Evaluating the Anesthesia Employment Option

Summary:

Staying independent has long been the goal for most anesthesia practices, but that goal is becoming increasingly elusive. Strategic thinking on the part of both independent groups and hospital administrators is more critical than ever in this era of cost containment.

The majority of American anesthesia providers pride themselves on working for private groups. There is a strong tradition of independent practice in this country. Anesthesia providers believe they are most productive in a group setting where they have an incentive to work hard. This model has assumed that there was sufficient work and an adequate payer mix for the practice to collect enough professional fee income to cover the costs of the staff required. Unfortunately, hospital coverage requirements have long since outstripped the revenue potential of most hospitals, and this has created the need for financial support to the anesthesia practice. While 75% of all anesthesia practices get some form of financial support from the facilities they support, the need for such support has been increasing in most locations. Increasingly, negotiations for this support can become contentious. After a few rounds of negotiating with the existing group practice, some facility administrators have elected to explore other options, such as offering a request for proposal (RFP) to potential bidders or an employment model. Neither of these options will be viewed with much favor by the current anesthesia group.

Much has been written about the strategic considerations for the negotiation of professional service agreements (PSAs) for anesthesia services. Legions of lawyers and professional consultants are happy to help practices respond to RFPs effectively and convincingly. Not much has been written, however, about the employment option. We have dedicated only one eAlert to this topic (published in September, 2019). For most providers, employment is the end of the line, the option no one wants to accept, and amounts to a state of practice that is antithetical to the culture and history of the specialty. The reality is that we are seeing private anesthesia practices close down as their members become hospital employees in increasing numbers. Anyone familiar with anesthesia in Boston, Massachusetts has no doubt heard about the demise of Anesthesia Associates of Massachusetts, the former mega-group that used to provide services to some of the most prominent hospitals in the Bay State.

The Hospital Perspective

There is a prevailing view among anesthesia providers that ultimately all hospital administrators want to employ the anesthesia providers. Supposedly, these administrators believe that it will be cheaper to hire and manage the anesthesiologists and CRNAs themselves. The reality is that this is the exception rather than the rule. Outside of academic centers, few hospital administrators actually want the responsibility of managing an anesthesia department, and finding a qualified chairman is no small feat. A PSA provides the hospital with a significant amount of leverage over the providers who value their contract. It establishes the facility's wish list for coverage and scope of services. If a particular practice cannot meet the expectations of the administration, an RFP will allow them to find a replacement.

Three factors determine the relationship between the anesthesia practice and the hospital: the coverage requirements, the revenue potential of the practice, and the compensation and lifestyle requirements of the practice. Revenue potential is determined by the volume of services and the payer mix, neither one of which the anesthesia practice has any control over. It is not uncommon for hospitals to have unrealistic coverage and call expectations, and these are often subject to scope creep, i.e., what was once a reasonable set of service expectations tends to increase over time without any corresponding adjustment to the terms of the relationship. The real problem is that hospital administrators tend not to understand the economics of anesthesia and the challenges so many practices have in recruiting and retaining a sufficient team of qualified providers.

Hospital administrators are trained to consider options. There was a practice in California that had been the provider of choice for 35 years, but every time they came to discuss the renewal of the contract the price kept going up. Eventually the administration simply got tired of the process and opted to go with a national staffing company. It is unclear that this was really a better option, but the administration appears to have agreed with Nietzsche: the definition of insanity is doing the same thing over and over while expecting different results. It would appear that sometimes the process is more important than the results.

The Anesthesia Perspective

Anesthesia providers believe that they are their own best managers. It is an arcane specialty with its own unique perspective on customer service. The difference between anesthesia providers and hospital administrators is one of perspective. Anesthesia providers tend to focus more on what happens inside the operating room while administrators are more concerned with what happens outside the operating room. Each provider wants to know he or she is actually getting paid for each and every case, while the administration wants to know the impact of all the cases on the bottom line.

The economics of anesthesia is determined by the revenue potential of each anesthetizing location. Does an operating room generate enough revenue to cover the cost of the providers need to cover it? Anesthesia providers are loathe to ask for financial support. The very notion of a stipend is antithetical to the history and culture of the specialty. Making such a request is not something most groups are good at. They often misjudge the requirements and make a mess of the process, which has the effect of undermining the administration's confidence in the practice. Herein lies the rub. Historically, anesthesia was a free good to the hospital. Assessing its true value has become a very challenging exercise.

Anesthesia providers are trained to make life and death decisions quickly. Some would argue they have the shortest decision cycle in medicine. There is no clinical challenge they cannot assess and resolve in 10 to 20 seconds. They believe that hospital administrators should understand and appreciate the challenges they face, but the reality is that too often the parties to a negotiation speak different languages. The provider wants to get paid but the hospital needs to be profitable.

Determining Factors

Even though the end may not justify the means, this is a matter of money and control. Historically, if the average provider could generate 50 ASA units per location day, and if the payer mix netted a reasonable yield per unit, then the hospital was willing to provide the practice with an exclusive contract. As groups started needing financial assistance to meet hospital expectations, the relationship tended to evolve from collaboration to confrontation. Some practices have managed this transition with more diplomacy and finesse than others and have been able to achieve a collaborative partnership. Unfortunately, this has not been the case for all practices.

Hospital administrators want to believe that a practice can manage its finances as well as the quality of care. Good relationships are based on trust. Once the trust erodes, however the very nature of the relationship changes into something much more uncertain. When the administration loses confidence in the anesthesia group's ability to manage itself, consideration tends to focus on outsourcing or employment, which, in some ways, may be the same thing.

Strategic Options

The real question has to do with the underlying problem for the relationship. If a poor payer mix simply does not generate enough revenue to recruit and retain enough qualified providers, and the hospital is not willing to provide the necessary support to a private practice, then maybe employment is a preferable option. The administration will have no option but to hire the necessary providers and to pay them competitive wages even though this will no doubt be a more expensive option for the facility.

It may also be that the control anesthesia providers hope to achieve by having their own professional practice may be elusive. The reality is that anesthesia providers are captive to the facilities they service for income and lifestyle. The O.R. staff determines how busy they are, and the location of the hospital determines the payer mix and the revenue potential.

As if relations with administration were not strained enough (based on the economics of the specialty alone), this year has introduced yet another dimension, the pandemic. Although the financial impact of the coronavirus will probably be limited to the spring and summer, dealing with such a disruptive event can be demoralizing. We have heard from some of our clients that their facility administration is using this as a reason to pursue the employment model. One can only suspect that employment would provide the facility with more control. Anesthesia providers tend to view problems through the lens of titration, but hospital administrators want clear-cut, comprehensive solutions that they can plug into their budgets.

So, the question is, who can provide a better service more cost effectively? We, at ABC, happen to believe that a well-managed practice is more likely to achieve this than hospital administrators. Making that case is the challenge of the day. As always, we'd love to hear from you. Please reach out to us at info@anesthesiallc.com.