Anesthesia Services Agreement: A Conceptual Perspective
Summary: Anesthesia groups that once experienced stability are now facing stresses due to various factors. It is becoming increasingly critical for groups to use data-driven metrics to secure reasonable agreements with their hospital administrations. The standard model of such agreements may also be changing.
Every anesthesia practice must define its relationship with the facilities it serves in terms that are mutually clear and beneficial. For private anesthesia practices, this takes the form of an anesthesia services agreement that needs to be updated and revised as service expectations change and as economic realities evolve. Although employed departments do not go through the same exercise of negotiating an agreement, the business objectives are fundamentally the same. There are three themes that must be discussed and clarified for the relationship to remain viable and productive. The department must be clear as to its responsibilities, risks and rewards. No amount of legal verbiage should obscure these key aspects of the relationship, which is why they should be the initial focus of discussion. The interesting reality is that while most practices have a clear understanding of the first two areas, they are often hard pressed by the third.
Responsibilities
It used to be that defining the responsibility of an anesthesia department was quite simple: provide qualified anesthesia care to all surgical and obstetric patients. For a long time, this involved coverage of the operating room suites and delivery. That was usually relatively easy to accomplish when procedural volume and payer mix generated an adequate revenue stream to hire the necessary providers. Unfortunately, this is no longer the case. The biggest challenge most practices now face is generating enough revenue to recruit and retain a team of qualified providers to meet administration requirements. As a result, what was once assumed must now be defined. Defining the coverage grid now involves the collaboration of anesthesia, OR management and administration. In the current competitive environment for healthcare, administrations are attempting to leverage their anesthesia coverage to attract more physicians. The reality is that this often costs more than the revenue generated by the cases performed and results in the need for a significant stipend. As stipend amounts continue to increase, so does the need to reconcile the needs of administration with the resources available to anesthesia.
Defining the number and types of providers needed to meet facility expectations is no simple matter given the dynamic nature of healthcare. Predicting the future is never simple. There is no better example of this than a review of the impact of Covid-19 over the past two years. Many factors impact the anesthesia staffing requirements. While revenue potential is important, it is no longer the main criterion. Hospital administrators tend to think in terms of potential lines of business. There is always a degree of wishful thinking especially when they talk about things like implementing a stroke center, expanding trauma coverage or expanding OB. The two scariest words to anesthesia practices are scope creep. In other words, the level of service defined today somehow morphs into something far more extensive tomorrow.
The fundamental problem is that while administrators want flexibility and an uber-anesthesia model of delivery, this is not how anesthesia practices work. They must hire staff providers or pay a premium of locums. They want and need predictability in the coverage grid. This is especially important given the current anesthesia manpower shortage. The goal of every practice must be to recruit team players who are committed to the success of the practice, and this is becoming ever more difficult.
Good and durable anesthesia agreements are based on clear and realistic coverage expectations. This can only be achieved through collaboration and cooperation. The goal must be to find the right balance that satisfies most of the needs and expectations of both parties.
Risks
The irony is that while anesthesia providers are trained to manage clinical risk, they are generally fairly risk averse in their business dealings. Today's providers want to know how hard they have to work and what they will be paid. This is especially true of the current generation. Most are quite adept at managing clinical risk in the operating room, but they have little knowledge or appreciation of the broader market factors that ultimately determine their income and lifestyle. This is especially problematic when it comes to their discussions with administration. Very few arrangements provide for a flexible or formula-driven subsidy arrangement. Hospitals need to be able to plug the potential cost of anesthesia into their budgets. Moreover, they are obligated legally to pay only fair market value for anesthesia services. This is a constant challenge. More than a few practices have spent months negotiating the financial terms of an arrangement only to find that, once they committed to it, the terms were inadequate. This may be why so many practices have gone out of business in the past few years.
The days of fixed subsidy agreements may be coming to an end. There are simply too many variables to anticipate the needs a year or two from now. It is now incumbent on the stakeholders to explore all the potential opportunities and risks of each anticipated line of business. The anesthesia practice should mine its database to assess each line of business both in terms of its coverage requirements and profit potential. Just as there is increasing turnover in anesthesia staff, so too are surgeons changing positions at an increasing rate. The potential departure of a key surgeon can have a very significant impact on the anesthesia team. A key analysis that every practice should be monitoring is volume and revenue trends by surgeon. Many also want to monitor average effective yields per case or per hour as a way of anticipating the revenue potential of their practice.
Establishing a clear and convenient mechanism to maintain the financial viability of the anesthesia practice has become an ever more important part of contract negotiations. It probably explains why many more one- and two-year agreements are being drafted than the longer-term agreements groups used to favor. Economic realities are simply not that predictable. The irony is that, when a hospital takes over an anesthesia practice, this economic reality does not change; it just gets lost in the overall hospital budget.
Rewards
Traditionally, the reward for a successful contract negotiation has been an exclusive agreement to provider anesthesia services at the facility. This used to be the prize, but now sometimes an exclusive agreement is a curse rather than a blessing—especially if the terms are not favorable and if the agreement does not anticpate market changes. Such agreements must be viewed through a new lens. They must allow for long-term profitability and success.
What is it that anesthesia providers aspire to? What is the reward they hope for in selecting a practice and managing its relationship with administration? Most hope for three things: clinical freedom to provide anesthesia the way they believe it should be provided, a reasonable and competitive compensation and a good lifestyle. These must be the end result of their practice management. Some practices are lucky to be located where surgical and obstetric volumes are consistent and strong and where payer mix is favorable, but most are not. This is becoming an ever more important challenge. Unhappy providers will move on. The reality is that it is usually the best qualified and most talented providers who jump ship first.
There is a growing perception among anesthesia providers that they are losing control. Pharmacy limits the drugs and agents they can use. The hospital limits the resources they need. Manpower shortages are resulting in longer work hours and less pay. Governmental regulations are resulting in more paperwork and an increasing administrative burden. The new focus is on customer service. It is now as important how they act outside the operating room as in it. This is not the environment many providers signed up for or want to work in.
This is all why this is the most challenging aspect of anesthesia practice management. There has to be a carrot and not just a stick. This is the challenge and the opportunity as we move forward. If you would like more information regarding this topic, please speak with your account executive or contact us at info@anesthesiallc.com.