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Fall 2008


Positioning Your Group For Exclusive Contracting Success

Mark F. Weiss, J.D.
Advisory Law Group, A Professional Corporation Los Angeles, CA, Santa Barbara, CA

Woody Allen quipped that eighty percent of success is showing up. That may well be true, but simply showing up is not enough: Success requires thorough preparation and positioning.

Yet many anesthesia groups think that they’ll have a successful negotiation of an exclusive contract, or even more so, a successful renewal negotiation of their existing exclusive contract, without much preparation other than having been in place at the facility for a number of years.

I admit that it might be possible to achieve mediocre results without proper preparation. I don’t know about you, but my clients are looking for spectacular results.

Thorough preparation requires far more than reviewing the current agreement and doing a few months, even six to nine, of planning. It requires an integrated series of thoughts and actions to position the group for an optimal result.

Achieving a highly favorable exclusive contract, for example, financial support in the multi-million dollar a year range, requires developing a strategy that unfolds tactics over a multi-year period. It requires coordinating exclusive contracting strategy with overall strategy. And it requires coordinating various contracting sub-strategies, and their ensuing tactics, with the group’s exclusive contracting strategy.

There’s a common misperception that negotiation is like chess, but that’s far from the case. If you must think it’s like a game, then it’s more like three dimensional tic-tac-toe, a set of three boards stacked one on top of another. The moves occur in at least all three dimensions of physical space. I say “at least,” as negotiation also involves a fourth dimension, time, as well as a fifth dimension, the mind of your opposition.

In fact game theory is flawed in application to complex, real life negotiation: Game theory requires that there be a set of rules. Negotiation often plays out, like life in general, with rules being broken and with new rules being made up all the time.

Let’s look at two case studies, both real-life situations, one in which a group takes the path well traveled toward the precipice and the other in which a group seeks to control its destiny.

We’ll call the first group the Jones Group. Pursuant to an exclusive contract, it has been providing all anesthesia services at a large community hospital for over a decade. Jones Group does not receive any stipend support from the hospital. Its physicians’ incomes have been slipping for several years.

For more than a year, Jones Group’s leaders have been meeting with the hospital’s administration in an attempt to get stipend support. They have been stonewalled and then told outright that the hospital will never pay a stipend for anesthesia services. Nonetheless, they continue to provide services as usual and to argue, in essence, that since groups at other hospitals receive stipends, they should, too.

Even though only a few months remain on their current exclusive contract, they insist on continuing the same course of action: presenting yet another proposal to the hospital demonstrating that similarly situated groups receive stipend support.

The presentation of evidence that other groups receive support and data concerning the discrepancy between the group’s physicians’ earnings and those of the market are central to the issue of a fair market value analysis, which is a key issue in the context of arriving at the amount of stipend support. However, it is wholly ineffectual as the sole strategy to move the hospital off its position of refusing to discuss financial support at all. The hospital continues to refuse to budge. The group has done nothing to position itself. The negotiation is over.

Let’s contrast this with the experience of the second group, which we’ll call the Smith Group. Pursuant to an exclusive contract, it, like the Jones Group, has been providing all anesthesia services at a large community hospital for over a decade.

For several years, Smith Group received a token amount of medical director stipend support at a level that might buy a domestic luxury car. The hospital was not interested in discussing any other stipend support. Its physicians’ incomes were slipping and doctors were leaving the group.

Working with Smith Group we implemented a multi-year process of positioning the group to obtain a strengthened bargaining position leading to greater independence and increased financial support. Elements of the process included acquisition of data and intelligence, control of publicity, creating bargaining leverage, framing the issues, and emasculating potential competitors.

Through taking the time and exerting the effort to develop an overall strategy, align specific elements of contracting strategy back with that overall strategy, and implementing tactics at each of the group, medical staff, community, and administration levels, we positioned Smith Group such that the renewal brought it millions of dollars per year of stipend support over a multi-year term.

Continuing with the car analogy, Smith went from the level of a Cadillac to seven Ferrari 599s, with change to spare. Yes, Smith Group invested significant dollars to accomplish this result, but the return on investment was 1,100%.

Achieving spectacular contracting results requires that you take a holistic approach: What’s the best negotiating strategy? In reality, there is no independent negotiating strategy; it’s but a part of a larger, overall group strategy. Contracting strategy is inexplicably linked to governance strategy, to the way in which the group relates to non-owner physicians, to the compensation plan, to the patient experience, to the manner in which it contracts with third parties, to the way in which it gathers billing data, and on to every other element of its business existence.

Returning to the example of the Smith Group, it began implementing this Strategic Representation™ process in respect of its next renewal a few weeks after it signed the current exclusive contract.

This process has no relationship to the usual “benchmarking to best practices.” Far too many groups are oblivious to the opportunities and, as a result, benchmarking leads to the mediocre.

The specialty of anesthesiology is facing severe challenges: increasing commoditization, competition from independent para-professionals, and downward reimbursement, to name but a few. A “benchmarking” lemming still goes over the cliff, he just gets there a bit faster than some of the others. Success, even survival, lies in running in the other direction.

Mark F. Weiss is an attorney who specializes in the business and legal issues affecting anesthesia and other physician groups. He holds an appointment as clinical assistant professor of anesthesiology at USC’s Keck School of Medicine and practices nationally with the Advisory Law Group, a firm with offices in Los Angeles and Santa Barbara, Calif. Mr. Weiss provides complementary educational materials to our readers. If you would like to reach Mr. Weiss, please contact him directly at markweiss@advisorylawgroup.com.