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Winter 2015


Phoenix Project: Reconstructing a Local Group from the Ashes of Its Predecessor

Mark F. Weiss, J.D.
The Mark F. Weiss Law Firm, a Professional Corporation, Dallas, TX

Dateline Phoenix

Phoenix. No, not the city in Arizona, but the mythical bird. The one that springs to life from the ashes of its predecessor.

Anesthesia groups, like birds, have a life cycle. Birth to death. Formation to failure.

The group’s founders hatch the concept and bring it into existence. The group obtains business traction in its infancy and grows until it reaches maturity.

But, sooner or later and as inevitable as the sunset, the group begins to decline: the loss of contractual relationships. The unfastening of the bonds that bind the group together. Its eventual dissolution isn’t far off. The flames of death engulf the group.

But unlike natural birds, many dying anesthesia groups have within them the kernel of rebirth. Enter the phoenix.

Death and Praxis

In today’s anesthesia market, we’re seeing two slightly different patterns of anesthesia group decline and death: the failed site of a national or regional anesthesia group and the failed independent group.

Most see those groups as unsalvageable. Yet, under the right conditions, with the right leadership, both types of groups might be made to rise from the ashes.

Consider the following two generic examples:

Community-Odessa Medical Center

For the past several years, a national anesthesia group, through a controlled forty-seven provider subsidiary, Community-Odessa Anesthesia (Com-Od), has held the exclusive contract at Community-Odessa Medical Center, a 402 bed hospital.

Marketing materials aside, Com-Od has never been able to gain traction at the facility. It’s become the poster child for the Promise-Delivery GapTM: It promised the stars but delivered sand.

Since obtaining the contract, Com-Od has seen many providers come and go. The national parent organization has changed local leadership, to no avail.

The hospital has informed Com-Od and its national parent organization that it won’t renew its exclusive contract when it expires in six months.

Localville Hospital

Localville Anesthesia Group (LAG), a twenty-three physician group, was formed in 1987 to obtain the contract at Localville Hospital. Other than some work at a close by surgeon owned ambulatory surgery center, LAG is dependent upon its relationship with the 209 bed hospital for its business existence.

Although it performed well for its first few decades, LAG, which has been run in a club-like fashion—a supermajority of its thirteen shareholders is required for any action—has begun faltering. It can’t respond quickly enough to the hospital’s demands for changing service lines.

There’s not sufficient will among its members to take action. Some are near retirement and fear change; others are stuck in the notion that things that have always worked will continue to work. As a result, those members block any action that would disrupt the status quo, especially those that call for an expenditure because it would reduce the amount of dollars available to be distributed currently.

The hospital has informed LAG that if the group doesn’t become responsive to its needs, it will seek other coverage when the current contract expires.

The Default Course

In the default, or natural, course of things, both Com-Od and LAG are headed to anesthesia group heaven, or, more probably, anesthesia group hell.

In Com-Od’s case, its corporate parent will pull the plug on Com-Od at the end of the exclusive contract term.

In LAG’s case, it’s highly unlikely, given the existing structure, that it will be able to pull up out of the death spiral that it’s in, especially because many of the group’s members don’t understand their true position relative to the ground.

In both cases, unless group members take action, they will soon either be unemployed, looking for jobs at some distant location, or working as commodity level providers for the new contract holder—for how long and at what compensation no one can know but few will likely find attractive.

The Phoenix StrategyTM

The alternative, the Phoenix StrategyTM, is to birth a new group out of the ashes of the old.

While it’s absolutely true that in each of our examples, Com-Od and LAG, the groups are dying and will soon be dead, the trick is to first see beyond the rot to the kernel of business opportunity that exists within.

In each situation, despite the problems that have caused the group’s downfall, there are significant assets that can be leveraged into a new group and a new contract with the hospital.

Leadership

Without someone or some few individuals willing to champion the creation of a new group, a Phoenix group, from the remains of the old and then lead it moving forward, it’s impossible for any dying group to rise from its ashes. The default position is that the dead stay dead.

But it’s possible for a true leader or core leadership group to spark the start of new life into a Phoenix group. Although the hospital itself might foster those efforts, a topic of a different sort touched on briefly, below, suffice it to say that without strong leadership, it’s impossible to successfully implement the strategy.

That home grown leadership can be supplemented. You don’t have to go it alone. For example, leaders can, and should, seek advice from outside experts and assistance from the billing service that will perform the new group’s collections.

Labor Force

One clear advantage for those reconstituting a group is that there’s a partial labor force already in place. Partial because it’s likely that some of the existing group members shouldn’t make the cut in connection with the group’s rebirth.

When an outside group “wins” an RFP, there are generally three buckets into which the facility places the existing group members: Those that must be recruited by the new group, those that can either stay or go and those that the new group can’t ever engage.

Why make the mistake of doing any different in creating a new group from an old one? Even if the hospital hasn’t expressed a preference, you know who shouldn’t remain at the facility, so why fool yourself at the cost of your own future?

Localness

Perhaps the greatest advantage that a Phoenix group has is that its leaders know the influencers at the facility and those influencers know you. Of course, depending on what triggered the downfall of the existing group, it may be that that familiarity is what bred contempt. The solution is to amputate from membership in the new group those who caused the contempt, and to then work hard to rehabilitate the budding Phoenix group’s image.

But localness alone isn’t sufficient in and of itself. Instead, it has to be nurtured and leveraged into support for the group that both counts (the right people and the right message) and that cannot easily be reversed or withdrawn.

Funding

There’s no free lunch: Implementing the Phoenix Strategy requires an investment by the moving parties, an investment in themselves.

This isn’t a game for amateurs. Quite unfortunately, the unwillingness to invest in their own future is what got many anesthesiologists into the Com-Od and LAG situations to begin with.

In addition to contributing capital for equity interests in the new practice entity, making loans to the entity and borrowing from traditional lenders, groups have other sources of funding, some from outside the group and some from inside.

Of course, outside funding includes stipend support from the hospital.

And, in connection with inside financial support, a Phoenix group’s members often agree to defer the flow of compensation from the group, tying their compensation to available funds. For example, methodologies include an extended lag time between month of service and month of payment and a floating compensation unit value.

Sponsorship

In addition to providing financial support, the hospital is a natural sponsor for the rebirth of a Phoenix group.

It needs coverage. It’s sick and tired of the existing group. It could turn to an RFP and attract a national group (or a replacement national group) or some other regional player, but an RFP is increasingly being seen as a fool’s choice: in many cases it’s what created the problem with the existing group in the first place.

This is especially true in connection with the rebirth of a group that was once a part of a large national or regional group. The hospital has been burned once and is likely to be more amenable to an active financial and political role in fostering the creation of a truly local group that is likely to be highly responsive to the hospital’s needs.

Conclusion

Unlike natural death, the death of an anesthesia group can be leveraged into the birth of a new one.

Someone is going to take over the provision of anesthesia services at the facility. Will you be offered a job with the new master? Will you pack up and leave on your own volition for a job somewhere else? Or will you attempt to master your own fate at the facility?

Under the right circumstances, with the right leadership and support, the transgressions of the past can be surmounted and the advantages of localness can be leveraged into a new beginning.


Mark F. Weiss is an attorney who specializes in the business and legal issues affecting physicians and physician groups on a national basis. He served as a clinical assistant professor of anesthesiology at USC Keck School of Medicine and practices with The Mark F. Weiss Law Firm, a firm with offices in Dallas, Texas and Los Angeles and Santa Barbara, California, representing clients across the country. He can be reached by email at markweiss@advisorylawgroup.com.