What is the Glue that Holds Anesthesia Practices Together?

Summary

The evolution of the speciality of anesthesia from individual private practices to group entities has resulted in a variety of interesting business models, including some of the most sophisticated corporate entities that now employ thousands of providers. Is aggregation the inexorable trend of the future? Maybe not. We are starting to see some serious pushback and alternatives.

​Phase One: Do We Really Need to Form a Group?

The specialty of anesthesiology has evolved through three distinct phases since the 1980s. First there were hundreds of anesthesia group formations as individual anesthesiologists, many of whom practiced as independent professional corporations (PCs) coming together to form formal group entities, usually corporations or partnerships. There were many factors driving this process but two of the most important were managed care contracting and hospital contract negotiations. Coming together in formal group created a mechanism that the practice spoke with one voice instead of many.

Phase Two: How Big is Big Enough

Then came the emergence of the mega-group. However useful it was to have an entity that could contract with a hospital, the market for medical services was consolidating; hospitals were merging and payers were gaining more clout. Many of today's largest anesthesia practices, the so-called mega-groups, were formed between 1990 and 2000. Texas was ground zero. Mega-groups were formed in Houston, Dallas, Austin and San Antonio.

Phase Three: Is it Time to Sell the Practice

So then what happened? Wall Street discovered anesthesia and there was a flood of venture capital money available to buy profitable practices. One by one, the mega-groups started to sell out opting for short-term financial gain and the long-term protection of a much larger business entity. The transitions from one phase to another can be defined by the primary questions asked at each point in time.

Historical Analogy

Those of us that have studied history know about the rise and fall of empires. What happened to the British Empire on which the sun never set? It is an isolated island nation trying to sever its ties with Europe. Military power and financial greed probably explains both the rise and fall of most of the world's great empires. Can we draw any analogy to the current status of anesthesia? It may not be a perfect analogy, but the parallels are note-worthy. In very general terms one can see that today's practices sell out for two main reasons.

Who and what drives the growth? Most of the successful mega-groups achieved their size and market position thanks to the vision and commitment of a few visionaries.

The name John Zerwas comes to mind as the founder and architect of Greater Houston Anesthesia. Obviously there are always necessary and sufficient reasons for growth. There must be a market opportunity and a means to profit from it. Interestingly enough, the primary motivation was not always financial; more often than not, it was strategic. Large entities could be more effective in responding to changing clinical needs. That was the great hope: more providers means more control, means better insurance contract rates, all of which means greater predictability and security for the members.

So how did that work out? Many would argue not so well. In fact, the critique suggests that it sort of turned into a big pyramid scheme, where some providers did very well, while life did not change for the rest. It is here that the historian sees the analogies to the great empires of the past. There are lingering vestiges of a colonial model and we know what happened to all those former colonies in Africa and the Caribbean.

Now Where Are We?

Just as in the colonial era, growth has become its own objective. There is considerable evidence that the largest anesthesia entities are primarily focused on growing market share. They will argue this gives them the ability to provide better service to their hospital customers, which may or may not be true. One thing is clear. The more practices a company manages, the more likely it is to start losing practices. Obviously the mega group is not always the panacea it was advertised to be. One might even suggest that the new question is whether it is time to break away and take back the original practice. At Anesthesia Business Consultants (ABC) we are currently working with numerous groups which are then just this situation.

Many years ago a subset of the large group in New Mexico broke away. When asked why, the physicians said we felt like it was taxation without representation! "We believe that swifter, quicker, nimbler is a better strategy." They had originally thought that affiliation with a larger group would give them more leverage and better management tools but the reality was a huge disappointment. Rosabeth Moss Kantor, a Harvard business school professor, in her book, Confidence, argues that three qualities distinguish successful entities: accountability, collaboration and innovation. When one or more of these qualities starts to erode confidence in the organization starts to fade.

Another way to look at it is to recognize that one of two factors keeps people in a given situation: power or will. The empires of the past maintained their colonies with powerful armies. The modern day equivalent may be legal contracts. If there is no belief in the greater vision or will to participate then eventually that will win out. As colonies started to believe—as India did—that it was better to struggle on their own terms than to suffer under someone else; the time had come to break away. And so, we believe, it will be in anesthesia too.

What's the Ultimate Criteria for Long-term Success?

So what is the glue that holds successful anesthesia practices together? In our experience it is all about constituency. When individual providers start to feel they no longer have a voice in the decisions that affect their income and lifestyle they start to feel disconnected. While it is true that an increasing number of anesthesia providers are happy to get paid a reasonable salary versus having a "piece of the action," there is increasing downward pressure on anesthesia incomes. The challenge of the large anesthesia entity is to successfully manage the market while providing a high level of service to each facility it services. Many are not managing this juggling act effectively. Anesthesia practices used to pride themselves on their collegial cohesiveness and commitment to the local medical community but increasingly the national firms are finding it difficult to maintain a consistent team of providers at a given site. No one wants to be part of a revolving door practice.

As so many former group practices come back to ABC we are gaining insight into the reasons they left and the reasons they are coming back. While each situation is unique, there are a number of common themes. Anesthesia providers are, by nature, problem solvers. They are well-trained in managing variances between the desired outcome of their clinical decisions and the actual outcome. It would appear that an increasing number are struggling with the variance between what they were promised when they sold out and the reality of their current situation.

It is unclear what the future holds but it is increasingly clear that the only constant is change. We often say that if you have seen one anesthesia practice, you have seen one anesthesia practice. It is a useful reminder that making an anesthesia practice successful involves the careful management of a variety of factors including the clinical requirements of the facility and its surgeons, the customer service expectations of all the customers and the economic realities of the practice. It is this reality that will most likely determine the future of most practices. Starbucks prides itself on the fact that every latte tastes the same, no matter where you buy it. Can anesthesia achieve anything similar? Probably not. Despite attempts to standardize the specialty, there are simply too many variables and unique market factors. In fact, now we are seeing a resurgence of yet another model, hospital employment. The lesson of historical empires should not be lost on any of us. An anesthesia practice must represent an appropriate solution for the specific needs of the facility it serves and the community that supports it. To think otherwise is hubris.