Your Hospital Issues an RFP for Anesthesia Services: Now What?

Robert Johnson, MBA
Principal, Enhance Healthcare Consulting, Aventura, FL

Robert Stiefel, MD
Co-Founder and Principal, Enhance Healthcare Consulting, Aventura, FL

As a national anesthesia consulting firm, we are seeing hospitals and healthcare systems change or attempt to change their incumbent anesthesia groups with increasing frequency. A recent survey of hospital leadership has confirmed our experience and demonstrates that the mechanism by which hospitals seek to effect a change is frequently through a request for proposal (RFP). This term should not be new to most anesthesia groups, but we have discovered that some of our clients first encounter the term when they receive an RFP from their own hospital—and then wish they had been more familiar with the term and resulting process.

This first of two articles for Communiqué will review why hospitals seek alternatives to their existing anesthesia groups, early warning signs to groups that may indicate their hospital is seeking a change, and how that interest may result in an RFP being sent to the incumbent and other potential provider groups. Finally, we will discuss typical steps employed in the creation of the RFP, including a review of the RFP response document.

The second article will examine the decision processes hospital leaders may employ and demonstrate how we believe your anesthesia practice should be prepared to respond.

Many industries use RFPs to purchase goods and services. Hospital purchasing departments use them to procure everything from medical devices to housekeeping services. The advantage of the process is that it allows the hospital to demonstrate impartiality in their selection of a service or product. For this reason, RFPs are highly structured and typically performed in a transparent manner. Per a survey by Enhance Healthcare Consulting (EHC), one in three hospitals has issued an RFP for anesthesia services since 2013 (see Figure 1).

In the not-too-distant past, hospitals often used an RFP to introduce the threat of an outside vendor taking over the contract and to influence negotiations in their favor with the incumbent anesthesia group. However, both parties generally knew that the expected high transition costs and loyalty of the medical staff made the selection of a new practice highly unlikely. Therefore, efforts to identify a possible replacement group were casually performed with few guidelines and rarely resulted in a change from the incumbent provider.

However, shifts in provider supply and demand, group consolidation, oligopolistic health insurance entities and the rise of investor-owned hospital-based physician practices (e.g., Sheridan/EmCare, TeamHealth, NAPA) have created local environments in which hospitals seek "partners" utilizing more sophisticated business practices and better technology and willing to share financial risk. Before discussing the group attributes that a hospital may be looking for with an RFP, let's first look at the reasons that cause a hospital to seek a change in the incumbent group.

EHC's work with both anesthesia groups and hospitals to set up, conduct and respond to RFPs allows us unique insight into what motivates a hospital CEO to seek a change in anesthesia providers. For the past decade, anesthesia conferences have been replete with speakers encouraging groups to understand their customers—surgeons, hospital administration and patients—and to address those customers' needs or risk losing their hospital contract. Excellent clinical quality was a given, but "customer service" was not. Consultants encouraged groups to focus more attention in this area.¹

While emphasizing the importance of satisfying the customers, industry experts pointed out that the logical next step for hospitals was to consider alternatives. Jody Locke, vice president of anesthesia and pain practice management services for Anesthesia Business Consultants, has stated that "Market competition is based on the premise that customers have options and that they will seek service providers who they believe are most committed to meeting their specific needs and expectations."² It is our observation that when hospital leaders perceive customer service that does not meet their needs and expectations, they look for someone else. We are seeing this with increasing regularity. Our survey (see Chart 1) bears this out.

Unfortunately, assessing anesthesia customer service is a problem. Our experience is that hospital leaders may simply judge anesthesia service by the number of times the surgeons call their office with complaints.

Service issues commonly cited by others include poor personnel management and the incumbent group's failure to address disruptive behavior by an anesthesiologist. EHC would add that service, in the mind of a hospital CEO, is simply being in the operating room and ready for surgery when you are needed without anyone having to ask. A senior health system administrator once relayed to one of the authors that the best anesthesia group that ever worked at his hospital was one that he never met. Unfortunately, for anesthesiologists, that often means staffing an OR without a patient and not being reimbursed.

This relates to another key reason for issuing an RFP: financial support from the hospital as a subsidy, stipend or compensation for services. Little documentation is available on the frequency and amount of financial support that hospitals provide to their anesthesia groups.

According to a Medical Group Management Association survey, the revenue from hospital sources to privately owned anesthesiology practices was $118,014 per FTE physician.³ Since that amount may represent a significant part of your practice revenue and a large percentage of the hospital's overall budget for physicians, the issue of subsidy support may disproportionately dominate the contract negotiations.

A third commonly cited category of discontent measured in our survey is the hospital's unhappiness with anesthesia group leadership. An article in OR Manager lists four attributes of an effective anesthesia leader: 1) ability to manage operations, i.e., works with nursing to run the board; 2) efficiency—uses personnel efficiently to maximize throughput; 3) safety—emphasizes safe practices; and 4) participates in governance, specifically the Surgical Services Executive Committee (SSEC).⁴

It is important to point out that the physician leader of a group will have an enormous effect on the CEO's and medical staffs' perception of the group's overall quality. This individual's personal characteristics will influence the CEO's desire to change groups more than the group itself, whose members are almost always described as "nice guys." Therefore, groups need to be careful in selecting who represents them and be aware that if their model is to rotate partners into leadership positions, a person who doesn't impress the group also won't impress the CEO.

A hospital may start to look for an alternative to your services at certain times, which include, but are not limited to, contract termination or renewal. An unscheduled or atypical call to visit the CEO may indicate a change in the hospital's direction. Certainly, if the meeting is negative and the CEO complains about your group, that's an obvious red flag. However, be cautioned not to be fooled by the friendly meeting. We have seen more than a few meetings that go well, with everyone smiling and in which nothing unpleasant is discussed, except at the end, when the CEO says, "We love you and the group is great, but we may be testing the waters to see what's out there; have a good night."

Another indicator of impending change is any unusual efforts by the hospital to acquire or collect information about your group's finances and performance.

Since it is apparent that hospitals are increasingly using the RFP process to evaluate and replace their anesthesia group, it is important to understand how the process works. Once the decision is made to issue an RFP, the CEO usually selects an individual to manage the process.

Large hospitals may have a purchasing department with a procurement executive who may utilize the same process used to procure surgical packs or cleaning supplies. These individuals tend to be rigid and lack understanding of the complexities of anesthesia services. Fortunately, they are the minority. More frequently, the task is given to the chief operating officer, chief financial officer or external consultant.

If you become aware of the possibility of a consultant assisting the hospital in an evaluation of your group's performance or with an RFP, consider asking to participate in the consultant selection process. It is worth the anesthesia group's investment to pay a portion (typically 50 percent) of the fee and thereby have access to the information that will be used by the consultant and the opportunity to demonstrate to the hospital the quality of your service and avoid the RFP.

In our next article, we will discuss the importance of providing accurate information about your anesthesia group if the hospital issues an RFP. We will also discuss what to expect from an RFP process and how an incumbent group should respond. But for those of you on the edge of your seats, spoiler alert: the best way to deal with an RFP is to not get one in the first place!

Enhance Healthcare Consulting is an anesthesia services consulting firm providing expert assistance to both hospitals and anesthesia groups seeking to improve their financial and operational performance.