Proformas for anesthesia practices: purpose, timing, content, negotiation strategy, and legal guardrails
An anesthesia proforma is a forward‑looking financial model that forecasts revenues, expenses, staffing, cash flow, and required facility support under stated operational assumptions. A well‑constructed, defensible proforma is indispensable to demonstrate fair market value and commercial reasonableness, quantifying a stipend, demonstrating a support need, aligning service levels and quality expectations, and managing legal risk under federal and state law.
When to Produce or Update a Proforma
The principal trigger for producing a pro forma is a new or renewing facility agreement. Before a practice commits to exclusivity, coverage obligations, or a medical directorship arrangement, the practice should forecast demand, staffing, and collections under the draft terms to determine the value of the opportunity. This includes hospital‑based arrangements for main ORs, obstetrics, trauma, endoscopy, cath lab, electrophysiology, and interventional radiology, as well as ambulatory centers with block schedules and variable add‑on rates. Contract effective dates should be preceded by a modeling period of at least several months to collect reliable baseline data and to negotiate adjustments.
A proforma should also be produced for significant operational changes. Expanding to a new service line, adopting or modifying an anesthesia care team model, changing supervision ratios, or assuming additional in‑house call are classic examples that alter both cost and revenue. Similarly, changes in the payer environment warrant updates. Entering or exiting payer contracts, shifts in commercial payer mix, and regulatory developments such as revisions to the federal anesthesia conversion factor or state balance‑billing prohibitions all affect net collections and should trigger recalculation.
Preparing an updated proforma for annual budgeting is another appropriate cadence. Even without major changes, inflation in clinician compensation and benefits, malpractice premiums, billing vendor rates, and recruitment costs can erode margins. Proformas that incorporate wage trends, local labor market conditions, and expected volume growth or contraction enable timely renegotiation of stipends or the introduction of specific provisions in the agreement, such as escalation clauses, that are tied to objective indices. Proformas can also frame contingency plans for unexpected events such as OR closures, pandemic constraints, or surgeon departures.
A proforma should also be refreshed after material variances are observed. If actual collections per anesthesia unit diverge materially from forecast due to denials, documentation shortfalls, or payer underpayments, the model must be recalibrated. Likewise, if facilities fail to maintain agreed block utilization or add coverage sites without compensation modifications, the practice should quantify the impact and invoke renegotiation triggers contemplated in the contract. Regular variance analysis supports a constructive dialogue between the practice and facility and protects against incremental scope creep.
Finally, proformas are important tools for corporate and strategic transactions. Mergers with another anesthesia group, entering management services arrangements, or partnering with an ambulatory surgery center for co‑management all require a clear forward view of financial implications. In these cases, modeling multiple scenarios is helpful. By including conservative, base, and optimistic cases that test sensitivity to volume, payer mix, and staffing availability, the practice can obtain a better financial picture and financial forecasting.
Anatomy of a Defensible Anesthesia Proforma
A defensible anesthesia pro forma begins with a detailed volume model. Case volumes should be projected by site and service line, with attention to first‑case on‑time starts, turnover times, and block utilization. For anesthesia, the fundamental revenue engine is the anesthesia unit, which combines procedure‑specific base units and time units based on recorded minutes under anesthesia. The model should translate anticipated cases into total units using historical averages by specialty, then apply concurrency and medical direction assumptions aligned with the intended supervision model. These assumptions must reflect payer rules and documentation requirements to avoid overstating billable units.
Specific Payer Considerations
The revenue model must then incorporate payer‑specific rates and expected realization. Medicare sets a published anesthesia conversion factor applied to total units, and most commercial contracts are negotiated as a multiple or specified rate per unit. The model should layer in payer mix for each site, expected participation status, anticipated reductions under the No Surprises Act for out‑of‑network facility‑based anesthesia, and reasonable assumptions for denials and rework. Collections timing and days in accounts receivable should be estimated to inform cash flow and working capital needs. Where applicable, separate modeling of professional fees for pain services or procedural sedation policies at ASCs is advisable, given differing billing rules.
Staffing Model
The staffing and coverage matrix is the heart of the expense model. It should map required in‑room coverage, pre‑op and PACU needs, and call obligations to full‑time equivalents for anesthesiologists and advanced practice providers such as CRNAs or AAs. The anesthesia care team structure, including supervision ratios by shift and site, must match the revenue assumptions regarding medical direction. The choice of staffing model has significant financial and operational implications. An all-physician model offers high direct MD involvement and is well-suited for complex or high-acuity cases, but is typically more costly and less flexible for routine volumes. The care team model, with physicians directing CRNAs or AAs, can maintain or improve quality and throughput when protocols are robust, offering greater flexibility and efficiency. CRNA-only models, where permitted, may yield cost savings for select settings but require clear consultation pathways for complex cases and strict compliance with facility bylaws and state scope of practice.
On the expense side, the proforma should detail staffing and coverage costs, including full-time equivalents by role, supervision ratios, relief coverage, call stipends, differentials for nights and weekends, overtime, and locum tenens as needed. Recruiting, onboarding, and potential relocation or sign‑on expenses, along with anticipated retention bonuses, should be amortized consistent with the expected retention period. Compensation and benefits should reflect current market rates, benefits load, and any retention or recruitment costs. Operating expenses must include professional liability insurance, billing and coding costs, IT and scheduling systems, quality registry fees, administrative staffing, management fees, and equipment maintenance. Importantly, the true cost of 24/7 readiness, including call and availability, should be explicitly budgeted, as this is often underestimated but essential for safe operations.
The revenue model should translate projected cases into total anesthesia units by specialty, ensuring that documentation and medical direction criteria are realistically achievable. Apply the appropriate Medicare conversion factor and contracted commercial rates, taking into account payer-specific rules for time units, concurrency, and modifiers. The No Surprises Act requires a reduction in out-of-network yield assumptions for hospital and ASC settings, so the model should incorporate expected arbitration outcomes or a timeline for in-network contracting. Additionally, factor in expected denials, rework costs, and underpayment risk, and forecast collections and accounts receivable timing to inform cash flow and working capital needs.
Performance Metrics
To maximize value, staffing and operations should be tied to measurable performance. Key quality indicators include adverse events, postoperative nausea and vomiting, unplanned admissions or readmissions, and other complications. Efficiency metrics such as first-case on-time starts, turnover times, room utilization, and cancellation rates are also critical. Patient experience, as measured by satisfaction scores, and participation in value initiatives like enhanced recovery protocols, multimodal analgesia, and standardized safety protocols, further demonstrate the impact of anesthesia services. Performance-based compensation can be aligned to these metrics, and the proforma should model cost avoidance and incremental shared savings achievable when anesthesia is fully engaged.
Cash Flow
A robust pro forma translates accrual projections into cash flow, accounting for monthly receipts, working capital needs, ramp-up dynamics, and payroll or vendor timing. Stipend design should include a fixed base for 24/7 readiness and a variable component tied to covered rooms, OR hours, or time bands. Inflation indexing and true-up mechanisms based on agreed drivers, such as volume, payer mix, or coverage, help maintain fairness over time. Clearly document the amount, timing, and reconciliation cadence, and consider front-loading stipends during ramp-up periods to offset cash lags.
Scenario and sensitivity analysis is essential for resilience. Build base, downside, and upside cases with clear triggers and ranges, such as shifts in payer mix, timing of in-network negotiations, conversion factor updates, OR efficiency improvements, staffing availability, and documentation or coding performance. All assumptions and units (monthly and annual) should be disclosed, and the model should show how changes affect support needs or shared savings.
Operating Expenses
Operating expenses and overhead should be explicit and realistic. Professional liability premiums, tail coverage accruals, billing and coding vendor fees or internal revenue cycle costs, scheduling and documentation software, quality registry fees, and continuing medical education budgets are regular components. Administrative staffing for scheduling, credentialing, payer enrollment, and contract management must be included. If the group is subject to corporate practice of medicine constraints and uses a management services organization, the management fee should be modeled at a fair market value rate that corresponds to actual services delivered. Some states limit or prohibit percentage-based compensation models, so it is important to be aware of state law applicable to management agreements. Equipment purchases are usually limited for anesthesia groups, but ultrasound for regional anesthesia, airway equipment, and point‑of‑care testing may be carried; depreciation and maintenance should be recognized if relevant.
Building Assumptions That Will Withstand Scrutiny
Assumptions should be anchored in recent, site‑specific data wherever possible. Historical case logs, anesthesia record time stamps, and surgeon block schedules provide a reliable basis for forecasting units per case and add‑on variability. Where new coverage is contemplated, proxy data from similar facilities or specialties can be used, with clear caveats and a plan to reconcile once site-specific data emerges. Quality of documentation is a recurrent driver of realized units, and the proforma should assume achievable documentation practices; aggressive assumptions that require a step‑change in behavior should be paired with a documented training and auditing plan.
Revenue assumptions require careful attention to payer rules and requirements. Medicare anesthesia payment applies a published conversion factor to total units, with modifiers for medical direction and concurrency. Commercial payers often vary in their recognition of time units, concurrency rules, and medical direction modifiers, and some impose caps or reduced payment for certain settings. The federal No Surprises Act limits the ability to balance bill for anesthesia in hospital and ASC settings when out of network, and reimbursement for such cases is determined by an independent dispute resolution process if parties cannot agree. A prudent pro forma reduces assumed out‑of‑network yield accordingly or assumes progressive in‑network contracting. Denial rates, underpayment risk, and the cost of appeals should be explicitly included to avoid optimistic bias.
Staffing assumptions should reflect actual labor market constraints. National and regional shortages compensation have meaningful variation by region and setting. Recruiting timelines, potential locum bridge coverage, and retention strategies all carry costs as well that must be modeled. Supervision ratios must be achievable within the facility’s geography and service mix; complex cases or dispersed sites often limit the ability to maximize ratios. Call coverage assumptions should factor in reasonable fatigue and compliance rules to maintain quality and safety, as excessively lean assumptions can be both unsafe and financially misleading.
Expense assumptions should be current and comprehensive. Professional liability premiums vary by state, claims history, and limits, and a proforma should reflect quotes or recent invoices rather than generic estimates. Billing costs can be internal or outsourced, but either way, they are material and should be tied to expected claim volume and complexity. Information technology, including anesthesia information management systems and secure messaging, is often underbudgeted. Incorporating realistic licensing and support fees avoids later surprises. Finally, general inflation and wage escalation should be included, and contracts should be structured with escalators that track these realities.
Scenario analysis should be more than cosmetic. A credible downside case might assume a measurable decline in commercial payer mix, slower success in payer contracting, or increased locum reliance if recruitment is delayed. An upside case could reflect improved OR efficiency leading to higher throughput with the same staffing. Presenting these cases transparently demonstrates professionalism and prepares both parties to agree in advance on how to handle variance.
Using the Proforma in Hospital Contract Negotiations
In hospital negotiations, the proforma should be positioned as a shared planning tool rather than a unilateral ask. Sharing the proforma at an appropriate level of detail, with sensitive rate information redacted if necessary, allows constructive challenge and alignment on assumptions. The coverage matrix should be cross‑walked to service level agreements. The proforma should quantify the cost of each obligation and show how changes affect the subsidy. Tying dollars to specific service levels reduces ambiguity and creates an objective basis for future adjustments if the hospital expands services or changes schedules.
Stipend structure is best derived from the proforma’s cash and accrual views. A fixed base payment can fund 24/7 readiness, with a variable component tied to covered rooms or OR hours to reflect usage. Indexing the stipend for inflation using a mutually accepted measure of labor costs, and including a true‑up mechanism based on agreed metrics, preserves fairness over multi‑year terms. Quarterly reconciliations that compare actual volume, payer mix, and staffing to the proforma enable timely adjustments and avoid year‑end disputes.
Negotiations should also establish escalation and renegotiation triggers. If payer mix shifts materially, if OR capacity is added or reduced, or if regulatory changes alter collections, the parties should agree to reopen financial terms using the pro forma as the recalculation framework. Similarly, if the hospital requires additional non‑clinical duties such as medical directorship, committee participation, or education, the proforma should isolate these duties and compensate them at fair market value based on time and responsibility rather than on case volume.
Using the Proforma in Ambulatory Surgery Center Negotiations
Ambulatory surgery centers require a different emphasis. Block scheduling and shorter cases usually increase predictability, but add‑on variability and staffing gaps can still be material. The proforma should model room coverage during block hours, realistic turnover times, and any required after‑hours or weekend coverage. ASC negotiations frequently involve exclusivity and medical directorship or management services. The proforma should segregate clinical professional services from administrative duties such as scheduling coordination, policy development, and quality reporting, each compensated at fair market value for time actually spent. If the ASC requests participation in co‑management arrangements with quality incentives, the model should reflect achievable targets and reasonable upside without tying compensation to the volume or value of referrals, which could run afoul of the Federal Anti-Kickback Statute.
Physician ownership of ASCs introduces additional and specific legal sensitivity. Arrangements that could steer anesthesia revenue or provide below‑market or free services in exchange for exclusive access have been criticized by enforcement agencies as potential inducements. Using a pro forma to document that anesthesia compensation and any administrative fees are fair market value for necessary services can mitigate risk. The model should not assume revenue sharing, per‑click payments, or other constructs that vary with the volume or value of federally reimbursable cases, unless they fall within a clearly applicable safe harbor and are supported by counsel. As with hospitals, ASC agreements benefit from escalation clauses and variance mechanisms tied to the modeled drivers.
Legal and Regulatory Considerations When Using Proformas
Fair market value and commercial reasonableness are the central legal touchstones. Any hospital or ASC compensation to an anesthesia group should reflect the value of services actually needed and provided, independent of any referrals. A robust proforma, ideally corroborated by third‑party benchmarking or appraisal, is strong evidence that payments are consistent with market practice and not excessive. The model should avoid tying compensation to the volume or value of facility referrals; instead, it should tie to coverage, readiness, and administrative duties.
The Federal Anti‑Kickback Statute (AKS) prohibits offering/providing or requesting/receiving remuneration to induce referrals of items or services covered by federal programs. Although anesthesia professionals typically do not control surgical referrals, they may influence site‑of‑service decisions and order ancillary services. Subsidies, exclusivity, and management arrangements therefore warrant AKS analysis. While safe harbors are technical and may not perfectly fit anesthesia stipends, risk is reduced when compensation is set in advance, consistent with fair market value, commercially reasonable, and not contingent on case volume or payer mix. The proforma’s explicit linkage to service levels and costs supports this posture. Additionally, legal review by an attorney to ensure compliant drafting with AKS and inclusion of provisions helps as well.
Physician self‑referral law compliance also matters in hospital arrangements. Even if anesthesiologists do not commonly refer designated health services in the same way as other specialties, hospitals and counsel often prefer to structure agreements to satisfy applicable exceptions for personal services or employment. These exceptions typically require fair market value, set‑in‑advance compensation that does not vary with the volume or value of referrals, and commercially reasonable terms. Proforma documentation assists in meeting these elements. State self‑referral and AKS statutes can be broader than federal law and should be considered and analyzed using counsel.
The No Surprises Act has reshaped anesthesia revenue expectations for out‑of‑network cases in hospital and ASC settings. Balance billing restrictions and an arbitration framework constrain out‑of‑network collections. Proformas that assume historical out‑of‑network yields without adjustment are likely overstated and could be deemed unreliable in negotiations. Incorporating realistic in‑network contracting timelines and arbitration outcomes is prudent. Compliance with the act’s good faith estimate and notice‑and‑consent requirements for self‑pay or limited consent situations should also be resourced in the expense model.
Antitrust and confidentiality considerations apply when sharing proformas. Specific payer rate information is competitively sensitive; it should be shared only as necessary for negotiations and protected by confidentiality provisions or non‑disclosure agreements. Practices should avoid exchanging rate information with competitors. For public hospitals subject to open records laws, subsidy documentation may be disclosable; marking materials as proprietary and carving out trade secrets can mitigate exposure, though it cannot eliminate it.
Corporate practice of medicine and employment law constraints can shape structure and costs. In some states, hospitals cannot employ anesthesiologists directly, necessitating professional services agreements with medical groups and, often, management services organizations. The proforma should reflect any management fees and ensure they correspond to actual services at fair market value. Worker classification, benefits, and non‑compete enforceability also differ by jurisdiction and may affect compensation models and retention assumptions. Finally, billing compliance is a legal imperative that affects revenue realism; if the proforma assumes medical direction modifiers, the agreement and documentation workflows must ensure that supervision criteria are met, or the model should reflect the lower reimbursement associated with independent practice codes.
Implementing, Monitoring, and Updating the Proforma
The contract should require the facility to share timely data on schedules, utilization, cancellations, and case mix so that the practice can measure actual performance against modeled assumptions. Internally, the practice should produce monthly dashboards that compare units per case, collections per unit, denial rates, staffing coverage, and stipend reconciliations to the pro forma, as such will assist the practice in identifying and explaining variances and proposing corrective actions. Where documentation gaps are identified, targeted training and audits should be implemented, with progress reflected in future forecasts.
Change management should be formalized. If the facility requests coverage beyond modeled hours or adds procedural sites, the parties should use the proforma’s cost coefficients to price the change and document a corresponding stipend adjustment. Conversely, if utilization targets are not met or rooms are consistently idle, the model can justify a reduction in staffed locations or a stipend recalibration. Regular meetings with the anesthesia provider and the facility should be required in the agreement provide a forum to apply the proforma as a shared, living tool.
The anesthesia provider should also be mindful of cashflow and align payroll cycles, billing submission timelines, and expected receipt patterns to avoid liquidity strain. If the proforma anticipates a ramp‑up, the facility stipend can be front‑loaded or paid more frequently during early months to cover working capital. Over time, as payer enrollment completes and denial rates stabilize, the model can transition to steady‑state assumptions and less frequent reconciliations.
As detailed in this article, proformas can play a critical role in supporting an anesthesiology practice’s success in several ways. Proformas provide tangible illustrations of a practice’s finances and operations, which can be an effective tool in negotiations with facilities and can also assist with ongoing monitoring and adjustments where contemplated. In addition, such information allows the practice to recognize trends and better forecast staffing needs, expenses, and revenues, supporting internal management. Detailed data typically included in proformas is also available to support fair market value assessments and commercial reasonableness, which are critical from a compliance statement. With the benefits and insights that preparing proformas can provide, all practices should consider incorporating proformas into practice management.
For more information on building a proforma, please contact McDonald Hopkins Healthcare Practice Group's Rachel Carey and Elizabeth Sullivan.
