Out-of-Network Surgery Centers and the Anesthesiologist

Physician anesthesiologist at Stanford at Associated Anesthesiologists Medical Group
Richard Novak, MD is a Stanford physician board certified in anesthesiology and internal medicine.Dr. Novak is an Adjunct Clinical Professor in the Department of Anesthesiology, Perioperative and Pain Medicine at Stanford University, the Medical Director at Waverley Surgery Center in Palo Alto, California, and a member of the Associated Anesthesiologists Medical Group in Palo Alto, California.
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Clinical Case for Discussion:

You’re planning a career in private practice anesthesia following your residency. One night during a dream, a wizened man with a long white beard speaks to you and says, “Beware of lateral spread, and the OON model….” He retreats into a swirling fog, and you wake up in a cold sweat. What was he talking about, and why should you care?


Whatever model of anesthesia practice you are employed in, your income will depend on two things: how many hours you spend giving anesthetics, and how much you are paid per hour. In a sense operating room anesthesia providers are like taxi cab drivers—the more rides we give, the more fares we collect. The busier your surgeons are, the busier you will be. If your surgeons operate from 7:30 a.m. until 3:30 p.m., you will be earning money for 8 hours, minus break times between cases. If your surgeons operate from 7:30 a.m. until noon, your income may be halved.

Ideally your anesthesia group will employ n anesthesiologists, working in n rooms, for 8 hours in each room. What if the number of operating rooms your group covers each day increases to n+5, but the total number of surgeries stays constant? This is happening in the surgical/anesthesia world today for several reasons. We call this phenomenon “lateral spread,” and it refers to the same surgical volume spreading out over more operating rooms, all starting at the same 7:30 a.m. time, yet now finishing hours earlier.

Reasons behind lateral spread include: (1) Surgeons prefer to operate at 7:30 a.m. when they are not following another surgeon, and therefore will not to be delayed. They can schedule their afternoon as clinic or personal time, instead of waiting to do their first case at an undependable later time slot; (2) Some busy surgeons like to run their cases concurrently in two operating rooms, so that they can operate in the second room while the first room is turning over between cases. This enables them to do more cases in less time; and (3) Many surgeons are opening their own operating rooms in freestanding surgery centers or in their offices, which gives them the advantages of controlling their own operating room schedule and environment, and the opportunity to make extra income from owning and billing for the operating room.

This last point, the extra income from owning a share in the operating room, has become a significant business issue in the current surgical/anesthetic world outside academia. By owning an operating room and then referring cases to that operating room, it’s possible for a surgical specialist to augment their surgical income significantly.

Note: It’s unusual for anesthesiologists to own the surgery center and enjoy this same advantage. Why? Because the surgeon has patients to refer to the surgery center, and most surgeons see no advantage in diluting their income by sharing it with anesthesiologists who do not refer any patients to the surgery center. (An exception to this is an anesthesiologist who is a pain specialist, and who refers his or her patients to the surgery center, thus bringing value and money to the surgery center.) A surgery center may employ an anesthesiologist as a Medical Director, and may allow a small ownership share in the surgery center to the anesthesiologist for this role. In full disclosure, I am the Medical Director of Waverley Surgery Center in downtown Palo Alto.

Waverley Surgery Center is contracted with all major insurance plans, but some surgery centers remain out-of-network (OON) with insurers. Why remain out of network? Let’s look at an example. Let’s say a patient’s health insurance pays 80% of a usual-and-customary rate for contracted physicians and health care facilities, and pays only 50% to out-of network physicians and facilities. But what if the OON facility chooses to charge a markedly inflated charge to out-of-network patients? For example, what if the facility charges $35,000 for a surgical procedure when the in-network, contracted rate is $6000? What if the insurance company then pays the facility 50% of the $35,000, or $17,500?

What if the OON facility waives the patient’s co-payment, and waives the balance of the bill not paid by the insurance company? The patient is not upset, and the facility receives a larger payment than if they were contracted with the insurance companies. It is not unusual to see out-of-network reimbursement be as much as five times higher than contracted reimbursement rates. Insurance companies have filed litigation against out-of-network ambulatory surgery centers, attempting to recover a substantial portion of the OON fees on a number of theories, including that a) the waiver of the co-pay is fraudulent, and b) waiving the co-pay is illegal interference with the contract between the patient and the payor. (www.surgistrategies.com/articles/2008/12/2009-outlook-ambulatory-surgery-centers.aspx December 18, 2008).

In 2009 HealthNet of New Jersey sued Wayne (N.J.) Surgical Center, claiming that the center engaged in fraud when it waived patients’ coinsurance payments so they would use the facility. An Appellate Court rejected HealthNet’s claim, and sided with the surgery center (www.ama-assn.org/amednews/2009/12/07/gvsc1207.htm).

Will insurance companies eventually cease to pay higher levels to OON facilities? Will the government and courts move to outlaw this practice in some way? Perhaps, but for now the playing field includes OON surgery centers making healthy profits. And the increased income from owning surgery centers provides a powerful monetary incentive for surgeons to move as many cases as possible from hospitals into these surgery centers.

Lateral spread to multiple freestanding locations complicates anesthesia scheduling and manpower. The surgical schedule may require n anesthesiologists at 7:30 a.m. for certain days, n + 3 anesthesiologists for other days, and n – 3 anesthesiologists on still other days. If the group hires n + 3 fulltime anesthesia partners, then on certain days they may have 3 to 6 more anesthesiologists than they have rooms. No cases = no income for the day, which makes people unhappy. If the group hires n – 3 fulltime anesthesia partners, then on some days they may be 3 to 6 anesthesiologists short at 7:30 a.m. How does a group handle this problem? It helps to have flexibility, i.e. individuals whose job description is to be available 5 days a week but are guaranteed only to work 3 out of 5 days. It helps to have relationships with other anesthesia groups, so that when your group is short on manpower, the other group(s) may have extra anesthesiologists to lend for a day.

My advice: Be thankful for your free time those days when you’re finished at noon, and be thankful for copious income on the days when you’re working until 7 p.m. You’ll have plenty of both kinds of days.


Published in September 2017:  The second edition of THE DOCTOR AND MR. DYLAN, Dr. Novak’s debut novel, a medical-legal mystery which blends the science and practice of anesthesiology with unforgettable characters, a page-turning plot, and the legacy of Nobel Prize winner Bob Dylan.


In this debut thriller, tragedies strike an anesthesiologist as he tries to start a new life with his son.

Dr. Nico Antone, an anesthesiologist at Stanford University, is married to Alexandra, a high-powered real estate agent obsessed with money. Their son, Johnny, an 11th-grader with immense potential, struggles to get the grades he’ll need to attend an Ivy League college. After a screaming match with Alexandra, Nico moves himself and Johnny from Palo Alto, California, to his frozen childhood home of Hibbing, Minnesota. The move should help Johnny improve his grades and thus seem more attractive to universities, but Nico loves the freedom from his wife, too. Hibbing also happens to be the hometown of music icon Bob Dylan. Joining the hospital staff, Nico runs afoul of a grouchy nurse anesthetist calling himself Bobby Dylan, who plays Dylan songs twice a week in a bar called Heaven’s Door. As Nico and Johnny settle in, their lives turn around; they even start dating the gorgeous mother/daughter pair of Lena and Echo Johnson. However, when Johnny accidentally impregnates Echo, the lives of the Hibbing transplants start to implode. In true page-turner fashion, first-time novelist Novak gets started by killing soulless Alexandra, which accelerates the downfall of his underdog protagonist now accused of murder. Dialogue is pitch-perfect, and the insults hurled between Nico and his wife are as hilarious as they are hurtful: “Are you my husband, Nico? Or my dependent?” The author’s medical expertise proves central to the plot, and there are a few grisly moments, as when “dark blood percolated” from a patient’s nostrils “like coffee grounds.” Bob Dylan details add quirkiness to what might otherwise be a chilly revenge tale; we’re told, for instance, that Dylan taught “every singer with a less-than-perfect voice…how to sneer and twist off syllables.” Courtroom scenes toward the end crackle with energy, though one scene involving a snowmobile ties up a certain plot thread too neatly. By the end, Nico has rolled with a great many punches.

Nuanced characterization and crafty details help this debut soar.

Click on the image below to reach the Amazon link to The Doctor and Mr. Dylan:


Learn more about Rick Novak’s fiction writing at ricknovak.com by clicking on the picture below: