembers to the agreement but which may limittheir ability to challenge a Hospital’s entry intoan exclusive agreement with another group(e.g., “upon termination of the agreement, theGroup acknowledges the Hospital’s ability toenter into an exclusive contract with anotheranesthesiology group”). While apparentlymerely a restatement of the obvious, this lan-guage can undercut the ability of the Group tochallenge a subsequent exclusive contractarrangement. When excluded physicians areunable to exercise their clinical privileges as aresult of an exclusive contract between a hospi-tal and another physician group, the theory un-derlying the claim of the excluded physiciansfor relief is that they had the expectation ofcontinuing to be able to provide services at theHospital and that the exclusive agreement withthe other group interferes with that expectationand deprives Group physicians of a legitimateproperty right.

The language under discussion would barGroup physicians from making such an argu-ment – whether framed as a claim for denial ofdue process, violation of a federal Constitution-al right or a state constitutional right or otherinterference with business expectation – by ac-knowledging that they can be displaced upontermination of the agreement. Once you ac-knowledge that you can be displaced, you canhardly claim later that you never expected thatcontingency to occur. Thus, although the pro-posed language does not “tie” the clinical privi-

leges of Group physicians to the contract, it hasmuch the same effect.

Once a Group “gives” on the privilegesissue, the Group will have to live with that po-sition in all future negotiations. It will be diffi-cult, if not impossible, for the Group to negoti-ate for deletion of the language. Where possi-ble and consistent with other negotiating priori-ties, the Group is best advised to preserve itsindependence by not agreeing to inclusion of“tying” or other similar language.

2. Requests for proposal.a. In general. Hospitals and ASCs are in-

creasingly using the mechanism of a request forproposal (RFP) or similar competitive biddingprocess to solicit proposals for coverage oftheir anesthesiology needs. Whereas use ofRFPs once was reserved for staffing of new fa-cilities, it increasingly is being used for cover-age of existing facilities. Issuance of an RFPoften signals problems in the relationship be-tween the existing anesthesiology Group andthe Hospital or ASC administration. Even inthe case of a new facility being opened by anestablished hospital, a Hospital’s use of an RFPrather than inviting its existing Group to pro-vide services is usually not a positive indica-tion.

b. The “nonconforming bid” strategy.Hospitals and ASCs sometimes use the RFPprocess as a means to bypass the negotiationprocess. The RFP will contain either a list ofcontractual terms or an agreement for servicesto which the responding party must agree in itsproposal. A more sinister permutation of thisstrategy is to deem all proposals not containingan unqualified agreement to all contractualterms nonresponsive and therefore not subjectto consideration. This procedure collapseswhat would otherwise be a contract negotiationinto a requirement that the proposals submittedagree to all terms set forth in the RFP. Theconsequence for objecting to any one elementof the RFP or proposing to modify a require-ment is that the Group’s entire proposal isdeemed nonresponsive and therefore is not con-

sidered. By including problematic provisions,including ones relating to tying clinical privi-leges to the contract, restricting the Group’spractice at other facilities, and requiring theGroup to sign participation agreements withany payor the Hospital designates, the Hospitalavoids negotiations on difficult issues.

c. Responding to an RFP. In the absenceof a requirement that bidders agree to all pointsin the RFP, the Group will have some flexibili-ty to structure its proposal. In order to preparea winning proposal, the Group will need to tryto distinguish its services from those of com-peting bidders. To do so, the proposal mayneed to go beyond the requirements set forth inthe RFP.

i. Substantive suggestions. A. Summarize salient features of the pro-

posal at the outset. The Group may want toconsider a brief summary at the outset that iden-tifies key advantages or features of its proposal.

B. Highlight additional credentials. In de-scribing the Group’s qualifications, the proposalshould identify any special qualifications ofGroup anesthesiologists, such as fellowshiptraining in anesthesiology subspecialties andBoard certification in specialties other thananesthesiology.

C. Discuss proposals to improve opera-tions. If the Group is already providing ser-vices at the facility, it should consider includinga section regarding its ideas to improve opera-tion of the anesthesiology department. Itshould identify operational and coverage goals,highlighting the services that it will offer. If theGroup can identify ways in which it can assistthe Hospital or ASC to save money, it shouldinclude those ideas (e.g., reducing turnovertime of ORs or working with the pharmacy de-partment to ensure precise accounting for andbilling of all drugs).

ii. Procedural suggestions. If the RFP setsforth specific requirements, the Group shouldrespond point-by-point in a manner that makesclear that all mandated responses are included.Any required attachments should be clearly la-beled as part of the proposal. Finally, the

Group should identify a contact person for theproposal, along with telephone and beepernumbers, to allow the Hospital or ASC to fol-low up with questions.

iii. The proposal as a marketing document.A proposal responding to an RFP is a form ofmarketing document and should be structuredas one. It should be prepared in a manner thatmakes it as readable as possible, with importanttext emphasized to allow for quick review ofthe document. If the Group is willing to pro-vide service that goes beyond the requirementsin the RFP, such as in-house coverage of partic-ular units or services, those features of the pro-posal should be highlighted for emphasis.

iv. Professional assistance or review is ad-visable. The Group should consider obtainingprofessional assistance in preparing its re-sponse, or at a minimum to review and critiqueits response, particularly if the opportunity is acritically important one for the Group.

D. CONTRACTING WITH MANAGEDCARE ORGANIZATIONS (MCOS)

Managed care contracting has become animportant part of most anesthesiology practices.As hospitals and ASCs face decreasing inpa-tient volume and compete for patient popula-tions, they look to their hospital-based physi-cians to join with them in participating withMCOs. You need to understand which provi-sions in managed care contracts can have thegreatest impact on your practice, so that youcan negotiate the best managed care agreementspossible.


This subject is addressed in detailin the ASA publications titled

Managed Care Contracting: Considerationsfor Anesthesiologists and Calculating Anesthe-sia Capitation Rates.

An MCO may propose compensation

Resource reference



E. AN INTRODUCTION TO ANTITRUSTLAW

Federal and state antitrust laws are designedto promote competition in the provision ofgoods and services, including medical services.Antitrust law is designed to preserve the free-market system by prohibiting activities – suchas price fixing among competitors or concertedboycotts against competitors – the purpose oreffect of which is to restrain free trade. Boththe federal government and private parties haveused the antitrust laws to challenge businessarrangements between physicians and others,including exclusive contracts between hospitalsand physicians and physician integration ef-forts. Accordingly, it is important for physi-cians to understand how the antitrust laws mayapply to their practices.

F. CONTRACTS WITH OUTSIDEMEDICAL BILLING SERVICES

Physicians have two choices to collect com-pensation for their professional services: hiretheir own employees to prepare and submitbills or retain an outside billing company.Agreements with outside (or third-party) billingcompanies are important from both a practicalperspective, because physicians want to collectall of the compensation to which they are enti-tled, and a legal viewpoint, because the federalgovernment is concerned that outside billingagents may try to falsify claims for services inan effort to increase reimbursement. The OIG’sCompliance Program Guidance for Third-PartyMedical Billing Companies requires that the re-sponsibilities of the billing company and thephysician be formalized in a written contractthat identifies which functions are shared re-sponsibilities and which functions are the soleresponsibility of one of the parties.

based upon the Medicare resource-based rela-tive value scale (RBRVS) or a Hospital maypropose to use the Medicare physician feeschedule as a basis for building a packageprice arrangement. The RBRVS has underval-ued anesthesiology services since its incep-tion. A monograph titled Medicare & Anes-thesia Reimbursement Methods: Why theMedicare Fee Schedule Is the Wrong Bench-mark for Commercial Anesthesia Payments(1998), which is available in booklet andelectronic (slide) formats from the ASA Publi-cations Department, contains numerous argu-ments against use of the RBRVS as a bench-mark for compensation for anesthesiology ser-vices.


This subject is addressed in detailin the ASA publication titled Man-

aged Care Contracting: Considerations forAnesthesiologists (pages 65-72).

Resource reference

This subject is addressed in detailin the ASA publication titled Con-

tracting Issues: A Primer for Anesthesiologists(pages 73-77).

Resource reference

A. GENERAL INFORMATION

1. Nature of the disease. Chemical de-pendence is one form of impairment that mayoccur in anesthesiologists and other physicians.It presents risks to the public, the physician, thefamily, the Hospital and the professional col-leagues of the physician. It is a chronic, relaps-ing disease that affects individuals in all socialstrata and in all walks of life. Although it oc-curs no more frequently among physicians thanit does in the general public, chemical depen-dence is particularly noticeable when it occursin professionals. For an addiction to develop,there must be a drug that is readily availableand an urge to use that drug. The urge is genet-ic and behavioral in origin; availability is situa-tional. To become an addict, the physicianmust have an inherent susceptibility to the dis-ease and must be able to obtain drugs. Drugtype and availability are usually dictated by thephysician’s medical specialty.

2. Progression of the disease. The dis-ease is progressive, with the speed of onset de-pending upon the “drug of choice.” While ad-diction to alcohol may take decades to becomeapparent, addiction to potent opioids frequentlybecomes apparent within weeks. Unless thedisease is recognized and treated appropriately,it will result in social, psychological and physi-cal harm to the abuser, and may end in death.

3. Incidence. Although there are no pre-cise data regarding the prevalence of depen-dence on alcohol and other drugs in anesthesi-ologists, recent survey data indicate that inanesthesiology training programs in the United

States, the disease appears at a rate of about 0.5percent per year in all personnel in those pro-grams (ASA Survey of Chemical Dependence inAnesthesiology Training Programs in the Unit-ed States: 1986-1995. Analysis of those dataand preparation of a report are in progress). Asyet, there are no similar data for anesthesiolo-gists in private practice. Both the survey dataand reports from treatment centers have clearlyshown that the potent opioids, fentanyl andsufentanil, are the drugs most frequently abusedby anesthesiologists, making up about 70 per-cent of cases. Alcohol and cocaine each ac-counted for about 10 percent of the cases, whilethe remainder were divided nearly evenlyamong several other drugs, including benzodi-azepines, potent inhalation agents, nitrous oxide,sodium thiopental, lidocaine and propofol.

4. Detection. Early detection is usuallydifficult since the signs and symptoms of de-pendency are frequently quite subtle until thelater stages of addiction have developed. Iden-tification is also hampered by the overwhelm-ing denial of the disease, not only by the addictbut also by colleagues and family members.Self-reporting is unusual, in large part becauseof denial and also due to the fear of losingone’s job, one’s license to practice medicineand the respect of others. See Tables 1 and 2,beginning next page.

5. Addiction. Addiction is the over-whelming compulsion to use drugs in spite ofadverse consequences. It is a chronic, progres-sive disease that results in loss of control ofone’s life. Unless it is recognized and treatedskillfully, addiction will result in disability and


VIII. SUBSTANCE ABUSE


will often end with death. Physical dependencefrequently develops but is not present in alldrug addictions.

Drug abuse involves the inappropriate useof drugs (including alcohol), but is not accom-panied by the uncontrolled compulsion seenwith addictions. The person who is arrested for

driving under the influence of alcohol, who re-alizes the transgression and is able to avoid fur-ther incidents, has abused the drug. In contrast,the person who irrationally blames the arrest onoutside influences such as the officer’s careergoals, and who continues drinking uncontrol-lably, is addicted.

Table 1: What to Look for Inside the Hospital

1. Addicts sign out ever-increasing quantities of narcotics.2. Addicts frequently have unusual changes in behavior, such as wide mood swings, periods of depres-

sion, anger and irritability alternating with periods of euphoria.3. Charting may become increasingly sloppy and unreadable.4. Addicts often sign out narcotics in inappropriately high doses for the operation being performed.5. They refuse lunch and coffee relief.6. Addicts like to work alone in order to use anesthetic techniques without narcotics, falsify records

and divert drugs for personal use.7. They volunteer for extra cases, often where large amounts of narcotics are available (e.g., cardiac

cases).8. They frequently relieve others.9. They are often at the hospital when off duty, staying close to their drug supply to prevent withdrawal.10. They volunteer frequently for extra call.11. They are often difficult to find between cases, taking short naps after using.12. Addicted anesthesia personnel may insist on personally administering narcotics in the recover

room.13. Addicts make frequent requests for bathroom relief. This is usually where they use drugs.14. Addicts may wear long-sleeved gowns to hide needle tracks and also to combat the subjective feel-

ing of cold they experience when using narcotics.15. Narcotic addicts often have pinpoint pupils.16. An addict’s patients may come into the recovery room complaining of pain out of proportion to the

amount of narcotic charted on the anesthesia record.17. Weight loss and pale skin are also common signs of addiction.18. Addicts may be seen injecting drugs.19. Untreated addicts are found comatose.20. Undetected addicts are found dead.

Table 2: What to Look for Outside the Hospital

1. Addiction is a disease of loneliness and isolation. Addicts quickly withdraw from family, friends andleisure activities.

2. Addicts have unusual changes in behavior, including wide mood swings, periods of depression,anger and irritability alternating with periods of euphoria.


B. GATHERING INFORMATION ANDREPORTING THE FINDINGS

1. The information-gathering process.The presence of behavioral changes suggestiveof chemical dependence raises a suspicion, butshould never be construed as conclusive proofof drug abuse. When the disease is suspected,however, it is important that the possibility beinvestigated in an expeditious, but caring andconfidential manner.

Suspicion of a drug problem should be re-ported, but it is crucial that it be reported to theproper person or committee. Depending uponthe particular institution, the appropriate chan-nel may be the Physician Well-Being Commit-tee or similar committee of the state medical

society, a peer assistance committee, the depart-ment’s chair, a direct supervisor or other rele-vant individual. It should be the responsibilityof this person to investigate confidentially theavailable information and to seek corroboratingdocumentation. The investigation may involveinterviews with associates, colleagues, familymembers, friends and others acquainted withthe person in question as well as a review ofanesthetic and pharmacy records.

For the protection of the suspected addict, itis important not to go directly to police or otherauthority whose prime charge is to prosecute.Anyone who has diverted controlled drugs forpersonal use has legally committed a felonyand is subject to criminal prosecution. At thesame time, this individual is acutely ill and is


3. Unexplained over-spending, legal problems (such as DWIs), gambling, extramarital affairs and in-creased problems at work are commonly seen in addicts.

4. An obvious physical sign of alcoholism is the frequent smell of alcohol on the breath.5. Domestic strife, fights and arguments may increase in number and intensity.6. Sexual drive may significantly decrease.7. Children may develop behavioral problems.8. Some addicts frequently change jobs over a period of several years in an attempt to find a “geo-

graphic cure” for their disease or to hide it from coworkers.9. Addicts need to be near their drug source. For a health care professional, this means long hours at

the hospital even when off duty. For alcoholics, it means calling in sick to work. Alcoholics maydisappear without explanation to bars or hiding places to drink secretly.

10. Addicts may suddenly develop the habit of locking themselves in the bathroom or other roomswhile they are using drugs.

11. Addicts frequently hide pills, syringes or alcohol bottles around the house.12. Persons who inject drugs may leave bloody swabs and syringes containing blood-tinged liquid in

conspicuous places. 13. Addicts may display evidence of withdrawal, especially diaphoresis (sweating) and tremors.14. Narcotic addicts often have pinpoint pupils.15. Weight loss and pale skin are also common signs of addiction.16. Addicts may be seen injecting drugs.17. Tragically, some addicts are found comatose or dead before any of these signs have been recognized

by others.

[Tables 1 & 2 are adapted from Farley, WJ & Arnold, WP: Videotape: Unmasking Addiction: ChemicalDependency in Anesthesiology (1991). Produced by Davids Productions, Parsippany, NJ, and funded byJanssen Pharmaceutical, Piscataway, NJ.)]



urgently in need of treatment. Prosecution maybe in the addict’s future, but treatment shouldbe the primary intent of the initial investigation.

2. Potential legal issues. Laws regardingchemical dependence in physicians vary fromstate to state. Some require that all cases ofchemical dependence in physicians be reported,some mandate reporting abuse of all drugs ex-cept alcohol and others have no statutory re-quirement to report impaired physicians at all.Laws that demand reporting directly to regula-tory boards rather than to advocacy committeesmay tend to cripple the activities of committeeswhose goal is to assist the ill physician. As aresult, unless the aim of the board is advocacy,few physicians in these states will receive theneeded medical care. Although impairment isnot primarily a legal issue, if questions arise re-garding specific methods of management, it isimperative for those concerned to contact themedical society in the state of record.

Hospitals, medical staffs and individualphysicians have occasionally been found negli-gent for failure to monitor or restrict the privi-leges of an impaired physician. To be aware ofand yet to ignore chemical dependence may re-sult in legal liability. That is the basis of the“snitch law” that is enforced in some states. Ifreasonable care is taken to see that an impairedphysician is identified and treated in accordancewith accepted medical practice, liability, otherthan possible imputed liability for any malprac-tice engaged in by the impaired physician, isgenerally reduced or eliminated.

In most states, legislation provides immuni-ty from liability to members of a professionalsociety or Medical Staff committee whose pur-pose is to review the quality of medical ser-vices. Persons who give information to suchcommittees are also usually granted immunity,providing they believe the information is true,they are not reporting it with malice and theydiscuss it only with the committee.

C. RETURN TO WORKWhether a recovering anesthesiologist

should return to the practice of anesthesiologyis a hotly debated topic for which there are nofirm answers. The attitudes of departmentalcolleagues, surgeons, other members of theMedical Staff and the administrators of theHospital play a major role. If these individualsare unwilling to accept the recovering physicianand the stipulations outlined in the aftercarecontract, then the likelihood of successful re-turn will be slim. On the other hand, if theyhave a basic understanding of the disease of ad-diction and are amenable to gradual return towork in keeping with the contract, then the out-come in most cases will be positive.

The potential for successful return to workmay be in part related to the drug of abuse.Preliminary analysis of data obtained in theASA Survey of Chemical Dependence in Anes-thesiology Training Programs In the UnitedStates: 1986-1995 indicate that only about 50percent of physicians with a history of fentanylabuse returned to the specialty following treat-ment. Of those who returned, nearly half wereterminated either voluntarily or involuntarily.In that group, the apparent relapse rate wasnearly 20 percent per year over a maximum pe-riod of 18 months. In contrast, for those whoabused nonopioid drugs, the relapse rate wasabout 4 percent per year. These figures must beregarded with caution since they do not takeinto account the length and type of treatment,the willingness of the department to accept theindividual and other factors that are felt to beimportant to long-term recovery.

If the Hospital or the Group de-cides not to permit the recovering

anesthesiologist to return to practice solely onthe basis of the physician’s history of addic-tion, either may be vulnerable to legal actionby the anesthesiologist for illegal discrimina-tion on the basis of disability. See discussionof the Americans with Disabilities Act in Con-tracting Issues: A Primer for Anesthesiologists(pages 42-43).

Resource reference

D. WHERE TO GO FOR HELPNearly every state medical society has a

program for the identification and managementof chemically dependent physicians. Most willprovide assistance with confidential investiga-tion, intervention, treatment referral and after-care monitoring and will advocate for the re-covering physician in matters of interest to thestate board of medicine. A telephone call to themedical society in your state will begin this im-portant process.


The following ABA policy (6.01) applies to can-didates in the certification process.

“The Americans with Disabilities Act (ADA)protects individuals with a history of alcoholism orsubstance abuse who are not currently abusing al-cohol or using drugs illegally. The ABA supportsthe intent of the ADA.

The ABA will admit qualified applicants andcandidates with a history of alcoholism to its ex-amination system and to examination if, in re-sponse to its inquiries, the ABA receives accept-able documentation that they do not currentlypose a direct threat to the health and safety of oth-ers.

The ABA will admit qualified applicants andcandidates with a history of illegal use of drugs toits examination system and to examination if, inresponse to its inquiries, the ABA receives accept-able documentation that they are not currently en-

gaged in the illegal use of drugs.After a candidate with a history of alcoholism

or illegal use of drugs satisfies the examination re-quirements for certification, the ABA will deter-mine whether it should defer awarding its certifi-cation to the candidate for a period of time toavoid certifying a candidate who poses a directthreat to the health and safety of others. If theABA determines that deferral of the candidate’scertification is appropriate because the candidatedoes currently pose a threat to the health and safe-ty of others, the ABA will assess the specific cir-cumstances of the candidate’s history of alco-holism or illegal use of drugs to determine whenthe candidate should write the Board to request is-suance of its certification.”

Source: The American Board of Anesthesiolo-gy. Booklet of Information. December 1998.

The American Board of Anesthesiology’s (ABA)Policy on Alcoholism and Substance Abuse

The telephone number for theASA’s Hotline on Chemical De-

pendence is 847-825-5586. It is printed atthe bottom of the inside cover of every edi-tion of the ASA Newsletter. With attention tostrict confidentiality, personnel will providecallers with the appropriate telephone num-bers for their locality and if possible will offerthe name of a confidential consultant whocan provide additional information and re-sources.

Resource reference


THE ASA RELATIVE VALUE GUIDE (RVG)

1. The origin of the ASA RVG. The ori-gin of the ASA relative value guide (or RVG)can be traced to the post-World War II yearswhen anesthesiology was still a new specialtyand insurers approached ASA seeking to havesome consistency be brought to the manybilling methods used by anesthesiologists. Thesystem that evolved, which has been modifiedin many ways, accounts for two primary ele-ments: 1) the anesthetic risk and difficulty ofthe procedure, which are reflected in the“basic” (often referred to as “base”) units, and2) the time for the surgical procedure, which isnot under the anesthesiologist’s control. Overtime, unit values (“modifier” units) were addedto account for the patient’s physical status andqualifying circumstances that present additionalrisk factors and significantly affect the nature ofthe anesthetic service provided. The physicalstatus modifiers provide compensation for theadditional difficulty presented by a patient withsevere systemic disease; the qualifying circum-stances modifiers account for the patient’s age,as well as for specific conditions such as hy-pothermia and controlled hypotension.

In 1970, the RVG was modified from a sys-tem based on surgical procedures to one basedon anatomical systems and regions. The pur-poses of the revision were several: 1) make theRVG less voluminous, 2) simplify billing bygrouping many procedures together and 3) sep-arate anesthetic from surgical procedures.

2. The current RVG. In the recent edi-tions of the ASA RVG, each anesthesia code isassigned a basic unit value that accounts for the

difficulty of physician work involved in eachanesthetic procedure. Currently, there are ap-proximately 250 anesthesia codes. The basicunits vary from a low of three units for anesthe-sia for simpler anesthetic procedures to a highof 30 units for anesthesia for transplant proce-dures.

The ASA RVG is not the only relative valueguide available. Other companies, including St.Anthony’s (which now publishes the “Mc-Graw-Hill” RVG), publish relative valueguides. Anesthesiologists in general and ASAmembers in particular are not required to usethe ASA RVG. In fact, an anesthesiologist isfree to exercise personal judgment and to devel-op a separate RVG or to charge for professionalservices using another methodology. The ASARVG is, however, widely accepted, which pro-vides a certain degree of credibility. If youchoose to use another relative value guide, youmay wish to confirm that the base units allocat-ed for the services you most commonly provide

IX. PAYMENT FOR SERVICES, THE MEDICAREPROGRAM AND OTHER GOVERNMENTALPROGRAMS

Anesthesia PaymentAt a Glance

(Base units + time units + modifier units) xConversion Factor = Charge

(Note that payment will not necessarily correspondto your charge)

The conversion factor is the dollars andcents multiplier (e.g., $34.50) by which thesum of the base, time and modifier units ismultiplied to calculate the charge for anesthesi-ology services.

are adequate. Beware of efforts by managedcare organizations to use proprietary relativevalue guide systems that they have developedthat they will not share with you and whichmay undervalue the difficulty of the anesthesi-ology services you provide.

Finally, it bears mention that the ASA RVGrepresents a “fee-for-service” payment method-ology. Some managed care payors, and indeedsome anesthesiology groups, are moving to dif-ferent payment methodologies that may rely inpart on the ASA RVG (e.g., flat fee paymentfor particular anesthesiology services, with theflat fee based on the Group’s average numberof base, time and modifier units for the proce-dure), or may be entirely independent of a fee-for-service methodology (e.g., capitation, whichprovides a fixed payment, often expressed interms of a fee “per member, per month” thatdoes not vary in proportion to the actual vol-ume of services provided).

a. What is included in a basic, or base,unit? The basic unit reflects the value of allusual physician anesthesiology services exceptthe time actually spent in anesthesia care andmodifying factors. Specifically, the basic unitvalue includes usual preoperative and postoper-ative visits, the administration of fluids and/orblood incident to the anesthesia care and inter-pretation of noninvasive monitoring such asECG, temperature, blood pressure, oximetry,capnography and mass spectrometry readings.

b. Time units. Time units are added to thebasic value and modifying units. Anesthesiatime starts when the physician begins to pre-pare the patient for anesthesia care in the oper-

ating room or equivalent area and ends whenthe physician is no longer in personal atten-dance, which is when the patient may safely beplaced under postoperative care. This defini-tion excludes time spent by the anesthesiologistwith the patient both before and after the peri-operative period for the purpose of preoperativeevaluation and usual required postoperative vis-its and notes. This care is included in the basicunits.

i. Medicare. For purposes of Medicare,time units are defined as 15-minute incrementsinvolving the “continuous actual presence” ofthe anesthesiologist or nurse anesthetist. Undercurrent policy, fractions of time units are round-ed to the nearest tenth of a unit.

ii. Non-Medicare and commercial payors.The ASA RVG refers to time units being calcu-lated “as customary in the local area.” Anesthe-siologists and payors use time units of differingsizes to calculate reimbursement. Anesthesiolo-gists typically use either a ten-minute or 15-minute time unit. The limitation on establish-ing a time unit is a practical one – what will apayor accept? Some payors look to Medicareand use 15-minute time units, but others mea-sure time in increments that may vary from fiveminutes to 30 minutes. Payors also handlefractions of units in different ways, so it is im-portant to understand how you will be compen-sated for those partial units. Some payors willpay a full unit for any portion of a time unit;this was the original Medicare methodology forpayment for fractions of time units. Other pay-ors set a threshold (e.g., five or seven minutes)below which no payment is made for time andabove which a full unit is paid, even if the timeis less than 15 minutes.


For more information on thesemethodologies and how to evalu-

ate the level of payment realized, see the ASApublications titled Calculating AnesthesiaCapitation Rates (1996) and Managed CareReimbursement Mechanisms: A Guide forAnesthesiologists (1994).

When entering into any contractual arrange-ment, make certain you understand how timewill be calculated. What is the size of the timeunit (expressed in minutes), how are fractionsof time compensated, and how is anesthesiatime defined?

Resource reference


c. Modifier units. Modifier units take intoaccount the physical status of the patient andqualifying circumstances that significantly im-pact on the character of the anesthetic serviceprovided. The physical status modifiers rangefrom a unit value of one for a patient with se-vere systemic disease to a unit value of threefor a moribund patient who is not expected tosurvive without surgery. The qualifying cir-cumstances modifiers range from a unit valueof one for a patient who is under one year orover 70 years to a unit value of five for anesthe-sia complicated by utilization of controlled hy-potension or total body hypothermia. Othermodifiers pertaining to unusual services aresubject to individual consideration.

Medicare does not compensate physiciansfor modifier units. Private insurers vary in thedegree to which they will accept modifier units.

d. Ancillary services. A number of theCPT-4 codes that anesthesiologists routinelybill – including placement of arterial lines, cen-tral venous catheters and Swan Ganz catheters,and performance of various nerve blocks – areincluded in the ASA RVG. They have been as-signed basic unit values but have no time com-ponent. HCFA, however, pays for them as sur-gical procedures and not under the ASA RVG.

e. Multiple procedures. If the anesthesiol-ogist is involved in multiple anesthesia servicesfor the same patient during the same operativesession, payment is made according to i) thebasic unit associated with the anesthesia proce-dure having the highest basic unit value andii) the anesthesia time that encompasses themultiple procedures. HCFA has incorporatedthis methodology for multiple procedures.

B. AN INTRODUCTION TO MEDICARE

1. In general. The federal Medicare pro-gram compensates beneficiaries, hospitals,physicians and other classes of providers forcovered services. The program is divided intotwo parts: Part A covers inpatient hospitaliza-tion, skilled nursing facility, hospice and homehealth agency care. Part B covers services and

goods provided by physicians and certain othercategories of health practitioners. HCFA (re-named CMS in June 2001) is the federal agencywithin HHS responsible for administering theMedicare program. HCFA obtains claims pro-cessing services from contractors known as “in-termediaries” under Part A and “carriers” underPart B. Intermediaries and carriers generallyare private insurance companies that serve asfederal government contractors.

Medicare beneficiaries include eligible per-sons ages 65 and older, and certain disabledpersons without regard to age.

2. Reimbursement.a. Reimbursement of hospitals. Until

1983, the standard Medicare reimbursement forhospitals and other Part A providers was basedon the lower of the costs of, or charges for, ser-vices. Beginning in fiscal year 1984, hospitalsbegan to receive payment for Part A servicesunder a prospective payment system based on“diagnosis-related groups” (or DRGs) of ill-nesses. Each patient condition is classified intoa DRG, to which HCFA has assigned a numeri-cal weight representing the relative hospital re-sources necessary to treat the average case inthat DRG. Payment is based on that weighttimes the sum of labor-related and nonlabor-re-lated standardized amounts.

b. Reimbursement of physicians. i. Pre-1992 “reasonable charge” reim-

bursement. Until 1992, physicians were reim-bursed on a “reasonable charge” basis. Thereasonable charge could not exceed the lesserof the actual charge or the customary charge inthe locality (which was keyed at the 75th per-centile of all customary charges) and was sub-ject to the Medicare Maximum Allowable Actu-al Charge (MAAC).

ii. Physician fee schedule. In 1992,Medicare began to reimburse physicians on thebasis of a national physician fee schedule thatis based on an RBRVS system. Under thephysician fee schedule that is updated eachyear, physicians are reimbursed on the basis ofrelative value units (RVUs) and a conversion


Sum of: Relative value* for work +Relative value* for practice expenses +Relative value* for professional liability insurance

Multiplied by: Conversion factor

Equals: PAYMENT

*Note: Each relative value is adjusted using a geographic practice cost index (GPCI) for that particu-lar relative value.

Medicare Reimbursement At a Glance

factor, using the formula in the At a Glancebox above. In developing the fee schedule,Congress mandated that anesthesia services bereimbursed under a method different from thatapplied to other physician services. Anesthesiais the only medical specialty reimbursed fortime under the physician fee schedule; reim-bursement is based on the 1988 ASA RVG,with minor modifications.

HCFA updates the three resources that con-stitute the “value” of the relative value unit —work required, practice expense, and malprac-tice insurance expense — each year and pub-lishes the fee schedule tables containing thoserevised values in the Federal Register. For cal-endar year 2000, those relative weights foranesthesiology services were: work value —73.59 percent; practice expense — 19.55 per-cent; and malpractice expense — 6.86 percent.

Effective in 1998, Congress directed thatMedicare use a single conversion factor for allphysician services except anesthesia services.In 2000, the single conversion factor for allphysician services (except anesthesia) was$36.61, and the anesthesia conversion factorwas $17.77. HCFA makes annual adjustmentsto the physician fee schedule, including theanesthesia conversion factor, based largely oninflation with adjustments for budget neutrality.

iii. Coverage policies, including medicalnecessity requirement. Certain kinds of med-ical services, such as routine physical checkups,are categorically excluded from Medicare cov-erage. Services that are not categorically ex-

cluded may only be reimbursed when they arereasonable and necessary.

At the time a physician provides a service,it may not be certain as to whether Medicarewill regard the service as reasonable and neces-sary. For that reason, Medicare includes a pro-vision for an “Advance Beneficiary Notice”(ABN), which advises the beneficiary thatMedicare may not pay for the service. If thepatient agrees to pay from the patient’s ownfunds if Medicare does not, and if Medicaresubsequently denies payment, the doctor maybill the patient directly. A physician is not re-quired to obtain an ABN from the Medicarebeneficiary, but if the physician does not obtainan ABN, the physician cannot bill the patientdirectly after Medicare denies payment.

Anesthesiologists often rely on the Hospitalat which they practice or on the attendingphysician to obtain an ABN from a Medicarebeneficiary. Relying on the forms obtained byothers does not provide assurance that the lan-guage is sufficiently specific to provide ade-quate notice to the patient that Medicare maynot pay for the anesthesia associated with theprocedure and that the beneficiary will be re-sponsible for that fee. You are best advised toreview the ABN form on which you and yourGroup are relying to assure it meets your needsand allows you to bill Medicare patients for ser-vices for which Medicare denies payment.

3. Participation in Medicare. Participa-tion in Medicare is different from enrollment in


Medicare. Enrollment refers to the process ofbecoming eligible to receive payment under theMedicare program (see Chapter VI, sectionA.3.c, page 31). Participation in Medicarerefers to execution of a Medicare ParticipatingPhysician Agreement, under which the physi-cian agrees to “accept assignment.” Acceptingassignment refers to an agreement on the part ofparticipating physicians to accept the Medicareallowable, which the beneficiary assigns to thephysician, as payment in full for the physician’sservices. A participating physician may onlybill the Medicare beneficiary for the 20 percentcopayment and deductible. The physicianagrees to absorb the difference between thephysician’s standard fee and the Medicare al-lowable. In calendar year 2000, the averageMedicare conversion factor for anesthesiologyservices was $17.77. Actual conversion factorsvaried somewhat by locality from a low in 2000of $15.79 in South Dakota (and $14.50 in Puer-to Rico) to high of $21.01 in the Manhattan areaof New York. The conversion factor for anes-thesiologists and nurse anesthetists is the same.

The limiting charge applies even whenMedicare is a secondary payor and the physi-cian is billing another insurer. Physicians whobill in excess of the limiting charge and whoseviolations exceed $300 will receive a warningnotice from the carrier and will be subject to in-tensified monitoring. Persistent violations arereferred to the OIG. Penalties include assess-ments of double the overcharges, civil monetarypenalties of up to $10,000 per violation and/orexclusion from the program for five years. Inaddition, physicians must complete and submitthe claim form for nonassigned claims withoutcharge. Physicians who fail to submit a claimor who impose a charge for completing theclaim are subject to sanctions administered bythe OIG, which include fines of $2,000 per vio-lation and exclusion from the program.

4. “Private Contracting” a. Two-year bar on Medicare

participation. The Balanced Budget Act of1997 allows physicians to treat Medicare pa-tients outside of the Medicare program (i.e., tocharge Medicare patients their standard rates) if

Who receives the funds?

How much is payable?

How much can be charged?

Medicare pays the physician 80percent of the allowable fee; thephysician bills the patient for the20 percent copayment.

Medicare pays 5 percent moreto participating physicians.

Limited to the Medicare “allow-able.”

Medicare pays the 80 percent ofthe allowable fee directly to thepatient; the physician must billthe patient for the 80 percent aswell as the 20 percent copay-ment.

Medicare pays 5 percent less tononparticipating physicians,even if a nonparticipating physi-cian accepts assignment on aparticular claim.

May charge up to the “limitingcharge,” which is 115 percent ofthe lower nonparticipating feeschedule payment (i.e.,109.25 percent higher than theallowable charge).

Participation in Medicare At a Glance

Issue Participating Physician Nonparticipating Physician

the physicians agree not to bill Medicare forany patient for two years. The provision isknown as the “private contracting” provisionbecause it regulates physicians who seek to pri-vately contract with Medicare patients. Anyphysician who enters into such a private con-tract must execute an affidavit stating that thephysician will not submit any claim underMedicare for any service to any Medicare bene-ficiary, and will not receive any Medicare reim-bursement, for a two-year period beginning onthe date the affidavit is signed. A physicianwho enters into a private contract with even asingle patient is barred from submitting a claimto Medicare for any patient for a two-year peri-od. Although the private contracting provisionand the heavy penalty imposed on physicianswho go outside the Medicare system havecaused consternation, a legal challenge to thelaw was rejected.

b. Cautionary note. This discussion ofprivate contracting is included for general infor-mational purposes. Medicare represents a sig-nificant payor for most anesthesiology practicesand, as a practical matter, most anesthesiolo-gists do not have a realistic option not to submitclaims to Medicare. In many cases, participa-tion in Medicare is mandated by the hospitalsor other facilities at which anesthesiologistsprovide services.

5. Who is eligible to be paid: Medicarereassignment rules. The Medicare statute pro-vides for payment for services to be made tothe beneficiary who receives services or,through assignment, to the physician or otherperson who provides the service. Payment gen-erally will not be made to anyone else under a“reassignment” (an assignment by the physicianto someone else), except to the extent an excep-tion specifically authorizes the reassignment.The exceptions to this general rule are limitedin nature and include the physician’s employer,a health care delivery system or a reciprocalcoverage arrangement.

a. Requirements for locum tenens and rec-iprocal coverage arrangements. The locum

tenens and reciprocal coverage exceptions bothare intended to cover arrangements in whichone physician substitutes for another. The pri-mary difference between them relates to theway in which the substitute physician is paid.Under the locum tenens exception, the regularphysician pays for the locum tenens’ serviceson a per diem or similar fee-for-time basis,whereas in reciprocal coverage arrangements,the physicians provide services for each otheron an occasional reciprocal basis. In bothcases, payment may be made to the regularphysician (or the Group) if the services fur-nished by the second physician are provided topatients of the first physician and if all of thefollowing conditions are satisfied: 1) the firstphysician is unavailable to provide the services;2) the services are furnished pursuant to anarrangement that i) is informal and reciprocal orii) involves per diem or other fee-for-time com-pensation; 3) “the services are not provided bythe second physician over a continuous periodof more than 60 days”; and 4) the claim formsubmitted to the carrier includes the secondphysician’s unique identifier and indicates thatthe claim meets these requirements. Nonphysi-cian suppliers may reassign benefits under con-ditions similar to those that apply to physicians.

The reciprocal coverage exception does notapply to substitution arrangements amongphysicians in the same medical Group whereclaims are submitted in the name of the Group(in contrast, Group physicians who bill in theirown names generally are treated as independentphysicians for purposes of these exceptions).The term “regular physician” includes a physi-cian who has left the Group and for whom theGroup has hired the locum tenens physician asa replacement.

One frequently encountered obstacle to theuse of these exceptions to the reassignment ruleis the requirement that “[t]he substitute physi-cian does not provide the visit services toMedicare patients over a continuous period oflonger than 60 days.” This period continueswithout interruption on days on which no cov-ered visit services are provided on behalf of the



regular physician or are furnished by someother substitute physician on behalf of the regu-lar physician. A new period of covered visitservices can begin after the regular physicianhas returned to work.

b. Independent contractors. In manycases, the authorized exceptions do not autho-rize a Group to bill for the services of indepen-dent contractor physicians. In contrast, pay-ment for the services of nurse anesthetists andanesthesiologist assistants may be made to aGroup that has an employment or an indepen-dent contractor relationship with the nurseanesthetist or anesthesiologist assistant.

C. MEDICARE RULES GOVERNINGNURSE ANESTHETIST AND ANESTHESIACARE TEAM PAYMENT

The table below summarizes currentMedicare payment policies.

A nurse anesthetist who performs a case ona nonmedically directed basis receives 100 per-cent of the Medicare allowance, the same as ananesthesiologist who personally performs acase. Nurse anesthetists are required, however,to participate in Medicare and thus may notbalance bill up to the limiting charge.

D. MEDICAID PAYMENTAlthough Medicaid may sometimes be

lumped with Medicare in discussions of pay-ment, Medicaid is a very different program andthe rules regarding coverage and payment candiffer significantly from Medicare rules (seetable, next page). Medicaid is a state programfor medical care for the indigent that is partially

The Medicare reassignment rules,including the subject of payments

to agents and lockbox accounts, are discussedin Contracting Issues: A Primer for Anesthesi-ologists (pages 49-50).

Resource references

Anesthesiologist performs theentire anesthesia service alone,

The anesthesiologist satisfies therequirements for a teachingphysician and works with an in-tern or resident,

The physician directs qualifiedindividuals in one to four con-current cases (non-Medicarecases are counted for this pur-pose; even an overlap of oneminute counts as a concurrentcase), and

Must meet the seven steps ofmedical direction and not per-form other services other thanone of the six exceptions to therule of no other services.

The anesthesiologist medicallysupervises more than four con-current anesthesia procedures(non-Medicare cases are count-ed for this purpose; even anoverlap of one minute counts asa concurrent case), or

The anesthesiologist fails to meetall seven steps of medical direc-tion (e.g., leaves the OR suite formore than a brief period).


HCFA Payment Policy At a Glance

Personal Performance Medical Direction Medical Supervision

federally funded. Upon approval of a “stateplan,” a state is entitled to federal matchingfunds (known as “federal financial participa-tion,” or FFP) for state Medicaid expenditureswhich vary as a percentage of the state’s expen-ditures based upon the state’s per capita in-come. States have flexibility in establishing eli-gibility requirements for Medicaid programs,although federal rules require Medicaid cover-age for the “categorically needy,” a groupwhich generally includes low-income pregnantwomen and children.

Medicaid payment policies for anesthesiol-ogy services vary by state and do not necessari-ly correspond to Medicare policies. Physiciansneed to understand what services their stateMedicaid program will cover (e.g., the Pennsyl-vania Medicaid program will reimburse anesthe-siologists for personally performed and medical-ly directed services, but not for medically super-vised services).


HCFA Payment Policy At a Glance (cont.)

PAYMENTPersonal Performance

PAYMENTMedical Direction

PAYMENTMedical Supervision

The physician and the nurse anes-thetist or anesthesiologist assistantare involved in a single case andthe services of each are found tobe medically necessary, or

The physician is continuously in-volved in a single case involvinga student nurse anesthetist.

Anesthesiologist receives 100percent of the Medicare al-lowance.

Anesthesiologist receives 50 per-cent of the Medicare allowance;nurse anesthetist or anesthesiolo-gist assistant receives 50 percent.

Anesthesiologist receives 3 baseunits as compensation for preop-erative services, plus 1 unit ifpresent for induction; nurseanesthetist or anesthesiologist as-sistant receives 50 percent of theMedicare allowance.

Whether the payment to theanesthesiologist equals or comesclose to 50 percent of theMedicare allowance dependsupon the complexity and lengthof the procedure. In relativelyshort cases with a low numberof base units, the supervision ratemay approximate the medicaldirection rate, which is 50 per-cent of the Medicare allowance.


E. WORKERS’ COMPENSATION

1. Purpose. Workers’ compensation is in-tended to compensate employees and their de-pendents for lost income and reasonable med-ical expenses for death, injury or occupationaldisease caused by their employment. Exceptfor claims against an employer for intentional

acts that cause injury, the provisions of the stateworkers’ compensation act usually provide thesole source of compensation and related bene-fits for an occupational injury or disease.

2. Coverage and general administrativeinformation. All employers, public or private,who have entered into an employer-employee

Purpose

Administration

Regulation

Financing

Eligibility

Beneficiary payment

Covered benefits

Health insurance for persons 65and older and for limited cate-gories of persons under 65 whoare entitled to Medicare (e.g.,due to disability).

Administered through insurancecompanies under contract to thegovernment to process Medicareclaims.

Medicare regulations are thesame in all states.

Financed by monthly premiumspaid by the beneficiary and bypayroll tax deductions.

Age 65 and over – eligibilitybased on Social Security or Rail-road Retirement.Under 65 – eligibility based ondisability.Kidney dialysis – eligibility atany age.

Beneficiary responsible for pay-ing deductibles, coinsurance orcopayments and Part B premi-ums.

Hospital and medical benefits;preventive care and long-termcare benefits are limited.

Health assistance for persons ofany age.

Administered by the federal gov-ernment through state and localgovernments following federaland state guidelines.

Medicaid regulations vary fromstate to state.

Financed by federal, state andcounty tax dollars.

Eligibility based on financialneed.

Can help pay Medicaid de-ductible, coinsurance or copay-ment and premiums.

Comprehensive benefits: hospi-tal, preventive care, long-termcare and other items not coveredunder Medicare such as dentalwork, prescriptions, transporta-tion, eyeglasses and hearing aids.

Medicare vs. Medicaid At a Glance

Topic Medicare Medicaid

relationship are subject to workers’ compensa-tion. Responsibility within state governmentfor workers’ compensation matters will dependupon the state. Generally, employers must par-ticipate in the state fund or obtain permission toself-insure; private insurance coverage typicallyis not permitted. Employers who can demon-strate sufficient financial and administrativeability to meet all of the obligations imposed bythe workers’ compensation law may be grantedpermission to self-insure. There is no differ-ence in the amount of compensation or benefitsthat are due the injured employee under a self-insured plan.

Employers who participate in the state fundare assessed premiums based upon their pay-roll. Group ratings for employers in the sameindustry and retrospective rating plans are avail-able.

Any injury caused by external accidentalmeans or accidental in character and result re-ceived during the course of and arising out ofthe employee’s employment is compensableunder state workers’ compensation laws. Aninjury need not be the result of a suddenmishap in order to qualify for coverage. A pre-existing condition may also be compensable inwhole or in part if it is aggravated or substan-tially accelerated by employment.

State law sets a time limit (two years fromthe date of injury in some states) on filingclaims for workers’ compensation benefits. Thetime period may be extended under certain cir-cumstances. Once a claim is filed, the stateagency issues an order allowing or disallowingthe claim and the employer has a time period toappeal.

In some states, claims are managed byMCOs. In those cases, the MCO is responsiblefor addressing medical management issues suchas whether a particular service is covered or ismedically necessary.

The benefits payable to claimants includetemporary total compensation, permanent par-tial disability awards, temporary partial com-pensation, wage loss compensation, permanenttotal disability benefits, death benefits and med-ical benefits.

The state fund pays medical bills for al-lowed conditions in a claim against employersthat participate in the state workers’ compensa-tion fund. Self-insured employers must pay themedical expenses directly. The agencies ad-ministering workers’ compensation programsgenerally have maximum fee schedules govern-ing payment for medical services.

Workers’ compensation is separate from therequirements of the federal ADA, and the factthat an employee is awarded workers’ compen-sation benefits does not necessarily establishthat the employee is protected by the ADA.The definition of disability under state workers’compensation laws may differ from the defini-tion under the ADA. The ADA prohibits em-ployers from discriminating against “qualifiedindividuals with disabilities.” Not all injuredemployees are protected by the ADA. An in-jured employee is protected by the ADA if theindividual is able to perform the essential func-tions of the job.



A. OVERVIEW OF BILLING COMPLIANCEISSUES

1. In general. As a resident, your focusmost likely is on clinical issues and patientcare. Residency programs typically do not edu-cate residents about the business aspects ofpractice or the specifics of governmental andprivate payor billing requirements. Perhapsyou think that you will not encounter billingcompliance problems so long as you providegood patient care and are not out to “cheat thesystem.” This approach is seemingly com-pelling and logical, but it is wrong. You do notneed to intend to cheat the system to incur sub-stantial financial liability for bills you (or oth-ers) submit for your services, especially if thepatient was a Medicare, Medicaid or other fed-eral program beneficiary.

This chapter will provide an overview ofthe laws and standards on which enforcementactions are based and a review of basicMedicare billing requirements as they apply toanesthesiology and pain management services,including billing issues that commonly arise inday-to-day practice. These topics are discussedin greater detail in the ASA monograph titledCompliance with Medicare and Other PayorBilling Requirements (1997).

2. What are billing requirements, andwhat is billing compliance? The term “billingrequirements” refers to the conditions that dif-ferent “payors,” or companies that pay forhealth care services, establish for payment forservices. Among payors, the Medicare pro-gram generally contains the most specific re-quirements to bill for anesthesiology services,

and Medicare represents a significant payor formost anesthesiology practices. Medicaid re-quirements differ from state to state, althoughin general they tend to incorporate many of theMedicare rules. Some private payors incorpo-rate Medicare standards into their participationagreements as a basis for payment. For all ofthese reasons, it is important for you to under-stand Medicare rules and how sometimes sim-ple changes in your practice can help you avoidnoncompliance.

3. Why is billing compliance important?As recently as several years ago, enforcementofficials focused on egregious billing practicesand most physicians were primarily concernedwith the collection rate and performance oftheir billing staff or outside billing company.The University of Pennsylvania’s $30 millionsettlement with the federal government servedas a wake-up call to the health care industry, re-minding it that the federal government expectsphysicians to know the billing rules that applyto their practices and that it will hold physiciansaccountable for their failure to comply strictlywith those rules.

For anesthesiology residents and anesthesi-ologists, the sobering news is that the OIG hastargeted anesthesiology billing as a priority inits enforcement efforts. Billing for anesthesiol-ogy services is enormously complex, whichmakes it easy to make mistakes. First, the factthat anesthesiologists, unlike most physicians,bill for the time associated with their profes-sional service leads to scrutiny to ensure thattime charged is accurate time, not roundedtime. Second, anesthesiologists often practicein a care team mode, with nurse anesthetists as

X. AVOIDING “FRAUD AND ABUSE” LIABILITY: BILLING COMPLIANCE

well as with residents. Billing Medicare formedically directed services requires careful ad-herence to specific rules that are subject to in-terpretation. Moreover, day-to-day practice sit-uations – in which anesthesiologists or othercare team providers may substitute for eachother during a case, cases may change frompersonally performed to medically directedmid-case, or delays may occur between thetime the anesthesiologist begins to prepare thepatient for anesthesia and the case begins – donot fit neatly into the rules.

It is important to bear in mind that the bur-den is on you as the physician to know thebilling rules and to determine how to bill forservices correctly. As physicians, you will bearultimate responsibility for claims submitted inyour name, no matter who prepares the claims(the Group’s employees or an outside billingcompany), even if you do not have actual

knowledge regarding how a particular claim iscoded.

4. Accurate billing is a team effort.Physicians commonly believe that their role isto provide clinical services and it is the job oftheir billing staff – whether employees or acontracted outside billing service – to figure outhow to bill for those services. This approach isworkable if you provide sufficient informationto identify the service provided and to demon-strate the medical necessity (where needed;e.g., postoperative pain epidurals and moni-tored anesthesia care [MAC] for certain proce-dures) for the service. Too often, however, thebilling staff has insufficient or conflicting infor-mation regarding the specific services that wereprovided. The potential for inaccurate claims(which are false claims in the eyes of govern-ment prosecutors) increases if you do not docu-ment your services completely or are uncooper-


Every compliance library should have copies of the following basic reference materials:

• HCFA regulations governing billing Medicare for anesthesiology services;• Excerpts from the Medicare Part B Carriers Manual (MCM) governing billing Medicare for anesthesiol-

ogy services;• Anesthesiology billing policies from the Medicare carrier for the state or region;• The current year’s (not an outdated) relative value guide (RVG) used to bill for services, whether the

RVG is published by ASA or another organization;• The current edition of Current Procedural Terminology™ (CPT), currently CPT-4, published by AMA;• The current edition of the ICD•9•CM (International Classification of Diseases, 9th revision);• The current edition of the ASA CROSSWALK™, which is a systematic listing of all AMA CPT-4 codes

except pathology, with appropriate anesthesiology CPT-4 codes;• The Correct Coding Initiative, including the chapter on anesthesia services and updates;• The ASA monograph titled Compliance with Medicare and Other Payor Billing Requirements (1997);

and • ASA NEWSLETTER articles on Medicare billing issues and payment policy (check the ASA Web site,

<www.asahq.org/Washington/Pract_Mgmt_Rpts.html> for a listing of relevant articles published inback issues).

Commercial publications also may be useful in staying current regarding new developments. TheAnesthesia Answer Book, published by UCG, Rockville, Maryland (888-287-2223), is one such publica-tion (this identification is solely informational and should not be interpreted as an endorsement).

Billing References At a Glance


ative in responding to questions and requestsfor more information from billing personnel.

It is important to consider whether the wayin which information is transmitted to billingstaff (internal or external) may predetermine thecoding decisions. Specifically, if you check offservices on a billing slip or superbill that in-cludes CPT™ codes, in many cases you maybe instructing the billing staff to code the ser-vices in a particular manner.

Physicians often fail to appreciate that theirbilling staffs are wholly reliant on the informa-tion the physicians provide. When an anesthe-siologist marks anesthesia start and end times,the billing staff has little way to verify the accu-racy of that information. The billing staff isaware of problems only when it is presentedwith inconsistent information – such as whenan anesthesiologist appears in two different lo-cations (e.g., a surgery center and an operatingroom suite) at the same time because a substitu-tion of anesthesiologists was not marked, orwhen a billing slip indicates that an invasivemonitoring line was placed and the anesthesiarecord does not reflect that such a line was in-serted (assuming the billing staff has the anes-thesia record to review).

Providing billing personnel with completeinformation and encouraging them to ask ques-tions not only will promote compliance withbilling rules, but also may expedite the billingprocess by minimizing delays to clarify am-biguous information. This latter point bearsrepetition: if billing personnel are discouragedfrom asking questions or are ignored, potentialissues are not investigated and the potential forrepeated billing mistakes increases.

5. What information should you give toyour billing staff? Billing slips or superbillscannot and do not replace the anesthesiarecord. The practice of using billing slips orsuperbills alone to bill for anesthesiology ser-vices is dangerous. Although convenient, thecheck-offs and shortcuts that are the essentialelements of the billing slip can lead to inaccu-rate coding. If your billing staff does not bill

from the anesthesia record based upon the ser-vices actually documented, it is billing blindly.The documentation supporting a claim submit-ted for payment must appear in the patient’smedical record, not in an extraneous document.

6. Should you do your billing yourselfor contract with an outside service? The in-house versus outsourcing issue is obviously anextremely important practical question, but onewhich does not have a common answer. Actu-ally, the answer relates to the level of resourcesa practice invests in its billing component. If aGroup is able to provide its billing staff withsufficient time and resources to stay current onchanges in billing rules and to take the time re-quired to pursue questions and to bill properly,then a Group may decide to have its own em-ployees bill for services. The more varied thetypes of clinical services provided (e.g., chronicpain and critical care) and the more frequentlya Group bills evaluation and management(E&M) services, the more time the billing staffwill need to ensure the accuracy of the claims.

Another important issue is the indepen-dence of billing staff members and their abilityto question billing decisions. Internal billingpersonnel may feel that their jobs are on theline if they tell the Group that a bill cannot besubmitted because there is inadequate docu-mentation (e.g., medical direction or the levelE&M code to be billed). On the other hand,outside billing services also may be reluctant toraise billing concerns for fear of losing a clientpractice. This issue underscores the need todeal with a company that is financially solventso that it is not unduly dependent upon any oneparticular client practice.

If the Group has an external contractedbilling service, it must make sure that the ser-vice has the expertise necessary and is willingto invest the time required to do the billingproperly, in addition to being willing to pursuecollections vigorously. Many billing serviceswant to bill off a superbill or billing slip. Thatapproach is acceptable so long as the billingservice is willing to check the anesthesia record

to ensure that all information on the billing slipactually has been documented on the anesthe-sia record.

Yet another issue with outside billing ser-vices is the often-inconsistent performance ofdifferent offices of the same company. A na-tional company with a good reputation mayhave inexperienced staff in a particular office,which will lead to unacceptable results. In ad-dition, a smaller office will be substantially andadversely affected by staff turnover, whereas alarger office may have more trained personnelto apply to an account. The turnover problemalso is an issue for internal Group-employedbilling staff, particularly if only one person iscoding services.

In many academic practices, the billing op-eration has been shifted in the past severalyears from a departmental function to a central-ized billing office in an effort to increase com-pliance with billing rules. For anesthesiolo-gists, the concern is whether the centralizedbilling office personnel have experience inbilling for anesthesiology services and arepreparing bills accurately.

7. Enforcement and potential sanctions.Some physicians view the recent emphasis oncompliance as needlessly exaggerated. Thosewho have been in practice for many years pointto the fact that they have not been audited in thepast. Others rely on the fact that their claimshave been paid as evidence of the lack of anyproblem. Still others claim that the Medicarerules are hopelessly complex and unrealisticand assert that they cannot possibly learn all ofthe intricacies or comply with all of the require-ments. Besides, they comment, how will thegovernment ever discover an error amidst themillions of claims submitted?

Although there is always an element of un-certainty regarding whether improper claimswill be discovered, the possibility of discoveryis far greater than it was previously. First, thefederal government has been funding increasedenforcement efforts, believing that recoveries(through settlements and prosecutions) are an

important way to combat and deter improperbilling. Second, there is a powerful incentivefor private parties – such as disgruntled em-ployees and former employees – to becomewhistleblowers. Depending upon several fac-tors, a whistleblower can recover between 15and 30 percent of the proceeds (or settlementamount) in a False Claims Act lawsuit. If anemployee chooses not to file a qui tam (orwhistleblower) lawsuit, the employee can sim-ply call the Medicare carrier or OIG to reportconcerns. HCFA has instructed carriers to refercomplaints from employees or former employ-ees immediately to the Office of Investigations,which is the unit within the OIG staffed withprofessional criminal investigators and which ischarged with all HHS criminal investigations,including Medicare fraud. Finally, Medicarecarriers are carefully examining claims, usingboth sophisticated computer screens and de-tailed post-payment audits, to identify improperclaims.

The sanctions for submitting false (i.e.,wrong) claims are daunting and include bothcriminal and civil penalties as well as exclusionfrom the Medicare and Medicaid programs.The federal False Claims Act civil penalties in-clude treble the amount of the claim plus up to$11,000 per claim (increased from $10,000 forinflation for violations occurring after 9/29/99).Stated otherwise, an improperly submittedclaim for $450 for medical direction servicescan translate into a civil penalty of $12,350 (3times $450 + $11,000). The government doesnot have to establish specific intent to defraudand it is no defense that the Group providedother reimbursable services or that it did nothave actual knowledge that the claims werefalse. The prohibition is against filing claimsfor services that the person knows or shouldknow were not provided as claimed and it isenough if the person acts in deliberate igno-rance of the truth or falsity of the information.See Chapter IV, section D.3, pages 16-17.

Moreover, the government need not identifyeach claim that is erroneous. It is allowed toreview a sampling of claims, determine an error



rate and extrapolate an error rate over a multi-year period. This methodology was used in thecase of the University of Pennsylvania $30 mil-lion settlement, in which the government re-viewed 100 claims and extrapolated the resultsover a six-year period.

Criminal sanctions for “knowingly andwillfully” making false statements in claims in-clude up to five years’ imprisonment, fines of$25,000 for each false claim and automatic ex-clusion from the Medicare and Medicaid pro-grams. For most anesthesiology practices, ex-clusion from Medicare and Medicaid is a prac-tical bar to practice because most hospitals andother facilities at which anesthesiologists pro-vide services require that the anesthesiologistsbe eligible to participate in Medicare and Med-icaid. In civil cases, exclusion is “permissive,”which means that the government can exercisediscretion in determining whether to exclude aphysician from the Medicare and Medicaid pro-grams.

Thus far, the discussion has focused on po-tential liability in connection with billing gov-ernmental payors. Physician practices also facepotential criminal liability for making falsestatements in claims submitted to private pay-ors as well. Penalties include fines and impris-onment for up to 10 years, with stiffer penaltiesfor more serious offenses.

B. OVERVIEW OF MEDICAREANESTHESIA BILLING RULES

1. Personally performed services. Forpurposes of Medicare billing, an anesthesiolo-gist is considered to be personally performingthe anesthetic procedure in any of the followingfour circumstances:

• the anesthesiologist performs the entireanesthesia service alone;

• the anesthesiologist is continuously in-volved in a single case with a nurseanesthetist or anesthesiologist assistantand the services of each are found to bemedically necessary;

• the anesthesiologist performs a casewith an intern or resident and meets therequirements for teaching physicians inanesthesia cases; or

• the anesthesiologist is continuously in-volved in a single case involving a stu-dent nurse anesthetist.

a. Continuous presence. In cases in whichthe anesthesiologist is providing services aloneor is considered to be personally performing acase (other than when working with an internor resident), the anesthesiologist must be con-tinuously present in the operating room or anes-thetizing area from induction to safe transfer ofpatient care to the post anesthesia care unit orICU personnel. If the anesthesiologist needs toleave the operating room or anesthetizing areafor any reason, whether for a brief period oftime (e.g., for personal privileges such as briefrestroom visits or to get equipment needed forthe procedure) or for a longer period, the anes-thesiologist must transfer care of the patient toanother anesthesiologist in the same grouppractice who has no patient care responsibilitiesat the time. The transfer of care must be docu-mented in the anesthetic record.

In the case of an intern or resident, theteaching physician-anesthesiologist must bepresent during all critical or key portions of theprocedure, including induction and emergence.The teaching physician’s presence is not re-quired during the preoperative exam or postop-erative care. Anesthesiologists in academicpractice are well-advised not to rely on this“teaching” rule, because if they assume respon-sibility for a second case during any portion ofthe teaching case, even a brief overlap of aminute, the medical direction rules, which re-quire the anesthesiologist to perform the preop-

This subject is addressed in de-tail in Chapter III of the ASA

publication titled Compliance with Medicareand Other Payor Billing Requirements (pages13-30).

Resource references

erative exam and to provide postoperative care,will apply.

b. Prohibition on performing other ser-vices. An anesthesiologist who is personallyperforming a case or procedure is fully occu-pied with that procedure and cannot medicallydirect other cases at the same time or provideservices to other patients. Although this ruleappears to be straightforward, questions arise inpractice. For example, an anesthesiologist whois inserting invasive monitoring lines or a post-operative pain epidural is considered to be per-sonally performing the procedure and thereforeshould not have other patient care responsibili-ties, such as medical direction of a concurrentcase, at the same time. An anesthesiologistwho is medically directing concurrent casescannot provide a break for a nurse anesthetist,because the anesthesiologist would be personal-ly performing that case and would “break”medical direction of the other concurrent caseor cases.

Similarly, teaching physicians cannot per-form services involving other patients duringthe period the intern or resident is furnishingservices in the single case.

c. Two-provider cases: When one-on-onecases are deemed to be personally performed.Effective January 1, 1998, when an anesthesiol-ogist works on one case with a nurse anesthetistor anesthesiologist assistant, the case is consid-ered to be medically directed and Medicare al-locates the payment equally between the med-ically directing anesthesiologist and the nurseanesthetist. Generally, when both providers areinvolved in a single anesthesia service,Medicare will not pay a full allowance for eachprovider unless documentation is submittedshowing that it was medically necessary forboth the anesthesiologist and the nurse anes-thetist to be involved in the procedure. Whenthis medical necessity requirement is satisfied,the anesthesiologist is considered to be person-ally performing the case and must satisfy thecontinuous presence requirement. You shoulddocument any unusual circumstances (e.g.,trauma cases, ruptured aneurysm cases, unsta-

ble surgical patients who require massive bloodtransfusions or patients undergoing surgery formajor body burns) that may justify additionalcompensation.

2. Medical direction. a. Seven steps of medical direction. In

order to bill Medicare for medical direction ser-vices, an anesthesiologist must perform allseven steps of medical direction: 1) performingthe preanesthetic examination, 2) prescribingthe anesthetic plan, 3) personally participatingin the most demanding portions of the case (in-cluding induction and emergence where applic-able), 4) ensuring that any procedures the anes-thesiologist does not perform are performed bya qualified individual (see subsection f, below),5) monitoring at frequent intervals, 6) remain-ing physically present and immediately avail-able and 7) providing indicated post-anestheticcare. The seven steps are based on the ASA“Guidelines for the Ethical Practice of Anesthe-siology,” which HCFA used to define the natureof the anesthesiologist’s participation in a med-ically directed case. You must personally per-form all of these portions of a case in order tobill for medical direction services. These re-quirements are subject to interpretation and sat-isfying them can be difficult in practice, partic-ularly if the operating schedule is busy.

b. Interpreting the “immediate availabili-ty” requirement. The requirement to remainphysically present and available for immediatediagnosis and treatment of emergencies has twocomponents: remaining immediately availablein both geographic and practical terms. Withineach facility in which it provides services, ananesthesiology practice must assess what loca-tions satisfy the immediate availability require-ment. From a practical perspective, if you aremedically directing a case, you must be able todrop the task at hand and respond forthwith toexigent circumstances.

c. Prohibition on providing additional ser-vices and exceptions to the rule. The practicalaspect of immediate availability reflects theMedicare restriction on performing additionalservices to other patients while medically di-



recting one or more concurrent cases. Thisrule means that if you are medically directingone or more cases, you cannot insert invasivemonitoring lines or administer a pain epiduralor a block for a cataract procedure on a patientin the holding area. Despite this restriction,Medicare recognizes six services that you mayperform while medically directing one or moreconcurrent cases: a) addressing an emergencyof short duration in the immediate area; b) ad-ministering a labor epidural, c) periodic (notcontinuous) monitoring of an obstetric patient,d) receiving patients entering the operatingsuite for the next surgery, e) checking or dis-charging patients in the recovery room and f)handling scheduling matters.

These exceptions do not dispense with themedical direction requirements. Accordingly,among other requirements, you must continueto remain immediately available and to moni-tor the medically directed cases at frequent in-tervals. If the labor and delivery area is not ge-ographically immediately available to the oper-ating suite, the labor epidural exception willnot authorize you to perform a labor epiduralseveral floors away. The practical strategy isto have another anesthesiologist assume re-sponsibility for medically directing your con-current cases.

The scope of the six exceptions is subjectto interpretation. What is an emergency ofshort duration? Medicare has not defined what“short” means, although it must be evaluated inthe context of the cases you are medically di-recting. This issue is one that a practice canaddress in its compliance plan. As a guideline,an emergency that consumes 15 or more min-utes of time (or 10 minutes for those practicesusing 10-minute units) is unlikely to qualify asan emergency of short duration.

d. Providing relief breaks. One area thatcreates practical problems for many practices isthe practice of providing breaks, both to nurseanesthetists and to anesthesiologists. UnderMedicare billing rules, a nurse anesthetist can-not relieve an anesthesiologist regardlesswhether the anesthesiologist is personally per-forming a case or medically directing one ormore cases. Billing Medicare for services inthese situations can be difficult, as carriers rou-tinely reject multiple claims for the same case.Similarly, an anesthesiologist who is medicallydirecting concurrent cases cannot relieve anurse anesthetist. An anesthesiologist doing sowould be personally performing the newly as-sumed case, and an anesthesiologist cannot per-sonally perform and medically direct at thesame time. The simplest policy is for anesthe-siologists to relieve other anesthesiologists andfor nurse anesthetists to relieve nurse anes-thetists.

Medicare rules permit anesthesiologistswithin a group practice to share medical direc-tion responsibilities within a case, provided thatthe anesthesia record documents the time atwhich medical direction responsibility wastransferred and identifies which anesthesiolo-gist performed which particular services. In

• Billing rules are separate from clinical consid-erations. Just because it may be clinicallyacceptable to engage in certain activities

while medically directing cases does not au-thorize performance of those activities forbilling purposes.

• HCFA may revise the medical direction rules.ASA has been in discussions with HCFA overthe past several years to try to clarify theanesthesia billing rules. ASA is hopeful thatHCFA will adopt modifications relating tothe medical direction rules that will be help-ful to anesthesiologists, although suchchanges are not likely to be in effect before2002. The potential for change serves as areminder that it is necessary to stay abreastof changes in HCFA and local carrier inter-pretations of Medicare billing rules.


(Continued from previous column)

these instances, the claim should be submittedin the name of the anesthesiologist who spendsthe greatest amount of time providing servicesto the patient. Medicare has not formally rec-ognized sharing of duties among nurse anes-thetists, although the same principles (docu-menting the time and the services provided)would appear to apply.

e. Defining “concurrent” cases. For pur-poses of the Medicare program, concurrency isdetermined on the basis of other cases occur-ring at the same time, even if those cases do notinvolve Medicare patients. Any overlap of time– even as brief as one minute – will rendercases concurrent, even if the vast majority oftime on a particular case was spent on the onecase alone.

f. Whom can you medically direct? Anes-thesiologists sometimes wonder whether med-ical direction rules apply when a holding areanurse or circulating nurse monitors a patientduring a period in which the nurse anesthetistand anesthesiologist are temporarily involvedelsewhere, such as when there is a delay instarting a case. No, they do not, because thosenurses are not “qualified individuals” for pur-poses of the medical direction rules. The fol-lowing individuals are qualified individualswho may be medically directed: anesthesiolo-gist assistants (if they are licensed under statelaw), certified registered nurse anesthetists, in-terns and residents. The medical direction rulesapply to student nurse anesthetists only if thephysician directs no more than two concurrentcases. A medical student cannot be medicallydirected.

3. Calculating time. a. Continuous, actual presence. For pur-

poses of Medicare, time involves the “continu-ous, actual presence” of the anesthesiologist ormedically directed qualified provider. If thereis a break in the anesthesiologist’s or nurseanesthetist’s attendance to the patient, as mayoccur when a surgical procedure is delayedafter the patient is prepared for anesthesia,anesthesia time stops and resumes when the

physician or nurse anesthetist once again is incontinuous presence with the patient.

b. Discontinuous segments of anesthesiatime. Effective in 2000, HCFA rules expresslyallow anesthesiologists to aggregate discontinu-ous segments of anesthesia time, provided thatthe anesthesia time and the monitoring of thepatient within each block of time are continu-ous. It also would be necessary to have carefuldocumentation of the start and end times of anyseparate segments of anesthesia time.

c. One patient at a time. In some ambula-tory care settings, it is not uncommon for sever-al patients to be blocked close in time so thatmore than one patient is under an anesthetic atthe same time. Although it may be clinicallyacceptable to monitor several patients concur-rently, the government has taken the positionthat a physician who is personally performing acase or a nurse anesthetist cannot be in “contin-uous actual presence” for more than one patientat a time. Billing for anesthesia time for morethan one patient at a time can lead to civil andeven criminal liability.

Although the principle that an anesthesiolo-gist who is personally performing a case or anurse anesthetist may not provide services tomore than one patient at a time may appear ob-vious, problems can occur if the documentationindicates that the anesthesiologist or nurseanesthetist was providing services in two casesat the same time. This situation may occur ifclocks in different locations (e.g., the differentoperating rooms and the PACU) are not syn-chronized or, in the case of a nurse anesthetist,if the medically directing anesthesiologist be-gins to prepare the next patient for surgerywhen the nurse anesthetist is taking the first pa-tient to the PACU.

d. Anesthesia start and stop times. Anes-thesia time begins when the anesthesiologist ormedically-directed nurse anesthetist begins toprepare the patient for anesthesia care. Timespent in the preoperative examination is notanesthesia time. If a nurse anesthetist is begin-ning to prepare the patient for anesthesia, themedically directing anesthesiologist must be



immediately available in order for anesthesiatime to begin. Anesthesia time ends when theanesthesiologist or medically directed nurseanesthetist no longer is in personal attendance,which is when the patient may be safely trans-ferred for post-operative care. In the case ofthe medically-directed nurse anesthetist, anes-thesia time ends if the anesthesiologist nolonger is immediately available, as may happenwhen the nurse anesthetist transports the patientto a postanesthesia care unit or ICU that is on adifferent floor or otherwise is distant from theoperating suite.

e. Actual time. Medicare requires thatclaims be submitted for actual, not rounded,time. Do not round time to the nearest fiveminutes or add time units to the surgical timeto account for the time taken to prepare thepatient for anesthesia or to transport the pa-tient to the PACU. Doing so can lead to sub-stantial civil penalty and even criminal liability.

4. Services subject to greater scrutinyfor medical necessity and proper classifica-tion.

a. Monitored anesthesia care. i. Definition. MAC involves the intraop-

erative monitoring by an anesthesiologist, ornurse anesthetist under the medical direction ofa physician, of the patient’s vital physiologicalsigns in anticipation of the need to administergeneral anesthesia, sedatives or other medica-tions, or the development of adverse reaction tothe surgical procedure. The physician mustprovide, or medically direct, the following ser-vices in order for the service to be reimbursableunder Medicare: a) intraoperative monitoringof the patient’s vital signs, b) performing a pre-anesthetic examination and evaluation, c) pre-scribing the anesthesia care required, d) admin-istering any necessary oral or parenteral med-ications (e.g., sedatives, narcotics, or hypnotics)and e) providing indicated postoperative anes-thesia care.

Medicare pays the same amount for MACas for general anesthesia. In submitting claims,however, MAC cases must be designated as

MAC cases through the use of the “QS” modi-fier. In 1999, the use of two additional modi-fiers – one designating light sedation (G8) andone indicating deep sedation (G9) – began, al-though carriers are not required to use these ad-ditional modifiers and not all carriers haveadopted them.

ii. Distinguishing between MAC and gen-eral anesthesia. Sometimes it is not clear whena MAC case ends and a general anesthetic be-gins. Some anesthesiologists take the positionthat if a patient loses consciousness for any pe-riod of time, the case should be billed as a gen-eral anesthetic. That interpretation is overly ag-gressive. While it is a matter of clinical judg-ment, a more appropriate approach to distin-guish between MAC and general anesthesia isto make the distinction on the basis of whetherthe patient maintains an airway and responds toverbal stimuli. Such cases should be designat-ed as MAC cases. General anesthesia is com-monly defined as cases in which the patientloses airway reflexes and becomes unrespon-sive to stimuli. If the patient is conscious dur-ing all but a brief portion of the procedure, thecase should be designated as a MAC case. It isup to individual practices to define the length ofthe brief period (e.g., under 60 seconds) in theabsence of guidance from the carrier.

iii. Time. MAC cases can be short and, insome settings, you may have several patientswho are undergoing MAC at the same time.Anesthesia time generally begins when youbegin to prepare the patient for anesthesia andends when the patient can be safely transferredfor postoperative care. But if you have severalMAC patients and are in continuous presence

The ASA “Continuum of Depth ofSedation: Definition of General

Anesthesia and Levels of Sedation/Analgesia”(approved in 1999) describes conscious seda-tion, deep sedation and general anesthesiaand may be of assistance in this task.

Resource reference

with those patients at the same time, you arepersonally performing cases and may not“count” time for multiple patients together. In-stead, time on MAC cases is the actual timespent with each particular patient (note that thiscalculation necessarily requires careful docu-mentation of each segment of time spent witheach patient).

iv. Medical necessity. A key issue associ-ated with MAC is the medical necessity of pro-viding MAC and whether the operating physi-cian could provide sedation. The designationof MAC cases through use of the QS modifierfacilitates Medicare scrutiny of MAC claims.You should understand which specific proce-dures and medical conditions your local carrierswill recognize as requiring MAC. See discus-sion of the national model MAC policy on page22 of the ASA Compliance manual.

Some carriers have determined that theywill not pay for MAC for specific procedures.An example is the determination of Empire, theMedicare carrier for part of New York State,that it will not pay for MAC for endoscopies.You should determine whether your carrier hasadopted, modified or rejected the model policy.If you provide MAC for a surgical procedureother than one for which the carrier routinelywould accept as requiring MAC, you are well-advised to document the medical necessity forMAC, including obtaining a written request forMAC from the surgeon.

v. Documentation. You should clearlydocument the medical necessity for performingMAC in the anesthesia record. Your Medicarecarrier may require that ICD-9 diagnosis codesbe submitted with the claim to support the med-ical necessity for MAC, particularly in the caseof procedures the carrier has designated as usu-ally not requiring MAC. The anesthesia recordmust contain documentation of the patient’svital physiological signs (oxygenation, ventila-tion, blood pressure and pulse) during the pro-cedure and the administration of oral or par-enteral medications as needed. Finally, a copyof a history and physical examination must beavailable for review upon request by the carrier.

b. Acute pain management services.Medicare takes the position that the global pay-ment to the surgeon covers the provision ofpostoperative pain services. Claims submittedby anesthesiologists for postoperative pain ser-vices are subject to closer review – either onthe initial request for payment or in post-pay-ment audits – for medical necessity. Medicalnecessity for your involvement must be docu-mented in the patient’s record through use ofappropriate ICD-9 diagnosis codes or other in-formation demonstrating the need for your in-volvement. The best documentation is a writ-ten request from the surgeon identifying whyyour services are needed. Alternatively (andless desirably), the surgeon should write a re-quest for your services for postoperative pain inthe patient’s medical record. At a minimum,you should document the surgeon’s oral re-quest.

In addition to documenting medical neces-sity, it is important to document that the acutepain service is separate from the surgical anes-thesia service. If a nerve block is performed orepidural catheter is inserted for postoperativepain, make certain that the anesthesia record in-dicates that the block or epidural was per-formed solely for postoperative pain and not asthe means of administering the anesthetic forthe surgical procedure. If you use the epiduralcatheter intraoperatively to supplement anothermode of anesthesia, you may not bill for thepostoperative pain epidural.

Medicare will not reimburse anesthesiolo-gists for patient-controlled analgesia (PCA) ser-vices, although other payors may (it is useful toaddress payment for postoperative pain servicesin managed care agreements to ensure agree-ment on payment for these services). Somecarriers allow an anesthesiologist who initiatesPCA in the PACU to include the initial set-uptime in the anesthesia time reported.

c. Chronic pain management services. i. Coding: Use of E&M and surgical pro-

cedure codes. Unlike traditional anesthesiologyservices which are billed on the basis of time,chronic pain services are billed using E&M and



surgical procedure codes. E&M codes requireface-to-face contact with the patient and presentspecial documentation concerns because theymay be billed at different levels. Classificationof E&M services and payment depend primari-ly upon three factors: the history, the examina-tion and the level of medical decision makinginvolved. Because the level of the E&M ser-vice is dependent on several key components,performance and documentation of each com-ponent is important.

ii. Documentation. HCFA and the AMAissued documentation guidelines for E&M ser-vices that outline with specificity how the com-ponent parts are to be documented. Until re-vised guidelines are issued, physicians may useeither the 1995 or the 1997 guidelines.

The history must include documentation ofsome or all of the chief complaint, the historyof present illness, the review of systems and thepast, family and/or social history. Documenta-tion of the examination must identify the affect-ed body area(s) or organ system(s) examinedwith detailed requirements as to the elementsthat must be performed in order to qualify thelevel of exam as 1) problem focused, 2) ex-panded problem focused, 3) detailed or 4) com-prehensive. The complexity of medical deci-sion making depends upon the number of pos-sible diagnoses and/or the number of manage-ment options that must be considered, theamount or complexity of medical records, diag-nostic tests and other information to be re-viewed, and the risk of significant complica-tions, morbidity and mortality. Documentationmust reflect these considerations.

Several Medicare carriers have specific doc-umentation requirements for chronic pain pro-cedures — including requirements to substanti-ate the diagnosis, justify the medical necessityof a particular treatment and identify the planof treatment — that should be consulted. Somecarriers require that the patient’s history andphysical, as well as documentation of the pa-tient’s response to the pain procedure, be avail-able for review by the carrier. These rules re-flect an underlying concern about the possibili-

ty for abuse in the provision of pain manage-ment services, which underscores the impor-tance of being scrupulous in documenting thechronic pain management services.

d. Consultation versus a visit. Consulta-tions are paid at a higher rate than are visits,making them a target for review in postpaymentaudits.

i. Definition of a consultation. In order toqualify as a consultation, another physicianmust have made a written request for the anes-thesiologist’s services, and the consultationmust include a history, examination and a writ-ten report filed with the patient’s record main-tained by the attending physician who request-ed the consultation. Claims for consultationsmust include a diagnosis. If the request for theconsulting physician’s services is not in writing,the requirements are not met. Standing ordersin the medical record for consultations or tele-phone requests are insufficient. A request froma nonphysician allied health practitioner alsodoes not meet the requirements to bill for aconsultation. If the consulting physician doesnot prepare a written report that is sent to thereferring physician, a consultation cannot bebilled.

ii. Distinguishing visits from consultations.A consultation is distinguished from a visit be-cause the requesting physician is seeking theopinion or advice of the consulting physicianregarding evaluation or management of a spe-cific problem. If care of the patient is trans-ferred to the consulting physician, the service isa visit, not a consultation. A transfer of careoccurs when the referring physician transfersthe responsibility for the patient’s completecare to the receiving physician at the time of re-ferral. In shorthand terms, a consultation is arequest to “evaluate and report back,” whereasa visit is a request to “evaluate and treat.”

iii. Consultation followed by treatment. Aconsulting anesthesiologist may provide ser-vices to a patient during a consultation and billfor the consultation, provided that a transfer ofcare did not occur. The anesthesiologist shoulddocument why the services are being provided

and how the services meet the patient’s imme-diate need. If the referring physician transferscomplete responsibility of treatment — eitherorally or in writing — at the time of the requestfor consultation or referral, the service must bebilled as a visit, not as a consultation. Subse-quent visits to manage a portion or all of thepatient’s condition are billed as visits — eitherestablished patient office visit or subsequenthospital care, depending on the setting.

iv. “New” versus “established” patient. Inmaking the visit/consultation distinction, it alsois important to bear in mind the definitions of“new” and “established” patient. A new patientis one who has not received any professionalservices from the physician or another Groupphysician of the same specialty within the pastthree years. All anesthesiology Group mem-bers, including chronic pain specialists, aretreated as physicians of the same specialty forpurposes of making the new/established patientdistinction. For practical purposes, that meansthat a chronic pain patient who is sent for aconsultation to a Group pain physician will beconsidered to be an established patient if anoth-er Group anesthesiologist administered anesthe-sia to the patient within the previous three yearsin an unrelated surgical procedure.

e. Critical care. See ASA Compliancewith Medicare and Other Payor Billing Re-quirements (pages 25-26).

i. General definition. The AMA CPT™

2000 defines critical care in the following man-ner:

A critical illness or injury acutely im-pairs one or more vital organ systems suchthat the patient’s survival is jeopardized.The care of such patients involves decisionmaking of high complexity to assess, ma-nipulate and support central nervous systemfailure, circulatory failure, shock-like condi-tions, renal, hepatic, metabolic or respirato-ry failure, postoperative complications,overwhelming infection, or other vital sys-tem functions to treat single or multiplevital organ system failure or to prevent fur-ther deterioration.

The code usage is determined by the pa-tient’s condition, not by the physician’s service.The need for full attention – the need to moni-tor the patient’s condition closely and to adjusttherapy accordingly – distinguishes criticalcare services. You cannot provide services toany other patient during the same period oftime.

ii. Documentation issues. If you providecritical care services, you must document thecare given and include narrative documenta-tion or ICD-9 diagnosis codes that support theconclusion that the patient is critically ill. Be-cause critical care coding depends upon thetime, you must record the time spent with thecritically ill patient in the patient’s medicalrecord. Time includes time spent in activitiesdirectly related to the individual patient’s care,including time spent at the patient’s immediatebedside or elsewhere on the floor or unit.Time spent in activities that occur outside theunit or off the floor (e.g., telephone calls) donot qualify as critical care services because youare not immediately available to the patient.

iii. Is payment bundled into payment to thesurgeon? In post-surgical Medicare cases,treatment of anticipated post-operative compli-cations is the responsibility of the surgeon, andpayment for the service is included in the glob-al surgical payment to the surgeon, which cov-ers a ninety-day period following surgery. Inorder for anesthesiologists to be eligible forpayment, either a) the medical condition re-quiring critical care services should be inde-pendent of the medical condition that requiredthe surgical intervention, or b) the surgeonmust transfer care to you (and appropriatemodifiers indicating the transfer must be used).It is essential that the medical necessity of yourservices be documented in the patient’s record,through inclusion of diagnosis codes that iden-tify that the patient’s critical condition is sepa-rate from the diagnosis that led to the surgicalintervention. If medical necessity is in doubt,it is wise to use one of the higher levels of sub-sequent inpatient codes, rather than the criticalcare codes.



iv. Critical care and the teachingphysician. The teaching physician must be pre-sent for the period of time for which any criti-cal care services are billed. Time spent by theresident in the absence of the teaching physi-cian and time spent teaching cannot be billedby the teaching physician as critical care.

5. “Bundling” of services and “blackbox edits.” For billing purposes, Medicare andprivate carriers have “bundled” payment forcertain ancillary services that are deemed to bepart of the primary procedure into payment forthe primary procedure (e.g., the preoperativeexamination and insertion of I.V. lines are bun-dled into the anesthetic service and may not beseparately billed).

In an effort to cut down on inappropriatebilling, HCFA contracted with one of its Part Bcarriers, AdminaStar Federal, to prepare a “re-bundling” manual identifying pairs of CPT-4codes that cannot be billed together. This ef-fort, and the policy manual accompanying thelisting of code pairs, is known as the CorrectCoding Initiative (CCI). The so-called “blackbox edits” are the secret third-party paymentrules that result in claim denials based on theparticular code or combination of codes submit-ted. Commercial insurers use software incor-porating their own edits to cut costs and haveresisted physicians’ efforts to learn what mayand may not be billed together on the groundthat the software algorithms are “proprietary”or trade secrets. HCFA no longer is using com-mercial black box edits to the software that car-riers use to reimburse physicians.

C. DOCUMENTATION

1. Documentation strategies. So how doyou document that you did what you know youdid? It is useful to envision a completestranger, unversed in medical practice and un-knowledgeable about anesthesiology practice,reviewing anesthesia records from the cases inwhich you are involved. That person must beable to judge from the anesthesia recordswhether you have complied with the Medicare

or other payor billing rules. An auditor also willhave all other documents and records relating tothe case to compare with the anesthesia record,including the circulating nurse’s notes, the oper-ating room log and the charge slip (if any).

What type of documentation is enough toavoid problems? At the time you are complet-ing an anesthesia record, your expectation isthat you are recording the care provided to thepatient, not that you are preparing a record tobe used in your defense. But you need to rec-ognize that you may need to rely on any med-ical record you prepare to support your claimfor payment in a postpayment audit and possi-bly to defend yourself in a legal proceeding.

2. General guidelines. The patient’smedical record needs to reflect the services thatwere provided, both to document the care pro-vided and to support a claim for payment. It isadvisable to avoid using check-offs and initialsalone, which are not informative for indicatingpresence during a procedure, and instead tomake narrative notations to document servicesprovided.

a. Personally performed cases. In person-ally performed cases, you are performing thecase without assistance and should documentmonitoring of the patient’s vital signs and ex-plain any unanticipated reactions or changes invital signs during the procedures. Any invasivemonitoring services should be documented asto the location where the monitor was placed.

b. Medical direction cases. The anesthe-siologist must document compliance withmedical direction requirements. Effective Jan-uary 1999, HCFA rules expressly require theanesthesiologist to document in this manner:

The physician alone inclusively docu-ments in the patient’s record that the condi-tions [for medical direction] have been sat-isfied, specifically documenting that he orshe performed the preanesthetic exam andevaluation, provided the indicated postanes-thesia care, and was present during the mostdemanding procedures, including inductionand emergence where applicable.

The medical record also must indicate thatthe medically directing anesthesiologist com-plied with the other medical direction require-ments, which include frequent monitoring andremaining physically present and immediatelyavailable through the case.

This requirement does not preclude nurseanesthetists from assisting in the documentationprovided that you comply with this rule. Manyanesthesiologists, however, rely on nurse anes-thetists to document the care provided. Such apractice fails to comply with the requirementthat you, the anesthesiologist, document com-pliance with medical direction requirements. Inaddition, if you do not check the documenta-tion, you have no assurance that the anesthesiastart and stop times listed are accurate or thatthe services are being properly documented. Inmedical supervision cases, either the Groupanesthesiologist or nurse anesthetist may partic-ipate in the documentation.

Anesthesiology practices that use “global”documentation statements (summary statementsthat you have provided the required services)must make certain that their global statementsconform to these requirements and that it is theanesthesiologist who writes the statement.Global statements are better than no documen-tation, but they are not the preferred way todocument services, particularly if physicianssign them without considering whether in factthey actually have performed all of the servicesreferenced in the statement. Ultimately, thedocumentation in the anesthesia record must re-flect the services that were provided and mustadequately describe the nature of your involve-ment in medically directed cases to support theclaim for payment.

3. Documentation style. The best docu-mentation consists of written notations identify-ing the services performed and the time thatthey were performed. Notes written in your in-dividual style are the best format, rather than apreapproved, more general statement that doesnot reflect the services provided as accurately.When documenting medical direction services,

Group anesthesiologists should comment oneach step of medical direction, even if in a sum-mary fashion (e.g., “Induction – smooth”).

4. Elements to be documented. TheASA protocol titled “Documentation of Anes-thesia Care” provides guidelines for document-ing anesthesia services. ASA suggests thatanesthesia care be documented to reflect thethree general components of anesthesia care -preanesthesia, perianesthesia and postanesthesiaservices. Documentation of the preanestheticevaluation should include the patient’s medical,anesthesia and medication history; the results ofan appropriate physical examination; review ofobjective diagnostic data; the ASA physical sta-tus; and the formulation of an anesthetic planand discussion of the plan with the patientand/or responsible adult.

The ASA protocol states that documenta-tion of the perianesthesia period should includea time-based record of intraoperative events, in-cluding an immediate review prior to initiationof anesthetic procedures of the patient’s condi-tion and a check of equipment; monitoring ofthe patient’s vital signs; the amounts of alldrugs and agents used and the times given; thetypes and amounts of all intravenous fluidsused, including blood and blood products, andthe times administered; the technique(s) used;significant or unusual events during the anes-thesia period; and the status of the patient at theconclusion of the anesthesia. In the post-anes-thesia period, documentation should reflect thepatient’s condition on admission and dischargefrom the PACU, including a time-based recordof vital signs and level of consciousness; alldrugs administered and their dosages; the typeand amounts of intravenous fluids adminis-tered; unusual events, including complications;and postanesthesia visits.

Sample documentation strategies are dis-cussed in ASA’s Compliance with Medicare andOther Payor Billing Requirements (page 20).

5. Timing of documentation. Documen-tation of services should occur as contempora-



neously as possible with the time when the ser-vices are provided. Depending upon the con-dition of each patient under the anesthesiolo-gist’s care and the anesthesiologist’s need torespond to emergency situations, it may benecessary for the anesthesiologist to documentsome of the services provided after they occur.In such cases, the time of the entry should benoted, the time differential should be as mini-mal as possible (no more than a few hours) andthe reason for the delay noted. Such late docu-mentation should be reserved for unusual cir-cumstances and cases in which the anesthesiaservices were routine. In those cases, it maybe sufficient for the anesthesiologist to use a“global” compliance statement that representsthat the anesthesiologist performed all ele-ments of service necessary.

6. Documentation in cases involving“intraoperative handoffs.” If more than oneGroup anesthesiologist provides medical direc-tion during a case, Group anesthesiologistsmust identify in the anesthesia record the timewhen the new anesthesiologist became involvedin the care of the patient and which anesthesiol-ogist performed which services. Specifically,the following information must be recorded inthe anesthesia record: i) the transfer of care, ii)the time the transfer occurred, iii) the names ofall health care providers involved, and iv)which anesthesiologist provided which ser-vices. The same requirement applies to Groupnurse anesthetists when one nurse anesthetistrelieves another during a case.

This exception allowing more than oneanesthesiologist to participate in a case appliesonly to anesthesiologists who practice togetherin the same group practice. If more than onegroup provides services at a facility, or if anes-thesiologists are practicing independently, theymay not relieve one another in personally per-formed or medically directed cases (or if theydo, they may not bill Medicare for their ser-vices; the ability to bill other payors would de-pend upon each payor’s specific rules).

7. Compliance programs

D. OVERVIEW OF FRAUD AND ABUSELAWS

1. False claims. The submission of falseclaims to the federal government is prohibitedby several different statutes. A “false” claimincludes a claim that does not conform to

This subject is addressed in detailin Chapter VI of the ASA publica-

tion titled Compliance with Medicare andOther Payor Billing Requirements (pages 37-39).

In September 2000, the OIG issued Com-pliance Program Guidance for Individual andSmall Group Physician Practices <www.dhhs.gov/progorg/oig/modcomp/webcpg.txt>,which should be considered in developing acompliance program. The OIG also has is-sued compliance program guidance for a vari-ety of organizations, including hospitals andthird-party billing companies that also mayprovide ideas. The OIG compliance guid-ance is available at the OIG Web site<www.dhhs.gov/progorg/oig/modcomp/index.htm>.

The sample compliance plan in the ASAPractice Management monograph Compli-ance with Medicare and Other Payor BillingRequirements also may serve as a resource.The sample plan needs to be tailored to ad-dress the areas of greatest risk for a particulargroup and to identify any particular require-ments imposed by the local Medicare Part Bcarrier.

The Practice Management column in theDecember 1999 issue of the ASA NEWSLET-TER addresses practical issues in approachingcompliance plan development.

This subject is addressed in detailin Chapter II of the ASA publica-

tion titled Compliance with Medicare andOther Payor Billing Requirements (pages 2-11).

Resource reference

Resource reference

Medicare (or other government program) re-quirements for payment. Substantial compli-ance with Medicare billing requirements willnot preclude a determination that a claim isfalse and that a physician is liable for civil oreven criminal penalties.

2. Antikickback statute. a. In general. The Medicare and Medic-

aid Patient and Program Protection Act of1987, commonly known as the antikickbacklaw, is a criminal statute that bars the knowingand willful solicitation or receipt of any remu-neration “in return for” i) referring a patient orii) purchasing or otherwise arranging for anitem or service for which payment may bemade under Medicare, other federal healthplans or Medicaid. It also prohibits the offer orpayment of remuneration to induce a person torefer patients.

b. Agreements with hospitals. The follow-ing arrangements with hospitals are amongother situations that raise potential kickbackconcerns, particularly if the hospital is condi-tioning the award of an exclusive contract onthe physicians’ willingness to provide the ser-vices without compensation:

• a hospital’s requirement that the Groupprovide substantial administrative andquasi-clinical services without compen-sation, or with below-market compensa-tion;

• a requirement that the Group cover “in-efficient” anesthetizing locations (e.g.,MRI or lithotripsy) where cases are notnecessarily scheduled in an efficientmanner, which results in the Group allo-cating one anesthesiologist to cover thatarea for the day;

• a demand that the Group provide in-house coverage for unprofitable ser-vices, such as a requirement that theGroup provide an anesthesiologist (ornurse anesthetist) in-house for a particu-lar service (e.g., obstetric or traumacoverage), where the collections do notcover the cost of providing the service;

or • a Hospital’s insistence that it control

global or package payments or, indeed,other managed care arrangements,which would give the Hospital controlover the amount it would pay the Groupfor its professional services.

The greater the pressure the Hospital exertson the Group to accept these or other condi-tions that economically disadvantage the Groupand benefit the Hospital, and the more the Hos-pital sets acceptance of these economically dis-advantageous terms as a condition – implied orexpress – of awarding an exclusive contract, themore the Hospital’s insistence on these termsapproaches a kickback.

c. Professional courtesy discounts. Anydiscount — including professional courtesy dis-counts extended in private third-party payorcases — to any physician or staff member (or amember of the physician’s or staff member’sfamily) who is in a position to refer patientscovered by Medicare, Medicaid, CHAMPUS orother federally sponsored health insurance pro-grams should be reviewed for compliance withthe antikickback law. See ASA’s Compliancewith Medicare and Other Payor Billing Re-quirements (page 9).

d. Investments in ASCs. When physiciansinvest in ASCs, the federal government’s con-cern is whether the financial return the physi-cians receive represents compensation for refer-rals to the facility and, therefore, could causethem to refer patients without medical necessi-ty. In November 1999, the OIG issued a “safeharbor” rule governing investments in ASCsthat outlines the conditions under which thegovernment would not pursue enforcement ac-tion. These guidelines include a requirementthat investment interests be offered on termsnot related to the volume or value of referralsand, in the case of multispecialty ASCs, estab-lish a “one-third/one-third” test: at least one-third of the physician’s clinical practice incomebe derived from procedures that can be per-formed only in a hospital or ASC and that the



physician perform at least one-third of the pro-cedures requiring a hospital or ASC at the par-ticular ASC in which the physician is investing.The Practice Management column in the Febru-ary 2000 issue of the ASA NEWSLETTER ad-dresses this safe harbor in greater detail.

3. Stark self-referral prohibitions. TheStark II self-referral prohibitions bar physiciansfrom referring Medicare patients for a list ofdesignated health services if the referringphysician or an immediate family member hasa financial relationship through ownership orcompensation with the provider of the services.Anesthesiology services are not included in thelist of designated health services, so that thefederal self-referral prohibition generally doesnot apply to anesthesiologists. You should con-sider the scope of any state self-referral law inconnection with any investment in a facility orservice to which you might refer patients.

4. Health care fraud and abuse and pri-vate payors. The expansion of federal anti-fraud provisions to cover private health careplans is perhaps the most significant change ef-fected by HIPAA. See ASA’s Compliance withMedicare and Other Payor Billing Require-ments (pages 10-11).

5. Professional courtesy discounts. Thepractice of granting professional courtesy dis-counts – both in Medicare and private payorcases – is problematic in a number of respectsand may result in false statements liability, po-tential kickbacks, violations of the HIPAA pro-hibition on providing “remuneration” toMedicare and Medicaid beneficiaries, breachesof MCO participation agreements and violationof parallel state laws. See ASA’s Compliancewith Medicare and Other Payor Billing Re-quirements (pages 27-28).

his monograph represents only anintroduction to the business aspectsof the practice of medicine. The

need for you to become involved in the busi-ness end of your practice is likely to increase asgovernmental and private payors push for betterdeals, hospitals and ASCs position themselvesto be in the most favorable competitive posture,and different types of service providers (e.g.,billing services and software developers) vie foryour business. Carefully constructed legal doc-uments can provide important protections foryou and your Group, just as poorly conceivedagreements can tie you or your Group to an un-happy relationship.

You can best protect your interests by tak-ing an active role in monitoring the health ofyour practice. Understanding the myriad rulesthat regulate medical practice and payment for

services provides the necessary foundationagainst which to assess the vigor of your prac-tice, as well as an understanding of the businessenvironment. These tools, in turn, will helpyou identify potential problems at an earlystage. The more educated you become, the bet-ter you will be able to recognize when youneed professional assistance in dealing with achallenge and the more likely you will be toobtain assistance sufficiently early in theprocess so that the positions of the parties havenot hardened.

Properly prepared, you can be your ownbest advocate. By learning what tasks can bedelegated to others and when it is important tobe in the forefront, you can free yourself tofocus on the patient care that you have spent somany years training to provide.


CHAPTER XI. CONCLUSION

T


A.ORGANIZED BY TOPIC AREA

1. ABBREVIATIONS USED IN THE TEXT OR COMMONLY USED

ASC — Ambulatory surgical center.

CFR — Code of Federal Regulations.

“Claims-made” policy — An insurance pol-icy that provides coverage for claims assertedduring the time period the liability policy isin effect. Once the policy expires or termi-nates, insurance protection stops. Physiciansgenerally purchase a “tail” policy to cover lia-bility during the otherwise uncovered period.

“Clean sweep” — A contractual provisionthat ties a physician’s privileges to the exis-tence of the agreement and provides that theprivileges of Group physicians automaticallywill terminate upon termination or expirationof the agreement for any reason.

CPT™ — [Physicians’] Current ProceduralTerminology, currently in the Fourth Edition,published by the American Medical Associa-tion, which lists descriptive terms and identi-fying codes for reporting medical servicesand procedures performed by physicians.

CROSSWALK™ — An ASA publicationwhich is a systematic listing of all AMACPT-4 codes, except pathology, with appro-priate anesthesia CPT-4 codes.

DNR order — Do-not-resuscitate order.

E&M code — Evaluation and managementcode.

FFS — Fee-for-service method of reim-bursement.

ICD or ICD-9 — International Classifica-tion of Diseases, 9th Revision. A comprehen-sive listing of diagnosis codes used to de-scribe the diagnosis, symptom, complaint,condition or problem; used for clinical andbilling purposes.

“Occurrence” policy — An insurance poli-cy that provides coverage for claims relating toclinical services provided during the time theinsurance coverage is in effect, no matter whena claim relating to those services is asserted.

PACU — Postanesthesia care unit or recov-ery room.

PCP — Primary care physician.

RFP — Request for proposal.

RRC — The Residency Review Committeefor Anesthesiology that establishes programrequirements for residency education in anes-thesiology. The RRC and the AccreditationCouncil for Graduate Medical Education(“ACGME”) accredit residency programsthat meet the RRC requirements.

RUC — The AMA/Specialty Society Rela-tive Value Update Committee.

RVG — Relative value guide.

APPENDIX A: GLOSSARY AND INDEX OFACRONYMS, ABBREVIATIONS AND TERMINOLOGY


2. BUSINESS/LEGAL TERMINOLOGY

ADR — Alternative dispute resolution.

C corporation — A corporation that has notelected Subchapter S status.

the Code — The Internal Revenue Code.

Economic credentialing — Credentialing aphysician based upon the physician’s impacton the hospital’s bottom line, rather than thequality of care the physician provides, in de-termining whether to grant or deny privi-leges.

EIN — Employer identification number (thetax identifying number assigned to entities,analogous to the Social Security number is-sued to individuals).

IRA — Individual retirement account.

LLC — Limited liability company.

LLP — Limited liability partnership.

MCO — Managed care organization.

Relator — “Whistleblower.” In the contextof the False Claims Act, the private personwith knowledge of false claims or fraud whobrings a lawsuit in his/her own name and inthe name of the United States.

Rider — A supplement to an insurance poli-cy that covers a risk that otherwise is exclud-ed from coverage under the policy.

S corporation — A corporation that haselected “Subchapter S” status under the In-ternal Revenue Code.

SIMPLE plan — Savings Incentive MatchPlan for Employees.

SSN — Social Security Number.

Subchapter S status — An election underfederal tax laws that provides for “pass-through” taxation as a partnership with prof-its and losses attributed to the members,rather than to the entity.

Qui tam action — An action brought by aninformer under a statute, such as the federalFalse Claims Act, that establishes a penaltyfor the commission (or omission) of a certainact, and provides that part of any recovery isto go to the person bringing the action, withthe remainder going to the state. Qui tam isan abbreviation of a longer Latin phrase thatin full means: “Who sues on behalf of theKing as well as for himself.”

3. FEDERAL LAWS AND FEDERALPROGRAMS

ADA — Americans with Disabilities Act.

CHAMPUS — Civilian Health and MedicalProgram of the Uniformed Services.

COBRA — Consolidated Omnibus BudgetReconciliation Act. COBRA provides for anemployee or an employee’s spouse or depen-dents to elect up to 18 months of continuedgroup health coverage at their own expensein the event of termination of employmentother than for gross misconduct, retirementor reduction in hours.

EMTALA — Emergency Medical Treatmentand Active Labor Act. EMTALA is a federalstatute that prohibits the refusal of servicesor transfer of patients prior to screening andstabilization.

FICA — Federal Insurance ContributionAct, which establishes the requirement ofemployer and employee contributions to theSocial Security system.

FUTA — Federal Unemployment Tax Act.


HIPAA — Health Insurance Portability andAccountability Act.

TEFRA — Tax Equity and Fiscal Responsi-bility Act (1982). HCFA issued the medicaldirection rules under authority of TEFRA.

4. FEDERAL AGENCIES ANDAGENCY ABBREVIATIONS

CMS — Centers for Medicare & MedicareServices (previously known as HCFA).

DEA — Drug Enforcement Administration.

DOJ — Department of Justice.

HCFA — Health Care Financing Administra-tion, a unit of the Department of Health andHuman Services. HCFA is responsible foradministering the Medicare program. Effec-tive June 14, 2001, HCFA was renamed theCenters for Medicare & Medicaid Services(CMS).

HHS — the Department of Health andHuman Services.

IRS — Internal Revenue Service.

NLRB — National Labor Relations Board.

NPRM — Notice of Proposed Rulemaking.

OIG — Office of Inspector General withinthe Department of Health and Human Ser-vices.

OSHA — Occupational Safety and HealthAdministration.

5. MEDICARE & MEDICAIDTERMINOLOGY

ABN — Advance Beneficiary Notice, a formthat advises the beneficiary that Medicaremay not pay for the service.

“Accept assignment” — An agreement onthe part of the participating physician to ac-cept the Medicare or Medicaid allowable,which the beneficiary (the patient) assigns tothe physician, as payment in full for thephysician’s services.

“Black box” edits — The secret third-partypayment rules that result in claim denialsbased on the particular code or combination ofcodes submitted.

Bundling — The practice by Medicare andsome private carriers of including paymentfor certain covered services within the pay-ment for the primary procedure or servicerather than reimbursing separately for thosecovered services.

CAC — Carrier advisory committee.

CCI — The Correct Coding Initiative, amanual prepared for HCFA that lists thosepairs of CPT-4 codes that cannot be billed to-gether.

CF — Conversion factor. In the Medicarecontext, the CF is set by HCFA. In the non-Medicare context, physicians are free to es-tablish their own CFs.

DRG — Diagnosis-related group (the basisfor payments to hospitals and other providersunder Medicare Part A).

EDI — Electronic data interchange.

EOMB — Explanation of Medicare Part Bbenefits.

Form 855 — Medicare Part B provider en-rollment form.

FFP — The federal financial participation forthe Medicaid program that consists of the fed-eral matching funds for state Medicaid expen-ditures.


GAF — Geographic adjustment factor.

Limiting charge — A limitation on theamount that nonphysicians may chargeMedicare beneficiaries. The limiting chargeis 115 percent of the lower nonparticipatingfee schedule payment (i.e., 109.25 percenthigher than the allowable charge).

MAAC — Maximum Allowable ActualCharge.

MCM — Medicare Part B Carriers Manual.

MEI — Medicare Economic Index.

MFS — Medicare Fee Schedule.

PPS — Prospective payment system that isthe basis on which Medicare compensateshospitals.

RBRVS — Resource-Based Relative ValueScale (the methodology underlying theMedicare Physician Fee Schedule).

RVU — Relative value unit.

Unbundling — The practice of submittingbills piecemeal or in fragmented fashion tomaximize the reimbursement for various testsor procedures that are required to be billed to-gether and therefore at a reduced rate.

UPIN — Unique Provider IdentificationNumber.

6. PRIVATE ORGANIZATIONS

AAA — Anesthesia Administration Assem-bly, a unit of the Medical Group Manage-ment Association.

AANA — American Association of NurseAnesthetists.

ABA — American Board of Anesthesiology.

ABMS — American Board of Medical Spe-cialists.

AMA — American Medical Association.

ASA — American Society of Anesthesiolo-gists.

FSMB — Federation of State MedicalBoards.

JCAHO — Joint Commission on Accredita-tion of Healthcare Organizations.

MGMA — Medical Group Management As-sociation.

NCQA — National Committee of QualityAssurance. NCQA accredits managed careorganizations.

B.ORGANIZED ALPHABETICALLY

ADR — Alternative dispute resolution.

AAA — Anesthesia Administration Assem-bly, a unit of the Medical Group Manage-ment Association.

AANA — American Association of NurseAnesthetists.

ABA — American Board of Anesthesiology.

ABMS — American Board of Medical Spe-cialists.

ABN — Advance Beneficiary Notice, a formthat advises the beneficiary that Medicaremay not pay for the service.

“Accept assignment” — An agreement onthe part of the participating physician to ac-cept the Medicare or Medicaid allowable,which the beneficiary (the patient) assigns tothe physician, as payment in full for thephysician’s services.


ADA — Americans with Disabilities Act.

AMA — American Medical Association.

ASA — American Society of Anesthesiolo-gists.

ASC — Ambulatory surgical center.

“Black box” edits — The secret third-partypayment rules that result in claim denialsbased on the particular code or combinationof codes submitted.

Bundling — The practice by Medicare andsome private carriers of including paymentfor certain covered services within the pay-ment for the primary procedure or servicerather than reimbursing separately for thosecovered services.

C corporation — A corporation that has notelected Subchapter S status.

CAC — Carrier advisory committee.

CCI — The Correct Coding Initiative, a man-ual prepared for HCFA that lists those pairs ofCPT-4 codes that cannot be billed together.

CF — Conversion factor. In the Medicarecontext, the CF is set by HCFA. In the non-Medicare context, physicians are free to es-tablish their own CFs.

CFR — Code of Federal Regulations.

CHAMPUS — Civilian Health and MedicalProgram of the Uniformed Services.

“Claims-made” policy — An insurance poli-cy that provides coverage for claims assertedduring the time period that the liability policyis in effect. Once the policy expires or termi-nates, insurance protection stops. Physiciansgenerally purchase a “tail” policy to cover lia-bility during the otherwise uncovered period.

“Clean sweep” — A contractual provisionthat ties a physician’s privileges to the exis-tence of the agreement and provides that theprivileges of Group physicians automaticallywill terminate upon expiration of the agree-ment for any reason.

CMS — Centers for Medicare & MedicareServices (previously known as HCFA).

COBRA — Consolidated Omnibus BudgetReconciliation Act.

the Code — The Internal Revenue Code.

CPT™ — [Physicians’] Current ProceduralTerminology, currently in the Fourth Edition,published by the American Medical Associa-tion, which lists descriptive terms and identi-fying codes for reporting medical servicesand procedures performed by physicians.

CROSSWALK™ — An ASA publication thatis a systematic listing of all AMA CPT-4codes except pathology with appropriateanesthesia CPT-4 codes.

DEA — Drug Enforcement Administration.

DNR order — Do-not-resuscitate order.

DOJ — United States Department of Justice.

DRG — Diagnosis-related group (the basisfor payments to hospitals and other providersunder Medicare Part A).

Economic credentialing — Credentialing aphysician based upon the physician’s impacton the hospital’s bottom line, rather than thequality of care the physician provides, in de-termining whether to grant or deny privileges.

EDI — Electronic data interchange.

EIN — Employer identification number (thetax identifying number assigned to entities,


analogous to the Social Security number is-sued to individuals).

E&M code — Evaluation and managementcode.EMTALA — Emergency Medical Treat-ment and Active Labor Act. EMTALA is afederal statute that prohibits the refusal ofservices or transfer of patients prior toscreening and stabilization.

EOMB — Explanation of Medicare Part Bbenefits.

FFP — The federal financial participationfor the Medicaid program that consists of thefederal matching funds for state Medicaidexpenditures.

FFS — Fee-for-service method of reim-bursement.

FICA — Federal Insurance ContributionAct, which establishes the requirement ofemployer and employee contributions to theSocial Security system.

Form 855 — Medicare Part B provider en-rollment form.

FSMB — Federation of State MedicalBoards.

FUTA — Federal Unemployment Tax Act.

GAF — Geographic adjustment factor.

HCFA — Health Care Financing Administra-tion, a unit of the Department of Health andHuman Services. HCFA is responsible foradministering the Medicare program. Effec-tive June 14, 2001, HCFA was renamed theCenters for Medicare & Medicaid Services(CMS).

HHS — The United States Department ofHealth and Human Services.

HIPAA — Health Insurance Portability andAccountability Act.

ICD or ICD-9 — International Classifica-tion of Diseases, 9th Revision. A comprehen-sive listing of diagnosis codes used to de-scribe the diagnosis, symptom, complaint,condition or problem; used for clinical andbilling purposes.

IRA — Individual retirement account.

IRS — Internal Revenue Service.

JCAHO — Joint Commission on Accredita-tion of Healthcare Organizations.

Limiting charge — A limitation on theamount that nonphysicians may chargeMedicare beneficiaries. The limiting chargeis 115 percent of the lower nonparticipatingfee schedule payment (i.e., 109.25 percenthigher than the allowable charge).

LLC — Limited liability company.

LLP — Limited liability partnership.

MAAC — Maximum Allowable ActualCharge.

MCM — Medicare Part B Carriers Manual.

MCO — Managed care organization.

MEI — Medicare Economic Index.

MFS — Medicare Fee Schedule.

MGMA — Medical Group Management As-sociation.

NLRB — National Labor Relations Board.

NCQA — National Committee for QualityAssurance. NCQA accredits managed careorganizations.


NPRM — Notice of Proposed Rulemaking.

“Occurrence” policy — An insurance poli-cy that provides coverage for claims relatingto clinical services provided during the timethe insurance coverage is in effect, no matterwhen a claim relating to those services is as-serted.

OIG — Office of Inspector General withinthe Department of Health and Human Ser-vices.

OSHA — Occupational Safety and HealthAdministration.

PACU — Postanesthesia care unit or recov-ery room.

PCP — Primary care physician.

PPS — Prospective payment system.

Qui tam action — An action brought by aninformer under a statute, such as the federalFalse Claims Act, that establishes a penaltyfor the commission (or omission) of a certainact, and provides that part of any recovery isto go to the person bringing the action, withthe remainder going to the state. Qui tam isan abbreviation of a longer Latin phrase thatin full means: “Who sues on behalf of theKing as well as for himself.”

RBRVS — Resource-Based Relative ValueScale (the methodology underlying theMedicare Physician Fee Schedule).

Relator — “Whistleblower.” In the contextof the False Claims Act, the private personwith knowledge of false claims or fraud whobrings a lawsuit in his/her own name and inthe name of the United States.

RFP — Request for proposal.

RUC — The AMA/Specialty Society Rela-tive Value Update Committee.

RVG — Relative value guide.

S corporation — A corporation that haselected “Subchapter S” status under the In-ternal Revenue Code.

SIMPLE plan — Savings Incentive MatchPlan for Employees.

SSN — Social Security number.

Subchapter S status — An election underfederal tax laws that provides for “pass-through” taxation as a partnership with prof-its and losses attributed to the membersrather than to the entity.

TEFRA — Tax Equity and Fiscal Responsi-bility Act (1982).

Unbundling — The practice of submittingbills piecemeal or in fragmented fashion tomaximize the reimbursement for varioustests or procedures that are required to bebilled together and therefore at a reducedrate.

UPIN — Unique Physician IdentificationNumber.

practice management 2008 2009...starting out: a practice management guide for anesthesiology...

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