Is Big Better When It Comes to Anesthesia Practices?

Summary:  The current pandemic may provide a good opportunity to re-think your practice's strategic plan. Today's challenges may become tomorrow's opportunities. While there is much discussion of some simple solutions, such as merging with another practice, this is the time to explore unique and innovative options that will enhance the security of your practice and the predictability of its cash flow.

The disruptive impact of the coronavirus has many anesthesia practices and hospitals questioning their strategic options. The virus has introduced an additional element of uncertainty into the relationship between groups and the facilities they serve. Strategic planning should be about exploring options. Hence, the logical question is what options might arise as a result of the current crisis? Is this the time to circle up the wagons as a defensive strategy or is it time to break off and go it alone? Sometimes swifter, quicker, nimbler is the best way to strike while the iron is hot.

This is not a new question in the world of anesthesia practice management. The urge to merge has been influenced by a variety of market factors. Looking back over the past 30 or 40 years one can clearly see evidence of the pendulum swings. Many of the anesthesia groups that were forged in the early nineties went on to become megagroups in the late nineties and the beginning of the new millennium. It appeared to be such a logical trend that the market started to attract significant amounts of venture capital. A handful of large corporate entities now provide a significant percentage of all anesthetics.

History Provides Knowledge

We now have a large body of experience to draw on. Although our client base includes some of the largest anesthesia entities, it also includes a great number of small- and medium-sized entities. Interestingly enough, they all struggle with the same challenges: generating enough revenue to recruit and retain an appropriate number of qualified providers in order to meet the service requirements and expectations of the facilities they serve; providing consistent quality customer service; and providing a good and fair working environment for their providers. Big anesthesia companies would have their customers believe they have greater resources to meet the expectations of their customer but, ultimately, the quality of the service provided depends not on the size of the practice but the training and experience of the provider. It is ultimately a function of that crucible of experience, defined by the expectations of the patient, the requirements of the surgeon and the specific requirements of the surgical procedure being performed.

Ideally, the goal of strategic planning should be security and predictability. Most of our clients are continuously evaluating opportunities to expand their practices, mainly by adding ambulatory surgery and endoscopy centers, and some have reached out to other practices in their service area. The challenge is to identify opportunities that afford staffing economies of scale across multiple service sites, combined with revenue increases that ultimately enhance the profitability of the practice. Unfortunately, this does not always work out. Too often case volume and staff utilization at ASCs is unpredictable, making such locations only marginally profitable or loss leaders.

Large Groups: Strength in Numbers?

There is a commonly held perception that large entities are able to negotiate substantially better rates with payers. While there are some notable examples of practices that have exceptional rates, these are the exception rather than the rule. The simple fact is most of the larger insurance plans have clearly defined policies for anesthesia reimbursement. Our managed care contracting team can attest to the fact that getting significant rate increases in the current environment is getting more and more difficult.. One should also remember that rates for public payer plans such as Medicare, Medicaid, Tricare and Workers Compensation cannot be negotiated. In other words revenue potential is a function of payer mix.

Strength of Management

So what actually distinguishes successful practices? It is not their size, payer mix or location but the quality of their management. It is not enough to have a significant market share but rather a strategic plan that consistently addresses customer expectations. The strength of an anesthesia practice is a simple function of the strength of its contracts. More than one megagroup has essentially gone out of business in the past few years because it lost its hospital contracts.

One of the inherent challenges for an anesthesia practice is to recognize the need for professional practice management. However effective anesthesia providers may be in the management of their patients, it is an entirely different matter to manage a practice successfully. Economics is not a discipline that respects one's wishes. Positioning a practice in the current competitive market requires a clear understanding of the state of the market for medical services, a clear focus and management discipline. A group that cannot manage its current team effectively and consistently is not likely to do any better with more members.

Growing Pains

As practices grow they must deal with the challenge of constituency. Communicating a clear mission and vision that keeps providers on track and in line is a fundamental challenge of all large groups. The reality is that the larger a group grows, the more defection it will experience. It is the nature of the specialty that the law of entropy is always a factor.

What is the bottom line? Each practice must focus on and define its own strategic plan. Every situation is unique. Customer service is essential in the current environment. Knowing who your customers are is the key; the hospital, the surgeons and the patients. Each one will need to be addressed in order for any plan to be successful. It is not enough to provide consistent quality care. This is now a given. What matters is providing the service your customers want. If you are wondering about your strategic options, reach out to your account executive or email us at info@anesthesiallc.com