eAlerts

More Pressure on Anesthesiology Groups to Grow

Tony Mira
President and CEO

Have you and your group been thinking about how to grow your practice? The trend toward anesthesia practice consolidation continues its momentum. Not only do groups seek more and more opportunities to merge, to acquire other groups and to join larger organizations; they are an increasingly attractive acquisition target.

Mark Weiss, Esq.’s article “The Company Model of Anesthesia Services: Will Less Money Lead to Jail Time?” is an excellent review of the development of the troublesome “company model” as well an explanation of the associated compliance issues that you don’t have to be a lawyer to understand.

For a different perspective, consider AAA Executive Committee member Franc Galinanes’s article “Anesthesia: The Increasing Consolidation of Our Industry.” As a Senior Director for North American Partners in Anesthesia, Mr. Galinanes is in a good position to discuss the advantages of the three major types of consolidation: practice mergers, joining a larger organization and sale to a well-funded or publicly traded multispecialty group. Besides the financial benefits of size such as leverage and access to capital, consolidations may offer cross-privileging and a greater provider pool, quality data with more robust denominators, access to superior employee benefit plans and other advantages.

The form of consolidation that commands the greatest portion of our attention continues to be joining Accountable Care Organizations (ACOs). Two lawyers from the Health Law Partners, Neda Mirafzali, Esq. and Kathryn Hickner-Cruz, Esq. provide an exhaustive review of the proposed regulations released by CMS on March 31, 2011 in our lead article.

The ACO proposed regulations were a disappointment to many. According to CMS itself, the up-front costs of launching an ACO would be around $1.8 million. Furthermore, ACO participants would be penalized for failing to keep patient costs in line with CMS targets, increasing the risk that they would not see a return on investment. Negative reactions led to CMS’ announcing, on May 17, a new shared savings program, a “pioneer ACO model” that would allow physicians and hospitals to start coordinating patient care as early as October. Advance payments may be available from CMS. Applications to form a pioneer ACO are due by July 18. The requirement of a minimum of 15,000 patients makes it virtually impossible for anesthesiologists to lead a pioneer ACO, but you may read more about this initiative on the CMS web site.

ASA filed an interesting “comment” on the proposed ACO regulations, suggesting that CMS expand its horizons from the “medical home” for primary care services and consider the savings and quality opportunities that would be afforded by a “surgical” or “peri-operative” home. As we have stated in a number of publications and presentations, we agree strongly with ASA that anesthesiologists have a key role to play in a surgical home. “Anesthesiologists routinely interact with providers from virtually all care settings and assess and monitor the patient from an overall perioperative perspective; thus, anesthesiologists are ideally suited to effectively assess and manage risk across the full continuum of the perioperative setting. (ASA Letter to Donald Berwick, MD, CMS Administrator, June 3, 2011.)



Whether by managing risk across the perioperative setting or simply by managing operating room productivity, anesthesiologists continue to feel pressure to make the surgeons want to bring their patients to the hospital where they work. Jody Locke, CPC, ABC Vice President of Anesthesia and Pain Management Services, addresses this ongoing challenge in his article “Getting Paid for Anesthesia: Mastering the Challenges of Viability.” One of the trends discussed in Mr. Locke’s article is the fact that “Some of the nation’s largest hospital organizations have come to identify the improvement of operating room productivity as a key strategic objective,” and that “anesthesia practices are having to develop an entirely new set of reporting and management tools to both monitor the appropriateness of operating room utilization and help hospital administrations reset surgeon expectations.” Other trends are the transfer of financial responsibility from employers and health plans to patients themselves and the increasingly common insistence of hospitals on examining their anesthesia groups’ books when negotiating stipends.

The financial risks are there, even for practices willing to adapt as much as possible to new demands. We are constantly engaging in strategic planning for our clients’ organizations and for our own. There is much more to the process than we can convey in a newsletter, but we hope, as always, that our information is valuable to you.

With best wishes,

Tony Mira
President and CEO
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The Company Model of Anesthesia Services: Will Less Money Lead to Jail Time?
Mark F Weiss, Esq
Advisory Law Group, Los Angeles and Santa Barbara, CA
When asked why he robbed banks, Willie Sutton responded, “Because that’s where the money is.”
Ambulatory surgery center (“ASC”) owners, often surgeons, seek to obtain a share of anesthesia fees for the same reason. But instead of a gun, many are turning to a new model of money extraction, the so-called “company model.”
The abrupt bank robber approach to demanding a kickback is clearly illegal: “Bob, if you want to provide anesthesia at Greenacres ASC, you’ve got to pay us thirty cents on the referred dollar”.
Although there are far more ASC owners willing to take the bank robber approach than the industry likely will admit, some ASCs are choosing a slightly softer approach — forcing the anesthesiologists working independently at the ASC to instead work for an ASC affiliated entity that distributes a share of the anesthesia fees back to the ASC owners.
“Bob, if you want to provide anesthesia at Greenacres ASC, you’ve got to become an employee of our entity, Greenacres Anesthesia Services. We’ll even pay you commensurate with your production. In fact, we’ll pay you the lion’s share, seventy cents on the dollar!”
These entities are the “companies” of the so-called company model.
Of course, demanding 30% as a direct kickback (the bank robber approach) leads to the same economic effect as does forcing the anesthesiologists into an entity that “rewards” them with a 70% share (the company model).
But is the company model structure legal? That’s the $25,000 fine, plus five years in jail, plus exclusion from Medicare and Medicaid question. Of course, there are also Civil Monetary Penalties to consider, but you get the point.
Business Models
In order to better understand the issues of the company model, it’s helpful to consider the evolution of anesthesiologist-ASC business models.
Conventional Model
The conventional fee-for-service relationship between anesthesiologists and ASCs mirrors the conventional relationship between anesthesiologists and hospitals – the anesthesiologists, directly or through an anesthesiologist-owned entity, provide services to the patients of the ASC for their own account, in the manner of the surgeons performing their cases at the facility. In this relationship, the facility charges a facility fee and the physicians, both the surgeons and the anesthesiologists alike, charge their own, independent professional fees.
In many cases, the relationship between the anesthesiologists and the ASC takes on an additional factor or factors.
One or several of the anesthesiologists providing patient care services might assume other duties such as serving as the facility’s medical director. In compensation for those services, and to avoid a kickback (the provision of those services for free being an inducement to receive the referral of anesthesia cases), the ASC pays a fee, for example, a medical director stipend, in an amount equal to the duties’ fair market value.
In some relationships, the volume of cases or total reimbursement to be earned from providing coverage of the ASC’s anesthesia needs is not sufficient to attract or retain anesthesiologists. To obtain anesthesia coverage, the ASC pays a coverage stipend to the anesthesiologists or their professional entity in order to supplement their billings.
Over time, some ASC owners began to question the conventional model of their facility’s relationship with anesthesiologists.
For some it was an issue of economics. Many ASCs were located in markets that were already saturated. Many were located in areas that became economically depressed. Many, even in otherwise good locations, had cost structures that reduced, or even eliminated profitability.
For others it was a question of greed. Surgeon owners saw that anesthesiologists’ earnings from the surgery center could be greater than their own. Others viewed the right to provide anesthesia at their ASC as a “franchise” that had value and they wanted a share of it.
Captive Model
No matter the motivation, a second ASC-anesthesia business model took form, one that I refer to as the captive model. This model has the anesthesiologists working for the ASC as employees or as independent subcontractors – the defining characteristic being that, through one method or another, the ASC pays the anesthesiologists a fixed or production based sum. In some variants, the ASC bills the anesthesia fees under its own name; in others, it bills and collects under the name of the anesthesiologists – in any event, the anesthesia fees eventually find their way into the ASC’s bank account.
Company Model
For one or more reasons in any particular situation, the captive model began to morph into the company model. Some ASCs found that payors rejected their claims for anesthesia fees when billed under the ASC’s name. In states with prohibitions on the corporate practice of medicine, lay entity ASCs cannot provide medical services and therefore cannot employ the anesthesiologists or even subcontract with them under a financial structure in which the ASC participates. Some ASCs had neither of these problems but simply wanted to separate out, perhaps for management purposes or perhaps to disguise their real intent, the anesthesia coverage arrangement into a separate entity.
In some instances, it was not even the ASC itself that sought to change the relationship with their anesthesia providers by forming an anesthesia company owned by the ASC itself or by all of the ASC’s owners. Instead, it was a subset of the ASC’s owners, usually one or more surgeon-owners with referral clout, who sought to skim a bit of the profit cream off of the top of anesthesia services.
Key Compliance Issues
Stated in simplified terms, the federal antikickback statute (the “AKS”) prohibits remuneration, that is, the transfer of anything of value, for referrals. State laws, which differ in their treatment, scope and interpretation, generally contain similar provisions barring remuneration for referrals, sometimes expressed as antikickback or fee splitting prohibitions. Because of the variations in state laws, our focus will be on the federal concepts applicable to Medicare and Medicaid patients.
Courts have interpreted the AKS to apply notwithstanding the fact that there are many purposes for the arrangement that may be legitimate – the fact that one of the purposes is to obtain money for the referral of services or to induce further referrals is sufficient to trigger a violation of the law.
There are certain statutory and regulatory exceptions, known as “safe harbors,” that define permissible practices not subject to the antikickback statute because, in the opinion of the regulators, they would be unlikely to result in fraud or abuse. The failure to fit within a safe harbor does not mean that the arrangement violates the law, there’s just no free pass.
The question, then, for the company model is whether the arrangement violates the AKS.
Of course, the facts and circumstances of the structures vary and each potential deal must be analyzed carefully before it is structured. But it is possible to highlight the significant likelihood that many company model deals are illegal.
The Department of Health and Human Services’ Office of Inspector General (“OIG”) has issued two fraud alerts applicable to the analysis of company model deals, its 1989 Special Fraud Alert on Joint Venture Arrangements, which was republished in 1994 (the “Fraud Alert”), and its 2003 Special Advisory Bulletin on Contractual Joint Ventures (the “Advisory Bulletin”). The OIG uses the term “joint venture” to mean any arrangement, whether contractual or involving a new legal entity, between those in a position to refer business and those providing items or services for which Medicare or Medicaid pays.
Although the OIG withdrew its once proposed sham transactions rule, it made clear in issuing the safe harbor regulations and in other documents that compliance with both the form and the substance of a safe harbor is required in order for it to provide protection. In other words, even though planners generally work to fit a company model deal into the confines of a safe harbor, the OIG’s position is that if one underlying intent is to obtain a benefit for the referral of patients, the safe harbor would be unavailable and the AKS would be violated.
The Fraud Alert and The Advisory Bulletin
The Fraud Alert states:
“Under these suspect joint ventures, physicians may become investors in a newly-formed joint venture entity. The investors refer their patients to this new entity, and are paid by the entity in the form of ‘profit distributions.’ These subject joint ventures may be intended not so much to raise investment capital legitimately to start a business, but to lock up a stream of referrals from the physician investors and to compensate them indirectly for these referrals. Because physician investors can benefit financially from their referrals, unnecessary procedures and tests may be ordered or performed, resulting in unnecessary program expenditures.”
In describing examples of questionable features of suspect joint ventures, the Fraud Alert mentions, among others:
• Investors are chosen because they are in a position to make referrals (e.g., the surgeon owners of the ASC who become the owners of the company model entity);
• One of the parties may be an ongoing entity already engaged in a particular line of business (e.g., the anesthesiologists); and
• The referring physician’s investment may be disproportionately small and the returns on investment may be disproportionately large when compared to a typical investment in a new business enterprise (e.g., the company model, which requires only nominal start up capital).
It’s obvious that the features of a company model include many of those stated by the OIG in the Fraud Alert to be questionable.
The Advisory Bulletin issued by the OIG in 2003 sheds even more light on the analysis of company model structures. It focuses on questionable contractual arrangements in which a healthcare provider in an initial line of business, termed the “Owner,” expands into a related healthcare business by contracting with an existing provider of the related item or service, the “Manager/ Supplier,” to provide the new item or service to the Owner’s existing patient population. Note that the term “existing provider” as used in the Advisory Bulletin is not limited to situations in which the specific anesthesiologists have an existing relationship with the ASC at the time the company model joint venture is formed.
The Advisory Bulletin describes some of the typical common elements of these problematic structures. (See the sidebar on page 12.) They appear almost as if meant to describe a company model structure in which the ASC or some or all of its sur-geon owners form the company solely for the purpose of providing anesthesia ser-vices to the ASC: Little capital is required. The anesthesiologists, not the owners, provide the actual services and, absent their engagement by the company, they would be providing anesthesia services for their own account. The company’s owners capture a share of the anesthesia revenue. And, importantly, the more cases the ASC or its surgeons refer to the company, the more those company owners make.
The Advisory Bulletin states that despite attempting to fit the contracts creating these joint venture relation- ships into one or more safe harbors, the OIG views the discount given within the joint venture’s common business enterprise (e.g., the anesthesiologists agree to be paid less by the “company” than they would receive if they billed independent of the joint venture) as not qualifying for the safe harbor applicable to discounts.
Even if the contracts could fit within one or more safe harbors, the Advisory Bulletin states that they would protect only the payments from the Owner to the Manager/Supplier for actual services rendered, not the “payment” from the Manager/Supplier back to the Owner in the form of its agreement to provide services to the joint venture for less than the available reimbursement, that is, the “discount” given within the joint venture.
Again, the failure to qualify for safe harbor protection does not mean that a venture is illegal. It does mean that it might receive additional scrutiny that could lead to prosecution.
In 2009, the ASA requested that the OIG issue a Special Advisory Bulletin on the company model. The ASA renewed that request in June 2010. Although the OIG has acknowledged the initial ASA request, as of this writing it has yet to act.
The Bottom Line
The bottom line is that company model ventures are fraught with kickback danger for all parties involved. Although it may be possible that a particular instance qualifies for safe harbor protection, the OIG’s position as expressed in both the Fraud Alert and the Advisory Bulletin demonstrates that these arrangements are subject to special scrutiny.
As the government’s focus on weeding out healthcare fraud intensifies, the need to fully understand the risks grows. Each situation must be analyzed carefully as there is a high chance of an AKS violation leading to criminal fines, civil penalties, exclusion as a provider and even imprisonment.
...And An Important Post Script
The Fraud Alert and the Advisory Bulletin make clear that there is no requirement that a fraudulent joint venture be operated through a new legal entity. Captive model structures in which anesthesiologists work directly for the ASC itself, whether as employees or as independent subcontractors, are joint ventures.
The financial relationships within those captive model joint ventures are as equally suspect as those within company model joint ventures, a fact most often glossed over.
In fact, the company model format may simply be a slightly slicker variation of the captive model – slicker because it provides the ASC with an alternative way to bill for anesthesia professional fees and, in a state with a strong prohibition on the corporate practice of medicine, creates a medical entity to hold the anesthesia business. Lastly, in other instances, the company model is just a captive model with stickier fingers – instead of the ASC itself, or all of the ASC’s owners, sharing in the anesthesiologists’ pie, a subset of the surgeon owners take that slice for themselves.
Viewed in the light, the captive model and the company model are two sides of the same coin, one that the surgeon owners of ASCs are two sides of the same coin, one that the surgeon owners of ASCs are attempting to put into their pocket. Both models pose significant AKS dangers.
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Mark F. Weiss, Esq., 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 complimentary educational materials to our readers at www.advisorylawgroup.com. He can be reached by email at markweiss@advisorylawgroup.com.
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Getting Paid for Anesthesia: Mastering the Challenges of Viability
Jody Locke, CPC
Vice President of Anesthesia and Pain Management Services, ABC
Some of us are old enough to remember the days when anesthesia prtoviders got paid more or less based on what they decided to charge. It used to be that a favorable mix of patient insurance coverage (payor mix) and reasonably busy operating rooms was sufficient to ensure the financial viability of an anesthesia practice. There was a time when anesthesiologists talked about things like group formation, hospital contracts and managed care negotiations in the abstract as interesting options. Conventional wisdom held that a few persistent and disciplined secretaries would be sufficient to provide for the business requirements of the typical practice. Sadly those days of entrepreneurial opportunity have given way to a whole new set of practice management challenges. Survival and success now have much less to do with the favorability of the payor mix or even with the clinical qualifications of the providers; today’s practices must constantly monitor and manage an ever more complex balance sheet of income and expenses just to retain the opportunity to provide care. While practices in the 1980s were preoccupied with the arcane rules of concurrency and those in the 1990s worried about running afoul of HIPAA, today’s anesthesia practices have become consumed by a much broader and more complex set of business issues.

The reference data for this article were derived from a random sample of seven actual anesthesia practices all of which have experienced flat or declining revenue over the past three years. This is not intended as a statistical analysis of revenue patterns, but rather a conceptual review of the significant factors that affect the ability of moderate sized anesthesia practices to remain financially viable in today’s health care environment. Table 1 on this page provides a summary of three years of total practice income, including insurance payments, patient payments and hospital subsidies.
No fewer than five separate and distinct developments have dramatically reshaped the anesthesia landscape over the past decade and the rate of change appears to be speeding up. Success in anesthesia used to be like real estate: the only three things that mattered were location, location and location. A favorable practice setting used to be the only important pre-requisite but such is no longer the case. While location can still provide a competitive edge, it has become just one factor in a much more complicated financial proposition.
Consider how anesthesia providers get paid. It is no longer enough to simply send out claim forms to insurers to ensure adequate cash flow. It is back to the future of health care; good health care coverage is no longer affordable nor adequate to cover the costs of today’s anesthesia bills. The hot topic of the day is patient responsibility. And the challenge involves getting patients to pay their fair share. Aggressive managed care contracting is starting to create some serious obstacles and is greatly constraining the typical practice’s ability to realize overall increases in practice revenue.
Table 2 (below) shows the percentage of total practice revenues that have been paid directly by patients, either in the form of deductibles or co-payments or because the patients had no insurance. Percentages appear to be going down for most of the practices in this random sample, but this is simply due to the fact that commercial insurance and Medicare rates have gone up over this three year period, as have hospital subsidies. What the table underscores, however, is the challenge created when these other sources of revenue cease to increase.

The evolution of the accounts receivable management industry over the past couple of decades has seen an increased focus on technology and labor intensive approaches to revenue maximization. Software development has provided many options for submitting accurate claims as expeditiously as possible and powerful tools intended to confirm the accuracy of payments. These developments have moved us far from the early days of dialing for dollars to resolve outstanding patient accounts. Large billing companies now employ predictive dialers to leverage the productivity of the follow-up team but the fact remains that collecting balances from patients who may have neither the motivation nor the ability to pay for their share of health care is proving to be one of today’s greatest management issues.
In addition to the obstacles of getting paid for professional services rendered, too many anesthesia practices are now finding themselves caught in another squeeze play involving unrealistic coverage expectations on the part of hospital administrators. This unfortunate development has shed light on the other side of the anesthesia practice ledger: the cost of providing the care. The basic problem is simple: when hospitals ask for more coverage, the same revenue inevitably gets spread over more anesthetizing locations. It is a curious irony that the idea of making a hospital a more attractive place for surgeons to bring their patients has exactly the opposite effect on the anesthesia group. It is the rare practice that does not feel the effects of this squeeze play to some extent and many complain that they are constantly fighting Administration’s desire to add more coverage. Few practices have yet to develop an effective strategy to reset and manage administration expectations.
There are various methods used to evaluate operating room utilization, but anesthesia has a distinct advantage based on its ability to track actual cases, units and minutes billed per anesthetizing location. Historically, 50 ASA units billed per anesthetizing location per day was considered optimum productivity. This should equate to approximately 7 hours of billable anesthesia time. From a financial perspective most observers would agree that a reasonable target is $2,000 of gross professional fee income per location per day: this should be sufficient to compensate a physician working in a physician-only practice at the MGMA median compensation level. Staffing models based on the medical direction of CRNAs can generally reduce this revenue requirement but there are obviously a variety of factors that must be taken into consideration.
While many anesthesiologists feel helpless to stem the tide of declining operating room productivity, there are glimmers of hope across the landscape. Some of the nation’s largest hospital organizations have come to identify the improvement of operating room productivity as a key strategic objective. This does not diminish the importance of attracting more surgical cases but does tend to provide some hope that an objective allocation of operating room resources and staff might be achieved. In the meantime, anesthesia practices are having to develop an entirely new set of reporting and management tools to both monitor the appropriateness of operating room utilization and help hospital administrations reset surgeon expectations.

While the most logical and proactive approach would involve a concerted effort to educate the administration with relevant data and benchmarks, few practices have made the commitment to capture the necessary utilization data. Those that have, however, can attest to the value of the investment. The most creative have even used their utilization data as the basis for creative hospital subsidy arrangements that align the incentives of the hospital and that of the anesthesia group.
The third development is directly related to the second but it has become as much a philosophical as a financial challenge. Once fiercely independent anesthesia practices are being forced to open their books in order to obtain necessary financial support from their host hospitals. The revenue a practice can generate through its billing and collections activities is becoming less important than what they can negotiate as part of their exclusive contractual relationships. We have reached a point where it is not uncommon for a practice to receive 35% of total practice revenues in the form of hospital subsidy support. See Table 3.
Private anesthesia practices have evolved a culture that is specific and idiosyncratic to the specialty. Independence has been the hallmark of practice management strategy. Anesthesia practices have prided themselves on their ability to benefit symbiotically from their contractual relationships with hospitals. As is so often the case, however, the beliefs and strategies that got us to where we are today will not get us to where we need to be tomorrow. Nondisclosure of practice finances is proving to be a significant obstacle to fair and reasonable coverage agreements. Many hospitals have even started insisting on the right to review individual provider W2s. The reality is that there are fewer and fewer exceptional anesthesia practices from a financial perspective; rather there are those that are fairly compensated based on national benchmark data and those that need support. The hospital contract is becoming a form of specialty safety net.

As if these developments were not enough, the entire context of the anesthesia service is starting to be viewed in an entirely new light. Anesthesia providers used to thrive in the rarefied air of the operating room where their ability to make split second decisions ensured their value to the larger medical community. Little by little something changed and it was not enough to have consistently predictable outcomes. A new vocabulary of customer service has changed the nature of the service equation. Anesthesia is expected to support the overall business plan and mission of the institution. Problem providers have become the bane of the anesthesia group during hospital contract negotiations.
Much as group practices try to leverage their years of experience with administration and their ability to work with the surgical staff, they are being challenged by outside entities that purport to offer more services that will better support the hospital’s business plan. Whether the advantages of these national services are real or illusory seems to be of little relevance. As in so many things, new and improved seems to be more appealing than tried and true. Much as many practices do not want to admit it, the typical anesthesia franchise has become an object of considerable competitive value.
As if these developments were not enough, along comes healthcare reform. One more time federal policy is changing the rules of engagement and inspiring yet another wave of restructuring. Today’s vocabulary is distinctly reminiscent of that of managed care; Accountable Care Organizations (ACOs) appear to be the reincarnation of vertically integrated delivery systems. (See article on ACOs beginning on page 1.) Instead of paying individual providers on a fee for service basis, monies are allocated for the management of patient conditions. The more effective the management plan, the greater the profit potential for the provider.
ACOs and healthcare reform are still inchoate concepts but they are having a profound impact on the planning process. Like the high school students at the dance, the various players in the healthcare arena are starting to size each other up as they weigh their affiliation options. It is impossible to predict how this will all play out but one thing is quite clear, when it comes to health care there is no limit to the potential for complication.

These new realities are leading to the development of considerably different infrastructure and business decision-making requirements. Survival and success are no longer simply a matter of maximizing collections; but rather a function of a more global and comprehensive mastery of the entire practice balance sheet. It is no longer enough to just have a billing office or service, now practices find they need a full range of practice management services. These are boom times for consultants and administrators as it becomes ever clearer that the key to success has less to do with clinical efficacy and more to do with financial acumen.
Many an anesthesiologist or CRNA may long for the good old days when it was enough to work hard and focus on consistent clinical outcomes, but this would be little more than wishful thinking. Too many of the variables have been changed; nothing can be taken for granted. Every aspect of the anesthesia business proposition is in a state of transition. Anesthesia practices must now come to terms with entirely new revenue challenges and options. These options are no longer just about enhancing physician compensation, but rather a complex financial calculus to ensure the availability of qualified staff to meet customer expectations. Physicians who have spent their careers mastering arcane clinical protocols must now learn how to market their services and negotiate reasonable terms of compensation. As these developments are unfolding, government oversight and management continues to impose an entirely new set of rules on provider groups. These challenges have greatly increased the financial risks for the typical practice and traditional group practices are being displaced with increasing frequency by national management companies. Few practices are completely prepared for the new realities of healthcare, but most have the necessary prerequisites. Those who are willing and able to make the commitment, clarify the focus and implement effective strategieswill certainly be players. Outdated beliefs and strategies must be replaced with new ideas. As Lee Iacocca once said: The time has come to lead, follow or get out of the way.
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Jody Locke, CPC, serves as Vice President of Pain and Anesthesia Management for ABC. Mr. Locke is responsible for the scope and focus of services provided to ABC’s largest clients. He is also responsible for oversight and management of the company’s pain management billing team. He will be a key executive contact for the group should it enter into a contract for services with ABC. He can be reached at Jody.Locke@AnesthesiaLLC.com.
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Anesthesia: The Increasing Consolidation of our Industry
Franc Galinanes
Senior Director, North American Partners in Anesthesia, Melville, NY
Member at Large, MGMA Anesthesia Administration Assembly (AAA) Executive Committee
While the business of health care continues to evolve, there is perhaps no part of it changing faster than anesthesia. Numerous factors are quickly shifting the market towards an even more competitive and demanding landscape. The days of anesthesia groups simply providing clinical coverage in a hospital’s operating rooms are, for better or for worse, drawing to a close.
As the expectations of hospitals for the types and levels of services to be provided by anesthesia are increasing, anesthesiologists now find themselves performing cases in non-traditional anesthetizing locations such as GI Suites, ECT and Electrophysiology. In addition, many anesthesiologists are expected to serve in roles not always seen as traditional for anesthesia, such as holding the broad responsibility for Peri-Operative Services, Pre-Surgical Testing processes, serving as leaders of hospital committees, etc.
A continued shift in payor mix, to government payors that have long undervalued anesthesia services, has forced an increasing number of anesthesia practices into either accepting a decrease in compensation or entering into subsidy arrangements with their hospitals. As subsidies have increased, with the Clinical Advisory Board reporting in 2005 that the average annual subsidy paid by hospitals had risen to almost $120,000 per anesthesiologist, the level of competition for professional services agreements has intensified. With that increase in competition, the idea of a “local bubble” has been shattered as we’ve seen many long tenured anesthesia groups lose their primary hospital contracts to new and geographically diverse competitors.
All the above, plus the continued specter of looming Medicare reimbursement cuts, have left many in the anesthesia world looking for ways to help insulate themselves from the ever increasing competitiveness and risk of the marketplace. While there are numerous tried and true methods of insuring your group’s continued success, the frequency of practice consolidation has increased rapidly in the past 18 months. Consolidation can happen a number of ways. This article provides a look into many of the most frequently seen.
Practice Mergers
One method of consolidation that has been gaining popularity recently is the merger of multiple groups into a single entity. We have seen this recently happen with the anesthesia department at the NYU Langone Medical Center and NYU Hospital for Joint Diseases(both in New York City) combining into a single unified department across their campuses, and with the creation of Greater Florida Anesthesiologists, five previously unaligned practices coalescing into one single large group.
There are many benefits to merging one practice with another; the practice is no longer a single department on its own, it will now have a larger practice base to spread fixed expenses across. With larger mass, the ability to leverage the purchase power of the newly-combined entity to drive discounts with suppliers is enhanced – leaving no stone unturned from photocopier leases to medical supplies. Larger groups may now have access to superior employee benefits like pension plans, group health, life and disability that may not be available to small businesses.
Other non-financial benefits will also begin to accrue to the practices. There will now be the ability to cross-privilege clinicians, leading to the possibility of vacation or sickness coverage between the new partners. Clinical information exchange will increase with the opportunity to implement best practices and establish group-wide clinical guidelines to enable better patient care.
Joining a Larger Organization
There are numerous examples of independent anesthesia practices joining larger groups, but I will focus on one that I can describe firsthand. In May of 2010, the anesthesia group at South Nassau Communities Hospital in Oceanside, NY joined NAPA – North American Partners in Anesthesia (the organization in which this author works).
The practice had been the anesthesia provider at the hospital for over 20 years, operating its own very well known and respected chronic pain management program and office-based anesthesia business. Despite all of its success, the group recognized the advantages of alignment with a larger group.
Upon integrating with a larger group, the group at South Nassau immediately had access to the well developed clinical and business management systems that a large group can develop. The Chairman of the department retains local autonomy over scheduling, vacations, daily assignments, etc., while being able to call on the larger entity for support with emergency staffing, implementing established clinical protocols and benchmarking against other like-sized hospitals within NAPA.
The larger entity provides the “Verizon Network” behind the Chairman and the department’s clinicians. The larger entity furnishes all management infrastructure and services such as billing and collections, employee benefits, human resources, credentialing and privileging services, etc. Most importantly, as part of a large group you have access to data and quality assurance programs at levels unavailable to independent groups.
The result of the combination with the larger entity has been a stronger relationship with the hospital, an enhancement of services provided to the anesthesiologists and CRNAs at the hospital and the security that comes with being part of a larger organization.
Sale To a Well-Funded Multi-Specialty Company
Anesthesia has also undergone another significant change – anesthesia is no longer just a medical specialty; it’s a “space” for publicly traded and privately funded companies to invest in. Mednax, EmCare and others have begun to move aggressively into anesthesia, purchasing many large, well-established and respected anesthesia groups.
Many of these groups had already achieved some of the benefits of either merger or joining a large group and they saw the opportunity to monetize their practice and become part of even larger, multi-specialty groups. We can expect to see this happen with greater frequency in the future as more attention is paid to the investment potential of anesthesia.
Aggregation as a defensive measure is no stranger to medical practices. We’ve seen significant consolidation in pediatrics, OB/GYN, urology, large multi-specialty groups and, now, anesthesia. Be it through a merger, joining a larger group, sale to another entity or through other methods, the paradigm is shifting away from the small independent practice towards larger cohesive anesthesia management companies and groups.
While the thriving unaligned anesthesia practice will not fade completely from existence, the diverse pressures of a changing marketplace will make it increasingly difficult for many to continue as they are today.
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Franc Galinanes is a Senior Director at North American Partners in Anesthesia, a national Anesthesia Management Company and also serves as a Member at Large on the MGMA Anesthesia Administration Assembly (AAA) Executive Committee. He can be reached at fgalinanes@NAPAanesthesia.com.
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Tax Saving Options for 2011
Stephanie Zvolenski, MBA
Financial Manager, ABC
Several months ago you met with your accountant and filed your 2010 tax return. All of your debts have been paid to Uncle Sam. If you have not already done so, it is the time to make any necessary adjustments to your 2011 elections in order to maximize your tax savings and financial position in the coming year. Fortunately there exist some administrative opportunities to assist you in this goal. Provided here are some suggestions to spark your thoughts and serve as a reminder to be attentive to this very important issue.
Retirement Plans
Based on your accountant’s assessment of your 2010 personal income tax return, a Roth 401(k) versus a Traditional 401(k) to accompany your practice profit sharing plan may be more beneficial to your personal tax situation and/or vice versa. It is important that you make this election as soon as possible if you have not already done so.
Also, previous issues of the Communiqué contained articles on different types of retirement plans, especially one becoming more and more popular with small businesses and medical practices called a “Cash Balance Plan”. Depending upon the dynamics of the practice and the providers, this may be something to consider and investigate further as a way to save significant tax dollars and boost your retirement savings.
Make sure to confirm on your payroll records that your elections are being processed correctly by your payroll service. It is much better to make adjustments early in the year than to wait until the 3rd quarter only to find out that none of your deferrals have been made. For those over fifty-five (55) years of age, be sure that your catch-up contribution is being withheld if you made the election.
Although the Internal Revenue Service annual limits for retirement plans did not change in 2011 from 2010, they are provided here for your reference. These limitations are published annually typically in the fall of the current year for the upcoming year.
Ensure that not only the practice business professionals are aware of the updates but also the individual employees.

Medical Expense Plans
The rising cost of health insurance premiums, the federal healthcare reform legislation, uninsured, underinsured…the list of the hot topics surrounding medical coverage not only for our patients but for our practice employees and providers goes on. In an effort to maximize your tax savings and ultimately cash in your pocket, your practice may want to look at alternative health insurance plans and medical expense reimbursement options. There are a variety of plans being implemented across the country for practices of all sizes and complexities …High Deductible Health Plans (HDHP), Medical Expense Reimbursement Plans (MERP), Health Reimbursement Accounts (HRA), Health Savings Accounts (HSA), Cafeteria/Section 125 Plans and Section 105 Plans to name just a few.
Each of these plan types carries benefits and risks for the practice and should be investigated thoroughly with your business managers in order to determine the best option for your circumstances. The dollars in tax savings could be significant.
For your reference, here are the 2011 IRS Health Savings Account (HSA) contribution limits.

Dependent Care Expenses
In addition to deductible medical expense plans, many practices are considering and implementing administrative plans to allow for the deduction of dependent care expenses for their providers and employees. Again, like the medical plans, the administration of these plans can be complex and thus should be discussed with your practice business advisors; however, there could be significant tax savings available to you.
Deductible Business Expenses
Medical practices and providers incur many business expenses in the course of everyday work. Discuss with your accountant and business managers those business expenses approved by the IRS for deduction from taxation. Items like dues and license fees, education expenses, publication and journal subscriptions are just a few examples that may be deductible and could save you significant money in reduced tax liability.
If you have explored any and all of the tax saving plans and opportunities with your personal accountant and business advisors and still find that you may be facing an additional tax burden in 2011, work with your business manager to estimate your potential tax liability as soon as possible. At least on a quarterly basis, your practice should be reviewing the estimated year- end profits and the residual provider wages and bonuses. It is much easier to make additional tax payments on a more frequent basis (bi-weekly, monthly, quarterly) than to pay one lump sum next spring, especially if the debt is large enough to trigger additional penalties and interest.
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Stephanie J. Zvolenski, MBA, is a Financial Manager for ABC. Stephanie is responsible for the financial, strategic and operational management of our financial management clients and also serves as an industry consultant and business advisor. Some of her responsibilities in this role include: provider compensation assessment and comparison to market, shareholder/employment agreements, hospital subsidy negotiation/agreements, feasibility studies for new and existing practice opportunities, governance support review and restructuring and design and administration of benefit programs. Stephanie has been with ABC for 4 years and has 15 years of experience in physician practice management including serving as an Administrative Director for a multi-specialty physician practice network within a three hospital system and as a system service line Director. She holds a BA from Washington and Jefferson College and a MBA from Waynesburg University. Stephanie can be reached at 724-952-1361 or at Stephanie.Zvolenski@AnesthesiaLLC.com.
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