Anesthesia: The Increasing Consolidation of our Industry
While the business of health care continues to evolve, there is perhaps no part of it changing faster than anesthesia. Numerous factors are quickly shifting the market towards an even more competitive and demanding landscape. The days of anesthesia groups simply providing clinical coverage in a hospital’s operating rooms are, for better or for worse, drawing to a close.
As the expectations of hospitals for the types and levels of services to be provided by anesthesia are increasing, anesthesiologists now find themselves performing cases in non-traditional anesthetizing locations such as GI Suites, ECT and Electrophysiology. In addition, many anesthesiologists are expected to serve in roles not always seen as traditional for anesthesia, such as holding the broad responsibility for Peri-Operative Services, Pre-Surgical Testing processes, serving as leaders of hospital committees, etc.
A continued shift in payor mix, to government payors that have long undervalued anesthesia services, has forced an increasing number of anesthesia practices into either accepting a decrease in compensation or entering into subsidy arrangements with their hospitals. As subsidies have increased, with the Clinical Advisory Board reporting in 2005 that the average annual subsidy paid by hospitals had risen to almost $120,000 per anesthesiologist, the level of competition for professional services agreements has intensified. With that increase in competition, the idea of a “local bubble” has been shattered as we’ve seen many long tenured anesthesia groups lose their primary hospital contracts to new and geographically diverse competitors.
All the above, plus the continued specter of looming Medicare reimbursement cuts, have left many in the anesthesia world looking for ways to help insulate themselves from the ever increasing competitiveness and risk of the marketplace. While there are numerous tried and true methods of insuring your group’s continued success, the frequency of practice consolidation has increased rapidly in the past 18 months. Consolidation can happen a number of ways. This article provides a look into many of the most frequently seen.
One method of consolidation that has been gaining popularity recently is the merger of multiple groups into a single entity. We have seen this recently happen withtheanesthesiadepartmentsatNYU LangoneMedical Center and NYUHospital for JointDiseases(bothin New York City) combining into a single unified department across their campuses, and with the creation of Greater Florida Anesthesiologists, five previously unaligned practices coalescing into one single large group.
There are many benefits to merging one practice with another; the practice is no longer a single department on its own, it will now have a larger practice base to spread fixed expenses across. With larger mass, the ability to leverage the purchase power of the newly-combined entity to drive discounts with suppliers is enhanced – leaving no stone unturned from photocopier leases to medical supplies. Larger groups may now have access to superior employee benefits like pension plans, group health, life and disability that may not be available to small businesses.
Other non-financial benefits will also begin to accrue to the practices. There will now be the ability to cross-privilege clinicians, leading to the possibility of vacation or sickness coverage between the new partners. Clinical information exchange will increase with the opportunity to implement best practices and establish group-wide clinical guidelines to enable better patient care.
Joining a Larger Organization
There are numerous examples of independent anesthesia practices joining larger groups, but I will focus on one that I can describe firsthand. In May of 2010, the anesthesia group at South Nassau Communities Hospital in Oceanside, NY joined NAPA – North American Partners in Anesthesia (the organization in which this author works).
The practice had been the anesthesia provider at the hospital for over 20 years, operating its own very well known and respected chronic pain management program and office-based anesthesia business. Despite all of its success, the group recognized the advantages of alignment with a larger group.
Upon integrating with a larger group, the group at South Nassau immediately had access to the well developed clinical and business management systems that a large group can develop. The Chairman of the department retains local autonomy over scheduling, vacations, daily assignments, etc., while being able to call on the larger entity for support with emergency staffing, implementing established clinical protocols and benchmarking against other like-sized hospitals within NAPA.
The larger entity provides the “Verizon Network” behind the Chairman and the department’s clinicians. The larger entity furnishes all management infrastructure and services such as billing and collections, employee benefits, human resources, credentialing and privileging services, etc. Most importantly, as part of a large group you have access to data and quality assurance programs at levels unavailable to independent groups.
The result of the combination with the larger entity has been a stronger relationship with the hospital, an enhancement of services provided to the anesthesiologists and CRNAs at the hospital and the security that comes with being part of a larger organization.
Sale To a Well-Funded Multi-Specialty Company
Anesthesia has also undergone another significant change – anesthesia is no longer just a medical specialty; it’s a “space” for publicly traded and privately funded companies to invest in. Mednax, EmCare and others have begun to move aggressively into anesthesia, purchasing many large, well-established and respected anesthesia groups.
Many of these groups had already achieved some of the benefits of either merger or joining a large group and they saw the opportunity to monetize their practice and become part of even larger, multi-specialty groups. We can expect to see this happen with greater frequency in the future as more attention is paid to the investment potential of anesthesia.
Aggregation as a defensive measure is no stranger to medical practices. We’ve seen significant consolidation in pediatrics, OB/GYN, urology, large multi-specialty groups and, now, anesthesia. Be it through a merger, joining a larger group, sale to another entity or through other methods, the paradigm is shifting away from the small independent practice towards larger cohesive anesthesia management companies and groups.
While the thriving unaligned anesthesia practice will not fade completely from existence, the diverse pressures of a changing marketplace will make it increasingly difficult for many to continue as they are today.